MGT 4195 Chapter 4 – Flashcards

A. The company's ability to follow federal laws just like its competitors B. The company's ability to start distributing its cars in areas where a competitor is the market leader *C. The company's ability to make its cars more fuel efficient than most of its competitors* D. The company's ability to manufacture cars at a cost that is average in the industry (The company's ability to make its cars more fuel efficient than most of its competitors will most likely be considered as an automobile company's core competency. Core competencies are unique strengths, embedded deep within a firm, that allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost.)

A. The company's headquarters *B. The company's brand equity* C. The company's cash reserves D. The company's plant and equipment (Intangible resources have no physical attributes and thus are invisible. Examples of intangible resources are a firm's culture, its knowledge, brand equity, reputation, and intellectual property.)

A. maximizing on an external weakness to exploit an internal opportunity. *B. eliminating an internal weakness to mitigate an external threat.* C. leveraging an external opportunity to overcome an internal threat. D. using an internal strength to exploit an external opportunity. (In the context of SWOT analysis, a firm can develop a defensive strategic option primarily by eliminating an internal weakness to mitigate an external threat.)

A. While a firm's resources are always tangible, its capabilities are by nature intangible. *B. While resources reinforce core competencies, capabilities allow managers to orchestrate their core competencies.* C. Unlike resources, capabilities do not find their expression in the firm's structure, routines, and culture. D. Unlike capabilities, resources of the firm cannot be imitated by its competitors. (In the interplay of resources and capabilities, resources reinforce core competencies, while capabilities allow managers to orchestrate their core competencies. Resources are any assets such as cash, buildings, machinery or intellectual property that a company can draw on when crafting and executing a strategy. Capabilities are the organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically.)

A. resource-based view B. VRIO framework *C. value chain analysis* D. SWOT analysis (Although the resource-based view of the firm helps to identify the integrated set of resources and capabilities that are the building blocks of core competencies, the value chain perspective enables managers to see how competitive advantage flows from the firm's distinct set of activities.)

*A. knowledge diffusion* B. resource ambiguity C. resource immobility D. asset capitalization (This change can best be attributed to knowledge diffusion. Once a rare resource becomes an industry standard, it leads to competitive parity.)

A. Increasing productivity of the employees B. Decreasing employee attrition within the firm *C. Decreasing government interference in the target market* D. Increasing inflation rates in the target market (Decreasing government interference in the target market best exemplifies an external opportunity for a firm. Strengths and weaknesses are internal to an organization, whereas opportunities and threats are external to the organization.)

*A. time compression diseconomies* B. knowledge diffusion C. economies of scale D. resource mobility (This failure of Couture Inc. can be best attributed to time compression diseconomies. When attempting to compress lots of effort and resources such as research and development into a short time period, it will not be as effective as when a firm spreads out its effort and investments over a longer period of time. Trying to achieve the same outcome in a short time period, even with higher investments tends to lead to inferior results.)

A. The resource is easy to replicate. *B. The resource is costly to imitate.* C. The resource neutralizes external opportunities. D. The resource decreases the perceived value of its products. (The resource attribute that most likely underpins Onivo's competitive advantage is that it is costly to imitate. A resource is costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a reasonable price.)

*A. a temporary competitive advantage* B. a state of perfect competition C. strategic equivalence D. direct imitation (If a firm is not effectively organized to exploit the competitive potential of a valuable, rare, and costly to imitate (VRI) resource, the best case scenario is a temporary competitive advantage. One of the four key criteria in the VRIO framework is being organized to capture value; the characteristic of having in place an effective organizational structure, processes, and systems to fully exploit the competitive potential of the firm's resources, capabilities, and competencies.)

Strategyis a set of goal-directedactionsa firm takes to gain and sustain superior performance relativeto competitor

VRIO Framework, SWOT Analysis

*Core Competencies* -Unique strengths to differentiate a firm *Resources & Capabilities* - Tangible, Intangible assets - How add/create value - Org'l, managerial skills and culture, brand image, atmosphere *Key Assumptions of the RBV* - Claim 1: Firms differ in their internal R&C's - Claim 2: Such differences can be maintained over time - resource "sticky" "immobile" = hard to imitate/replicate

*Valuable* - how much consumer willing to pay - economic value created - firm profit $ - price + cost *Rare* - to be valuable, must be rare - unique (different from all others) - dynamic capabilities (Google, Amazon, Apple) *Costly to Imitate* (In-imitable) - copy rights, patents (IP) - direct imitation - substitution - causal ambiguity *Organized to Capture Value* - bargaining power - practicality - Xerox VRIO = Sustained Competitive Advantage Strategic Implications - be objective about value - rare things change - Inimitability is the key to sustainable advantage - R have to be integrated: "causal ambiguity" - Value is nothing until you capture it (platforms and complements) Note: VRIO not very useful for coming up with ideas about new resources that might give us a SCA

*Strengths* - brand loyalty/image *Weaknesses* - price, diluted, not special *Opportunities* - unique drinks, healthy choices *Threats* - fast food (timeliness+prices), at-home products, unique coffee shops

A situation in which the cause and effect of a phenomenon are not readily apparent.

Unique strengths, embedded deep within a firm, that allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost.

A firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage.

A situation in which the options one faces in the current situation are limited by decisions made in the past.

A model that sees certain types of resources as key to superior firm performance. If a resource exhibits VRIO attributes (see the section "The VRIO Framework" below), the resource enables the firm to gain and sustain a competitive advantage.

Assumption in the resource-based view that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm.

A theoretical framework that explains and predicts firm-level competitive advantage. A firm can gain a competitive advantage if it has resources that are valuable (V), rare (R), and costly to imitate (I). The firm also must organize (O) to capture the value of the resources.

• Core competencies are unique, deeply embedded, firm-specific strengths that allow companies to differentiate their products and services and thus create more value for customers than their rivals, or offer products and services of acceptable value at lower cost. • Resources are any assets that a company can draw on when crafting and executing strategy. • Capabilities are the organizational and managerial skills necessary to orchestrate a diverse set of resources to deploy them strategically. • Activities are distinct and fine-grained business processes that enable firms to add incremental value by transforming input into goods and services.

• Tangible resources have physical attributes and are visible. • Intangible resources have no physical attributes and are invisible. • Competitive advantage is more likely to be based on intangible resources.

• The first critical assumption—resource heterogeneity—is that bundles of resources, capabilities, and competencies differ across firms. The resource bundles of firms competing in the same industry (or even the same strategic group) are unique to some extent and thus differ from one another. • The second critical assumption—resource immobility—is that resources tend to be "sticky" and don't move easily from firm to firm. Because of that stickiness, the resource differences that exist between firms are difficult to replicate and, therefore, can last for a long time.

• For a firm's resource to be the basis of a competitive advantage, it must have VRIO attributes: valuable (V), rare (R), and costly to imitate (I). The firm must also be able to organize (O) in order to capture the value of the resource. • A resource is valuable (V) if it allows the firm to take advantage of an external opportunity and/or neutralize an external threat. • A resource is rare (R) if the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition. • A resource is costly to imitate (I) if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost. • The firm is organized (O) to capture the value of the resource if it has an effective organizational structure, processes, and systems in place to fully exploit the competitive potential.

• Several conditions make it costly for competitors to imitate the resources, capabilities, or competencies that underlie a firm's competitive advantage: (1) better expectations of future resource value (or simply luck), (2) path dependence, (3) causal ambiguity, and (4) social complexity. • These barriers to imitation are isolating mechanisms because they prevent rivals from competing away the advantage a firm may enjoy.

• To sustain a competitive advantage, any fit between a firm's internal strengths and the external environment must be dynamic. Page 122 • Dynamic capabilities allow a firm to create, deploy, modify, reconfigure, or upgrade its resource base to gain and sustain competitive advantage in a constantly changing environment.

• The value chain describes the internal activities a firm engages in when transforming inputs into outputs. • Each activity the firm performs along the horizontal chain adds incremental value and incremental costs. • A careful analysis of the value chain allows managers to obtain a more detailed and fine-grained understanding of how the firm's economic value created breaks down into a distinct set of activities that help determine perceived value and the costs to create it. • When a firm's set of distinct activities is able to generate value greater than the costs to create it, the firm obtains a profit margin (assuming the market price the firm is able to command exceeds the costs of value creation).

• Formulating a strategy that increases the chances of gaining and sustaining a competitive advantage is based on synthesizing insights obtained from an internal analysis of the company's strengths (S) and weaknesses (W) with those from an analysis of external opportunities (O) and threats (T). • The strategic implications of a SWOT analysis should help the firm to leverage its internal strengths to exploit external opportunities, while mitigating internal weaknesses and external threats.