SR8_HIMANSHU ARORA

COMPETING ON RESOURCESA COMPREHENSIVE STUDY OF ARTICLE BY DAVID J. COLLIS AND

CYNTHIA A. MONTGOMERY

FLOW OF PRESENTATION

1. BRIEF HISTORY OF STRATEGY

2. EVOLUTION OF STRATEGY THEORIES

3. RESOURCE BASED VIEW FOR STRATEGY

4. COMPETITIVELY VALUABLE RESOURCES

5. STRATEGIC IMPLICATION

6. INVESTING IN RESOURCES

7. UPGRADING RESOURCES

8. LEVERAGING RESOURCES

9. LEARNINGS

BRIEF HISTORY OF STRATEGY

• Strategy: Match between what a company can do within the universe of what it might do; (The Concept of Corporate Strategy: Richard D. Irwin)

• This highlighted organisation’s strengths and weaknesses with respect to environmental opportunities and threats

• This framework, however, gave very few specific insights about how to assess either side of the above equation

• There was a need for specific tools, framework

EVOLUTION OF STRATEGY THEORIES

Porter’s Competitive Strategy

• Structure of industry determines state of competition & profitability

• Structural forces (Porter’s Five) set the base for individual corporate strategies

Core Competence

• Emphasized importance of skills & collective learning in the organisation

• This view holds that roots of competitive advantage are within the organisation

Resource Based View (RBV)

• Acknowledges importance of company specific resources, yet in the context of competitive environment

• Relies on economic reasoning

RESOURSE BASED VIEW FOR STRATEGY

• This view combines Internal analysis within companies with the External analysis of industries & competitive environment

• RBV sees companies as very different bundles of physical & intangible assets and capabilities

• These assets & capabilities determine a company’s effectiveness & efficiency in performing its functions

• So, best and most appropriate stock of resources guarantee a position for success

• Hence a company must enquire into what the most valuable resources are?

COMPETITIVELY VALUABLE RESOURCES

• There are 5 tests (questions) to determine whether a resource is valuable with respect to the industry dynamics

1. The test of inimitability: Is the resource hard to copy?2. The test of durability: How quickly does this resource depreciate?3. The test of appropriability: Who captures the value that the resource

creates?4. The test of substitutability: Can a unique resource be trumped by a

different resource?5. The test of competitive superiority: Whose resource is really better?

STRATEGIC IMPLICATIONS

• Managers should identify & build their strategies on resources that meet the Five Tests

• Many a times, best of these resources are intangible like organisational culture, technology, transformational leader etc.

• These resources must be bundled with other ones to form functional policies & activities and differentiate your positioning; mere availability is not enough

• However, companies must realize that the value of these resources is inevitably eroded by time and competition

Managers must therefore continually invest in and upgrade their resources, however good those resources are today, and leverage them with effective

strategies into attractive industries in which they can contribute to a competitive advantage

INVESTING IN RESOURCES

• Corporate strategy: Continual investment in building & maintaining valuable resources

• Theory of core competence identifies that often the resources take a back seat to optimizing current divisional profitability

• So, the corporate office has to act as a guardian of the ‘crown jewels’ of the company

• However, caution must be taken as core competencies may not be what the industry requires and investing thus may become redundant

UPGRADING RESOURCES

• Companies may find themselves in a situation where they don’t possess valuable resources or they have been imitated by competitors

• Hence companies must constantly upgrade the number and quality of their resources

• Approaches to upgrading • Adding new resources• Upgrading to alternative resources that are threatening company’s current

capabilities• Upgrading its resources in order to move into a structurally more attractive

industry

LEVERAGING RESOURCES

• Question a strategist must ask: “how far can the company’s valuable resources be extended across markets?”

• However, corporate diversification often falls prey to 3 common & costly strategic errors• Managers overestimate the transferability of resources; they themselves

can’t imitate their resources across different markets• Managers overestimate their ability to compete in highly profitable

industries; entry barriers are usually resource barriers as well• Managers assume that leveraging generic resources, like lean manufacturing,

will fetch them competitive advantage in the new market without even studying industry dynamics

• Despite pitfalls, rewards for leveraging resources are high

LEARNINGS

Whether a company is building a strategy based on core competencies, learning organisation or organisational culture, these can all be interpreted

as building a unique set of resources.

However the selection and use of these resources must be done with a sharp eye on the dynamic industry context and competitive situation.

THANK YOU FOR YOUR TIME!

HIMANSHU ARORA

1301-528

SECTION – B

PGDM 2013-15