Week 5
Week 5
Block 2 – Reading 5
Looking Inside For Competitive
Advantage
Jay Barney
1
Introduction
• Focus has been placed on the relationship between the firm’s environmental opportunities and threats, and the firm’s strengths and weaknesses (SWOT analysis ).
• Michael Porter’s work on the ‘five forces model’ helps understand the importance of external threats and opportunities.
• Barney emphasizes the competitive implications of the firm’s internal strengths and weaknesses. To Barney the SW should be given more attention. • An understanding of sources of competitive advantage requires the analysis of firm’s internal weaknesses and strengths as well internal attributes ( resources , capabilities and core competences).
• Financial resources : Debts , equity , retained earnings.
• Physical resources :Machines , manufacturing facilities , buildings.
• Human resources : Experience , knowledge , judgment , risk taking propensity ,wisdom of individuals.
• Organizational resources : History , relationship , trust , culture , firm’s reporting structure and information flow , management control
2
system , compensation policies.
• To Barney , managers must address four important questions about their resources and capabilities in process of filling in the blank created by SWOT analysis (i.e. frame work).
• Barney emphasis not only on tangible resources but also on intangible ones such as human and organizational resources. He claims that sustainable competitive advantage, is developed when resources & capabilities:1. Add value
2. Are rare
3.Are hard to imitate
4. Interact with the appropriate organizational structure. 3
I. The question of value
• Do firm’s resources and capabilities add value ?
• By answering the question of value, managers link analysis of internal resources and capabilities with the analysis of environmental opportunities and threats.
– Firms resources are not valuable in a vacuum
– Resources are valuable when they exploit opportunities
and/or
Block 2 – Reading 5
Looking Inside For Competitive
Advantage
Jay Barney
1
Introduction
• Focus has been placed on the relationship between the firm’s environmental opportunities and threats, and the firm’s strengths and weaknesses (SWOT analysis ).
• Michael Porter’s work on the ‘five forces model’ helps understand the importance of external threats and opportunities.
• Barney emphasizes the competitive implications of the firm’s internal strengths and weaknesses. To Barney the SW should be given more attention. • An understanding of sources of competitive advantage requires the analysis of firm’s internal weaknesses and strengths as well internal attributes ( resources , capabilities and core competences).
• Financial resources : Debts , equity , retained earnings.
• Physical resources :Machines , manufacturing facilities , buildings.
• Human resources : Experience , knowledge , judgment , risk taking propensity ,wisdom of individuals.
• Organizational resources : History , relationship , trust , culture , firm’s reporting structure and information flow , management control
2
system , compensation policies.
• To Barney , managers must address four important questions about their resources and capabilities in process of filling in the blank created by SWOT analysis (i.e. frame work).
• Barney emphasis not only on tangible resources but also on intangible ones such as human and organizational resources. He claims that sustainable competitive advantage, is developed when resources & capabilities:1. Add value
2. Are rare
3.Are hard to imitate
4. Interact with the appropriate organizational structure. 3
I. The question of value
• Do firm’s resources and capabilities add value ?
• By answering the question of value, managers link analysis of internal resources and capabilities with the analysis of environmental opportunities and threats.
– Firms resources are not valuable in a vacuum
– Resources are valuable when they exploit opportunities
and/or