Week 5

Topics: Firm, Strategic management, Imitation Pages: 23 (1861 words) Published: April 21, 2015
Week 5
Block 2 – Reading 5
Looking Inside For Competitive
Jay Barney


• 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

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 neutralize threats.
• Firms should invest in acquiring new skills , however ;
when technology changes they risk losing important
opportunities if they stick to their old technologies and
skills. Sometimes changes can render these resources with
less value and obsolete .
• Ex. IBM’s capabilities in mainframe computers became
less valuable with the popularity of PCs. Sony has
exploited opportunities by being expert in making
miniature portable electronic products.





Design, manufacture & Portable tape recorder,
sell miniaturize
disc player, televisions
electronic technologies and video cameras



Coating, Adhesives,

office products




Invention of
semiconductors by



Mainframe computing

PC’s by competitors


• Same resources and capabilities of different firms
can be valuable in different ways .Ex:1. Rolex: Exploit its capabilities by responding to demand for expensive watches.
• Quality manufacturing
• Commitment to excellence
• High status reputation in marketing
2. Timex : Exploit its resources in responding to
demand for practical, reliable, low cost
• High-volume
• Low cost manufacturing skills

II. The question of rareness
• How many other competing firms already
possess these valuable resources and
• If a particular resource and capability is
controlled by numerous competing firms , then
this resource is unlikely to be a source of
competitive advantage for any . Despite that
they are still important for survival and may
enable the firm to gain at least temporary
competitive advantage.

III. The question of imitability


Imitation can occur in at least 2 ways :

Firms may be able to substitute some resources for
other resources.
If these substitute...
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