Block 2 – Reading 5
Looking Inside For Competitive
• 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,
disc player, televisions
electronic technologies and video cameras
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
• 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
III. The question of imitability
Imitation can occur in at least 2 ways :
Firms may be able to substitute some resources for
If these substitute...
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