In Situations Where Rivals Can Readily Copy the Successful Features of a Company's Strategy

Affiliate 4: Managing Firm Resource

Resource-Based Theory

1. Ascertain the four characteristics of resources that lead to sustained competitive advantage as articulated by the resource-based theory of the firm.
2. Sympathize the difference between resources and capabilities.
3. Be able to explicate the divergence between tangible and intangible resources.
4. Know the elements of the marketing mix.

Four Characteristics of Strategic Resources

Southwest Airlines provides an illustration of resource-based theory in action.  contends that the possession of strategic resources provides an organization with a golden opportunity to develop competitive advantages over its rivals (Effigy iv.2 "Resources-Based Theory: The Basics") (Barney, 1991). These competitive advantages in turn can help the arrangement relish strong profits, particularly over time.

Figure 4.two Resources-Based Theory: The Nuts [Image clarification]

Resource-based theory can be disruptive considering the termresourceis used in many different ways within everyday common language. It is important to distinguishstrategic resourcesfrom other resources. To most individuals, cash is an of import resource. Tangible appurtenances such as one's car and home are too vital resources. When analyzing organizations, however, common resources such as cash and vehicles are not considered to be strategic resources. Resources such equally cash and vehicles are valuable, of class, but an organization's competitors can readily acquire them. Thus an organization cannot hope to create an enduring competitive advantage effectually common resources.

A strategic resource is an nugget that is valuable, rare, difficult to imitate, and nonsubstitutable. Apple has many strategic resource, including their proprietary software and hardware platforms, which have evolved from numerous innovations and improvements over literally decades; the Apple shop; many aspects of the overall ownership feel including price; and a culture of innovation. It didn't hurt to have Steve Jobs, a charismatic, innovative thinker, as their CEO for many years. Many computer companies accept struggled to make money with razor-thin profit margins. Apple, using a different business organisation model focused on their strategic resources, has succeeded with years of record profits. At one fourth dimension, based on stocks, Apple was the most valuable visitor in the world.

Strategic resources that are valuable or rare are valuable simply due to the relatively high price of acquiring them (eastward.chiliad., an airplane) or scarcity (e.1000., diamonds).

Competitors have a difficult time replicating resources that are . Certain resource can be and are protected by various legal means, including trademarks, patents, and copyrights, which ensures they are difficult for the competition to imitate. Other resources are difficult to re-create considering they evolve over time and reflect unique aspects of the firm. Southwest'south culture arose from its very humble beginnings. The airline had so little money that at times, it had to temporarily "infringe" luggage carts from other airlines and put magnets with the Southwest logo on pinnacle of the rivals' logo. While in theory, other airlines could replicate Southwest'southward civilization, Southwest's "rags to riches" story evolved across several decades. Unless the airline is make new and with no existing culture, it takes a lot of time and continuous effort to create a Southwest or WestJet civilisation.

A resources is  when competitors cannot find alternative ways to gain the benefits that a resource provides. A key do good of Southwest's culture is that it leads employees to care for customers well, which in plough creates loyalty to Southwest among passengers. Executives at other airlines would love to concenter the customer loyalty that Southwest enjoys, but they take yet to find ways to inspire the kind of customer service that the Southwest civilisation encourages.

Figure 4.three: Westjet 737

Ideally, a firm volition have a culture, like Southwest's or WestJet'southward cultures, that comprehend the four qualities shown in Figure four.2 "Resource-Based Theory: The Basics." If so, these resources can provide not only a competitive advantage simply also a —one that will endure over fourth dimension and help the business firm stay successful far into the future. Resources that exercise not have all four qualities tin still be very useful, only they are unlikely to provide long-term advantages. A resource that is valuable and rare but that tin can be imitated, for example, might provide an edge in the short term, but competitors tin overcome such an reward eventually.

Resources-based theory also stresses the merit of an old maxim: The whole is greater than the sum of its parts. Specifically, information technology is also important to recognize that overall strategic resources are often created past taking several strategies and resources that each could be copied and bundling them together in a way that is difficult to duplicate. For example, WestJet's culture is complemented past approaches that individually could be copied—the airline's reliance on one blazon of plane and its unique system for passenger boarding (in bigger centers, WestJet loads passengers through both forepart and rear aeroplane doors, reducing turnaround time)—to create a unique business model whose performance is without peer in the Canadian industry.

On occasion, events in the environment tin can turn a common resource into a strategic resource. Consider, for instance, a very generic article: water. Humans simply cannot alive without water, then h2o has inherent value. Also, water cannot be imitated (at least non on a big scale), and no other substance can substitute for the life-sustaining properties of h2o. Despite having three of the 4 properties of strategic resources, water in North America has remained inexpensive. However this may exist changing. Major cities in hot climates are confronted past dramatically shrinking water supplies. As h2o becomes more and more rare, landowners in water-rich areas stand to do good. Twenty percent of the world's freshwater lies in the Great Lakes.  It is not hard to imagine a 24-hour interval when companies brand profits by sending giant trucks filled with water due south and west or even by building water pipelines to service barren regions.

Figure 4.4 Resources and Capabilities [Epitome description]

From Resource to Capabilities

The tangibility of a business firm's resource is an important consideration within resource-based theory.  are resources that can be readily seen, touched, and quantified, such as physical assets, property, constitute, equipment, and cash. In dissimilarity, are resource that are hard to see, touch, or quantify, such every bit the knowledge and skills of employees, a firm's reputation, and a firm'south culture. In comparison the two types of resources, intangible resources are more likely to meet the criteria for strategic resources (i.e., valuable, rare, difficult to imitate, and nonsubstitutable) than are tangible resources. Executives who wish to achieve long-term competitive advantages should therefore place a premium on trying to nurture and develop their firms' intangible resources.

Capabilities are what the organization can do based on the resources it possesses, some other central concept within resource-based theory. A good and easy-to-remember style to distinguish resource and capabilities is this: resources refer to what an system owns, capabilities refer to what the organization can practise (Figure 4.iv "Resources and Capabilities"). Capabilities tend to arise or expand over time equally a firm takes actions that build on its strategic resources. Southwest Airlines and WestJet, for example, have developed the adequacy of providing fantabulous customer service by building on their strong organizational cultures. Capabilities are important in part considering they are how organizations capture the potential value that resources offer. Customers do not simply send money to an system considering it owns strategic resource. Instead, capabilities are needed to bundle, manage, and otherwise exploit resources in a manner that provides value added to customers and creates advantages over competitors.

Some firms develop a , the unique ability to better, update, or create new capabilities, peculiarly in reaction to changes in its environment. Said differently, a firm that enjoys a dynamic capability is skilled at continually adjusting its array of capabilities to keep pace with changes in its environs. Google, for example, buys and sells firms to maintain its marketplace leadership over time, and is highly ranked every bit the nearly attractive place to work. Apple tree has an uncanny knack for building new brands and products as the personal applied science market evolves. Not surprisingly, both of these firms ranked amid the summit thirteen among the World's Most Admired Companies for 2013.

Strategy at the Movies

Pirates of the Caribbean area Series

Pirates of the Caribbeanis a popular franchise produced by the Walt Disney Visitor, with 4 movies on the market and a 5th to be fabricated. Johnny Depp plays the swashbuckling hero who imaginatively gets himself in and out of trouble during the grade of the ninety-minute sagas.

Pirates of the Caribbeanwas actually based on a ride at Disney's theme parks. Before its release, the picture was advertised on Disney-endemic media companies, such equally ABC. Johnny Depp, the atomic number 82 role player, was interviewed on ABC news and The View, an ABC daily daytime talk prove (Lee, 2013).

Synergy is an aspect that many companies use to promote their products, often without the public knowing it. Synergy occurs when a conglomerates' subsidiaries promote a production owned by the company itself. Disney is one of the get-go to incorporate synergy. Disney'due south major theme parks are all used as large-scale advertising tools. The park uses the characters from the movies to promote the parks, and uses the parks to promote the movies.

Disney has been buying other companies, specially media companies, which has opened the doors to new synergistic opportunities. The popular Pirates of the Caribbean movies take generated spinoff products to become an enormous moneymaker. Licensed products from the movie franchise include collectibles, toys, clothes and accessories, movies, and games. By 2011, the Pirates of the Caribbean franchise had brought in $1.vi billion in global merchandise retail sales (Szalai, 2011).

Disney owns several media subsidiaries, including Pixar, and then that synergy enables Disney to dominate the box office. Pixar's teaming with Disney is a very successful pairing, with over 15 full feature blithe films. The post-obit listing shows the height ten grossing movies worldwide every bit a result of Disney and Pixar's collaboration (Box Office Mojo, 2014):

	Movie	Worldwide Acquirement	Release Date
10	WALL-Due east	$223,808,164	2008
9	Brave	$237,283,207	2012
8	Cars	$244,082,982	2006
seven	Toy Story two	$245,852,179	1999
half-dozen	Monsters, Inc.	$255,873,250	2001
5	The Incredibles	$261,441,092	2004
4	Monsters Academy	$268,492,764	2013
three	Up	$293,004,164	2009
2	Finding Nemo	$339,714,978	2003
1	Toy Story three	$415,004,880	2010

Is Resources-Based Theory Old News?

Resource-based theory has evolved in more recent years to better explain how strategic resources and capabilities allow firms to enjoy excellent performance over time. Only more than 1 wry observer has wondered aloud, "Is resources-based theory just old wine in a new bottle?" This is a question worth considering considering the role of resources in shaping success and failure has been discussed for centuries.

Aesop was a Greek storyteller who lived approximately two,500 years ago. Aesop is known in particular for having created a serial of fables—stories that appear on the surface to exist merely children's tales only offer deep lessons for everyone. One of Aesop's fables focuses on an ass (donkey) and some grasshoppers. When the ass tries to duplicate the sweet singing of the grasshoppers past copying their diet, he shortly dies of starvation. Attempting to replicate the grasshoppers' unique singing adequacy proved to exist a fatal error. The legend illustrates a central point of resource-based theory: information technology is the right combination of resource and capabilities that fuels enduring success, not any one resources alone.

In a far more contempo example, sociologist Philip Selznick developed the concept of  through a series of books in the 1940s and 1950s (Selznick, 1957). A distinctive competence is a set of activities that an organization performs especially well. WestJet and Southwest Airlines, for example, appear to have distinctive competencies in operations, as evidenced by how quickly they movement flights in and out of airports. Further, Selznick suggested that possessing a distinctive competency creates a competitive advantage for a firm. Certainly, there is plenty of overlap between the concept of distinctive competency, on the one hand, and capabilities, on the other.

So is resource-based theory in fact old vino in a new bottle? Not really. Resource-based theory builds on past ideas about resource, but it represents a big improvement on past ideas in at to the lowest degree two ways. Start, resource-based theory offers a more consummate framework for analyzing organizations, not just snippets of valuable wisdom similar Aesop and Selznick provided. Second, the ideas offered by resources-based theory take been tested and refined through scores of enquiry studies involving thousands of organizations. In other words, there is solid testify bankroll it upwards.

The Marketing Mix

Figure iv.6 The Marketing Mix [Epitome description]

Leveraging resources and capabilities to create desirable products and services is of import, but customers must still exist convinced to purchase these appurtenances and services. The —also known as the four Ps of marketing—provides important insights into how to make this happen.

I early principal of the marketing mix was circus impresario P. T. Barnum, who is famous in part for his claim that "there'due south a sucker built-in every minute." The real purpose of the marketing mix is non to trick customers but rather to provide a strong alignment among the four Ps (production, price, place, and promotion) to offering customers a coherent and persuasive message (Figure 4.half dozen "The Marketing Mix").

A firm's  is what it sells to customers. WestJet sells, of course, airplane flights. The airline tries to prepare its flights apart from those of other airlines by making flying fun. This tin can include, for example, flight attendants offer preflight instructions in rap or humorously, as seen on YouTube videos. The of a good or service should provide a good friction match with the value offered. Throughout its history, WestJet has unremarkably charged lower airfares than its rivals, typically forcing other competitors to lucifer WestJet's price.  tin can refer to a physical purchase bespeak also every bit a distribution channel. Southwest has generally operated in cities that are not served by many airlines, and WestJet often uses secondary airports in major cities. This has immune the business firm to get favorable lease rates at airports and has helped it create customer loyalty among passengers who are thankful to have increased  contest in air travel.

Finally,  consists of the communications used to marketplace a product, including ad, public relations, and other forms of direct and indirect selling. Southwest is known for its clever advertising. In a television advertizement entrada, for example, Southwest lampooned the baggage fees charged by most other airlines while highlighting its more than customer-friendly approach to checked luggage. Given the consistent theme of providing a good value plus an element of fun to passengers that is adult beyond the elements of the marketing mix, it is no surprise that Southwest and WestJet have been and so successful within a very challenging manufacture.

Figure 4.7: Few executives in history have had the marketing savvy of P. T. Barnum.

• Resources-based theory suggests that resources that are valuable, rare, difficult to imitate, and nonsubstitutable best position a firm for long-term success. These strategic resource can provide the foundation to develop business firm capabilities that tin can lead to superior performance over time. Capabilities are needed to parcel, manage, and otherwise exploit resources in a fashion that provides value added to customers and creates advantages over competitors.

1. Does your favourite restaurant have the four qualities of resources that lead to success as articulated by resource-based theory?
2. If y'all were hired past your college or university to market place your able-bodied department, what chemical element of the marketing mix would you focus on first and why?
3. What other classic stories or fables could be applied to hash out the importance of house resources and superior performance?

References

Barney, J. B. (1991). Firm resource and sustained competitive advantage.Journal of Management,17, 99–120.

Box Role Mojo. (2014). Pixar Total Grosses. Retrieved from http://world wide web.boxofficemojo.com/franchises/chart/?view=main&id=pixar.htm&sort=gross&order=ASC&p=.htm

Chi, T. (1994). Trading in strategic resources: Necessary conditions, transaction cost problems, and choice of exchange structure.Strategic Management Journal,xv(4), 271–290.

Lee, A. (2013). Disney and Pixar – Synergy Strategies. Retrieved from http://alexyllee.wordpress.com/2013/02/21/disney-and-pixar-synergy-strategies/

Selznick, P. (1949).TVA and the grass roots. Berkeley, CA: Academy of California Press.

Selznick, P. (1952).The organizational weapon. New York, NY: McGraw-Colina.

Selznick, P. (1957).Leadership in assistants. New York: Harper

Shaughnessy, H. (2013). Apple Remains World's Virtually Admired Visitor, Followed by Google and Amazon. Retrieved from http://www.forbes.com/sites/haydnshaughnessy/2013/02/28/apple-remains-worlds-most-admired-followed-by-google-and-amazon/

Szalai, G. (2011). Disney: 'Pirates of the Caribbean area' Trade Has Fabricated $1.6B in Sales. Retrieved from http://world wide web.hollywoodreporter.com/news/disney-pirates-caribbean-merchandise-16b-95393

Image descriptions

Figure four.2 image description: Resource-Based Theory: The Basics

According to resources-based theory, organizations that own "strategic resources" have important competitive advantages over organizations that do not. Some resources, such equally greenbacks and trucks, are not considered to be strategic resources because an organization'due south competitors can readily acquire them. Instead, a resource is strategic to the extent that it is valuable, rare, difficult to imitate, and nonsubstitutable.

• VALUABLE resources help in improving the organization's effectiveness and efficiency while neutralizing the opportunities and threats of competitors. Although the airline industry is extremely competitive, WestJet Airlines is ane of the about profitable airlines in North America. One primal reason is that WestJet flies a modern fleet of fuel-efficient Boeing Next-Generation 737 Aircraft.
• Hard-TO-IMITATE resource frequently involve legally protected intellectual property such equally trademarks, patents, or copyrights. Other difficult-to-imitate resources, such a brand names, usually need time to develop fully.WestJet'southward culture arose from the beginnings of the visitor. WestJet was inducted into the corporate culture hall of fame afterward beingness named 1 of Canada'due south About Admired Corporate Cultures for several sequent years.
• RARE resources are those held by few or no other competitor
  WestJet'southward civilization provides the firm with uniquely strong employee relations in an industry where strikes, layoffs, and poor morale are common. Westjet's vision is that of consistently and continuously providing an amazing guest experience.
• NONSUBSTITUTABLE resources exist when the resource combination of other firms cannot duplicate the strategy provided by the resource bundle of a particular firm.
  The influence of Westjet'south organizational civilisation extends to how customers are treated by employees. Approximately 85 per cent of eligible WestJet employees owns shares in the company through the employee share buy program.

Of import Points to Remember

1. Resources such as WestJet'south culture that reflect all four qualities valuable, rare, hard to imitate, and nonsubstitutable — are ideal because they tin can create sustained competitive advantages. A resource that has three or less of the qualities can provide an border in the Short term, only competitors can overcome such an advantage eventually.
2. Often together multiple resource and Strategies (that may non be unique in and of themselves) to create uniquely powerful combinations. Westjet's culture is complemented by approaches that individually could be copied—the airline's emphasis on direct flights, its reliance on one type of aeroplane, and its unique arrangement for passenger boarding—in gild to create a unique business model in which effectiveness and efficiency is the envy of competitors.
3. Satisfying just one or 2 Of the valuable, rare hard to imitate, nonsubstitutable criteria will likely simply lead to competitive parity or a temporary advantage.

Return to Figure 4.2

Figure 4.4 image description: Resource and Capabilities

Resource and capabilities are the basic building blocks that organizations use to create strategies. These two edifice blocks are tightly linked—capabilities tend to arise from using resources over time.

Resources can be divided into two principal types:

• Tangible resources are resources that tin be readily seen, touched, and quantified. Physical assets such equally a house's property, plant, and equipment are considered to be tangible resources, as is cash.
• Intangible resource are quite difficult to run across, touch on, or quantify. Intangible resources include, for example, the cognition and skills of employees, a firm's reputation, and a firm's civilization. WestJet was inducted into the corporate culture hall of fame after being named i of Canada's Most Admired Corporate Cultures.

While resources refer to what an organization owns, capabilities refer to what the organisation can do. More specifically, capabilities refer to the firm's ability to parcel, manage, or otherwise exploit resource in a manner that provides value added and, hopefully, advantage over competitors.

• A dynamic capability exists when a firm is skilled at continually updating its assortment of capabilities to keep footstep with changes in its environment, Scotiabank bought a majority pale in a Chilean retailer's credit menu business to round out its portfolio. Fortis Inc. appear the purchase of Texas-based UNS Energy Corp. These moves help the companies evolve in chosen directions.

Return to Figure iv.four

Figure iv.6 image description: The Marketing Mix

Much like a baker mixes together ingredients to create a delicious cake, executives need to blend together various ways to entreatment to customers. Equally one of the almost famous business "recipes," the marketing mix suggests iv factors that need to piece of work together in lodge for a firm to achieve superior functioning. The iv Ps of the marketing mix are illustrated below using Duff Goldman's custom cake store, Charm Metropolis Cakes.

• A firm's production is what it sell to customers. The unique cakes offered by Duff accept included replicas of Radio Metropolis Music Hall and the Hubble space telescope.
• The toll of a expert or service should provide a skilful match with the value offered. While a grocery store's cake might sell for $30 or less, the uniqueness of Duff'southward cakes allows him to charge upwards of $1 ,000 per block.
• Place tin can refer to a physical purchase point likewise as a distribution channel. The location of Charm City Cakes is itself unique – a converted church. This adds to the hip prototype Duff tries to project.
• Promotion consists of the communications used to market place a product, including advertising, public relations, and other forms of direct and indirect selling. Duff's popular show on The Nutrient Network, Ace of Cakes, spread Duff's fame and extended the reach of his cake shop dramatically.

Return to Effigy 4.6

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Source: https://opentextbc.ca/strategicmanagement/chapter/resource-based-theory/

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