2. UNDERSTANDING RESOURCES & CAPABILITIES
Most firms have a bundle of productive resources and capabilities.
Resources can be defined as tangible and intangible assets that a firm
can utilize to strategize its business.
Since they are considered as assets, they can easily be measured.
The best way to measure them is through organizing them into four (4)
categories:
• First, financial resources and capabilities refer to the company financial
reliability for example generating internal funds or raising external capital.
• Second, physical resources and capabilities refer to location of plants,
offices, and equipment and access to raw materials and distribution channels.
• Third, technological resources and capabilities refer to the ability to invent
and create patterns, trademarks, and copyrights.
• Finally, organizational resources and capabilities refer to planning,
command, control and structure systems in an organization.
3. UNDERSTANDING RESOURCES & CAPABILITIES
1. While tangible resources are easier to quantify, it’s the opposite for intangible
resources and capabilities.
2. Intangible can be something that exists in a company such as the ability to be
competitive.
3. Example of intangible resources and capabilities is:
HUMAN, human typically are able to generate knowledge, trust, be able to
observe talent and understand organizational culture.
INNOVATION refers to skills and assets for a company to generate new ideas
through research and development and inventing new ways of doing things.
REPUTATIONAL RESOURCES AND CAPABILITIES refer to a company ability to
develop and leverage its reputation and image as the best place to work or the
best socially responsible company. Reputation is an important indicator that
signal a company work culture and competitiveness process.
4. What is the Value Chain?
The value chain is the set of linked value-creating activities the company
performs to design, produce, market, distribute, and support a product.
value-chain analysis helps managers understand the behaviour of costs
and existing and potential sources of differentiation.
5. Primary Activities of the Value Chain
Primary Activity Description
Product Design
• The basis of the firm’s advantage that sets the function, characteristics, and aesthetics of the product
or process.
Operations
• Activities that transform inputs into finished product; issues of concern include raw material
procurement, sourcing components, supply chains, plant location, manufacturing process, parts
production, and assembly.
Marketing
• Informing buyers and consumers about products and services.
• Encouraging consumption by applying the marketing mix, developing sales force, devising packaging
scheme, defining the brand, and advertising.
Outbound
Logistics
• The task of moving the finished product from operations to wholesalers, retailers, or the final
consumers. Issues of concern include demand chains, channels, inventory, warehousing, and
transportation.
Service
• Customer support in term of installation, after- sales service, complaints handling, and training.
• Key activities include warranty, captive or independent services networks, market coverage, and speed
of response.
6. Support Activities of the Value Chain
Support Activity Description
Materials and
Equipment
• Management of the procurement, transportation, storage, and distribution of materials and
equipment necessary to conduct primary activities.
Human Resources
Management
• Recruiting, developing, motivating, and rewarding the workforce of the company.
• Supervising labor-relations activities
System and Solutions
• Managing information processing and the development of specialized knowledge of primary
activities.
• Issues involve management information system and process automation, along with the integration
of relevant technologies such as telecom, wireless, and cloud systems.
Infrastructure
• General management functions that enable day-to-day operation in the company.
• Activities include accounting and finance, legal and regulatory affairs, safety and security, quality
control, and other overhead functions.
7. Configuration is the way in which managers
arrange the activities of the value chain.
Coordination is the way that managers connect the
activities of the value chain.
8. CONFIGURATION: USING THE VALUE CHAIN
1. Configuration is the way in which managers arrange the activities of the
services like call centers, application processing, and financial
consolidation, can be digitized and, hence, located virtually anywhere.
2. Value chains identify the format and interactions between different
activities of the company.
3. Effectively, managers organize their configuration of value activities in term
of macro cost factors as well as the moderating influence of cluster effects,
logistics, digitization, economies of scale, and business environments.
9. CONFIGURATION: USING THE VALUE CHAIN
1. CLUSTER EFFECT
• An industry cluster is a system of businesses and institutions engaged with one another at
various levels.
• A peculiarity of value creation is the so-called cluster effect, in which a particular industry
gradually clusters more and more related value creation activities in a specific location.
• Effectively, industry cluster are geographic concentrations of competing, complementary, or
interdependent firm and industries that do business with each other and share overlapping
needs for talent, technology, and infrastructure.
For example:
London is centre for global finance,
Baden–Württemberg for cars and electrical engineering,
Silicon Valley for technology,
Hollywood for entertainment.
10. CONFIGURATION: USING THE VALUE CHAIN
2. LOGISTICS
• Logistics entails how companies obtain, produce, and exchange material and
services in the proper place and in proper quantities for the proper value
activity.
• The importance of logistics to configuration of a value chain follows from the
fact that conducting business across the world opens the potential for high
transaction costs.
• Minimizing exchange expense by efficiently configuring the location of the
value activities is a source of competitive advantage.
11. CONFIGURATION: USING THE VALUE CHAIN
3. DIGITIZATION
• The process of digitization involves converting an analog product into a
string of zeros and ones.
• Increasingly, products like software, music, and books, as well as services
like call centers, application processing, and financial consolidation, can be
digitized and, hence, located virtually anywhere.
• Equipped with networked computers, workers can move goods and services
anywhere in the world at negligible cost and complication.
• Consequently, the potential for digitization of goods or services influences
how a company configures its value chain.
12. CONFIGURATION: USING THE VALUE CHAIN
4. ECONOMIES OF SCALE
• The concept of economies of scale refers to a situation wherein a firm
doubles its cumulative output yet total cost less than doubles due to
efficiency gains.
• Effectively, reductions in the unit cost of a product result from the increasing
efficiency that comes with larger operations.
• Value chains identify the format and interactions between different activities
of the company
13. CONFIGURATION: USING THE VALUE CHAIN
5. BUSINESS ENVIRONMENT
• Companies normally try to configure value chains whether to access or
avoid a particular country based on its business environment.
• Some of these countries commonly promise business-friendly markets that
offer tax holidays, reduced long-term tax rates, low cost capital agreement,
flexible operating requirements, and responsive public policies.
• Companies would weigh various opportunities to streamline value activities
and improve cost competitiveness.
• According to Forbes in the latest year, United Kingdom, followed, by the
Sweden, Hong Kong, Netherlands and New Zealand were widely regarded as
the best countries for business.
14. COORDINATION
Coordination is the
way that managers
connect the activities
of the value chain.
In a global context :
The specification of
how pieces move
about the global game
board.
Coordination is the
essence of
management and is
implicit and inherent in
all functions of
management.
Several factors
influence value chain
coordination:
1. National cultures,
2. Learning effects,
3. Operational obstacles,
4. Subsidiary networks.
15. COORDINATION
It is the way that managers connect the activities of the value chain.
In a global context: the specification of how pieces move about the global game
board.
Coordination is the essence of management and is implicit and inherent in all
functions of management.
Several factors influence value chain coordination:
1. National Cultures
2. Learning Effects
3. Operational Obstacles
4. Subsidiary Networks
16. COORDINATION
NATIONAL CULTURES
• The globalization of a company’s value chain, such as design done in Finland,
inputs sourced from Brazil, production done in China, distribution organized in
the United States, and service done in Mexico, presses managers to understand
how foreign cultures influence coordination.
• National cultures also impose hurdles in coordinating a transaction from one
stage of the value chain to another. Units anchored in individual versus
collectivist cultures may disagree over information sharing or collaboration
responsibilities; conflicts complicate coordination. Hence, features of national
culture require managers to understand their implications to the collaborative
relationship that shape the coordination of value activities.
17. LEARNING EFFECTS
• Essentially, as managers use and improve coordination practices, their increasing
proficiency improves the performance of the value chain. Managers, for example learn by
recurring experiences how to transfer best practice from country to country, thereby gaining
insights of the value chain as a whole instead of a collection of parts.
• For example, an MNE may have factories in different countries, such as Japan and Mexico,
which manufacture the same product apply different production philosophies. The Mexican
factory may use a traditional assembly-line operation given the local conditions of
inexpensive labor, patchy transportation infrastructure, and marginal cost of high technology.
• The Japanese factory, in contrast, may use a lean production system given local labor
competency, manufacturing expertise, and efficient logistics. The different manufacturing
approaches complicate how managers coordinate activities between factories. Planning to
learn how to coordinate these links in the value-chain positions the MNE to gain production
efficiencies that lead to lower costs, higher quality, satisfied customers, and new sales.
COORDINATION
18. COORDINATION
OPERATIONAL OBSTACLES
• Operating internationally inevitably runs into communication challenges because
of time zones, differing languages, and ambiguous meanings. Increasingly,
companies rely on browser-based communications methods to coordinate the
handoffs from link to link.
• The thinking goes that electronically linked producers and retailers can lower
coordination costs throughout the value chain. In addition, standardizing the
format for data input helps standardize the format for interpretation.
• Electronic transactions boost efficiency by reducing intermediary transactions
and the associated unneeded coordination (streamlining the distributor link in the
value chain by eliminating an intermediary).
19. COORDINATION
SUBSIDIARY NETWORKS
• The growing prevalence of social networks provides perspectives for managers
to better understand the dynamics of their subsidiary networks. Managers
coordinate the value chain so that it enables efficient transactions and ideally
fortifies core competencies throughout the global network.
• The advent of social networks, such as those exemplified by LinkedIn, Orkut,
Facebook, or MySpace, signal significant change in how managers achieve
these goals. Study of the successful practices of social networks directs
managers to shape how subsidiaries interact with each other, paying heed to
the informal connections that link executives together as well as associations
and connections between individual employees across countries.
20. COORDINATION
SUBSIDIARY NETWORKS
• Rather than exchange predicted upon traditional business directives, social
network analysis indicates that information flows more efficiently in a
collaborative and peer-to-peer manner.
• Hence, network dynamics show that workers are more inclined to communicate
and collaborate while simultaneously contributing and participating in
coordinating the value chain.
21. The VRIO
(Value, Rarity, Imitability,
Organization) Framework
The Question of Value:
Does a resource enable a firm to exploit an
environmental opportunity, and/or
neutralize an environmental threat?
The Question of Rarity:
Is a resource currently controlled by only a
small number of competing firms? [are the
resources used to make the
products/services or the products/services
themselves rare?]
The Question of Organization:
Are a firm’s other policies and procedures
organized to support the exploitation of its
valuable, rare, and costly-to-imitate
resources?”
Barney and Hesterly (2006), describe the
VRIO framework as a good tool to
examine the internal environment of a
firm. They state that VRIO “stands for
four questions one must ask about a
resource or capability to determine its
competitive potential:
The Question of Imitability:
do firms without a resource face a cost
disadvantage in obtaining or developing it?
[is what a firm is doing difficult to imitate?]
