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Look At Your Company From Outside-In
As Well As Inside-Out
By: Masaaki Imai
Competitive Strategies
Building resources
Market Leadership Strategy:
Building distinctive capabilities...
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New Paradigm: Resource-Based Theory
The currently dominant view of
business strategy – resource-based theory
or resource-based view (RBV) of firms – is based on the concept of
economic rent and the
view of the company as a collection of capabilities. This view of strategy
has a coherence and integrative role that places it well ahead of other
mechanisms of strategic decision making.2
Traditional strategy models such as
Michael Porter's
five forces model focus on the company's external competitive environment.
Most of them do not attempt to look inside the company. In contrast, the
resource-based perspective highlights the need for a fit between the
external market context in which a company operates and its internal
capabilities.
In contrast to the Input / Output Model (I/O model), the
resource-based view is grounded in the perspective that a firm's internal
environment, in terms of its resources and capabilities, is more critical to
the determination of strategic action than is the external environment.
"Instead of focusing on the accumulation of resources necessary to implement
the strategy dictated by conditions and constraints in the external
environment (I/O model), the resource-based view suggests that a firm's
unique resources and capabilities provide the basis for a strategy.
The
strategy chosen should allow the firm to best exploit its core competencies
relative to opportunities in the external environment."1
Sustainable Competitive
Advantage
According to this view, a company's competitive advantage
derives from its ability to assemble and exploit an appropriate combination
of resources. Sustainable competitive
advantage is achieved by continuously developing existing and creating
new resources and capabilities in response to rapidly changing market
conditions...
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SWOT Analysis:
Questions To Answer
Creating
Economic Rent
The resource based view of strategy emphasizes economic rent
creation through distinctive
capabilities. Economic rent, or
Economic Value Added
(EVA), is what companies earn over and above the cost
of the capital employed in their business. It is the measure of the
competitive advantage, and competitive advantage is the only means by
which companies in competitive markets can earn economic rent. The objective
of a company is to increase its economic rent, rather than its profit as
such. "A company which increases its profits but not its economic rent - as
through investments or acquisitions which yield less than the cost of
capital - destroys value."4 The perspective of economic rent
forces the question 'why can't competitors do that?' into discussion...More
Resources and
Capabilities
Each organization is a collection of unique resources and
capabilities that
provides the basis for its strategy and
the primary source of its returns. In the 21st-century hyper-competitive
landscape, a firm is a collection of evolving capabilities that is managed
dynamically in pursuit of above-average returns4.
Thus,
differences in firm's performances across time are driven primarily by their
unique resources and capabilities rather than by an industry's structural
characteristics.
Resources are
inputs into a firm's production process, such as capital, equipment,
the skills of individual employees, patents, finance, and talented
managers. Resources are either tangible or intangible in nature. With
increasing effectiveness, the set of resources available to the firm tends
to become larger.5 Individual resources may not yield to a
competitive advantage. It is through the synergistic combination and
integration of sets of resources that competitive advantages are formed.
A capability is the
capacity for a set of resources to integratively perform a stretch task or
an activity. Through continued use, capabilities become stronger and more
difficult for competitors to understand and imitate. As a source of
competitive advantage, a capability "should be neither so simple that it is
highly imitable, nor so complex that it defies internal steering and
control."6
7 Dimensions of Strategic
Innovation
The
Strategic Innovation framework weaves together seven dimensions to
produce a range of outcomes that drive growth.
Core Technologies and
Competencies is the set of internal
capabilities, organizational competencies and assets that could potentially
be leveraged to deliver
value to
customers, including technologies, intellectual property,
brand
equity and
strategic relationships...
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The Growing Role of the Business Architect
In today's knowledge- and innovation-driven
complex economy, business architects are in growing demand. They
are
cross-functionally excellent people who can tie several silos of
business development expertise together, create
synergies, design winning
business model and a
balanced business system and
then lead people who will
put their plans into action...
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