Strategic and Global Management

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Strategic and Global Management MGMT 5391 Session
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I/O-RBV
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How Much Change is Needed in Organizations?
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How Much Change is Needed in Organizations?

• No change
• Little to incremental change
• Good deal of change
• Radical Change (exponential)

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Why are Firms/Organizations Successful?

• What are the assumptions the organization makes
  about people and their motivations?
• What are the managers beliefs that underpin how
  they organize and design the work environment?
• What are the organizations core values,
  principles, and philosphies (the culture)?
• What are the organizations expectations of
  employees?
• What are the strategies/structures?
• How are their people utilized? How are the
  organizations capabilities improved?
• Is it their technologies and the physical assets?
• Why havent their competitors been able to
  imitate them?
• Is it their strategies?
• Is it the right people/ excellent human
  resources?
• Or the right organization (strategy, structure
  and leadership)?
• Or all of the above?
• Why is the firm.organization so
  successful/exhibits exemplar performance?

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Eight Attributes of the Most Admired
Organizations
  ??        Innovation   ?       
Financial Soundness   ?        Employee
Talent   ?        Use of Corporate
Assets   ?        Long-term Investment
Value   ?        Social Responsibility   ?       
Quality of Top Management   ?        Quality of
Products and Services  
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Conventional View of Strategy I/O Theory

• What business are we in?
• How will be compete?

Strategy

• Marketing, manufacturing, finance,
• HR, etc.

Functional Strategies

• What critical tasks must get done to
• execute the strategy?

Key Success Factors

• Design practices and systems
• (recruitment and selection, performance
• management, training and development,
• etc.)

Organizational Alignment

• Monitor alignment and compliance

Senior Management Role
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A Values-Based View of Strategy RB Theory
Fundamental Values or Beliefs

• What are our basic Principles, Philosophies
• and Core Values?
• What do we believe in?

• What policies and practices are consistent
• with these Values and Philosophies?

Design Management Practices That Reflect and
Embody These Values

• What can we do for the customer better
• than our competitors?

Use These to Build Core Capabilities

• Given our capabilities, how can we deliver
• value (EVA) to customers in a way our
• competitors cannot easily imitate?

Invent a Strategy That is Consistent with the
Values and Uses the Talents Capabilities of
People/ Organization to Compete in New and
Unusual Ways

• Senior management manages the values
• and culture of the firm.

Senior Managements Role
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Alternative Models of Superior to Exemplar Returns
Resource-Based (RB) Model/Hunts Resource
Industrial Organization Model (I/O)
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Important Definitions
Strategic Management Process
The full set of commitments, decisions, and
actions required for a firm to achieve strategic
competitiveness and earn exemplar to
above-average returns
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Important Definitions
Strategic Competitiveness
Achieved when a firm successfully formulates and
implements a value-creating strategy
Exemplar/Above-Average Returns
Occurs when a firm develops a strategy that
competitors are not simultaneously
implementing Provides benefits which current and
potential competitors are unable to duplicate
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Important Definitions
Risk
An investors uncertainty about the economic
gains or losses that will result from a
particular investment
Average Returns
Returns that are equal to those an investor
expects to earn from other investments with a
similar amount of risk
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Strategic and Global Management MGMT 5491 I.O.
and R.B. Theory
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Question Has anyone ever heard of
Willy Sutton? Occupation Bank
Robber! He Knew Where
the Money Was!
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Two Kinds of Bank Robbers/Firms looking for
Friends 1 I/O Theory (says Where the money
is) 2 Resource based view of the Firm
Theory (says How you extract the money!) 3
Best Bet Combination View Where the
money is and How to extract the money!!
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Alternative Models of Superior to Exemplar Returns
Resource-Based (RB) Model/Hunts Resource
Industrial Organization Model (I/O)
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Figure 2 Competitive Position Matrix
Relative Resource-Produced Value
Lower Parity
Superior/

Exemplar
1 Indeterminate Position
2 Competitive Advantage
3 Competitive Advantage
Lower Parity Higher
6 Competitive Advantage
5 Parity Position
4 Competitive Disadvantage
Relative Resource Costs
9 Indeterminate Position
8 Competitive Disadvantage
7 Competitive Disadvantage
Dr. Shelby Hunt, Texas Tech University, 2000
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Managing the PARADOX (innovation vs.
incrementation and optimization)
Dimensions of Dis- continuous Change
Theories I/O and RB Combined
I/O Theory
RB Theory

• Values
• Goals
• Leadership
• Focus/Consistency
• of Vision Direction
• Processes
• Reward Systems

Firm Values Maximize shareholder value Manage
change from the top down Emphasize
alignment between organization structures,
systems processes Plan and establish programs
Motivate through financial incentives Consultants
analyze problems and shape solutions
Joint-Customer Firm Meetings Develop
organizational Capabilities Encourage
participation from the bottom up Build up
corporate culture employees behavior and
attitudes Experiment and evolve Motivate
through commitment use pay as fair
exchange Consultants support management in
shaping their own solutions
Joint Firm and Customer Values (Culture) Explicit
ly embrace the paradox between economic value
and organizational and customer capability Set
direction from the top and engage the people
below Focus simultaneously on the hard
(structures and systems processes) and the soft
(corporate culture) of firm and customers Plan
for spontaneity Use incentives to
reinforce change but not to drive
it Consultants are expert resources who empower
employees
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I/O Model of Above-Average Returns
1. External Environments
1. Strategy dictated by the external environments
of the firm (what opportunities exist in these
environments?) 2. Firm develops internal skills
required by external environment (what can the
firm do about the opportunities?)
Industry Environment
Competitor Environment
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Four Assumptions of the I/O Model
1. The external environment is assumed to possess
pressures and constraints that determine the
strategies that would result in above-average
returns 2. Most firms competing within a
particular or within a certain segment of it are
assumed to control similar strategically relevant
resources and to pursue similar strategies in
light of those resources
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Four Assumptions of the I/O Model
3. Resources used to implement strategies are
highly mobile across firms 4. Organizational
decision makers are assumed to be rational and
committed to acting in the firms best interests,
as shown by their profit-maximizing behaviors
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I/O Model of Above-Average Returns
Industrial Organization Model

• 1. Study the external environment, especially the
  industry environment
• economies of scale
• barriers to market entry
• diversification
• product differentiation
• degree of concentration of firms in the industry

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I/O Model of Above-Average Returns
2. Locate an attractive industry with a high
potential for above-average returns
Industrial Organization Model
Attractive industry one whose structural
characteristics suggest above-average returns
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I/O Model of Above-Average Returns
3. Identify the strategy called for by the
attractive industry to earn above-average returns
Industrial Organization Model
Strategy formulation selection of a strategy
linked with above-average returns in a particular
industry
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I/O Model of Above-Average Returns
4. Develop or acquire assets and skills needed to
implement the strategy
Industrial Organization Model
Assets and skills those assets and skills
required to implement a chosen strategy
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I/O Model of Above-Average Returns
5. Use the firms strengths (its developed or
acquired assets and skills) to implement the
strategy
Industrial Organization Model
Strategy implementation select strategic actions
linked with effective implementation of the
chosen strategy
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I/O Model of Above-Average Returns
Industrial Organization Model
Superior returns earning of above-average returns
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Resource-based View of the Firm

• (Barney, 1986 S. Hunt, 1990)

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Resource-based Model of Exemplar Returns
1. Strategy dictated by unique resources and
capabilities of the firm (what can the firm do
best?) 2. Find an environment in which to exploit
these assets (where are the best opportunities?)
1. Firms Resources
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Resource-based Model of Exemplar Returns
1. Identify the firms resources-- strengths and
weaknesses compared with competitors
Resource-based Model
Resources inputs into a firms production process
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Resources Examples (Tangible and Intangible)

• Brands
• Brand equity
• Products
• People/Talent
• Business processes
• Innovation
• Learning
• Macro Structure
• Vision Direction
• Strategies
• Core Values

• Market Orientation
• - Relationship Marketing
• - Market Segmentation,
• Positioning and Targeting
• - Marketing Mix
• - Marketing Research
• - Competitive Intelligence
• - Core Competencies
• Increased Capabilities
• Cross-Functional Teams (permanent)

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Resource-based Model of Exemplar Returns
2. Determine the firms capabilities--what it can
do better than its competitors
Resource-based Model
Capability capacity of an integrated set of
resources to integratively perform a task or
activity
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Resource-Based Model of Exemplar Returns
Action required
Determine how firms resources and capabilities
may create competitive advantage.
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Resource-Based Model of Exemplar Returns
Action required
Locate an attractive industry.
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Resource-Based Model of Exemplar Returns
Action required
Select strategy that best exploits resources and
capabilities relative to opportunities in
environs.
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Resource-Based Model of Exemplar Returns
Action required
Maintain selected strategy in order to outperform
industry rivals.
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Resources and capabilities lead to Competitive
Advantage when they are
Valuable
allow the firm to exploit opportunities or
neutralize threats in its external environment
Rare
possessed by few, if any, current and potential
competitors
Costly to Imitate
when other firms either cannot obtain them or
must obtain them at a much higher cost
Nonsubstitutable
the firm must be organized appropriately to
obtain the full benefits of the resources in
order to realize a competitive advantage
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TEACHING STRATEGIC AND GLOBAL STRATEGY EXAMPLES
OF THE FIRMS RESOURCES AS A RESOURCE BASED
VIEW OF THE FIRM

• Environmental scanning
• Market segmentation, targeting, and
• positioning
• Relationship Marketing
• Market orientation
• Brand equity
• Marketing mix strategy
• Product strategy
• Distribution strategy
• Pricing Strategy

• Firm resources
• Firm competences
• Competitive advantage
• Sustainable competitive advantage
• Dynamic competition
• Static-equilibrium competition
• Innovation
• Organizational learning
• Marketing research and
• competitive intelligence

Dr. Shelby Hunt, Texas Tech University, 2000
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FIGURE 1  
Societal Resources
Societal Institutions
A Schematic of the Resource-Advantage Theory of
Competition
Resources
Market Position
Financial Performance
Competitive Advantage Parity Competitive
Disadvantage
Superior/Exemplar Parity Inferior
Comparative Advantage Parity
Comparative Disadvantage
Competitors-Suppliers
Consumers
Public Policy
Read Competition is the disequilibrating,
ongoing process that consists of the constant
struggle among firms for a comparative advantage
in resources that will yield a marketplace
position of competitive advantage and, thereby,
superior financial performance. Firms learn
through competition as a result of feedback from
relative financial performance signaling
relative market position, which, in turn signals
relative resources.   Source Hunt and Morgan
(1997)
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Figure
Relative Resource-Produced Value     Lower
Parity Superior/

Exemplar  
       
    Competitive Disadvantage
    Parity Position
    Competitive Advantage
Dr. Shelby Hunt, Texas Tech University, 2000
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Figure Efficiency-Effectiveness Competition
Relative Resource-Produced Value
Parity Superior/
Exemplar
Lower
    Competitive Advantage
Lower
Relative Resource Costs
    Competitive Disadvantage
    Competitive Advantage
 
Parity
Parity Position
    Competitive Disadvantage
Higher
Dr. Shelby Hunt, Texas Tech University, 2000
 
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        COMPETITIVE ADVANTAGE 1. Marketplace
positions of competitive advantage lead to
superior financial performance. 2. It is a
comparative advantage in resources that leads to
marketplace positions of competitive
advantage.           SUSTAINABLE COMPETITIVE
ADVANTAGE 1.     Factors internal to the
firm        Reinvest        Know thyself
(causal ambiguity)        Adapt       
Proactively innovate
Dr. Shelby Hunt, Texas Tech University, 2000
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          SUSTAINABLE COMPETITIVE ADVANTAGE
(CONTINUED) 2. Factors external to the
firm        Consumer activities       
Governmental actions        Competitor
actions a.      Acquisition of same
resources b.     Imitation of resources c.    
Substitution of resources d.     Major innovation
(reactive innovation) in resources 3.
Characteristics of offering     Offering ?
Consumers (Causal ambiguity)     Resources ?
Offering (Causal ambiguity) 4.    
Characteristics of resources     Mobility    
Complexity     Interconnectedness     Mass
efficiencies     Tacitness     Time compression
diseconomies
Dr. Shelby Hunt, Texas Tech University, 2000
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•         FIRM COMPETENCES
• Distinct packages or bundles of basic
  resources.
•  
• Definition Socially complex, interconnected,
  packages of
• tangible basic resources (e.g., specific
  machinery) and intangible basic
• resources (e.g., the skills and knowledge of
  specific employees and
• specific organizational policies and procedures)
  that fit coherently
• together in a synergistic manner and enable firms
  to produce valued
• market offerings efficiently and/or effectively.

Dr. Shelby Hunt, Texas Tech University, 2000
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•         DYNAMIC COMPETITION
• Firms motivation is superior financial
  performance, i.e., more than, better
• than.
• The constant struggle among firms for
  comparative advantages in resources
• that will yield marketplace positions of
  competitive advantage and, thereby, superior
  financial performance.
• Renewal Competences The firms ability to renew
  itself based on (1)
• reacting to changes in its environment and/or
  (2) proactively changing its environment.
• Dynamic capabilities (Teece and Pisano 1994)
• Higher order learning (Dickson 1996)
• Industry foresight (Hamel and Prahalad 1994)
•          STATIC-EQUILIBRIUM COMPETITION
• Competition occurring in the parity cell
  of the competitive position
• matrix.
• Requires homogeneous resources, homogeneous
  products, absence of

Dr. Shelby Hunt, Texas Tech University, 2000
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        INNOVATION Proactive innovation
Innovations that are not prompted by marketplace
positions of competitive disadvantage, i.e.,
entrepreneurial innovations. Reactive
innovation Innovations that are prompted by
marketplace positions of competitive
disadvantage.           ORGANIZATIONAL
LEARNING Firms learn through competition as a
result of feedback from relative financial
performance signaling relative market position,
which, in turn signals relative resources.
Dr. Shelby Hunt, Texas Tech University, 2000
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        MARKETING RESEARCH AND COMPETITIVE
INTELLEGENCE An organizational competence.
Guides proactive innovation. Informs
reactive innovation.           MARKET
SEGMENTATION, POSITIONING, AND TARGETING Competit
ion is segment-by-segment. Proactive innovation
          MARKETING MIX (PRODUCT, PRICING,
PROMOTION, AND DISTRIBUTION)
STRATEGIES Firm competences
Dr. Shelby Hunt, Texas Tech University, 2000
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        RELATIONSHIP MARKETING Relational
resources           MARKET ORIENTATION Firm
competence Guides proactive innovation Informs
reactive innovation           BRAND
EQUITY Intangible, legal resource
Dr. Shelby Hunt, Texas Tech University, 2000
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        FIRM RESOURCES Definition The
tangible and intangible entities available to the
firm that enable it to produce efficiently
and/or effectively a market offering that has
value for some market segment(s). Characteristic
s Significantly heterogeneous and imperfectly
mobile. Categories 1.     Financial (e.g.,
cash reserves and access to financial
markets) 2.     Physical (e.g., plant, raw
materials, and equipment) 3.     Legal (e.g.,
trademarks and licenses) 4.     Human (e.g., the
skills and knowledge of individual
employees) 5.     Organizational (e.g., controls,
routines, cultures, and competences) 6.    
Informational (e.g., knowledge about market
segments, competitors, and technology) 7.    
Relational (e.g., relationships with competitors,
suppliers, and customers)
Dr. Shelby Hunt, Texas Tech University, 2000
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Figure Efficiency-Effectiveness Competition
Relative Resource-Produced Value
Lower Parity
Superior/
Exemplar
    Competitive Advantage
 
   
Lower
Relative Resource Costs
    Parity Position
    Competitive Advantage
   Competitive Advantage
Parity
    Competitive Disadvantage
   
   
Higher
Dr. Shelby Hunt, Texas Tech University, 2000
 
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Figure 2 Competitive Position Matrixa
Relative Resource-Produced Value
Lower Parity
Superior/

Exemplar
1 Indeterminate Position
2 Competitive Advantage
3 Competitive Advantage
Lower Parity Higher
6 Competitive Advantage
5 Parity Position
4 Competitive Disadvantage
Relative Resource Costs
9 Indeterminate Position
8 Competitive Disadvantage
7 Competitive Disadvantage
aRead The marketplace position of competitive
advantage identified as Cell 3 results from the
firm, relative to its competitors, having
a Resource assortment that enables it to produce
an offering for some market segment(s) that (a)
is perceived to be of superior value and (b) Is
produced at lower costs.
Source Hunt and Morgan (1997).
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Figure 2 Competitive Position Matrix
Relative Resource-Produced Value
Lower Parity
Superior/

Exemplar
1 Indeterminate Position
2 Competitive Advantage
3 Competitive Advantage
Lower Parity Higher
6 Competitive Advantage
5 Parity Position
4 Competitive Disadvantage
Relative Resource Costs
9 Indeterminate Position
8 Competitive Disadvantage
7 Competitive Disadvantage
Dr. Shelby Hunt, Texas Tech University, 2000
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FIGURE  
Resources and Performance
 
 
Resources
Market Position
Financial Performance
Competitive Advantage Parity Competitive
Disadvantage
Superior/Exemplar Parity Inferior
Comparative Advantage Parity
Comparative Disadvantage
 
 
 
 
Dr. Shelby Hunt, Texas Tech University, 2000
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FIGURE  
Competitive Advantage and Performance
 
 


Market Position
Financial Performance
Competitive Advantage Parity Competitive
Disadvantage
Superior/Exemplar Parity Inferior
 
 
 
 
Dr. Shelby Hunt, Texas Tech University, 2000
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Perfect Competition vs. R-A
Perfect
Competition Theory R-A Theory