Capabilities

What are foundation of competitive advantage?

Andy Weeger

Neu-Ulm University of Applied Sciences

September 3, 2024

Learning outcomes

After this session, you should have a solid understanding of

  • the nature and purpose of an internal audit in formulating strategies;
  • major internal factors that impact competitive advantage;
  • the tenets of the resource-based view and dynamic capabilities;
  • as well as the construction and application of the Strengths-Weaknesses-Opportunities-Threats (SWOT) matrix.

Reflection

Before we start: Any questions or comments regarding the external audit and the key environmental factors discussed last week?

Who wants to explain the Strategy Flywheel?

Internal audit

Overview

Assessing a firm’s strengths and weaknesses so that strategies can be formulated that capitalize on internal strengths and overcome weaknesses.

Key internal resources

Key internal areas/resources an internal assessment should focus on:

Tangible resources, intangible resources, organizational capabilities, competitive assets, knowledge management, strategic flexibility, technology as well as culture & values.

Culture

Culture eats strategy for breakfast. Peter Drucker, Management consultant, educator and author

The most brilliant strategies can fail if they are not congruent with the prevailing culture within an organization. Successful organizations, thus, integrate culture and strategy.

Discussion

As the person responsible for shaping the strategic management process, you must consider the importance of culture.

What are the effective actionable measures you can take?

Reading — key takeaways

Form small groups of 3 to 4 students and discuss what you have learned about the resource-based view (RBV) from reading Peteraf (1993).

Summarize the key tenets of the RBV (at least one slide) and derive the key implications for strategic management (at least one slide).

Be prepared to present your findings in a five-minute presentation.

Resource-based view

Key assumptions

The RBV contends that internal resources are critical for achieving and sustaining competitive advantage, even more important than the environment.

Questions of value, rareness, imitability/substitutability (VRIN), and organisation must be addressed.

Dynamic capabilities

Overview

Dynamic capabilities refer to a firm’s ability to integrate, build, and reconfigure internal and external resources to address rapidly changing environments (Teece, Pisano, and Shuen 1997).

Core elements

Sensing,
(identifying and assessing opportunities)
seizing,
(mobilizing your resources to capture value from those opportunities)
and transforming
(continuous renewal)

Example

Can you give a compelling illustration of dynamic capabilities in action?

Take 10 minutes to identify and discuss an example with your neighbor.

What role do IT/information systems play?

Dynamic capabilities x IS

Nomological net of DC in IS research based on Steininger et al. (2022, 454)

 

 

 

 

SWOT framework

Overview

SWOT matrix

 

 

 

 

 

Process

Steps in using the SWOT framework:

  1. Perform an external audit to identify opportunities and threats
  2. Perform an internal audit to identify strengths and weaknesses
  3. Allocate internal and external factors in the matrix
  4. Review whether allocation to (one) box is correct
  5. Structure the points in each box (i.e. group under headline, structure in sub-levels)
  6. Review potential relevance (and disregard as appropriate)
  7. Test whether statement is true and quantify where possible
  8. Review, prioritize
  9. Develop strategies based on the analysis:
    How to leverage strengths to exploit opportunities?
    How to address weaknesses to mitigate threats?

Mini Case

Anthropic[^1] is dedicated to developing AI systems that are safe and beneficial for society. The company is involved in various initiatives to ensure AI is used responsibly.

  • Review the provided External Factor Evaluation (EFE) matrix to understand the external opportunities and threats identified for Anthropic.
  • Research about Antrophic and identify some key strengths and weaknesses, focusing on key resources and dynamic capabilities. If necessary, make assumptions.
  • Complete a SWOT matrix by integrating the internal audit findings with the EFE matrix.
  • Develop strategies for each quadrant of the SWOT matrix and prepare a brief presentation summarizing your analysis and proposed strategies.

You have 30 minutes to complete this task and prepare your presentation.

Alternatively, develop a SWOT for The Browser Company

Review and consolidation

The following questions are designed to review and consolidate what you have learned and are a good starting point for preparing for the exam.

  • Listen to the decoder episode featuring Josh Miller, the cofounder and CEO of The Browser Company, and subsequently create a SWOT matrix based on the insights provided in the interview.
  • Why do you think the SWOT Matrix is the most widely used of all strategy matrices?
  • What other strategy matrices do you know? Name and explain one and compare it to the SWOT matrix.
  • Think of limitations of the SWOT matrix and related analysis. Name three limitations and relate them to the concept of dynamic capabilities.
  • Perform a SWOT analysis for Spotify [Netflix, OpenAI, NVidia …].
  • Do you agree or disagree with the resource-based view (RBV) theorists that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage? Explain your and their position.
  • What makes a resource valuable to a company? Give specific examples.
  • Explain the concept of resource heterogeneity. Why is it considered a crucial factor in determining competitive advantage according to the RBV?
  • How does resource immobility relate to the sustainability of competitive advantage?
  • How do dynamic capabilities enable firms to adapt and innovate over time?
  • What is the relationship between a firm’s resources, competitive advantage, and value creation for customers?
  • How does the RBV contribute to our understanding of why some firms consistently outperform others in the marketplace?
  • Give examples for the different ways IT/IS relates to dynamic capabilities.

Homework

Read Mintzberg (1978) and make notes on following questions:

  • Why and how does Mintzberg challenge the prevailing view of strategic planning (i.e., strategy formulation) as the primary approach to strategy formation?
  • How does Mintzberg propose to think of strategy formation instead?
  • Which patterns of strategy formation has Mintzberg identified? Can you provide examples of organizations that might employ each of these patterns?
  • Why and how can the aggressive, proactive strategy-maker as well as contingency planning be risky for organizations, particular in turbulent environments?
  • What practical implications can you draw from Mintzberg’s insights for organizations’ strategic management practices?

Q&A

Literature

Barney, Jay B. 1995. “Looking Inside for Competitive Advantage.” Academy of Management Perspectives 9 (4): 49–61.
David, F. R., and F. R. David. 2016. Strategic Management: A Competitive Advantage Approach, Concepts and Cases, Global Edition. Psychology Express. Pearson Education.
Drucker, Peter Ferdinand et al. 1988. “The Coming of the New Organization.”
Mintzberg, Henry. 1978. “Patterns in Strategy Formation.” Management Science 24 (9): 934–48.
Peteraf, Margaret A. 1993. “The Cornerstones of Competitive Advantage: A Resource-Based View.” Strategic Management Journal 14 (3): 179–91.
Steininger, Dennis M, Patrick Mikalef, Adamantia Pateli, and Ana Ortiz-de-Guinea. 2022. “Dynamic Capabilities in Information Systems Research: A Critical Review, Synthesis of Current Knowledge, and Recommendations for Future Research.” Journal of the Association for Information Systems 23 (2): 447–90.
Teece, David J, Gary Pisano, and Amy Shuen. 1997. “Dynamic Capabilities and Strategic Management.” Strategic Management Journal 18 (7): 509–33.