1. How does value chain analysis help you understand outsourcing decisions? In your opinion, how do companies typically make outsourcing decisions? How should they make them? (A reply of 200 words). 2

Topic 3a Internal Environment – Resources Internal versus External Analysis Industry analysis explains the variation in performance across industries, but does not explain the variation in firm performance within an industry Resource - Based View Firm : A bundle (not random collection) of resources Strategic Resources: All assets, capabilities, organizational processes, information, knowledge, routines etc., controlled by a firm that enable it to develop and implement value -creating strategies Competitive Advantage: Derives from a firm’s endowment of strategic resources Resources • Resources ➢ Tangible resources • Financial resources • Physical resources • Technological resources • Organizational resources ➢ Intangible resources • Human resources • Innovation resources • Reputation resources Tangible Resources • Financial Resources • Cash • Borrowing capacity • Capacity to raise equity • Organizational Resources • Formal reporting structure • Formal planning, control, and coordination systems • Physical Resources • Plants, facilities, and equipment • Location • Technological Resources • Stock of technology, such as patents, trade -marks, copyrights, and trade secrets • Production processes Intangible Resources • Human Resources • Employees’ skills and experience • Trust • Managerial skills • Organizational practices and routines • Innovation Resources • Ideas • Scientific skills • Capacity to innovate • Reputation Resources • Reputation with customers for quality, durability, and reliability • Brand name • Reputation with suppliers for fair and positive -sum relationships Ordinary or Extraordinary Extraordinary resources are better known as “core competencies”. I prefer the more common term, while the text uses the term extraordinary Capabilities • Capabilities ➢ Organizational, not individual ➢ Capacity to deploy resources • The value of resources is different from the value managers can extract from them (resource orchestration ); e.g. poor orchestration may extract little value even when resources are valuable. ➢ Skills to transfer inputs into outputs ➢ Emerge over time through complex interactions among tangible and intangible resources ➢ Based on knowledge exchange and transfer among individuals and groups Capabilities as Best Practices • Reflect excellent capabilities in a particular functional area • Executives are quick to spot best practices in other companies and implement them in their own • Very often they create the impression that this is enough to maintain their competitive advantage • Is this so? • Implementing industry best practices is important, so that companies do not fall behind and lose competitive advantage; they help them stay afloat • But best practices are not enough to generate significant competitive advantage; except possibly in the short run Dynamic Capabilities • If not best practices, then what do they need? • Dynamic capabilities – the ability to sense entrepreneurial opportunities, seize them by making investments, and reconfigure resources in the organization to adapt to changes in the external environment Sensing Seizing Reconfiguring • Sense – opportunity recognition imperative; entrepreneurial function of managers • Seize – combination of opportunity recognition and value creation imperative; overcome tension between prior resource commitments and new investments • Reconfigure – value creation imperative; requires organizational change ( e.g., main point from Assignment 1 – ethical initiatives that resolve the tension above also contribute to financial performance and competitive advantage) Core Competencies = Extraordinary resources • Core Competencies ➢ (strategic assets, strategic capabilities, critical capabilities) ➢ “crown jewels of a company”, activities that a firm performs especially well compared to rivals , and through which the firm adds unique value to its goods or services over a long period of time • Examples ➢ Apple’s new market creation model ➢ Starbucks’ skills at ethically sourcing goods ➢ Kellogg’s reputation for safe and nutritious food products ➢ Robinhood’s service of low -cost stock trades ➢ Beyond Meat’s sustainable business model Core Competencies To be a Core Competence, a Resource Must be:

• Valuable ➢ Help a firm neutralize threats or exploit opportunities (ex. Amazon’s distribution capacity allows them to offer 2 -day shipping reliably) • Rare ➢ Not possessed by many others (ex. few others have a comparably reliable and large -scale distribution fulfillment capability) • Costly to imitate (by others) ➢ Ex. everyone understands the value from fast and reliable shipping, but building such a capability requires a cumulative set of investments over time • Non -substitutable ➢ No strategically equivalent substitutes (ex.

attracting customers to a brick & mortar store is a strategic alternative to shipping online orders, but fulfills a different customer need) This is also called the VRIN criteria Valuable Rare Inimitable Non -substitutable Sources of Inimitability • Physical uniqueness ➢ A resource may be inimitable because it has unique location or is protected by a patent • Unique history ➢ Capabilities may be developed through unique experiences, such as building an organizational culture, brand name, or ethical reputation • Causal ambiguity ➢ This is related to the complexity of knowledge needed to perform an activity. While employees know how it works, those from outside have a hard time figuring out the causal relationships in applying a competence. • Social complexity ➢ Capabilities may be unique because they rely on unique interpersonal relationships within a team, group, or network. Building such ties may require cultivating trust, aligning skillsets, or forming friendship among employees or managers, or with other stakeholders