Evaluating the Internal
Environment
Chapter 4
Managing Firm Resources
• Resource-based view. This model examines any resource and/or
capabilities of the rm that may provide a competitive advantage.
• VRIO framework is used to evaluateeach resource or capability to
determine what type, if any, of competitive advantage it brings.
• Patents or isolating mechanisms can reduce or eliminate temporarily
the opportunity for a rival to imitate, which may create a sustained
competitive advantage.
• Value Chain Analysis is another tool for internal assessment wherein
each element of a rm's primary and supportive activities are
examined to see if it can provide a competitive advantage over its rival.
• Once the external and internal assessments are complete, the rm can
use the most relevant information to develop a SWOT analysis and
identify the most pressing strategic issue the rm must address.
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Resource-Based View
• Resources that re ect all four qualities - valuable, rare, di cult
to imitate, and organized to capture value - are ideal because
they can create sustained competitive advantages. A resource
that has three or less of the qualities can provide an edge in the
short term, but competitors can overcome such an advantage
eventually.
• Firms often bundle together multiple resources and strategies
(that may not be unique) to create uniquely powerful
combinations.
• Satisfying only one or two of the four qualities will lead to
competitive parity or a temporary advantage.
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Resources and Capabilities
• These two are the basic building blocks that organization use to
create strategies. These are tightly linked - capabilities from using
resources over time.
• Two Main Types: Tangible and Intangible.
• Tangible resources are resources that can be readily seen,
touched, and quanti ed (eg. property, plant, equipment)
• Intangible resources are resources are quite di cult to see,
touch, or quantify (eg. knowledge and skills of employees, rm's
reputation, brand name, exclusive rights to intellectual property,
leadership traits of executives, rm's culture.) Intangible resources
meet the criteria for strategic resources (ie. valuable, rare, di cult-
to-imitate, and organize to capture value) than tangible resources.
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Intellectual Property & Isolating Mechanisms
• Intellectual Property refers to creations of the
mind such as inventions, artistic products, and
symbols
• Four Main Types: patents, trademarks,
copyrights, and trade secrets
• Some forms of intellectual property are best
protected by legal means, while defending
others depends on surrounding them in secrecy.
Intellectual Property & Isolating Mechanisms
• Patents are legal decrees that protect inventions from direct
imitation for a limited period of time.
• Trademarks are phrases, pictures, names, or symbols used
to identify a particular organization.
• Copyrights provide exclusive rights to the creators of original
artistic works as books, movies, songs, and screenplays.
• Trade secrets refer to formulas, practices, and designs that
are central to a rm's business and that remain unknown to
competitors.
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Isolating Mechanisms
• If a rm can prevent a competitor from imitating the resource
or capability that gives it a competitive advantage or sustain.
• Social complexity creates a barrier to imitation and can
prolong a competitive advantage possessed by an
organization.
• Path dependence can serve as isolating mechanism to block
competitors from gaining the same position in the market.
• Causal ambiguity means the reason for achieving a
competitive advantage is not apparent.
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Value Chain
• Value chain charts the path by which products and
services are created and eventually sold to
customers. It is used as an internal assessment
tool to help a rm determine where it might be
able to achieve a competitive advantage over its
rivals.
• It is evaluated using VRIO framework to determine
what type of competitive advantage they provide.
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