COMPETING ON
RESOURCES
A COMPREHENSIVE STUDY OF ARTICLE BY DAVID J. COLLIS
AND CYNTHIA A. MONTGOMERY
SR8_HIMANSHU ARORA
BRIEF HISTORY OF
STRATEGY
• Strategy: Match between what a company can do within the universe of
what it might do; (The Concept of Corporate Strategy: Richard D. Irwin)
• This highlighted organisation‟s strengths and weaknesses with respect to
environmental opportunities and threats
• This framework, however, gave very few specific insights about how to assess either side of
the above equation
• There was a need for specific tools, framework
EVOLUTION OF STRATEGY
THEORIES
Porter‟s Competitive Resource Based View
Core Competence
Strategy (RBV)
• Structure of industry • Emphasized importance • Acknowledges
determines state of of skills & collective importance of
competition & learning in the company specific
profitability organisation resources, yet in the
• Structural forces • This view holds that context of competitive
(Porter‟s Five) set roots of competitive environment
the base for advantage are within • Relies on economic
individual corporate the organisation reasoning
strategies
RESOURCE BASED VIEW FOR
STRATEGY
• This view combines Internal analysis within companies with the External
analysis of industries & competitive environment
• RBV sees companies as very different bundles of physical & intangible assets and capabilities
• These assets & capabilities determine a company‟s effectiveness & efficiency in performing its
functions
• So, the best and most appropriate stock of resources guarantee a position for success
• Hence a company must enquire into what the most valuable resources are?
COMPETITIVELY VALUABLE
RESOURCES
• There are 5 tests (questions) to determine whether a resource is valuable with
respect to the industry dynamics
1. The test of inimitability: Is the resource hard to copy?
2. The test of durability: How quickly does this resource depreciate?
3. The test of appropriability: Who captures the value that the resource creates?
4. The test of substitutability: Can a unique resource be trumped by a different resource?
5. The test of competitive superiority: Whose resource is really better?
STRATEGIC
IMPLICATIONS
• Managers should identify & build their strategies on resources that meet the
Five Tests
• However, companies must realize that the value of these resources is inevitably
eroded by time and competition
INVESTING IN
RESOURCES
• Corporate strategy: Continual investment in building & maintaining valuable
resources
• Theory of core competence identifies that often the resources take a back seat to optimize
current divisional profitability
• So, the corporate office has to act as a guardian of the „crown jewels‟ of the company
• However, caution must be taken as core competencies may not be what the industry
requires, and investing thus may become redundant
How Marks & Spencers’ Resources gave it Competitive Advantage
Resource Competitive Advantage
1% occupancy costs versus
Tangible Freehold Location
3% to 9% industry average
Customer recognition with minimal advertising
Brand Reputation
No Promotional Sales
Intangible
Lower labor turnover, 8.7% labor costs versus
Employee Loyalty 10% to 20% industry average
Lower costs and higher quality of
Supplier Chain
goods sold
Capabilities
Fewer layers of
Managerial Judgement hierarchy
UPGRADING
RESOURCES
• Companies may find themselves in a situation where they don‟t possess
valuable resources or they have been imitated by competitors
• Hence companies must constantly upgrade the number and quality of their resources
• Approaches to upgrading
• Adding new resources
• Upgrading to alternative resources that are threatening company‟s current capabilities
• Upgrading its resources in order to move into a structurally more attractive
industry
GROWTH MATRIX
High Growth High Market Share Low Market Share
High Growth
● Either Invest or
● Rapid Growth
● Discard
● Expansion
Low Growth
Low Growth
● Milk them to ● Liquid
reinvest the cash ● Diverse
● Reposition
LEVERAGING
RESOURCES
• Question a strategist must ask: “how far can the company‟s valuable
resources be extended across markets?”
• However, corporate diversification often falls prey to 3 common & costly strategic
errors
• Managers overestimate the transferability of resources; they themselves can‟t imitate their
resources across different markets
• Managers overestimate their ability to compete in highly profitable industries; entry barriers
are usually resource barriers as well
• Managers assume that leveraging generic resources, like lean manufacturing, will fetch them
competitive advantage in the new market without even studying industry dynamics
• Despite pitfalls, rewards for leveraging resources are high
LEARNI
NGS
Whether a company is building a strategy based on core competencies, learning organisation or
organisational culture, these can all be interpreted as building a unique set of resources.
However the selection and use of these resources must be done with a sharp eye on the dynamic
industry context and competitive situation.
THANK YOU FOR
YOUR TIME!
HIMANSHU
ARORA
1301-528
SECTION – B
PGDM 2013-15
