business analysis
ELEVEN NN
model4forstep3---MGMT490purposefulcompetitiveadvantageandlaerning-knowledgeresourcesandglobalvaluechains.pptxStrategic Performing – Purposeful Organizational Value
Agenda
Opening case
Forming Purposeful Organizational value
Competitive value
Knowledge-based view hypothesis
Resource-based view hypothesis
Supplementary value
Global Value Chain (value system) hypothesis
Transforming value limitations through complementary value linkages
Core-competence view: limits of organizational learning
Alternative stakeholder view: entropy factor
Upgrading strategies: complementary linkages with included and excluded stakeholders
Case: Aga
Opening case
Disney has three key resource portfolios that are all difficult to substitute for any competing firm:
a large library of content that the whole world knows and emotionally connects with
a large portfolio of synergistic objects to build emotional connections upon
many different ways and places to promote its products
These portfolios are based on several resources, of which two are particularly difficult to imitate:
A culture focused on inventing and innovating around fun
Disney’s unique advantage in the marketplace
A brand name that engages all stakeholders around its mission to deliver fun
Knowledge-based view hypothesis
The Knowledge-based View (KBV) makes a distinction between resources and capabilities:
resources are tradable and non-specific to the firm, i.e. they may be purchased and they may diffuse to other firms
capabilities deploy and engage resources that raise the productivity of those resources
The KBV focuses on the knowledge factor undergirding the capabilities of a firm
The KBV hypothesis states that each firm has its own “unique” trajectory or path of capability development, which gives rise to heterogeneous bundles of resources and ways of combining and customizing these resources for specific deployments. This firm heterogeneity is the key to a firm’s competitive advantage and its sustainability
Knowledge-based view hypothesis
The KBV builds on three important organizational theories:
Hetergoneity or uniqueness of a firm's knowledge base, i.e. capabilities
The evolutionary theory -
local knowledge processes, i.e. organizational routines for articulation, replication, integration and combination
Organizational learning theory - local learning by doing & by using
Increasing returns theory -
economies of scale and scope from knowledge transfers
Knowledge-based view hypothesis
In dynamic environments, the assumptions of the three constituent theories of the KBV – evolutionary theory, organizational learning theory, and increasing returns theory – are often compromised:
| The evolutionary theory | The organizational learning theory | The increasing returns theory |
| In dynamic environments, organizational survival depends on having a diversity of knowledge and resources (Nannen, van den Bergh & Eiben, 2013) | In dynamic environments, the subjective forms of knowledge become more important; the basis for heterogeneity shifts to cognitive, emotional and relational processes | In dynamic environments, the value of information tends to depreciate rather quickly and the costs of articulating the tacit knowledge also escalate rather rapidly |
Resource-based view hypothesis
The resource-based view (RBV) focuses on a firm’s internal characteristics, identified in terms of its portfolio of resources. Sustainability of competitive advantage in RBV depends on the ability of competitors to use same or substitute resources to deliver similar or superior performance
Barney’s (1991) VRIN framework has been a popular approach to apply RBV in practice. According to VRIN framework, superior value-adding performance of a firm arises from resources that are “valuable”, “rare”, “inimitable or non-tradable”, and “non-substitutable”
We adapt it as NIRV framework, one considers two input characteristics (N and I) and two outcome characteristics (R and V):
Non-substitutability: How difficult it is to substitute the key resource-portfolios of a firm?
Inimitability: How difficult it is to imitate the constituent resources of a firm’s portfolio?
Rare: Does the firm have a unique (rare) advantage in the marketplace?
Valuable: Is the firm able to accrue sufficient value, in terms of profitability, market share and reputation?
Resource-based view hypothesis
The RBV identifies two types of erosions that threaten sustainability of a firm’s competitive advantage: direct imitation or copying of a successful firm’s resource portfolios by other firms, and substitution of the resource portfolios by other firms through trading or mobility of constituent resources in the market
The RBV hypothesis states that “isolating mechanisms” mitigate and nearly eliminate the threat of these erosions, and enable sustainable competitive advantage
-Social complexity
-Asset specificity
-Tacitness
Isolating mechanisms
Causal ambiguity
Path dependency
NIRV test for erosion and value
No substitution through trading or mobility?
Inimitable resources?
Performance
Basis for competitive advantage
Competive exclusivity
Rare advantage?
Value accrual sufficient?
Sustainability of competitive advantage
Resource-based view hypothesis
Three Isolating Mechanisms and their limitations
| The causal ambiguity assumption | The path dependency assumption | The competitive exclusivity assumption |
| A firm’s resources are tied to its broader resource portfolios, coordinated across multiple groups and developed through unique history and experiences Other firms may still construct functionally equivalent, yet different, set of resources focusing on under-served and overlooked market niches | A firm’s resource portfolios build upon its prior resources, without which they will not be the same However, other firms may also have accumulate a high possibility resource portfolio from different points and along different paths | A firm makes efforts to impede substitution and imitation by competitors Dynamic environments limit the effectiveness of a firm’s efforts to exclude competitors |
Value System View Hypothesis
In order to effectively manipulate different forms of value linkages, the firms should adopt a systems view of value linkages
Value system is the entire spectrum of linkages among the successive tiers of suppliers and the successive tiers of customers
A Value System Connecting Successive Tiers of Suppliers and Customers:
A value system analysis seeks to discover opportunities for restructuring network-wide exchanges, such as which processes should be emphasized and which firms should perform these processes
Value System View Hypothesis
In modern times, the analysis of value system has been motivated by a range of concerns:
Economic Impacts in the Industrial Markets
Cost-effectiveness of the Industries
Impact on Corporate and Regional Competitiveness
Social Impacts in the Emerging Markets
Global Environmental Impacts
Market Orientation and Participation
Value System View Hypothesis
Buyer-driven Kenyan Aloe Export Value System
Value System View Hypothesis
In economics, value or profits accrued by different participants in a value system is referred to as ‘rent’ (Kaplinsky, 2000). Rents from linkages in a value system derive from four sources:
Monopolistic rents
Neo-classical rents
These are associated with the ability of firms to shape the structure of market relations in their favor, using monopoly power and anticompetitive tactics
Resource rents
Ricardian rents
These are associated with the ownership of scarce resources
These are associated with the institutional indicators, such as superior policy and regulatory framework, lower corruption and bureaucratic hurdles
Schumpeterian rents
These are associated with the endogenous knowledge-based initiatives of the firms
Institutional rents
Douglas North’s rents
Entrepreneurial rents
Transforming Organizational Value beyond limits of Learning
Core-competence view
The Core competence view – first articulated by Prahalad and Hamel (1990) -- makes a distinction between the knowledge processes of articulation and replication, referred to as competencies, and knowledge processes of integration and combination, referred to as core competencies. Unlike RBV, the concept of core competence is conceived at the corporate level
Prahalad and Hamel (1990) recommended three tests for identifying core competencies of any corporation:
A core competence is difficult for competitors to imitate or trade because it is a complex harmonization of individual technologies and production skills
A core competence provides potential access to a wide variety of markets
A core competence makes a significant contribution to the perceived customer benefits of the end product
Core compe-tencies
Social Complexity
Knowledge combination
Core products
Economies of scope
End products
Perceived customer benefits
Firm perfor-mance
Creates competitive advantage
Sustains competitive advantage
Knowledge integration
Core-competence view
An important weakness of CCV – too much and too long focus on a specific set of core competencies, based on a specific set of skills and technologies, will actually make a firm’s core competencies a ‘core rigidity’ (Leonard-Barton, 1992)
Use planning to scan environment for alternative stakeholders and for alternative stakeholder values
This helps solve entropy challenges
Alternative Stakeholders View
Entropy mechanisms under dynamic environments
Three major factors contribute to entropy in dynamic environments, and are referred to as “eroding mechanisms”. Eroding mechanisms counter the isolating mechanisms, and limit the ability of the firms to sustain their strategic advantage
Entropy in Competitive advantage
Eroding mechanisms
- Nonconsumer mainstreaming
- Political powerplay
- Globalization games
Isolating mechanisms
- causal ambiguity
- path dependency
- competitive exclusivity
Entropy mechanisms under dynamic environments
There are three major eroding mechanisms:
| Nonconsumer mainstreaming | Political powerplay | Globalization games |
| Entrants often succeed by targeting nonconsumers, i.e. addressing the needs of those presently not consuming a product, and being underserved and overlooked | Political powerplay is of three major types – predatory, regulatory, and reputation | Three types of globalization games may erode the advantage of established firms- development games, trade games, industry games |
Upgrading Strategies view for Complementary value linkges
Upgrading programs are technological, institutional, and market capabilities that allow firms (or communities) to improve their competitiveness and move into higher value accruing (i.e. rent-rich) activities (Mitchell, Keane & Coles, 2009). Upgrading programs allows firms to improve their position in existing value system, while also accessing alternative value system. There are seven types of strategies for a firm seeking to upgrade linkages in its value system:
Process upgrading
Product upgrading
Functional upgrading
Horizontal coordination
Vertical coordination
System upgrading
Context upgrading
A Typology of Upgrading Strategies in a Value System
In practice, it is difficult for the firms to implement any of the upgrading strategies in isolation. Business strategy may be based on three major upgrading sequences:
Ascending upgrading strategy
Emerging market firms succeed using a bottoms-up upgrading sequence
Horizontal upgrading strategy
Descending upgrading strategy
Government, MNCs, or a “lead party”, may decide to invest in system upgrading, in response to the demands from the society or the customers, or to support their development priorities and agenda
Association with others facing similar barriers pools available resources and brings power to overcome the barriers, and to connect with appropriate vertical links in the system
Video case: Aga
In 2008 sales of the iconic British Aga company fell dramatically, and the company had to cut jobs. Now it is looking into fueling its growth by tapping into Chinese market. These are the certain challenges the company faces with this strategy:
Aga produces baking stoves, popular in England Aga cookers are quite big Aga hired a local Chinese company to reduce intellectual property rights infringement
Chinese consumers prefer gas stoves
Chinese houses are small and present a need for a compact cooker Risk of copycats and imitators of Aga is very high
Business Environment
Foreign regulations Kenyan Forest Act Corruption in Licensing Social prejudices
Drought relief Conflict & insecurity Legal system Land tenure
Business Services
Buyers in
Europe, Middle
East, South Asia
P=$700/kg
Re-exporters
South Africa
P=$200/kgExporrtersMombasaP=$120/kgBrokerage
agents in
NairobiTraders in
Eldoret and
urban regions
P=$75/kg
SAP Processors
in rural areas
P=$50/kgAloe Harvesters
in rural areas
PackagingShippingRoad transportMarket informationStorage & Bulking upQuality controlFuel saving technologyHarvester coordinationTechical extension
