Internal Analysis Resource Based View (SMM)

Also referred to as the Inside-Out View of Strategy

The RBV suggests a competitive advantage is the result of organisations possessing
different resources (Barney, 1991).
Resources which cannot be duplicated are thought to allow firms to achieve and
maintain a superior performance over the competition (Barney, 1991).
Resources include assets and capabilities.
Assets are tangible, such as machinery (Dierickx & Cool, 1989).
Capabilities are routines or established processes that firms use to deploy their
assets (Dosi, Nelson and Winter, 2000) i.e. customer service. They are the skills of
an organisation.
Summary Notes

Superior firm performance lies within the firm and is internal

Here, unique resources are considered to be key to a competitive advantage
Assets tangible resources (what we own)
Capabilities skill set (what we can do)
Capabilities are the forefront of current thinking
Core competence theory
Dynamic capabilities are the forefront of RBV

Lecture 7 Notes

Situation Analysis practical application SOSTAC, staged strategic marketing plan.

External/Outside (MO theory) vs Internal/Inside (RBV)
Strengths and Weaknesses on the SWOT are internal discussing capabilities
RBV considered to be more favourable than MO in strategic planning
Layered business environment (Johnson & Scholes, 2002) and Internal analysis is a
key element to determine what the business can actually do and achieve with their
resources and capabilities.
Meek et al (2001) Internal analysis aims to:
identify the key assets and competencies upon which a strategic position can be built
explores the nature of organisational assets, competencies and capabilities.

Key area of RBV is assets, tangible internal resources that an organisation uses to
achieve strategic business goals, with the aim of developing a competitive
advantage. Competencies and capabilities work in a similar way, yet are skill based,
and provide a unique intangible means of achieving these goals.
Resource Based View

Overtook MO theory as a favourable approach in achieving a competitive advantage,

as it looks not only what is happening within the external environment i.e. markets
and competitors, but places more of an emphasis on internal resources and
capabilities thus focusing on what competitive advantage an organisation can
achieve with its existing skill set and assets.
Also referred to as the Inside-out view of strategy, as organisations use this approach
to look for competitive advantage from within the business first, as opposed to MO
theory, which is the alternative Outside-in response.
 Suggests that a competitive advantage is the result of organisations possessing
different resources (Barney, 1991).
These resources are looked at as part of a wider analysis with comparing the
differences to a competitor. I.e. resources a competitor does not have and cant be
duplicated (so are therefore unique) are thought to allow firms to achieve and
maintain a sustainable competitive advantage over rivals within the marketplace
(Barney, 1991).
Sustainable competitive advantage relates to having high profit and market share
over a long period of time, if not for ever (considered to be the holy grail).
EXAMPLE

One example of this is Tesco, who were thought to have a sustainable competitive
advantage within the supermarket industry, due to high quality products (asset) at
affordable prices (capability) in liaison with an innovative Clubcard scheme (asset).
Now this advantage is no longer sustainable, due to a market shift in value for less
money hence the arrival of Lidl and Aldi who fit the gap for this type of customer are
are rapidly increasing market share by offering this benefit at a more affordable price
(BBC, 2015).
Resources include assets and capabilities:

Assets are tangible, such as machinery or equipment (Dierickx and Cool, 1989).
Capabilities are routines or established processes that firms use to deploy these
assets (Dosi et al, 2000) i.e. customer service. Thus considered to be the skills of an
organisation.
- Capabilities are virtually invisible and difficult to see (hence why hard to competitors
to use/copy and develop a competitive advantage) and equate to skills of an
organisation i.e. skills of a product (Apple innovation team), or brand management
skills (superior branding i.e. British Airways) to be successful.
- There are many views as to what capabilities actually are, largely due to this being a
very new idea of internal strategic planning, as well as organisations finding
interpretations difficult in a deliberate attempt to avoid copy-cat behaviour and thus
lose their superior capability advantage achieved.
Core Competency Theory (Prahalad & Hamel, 1990)

To achieve growth, RBV suggests firms should exploit their assets and capabilities by
applying them to markets who value them.
For Apple, this is achieved on a mass scale, as innovative, attractive and
easy to use mobile phone handsets are valued by most mobile phone
consumers.
Management should identify a business core skills or competencies and further grow
their businesses by developing products which exploit these core skills and
resources.
Something a business is good at should be core to operations i.e. Honda engines
and should be used to achieve growth.
Tree Metaphor the root system of the tree is what is referred to as the core
competency and feeds or provides nourishment to leaves which are referred to as
company products (derived from core competencies).
EXAMPLE Competency/Capability
Hondas core competency (1960) was the production of good quality small petrol engines
reliability of engines was difficult and competitors often failed to achieve, thus demonstrating
Hondas capability in this area against competitors.
This was therefore applied to a range of markets, where Honda could apply this competency
to a range of divisions lawnmowers, cars, chain saws, motor bikes and power boat engines
thus exploiting the competency they have, maximising both growth and profit potential by
applying their existing skill set to markets where a gap had been identified.

Limitations of RBV theory:

Resources are sticky (Ghemawat, 2000) when invested assets are large, such as
planes or buildings, then they become very difficult to change quickly. Society is
rapidly advancing with the CIM stating that Britain and Western Europe are a double
espresso society, where caffeine is being used to keep on top of things. Technology,
markets, competitors and consumers are advancing and needs are constantly
changing (the digital era), so if a company invests in one specific asset, resource or
capability and then the environment changes, this business then becomes stuck
which leads to what is known as strategic wear out or strategic drift (Davidson, 1997).
So investing in unique resources is good, but this does not necessarily lead to a
sustainable competitive advantage, instead this leads to a temporary advantage.
Companies can deeply embed themselves in one capability and thus find it difficult to
change their skill set in a short period of time.
Thus change using the RBV is very difficult. I.e. Britain leaving the EU has a huge
impact on LCCs such as Ryanair, easyJet who have built companies on European
free access, as part of a single market. The results of the referendum have placed
these companies in jeopardy with easyJet stating they are likely to move the entire
organisation HQ abroad, in order to continue benefitting from EU business policies
and avoid further decline (CAPA, 2015).
The notion of core rigidities (Leonard-Barton, 1992) getting stuck - investing in a
specific capability/skill, or industry so far, that it is difficult to then get out or move into
another market i.e. the Airline industry, Virgin have deployed skills and capabilities
across a range of portfolio over a longer period, but for companies such as BA, they
would not be able to immediately move into another market due to a lack of skills in
other areas, and sticky resources (straightjacket).
RBV is too internal focused, and neglects the outside environment or MO theory,
hence why marketers use both the Outside-in and Inside-out approach to reflect a
wider view.
Limited empirical evidence, as RBV is only just emerging (Dutta et al, 2005) there is
limited practical examinations of RBV, there are limited examples of core
competencies or resources that have applied a sustainable competitive advantage.
Cannibalism - Apple

Internal Analysis Hooley et al (1998)

Using and performing an internal analysis focuses on 4 major categories of resources:

These help to organise and understand what activity is happening within a business,
so a business can therefore structure before making strategic choices in practice:

1. Organisational Assets
 Financial Assets/Awareness working capital, liquidity, sales performance
and profitability over the last 5 years.
Physical Assets Ownership/control of property and location/quality of
estate. What do we actually own? What have we leased so therefore do not
actually own? This can relate to liquidity ratio and have an impact on financial
assets available for reinvesting into a business resource or capability.
This can also be compared to competitors i.e. HTC 10 having a larger
battery than the iPhone 6S (Tech Radar, 2016) and so can generate
more customers.
Example of quality of estate include the curved phone patent that
Samsung currently hold after the launch of the S6, which currently is
one of the more innovative phone options out there. Apple have
patented a similar design, while Chinese manufacturer Huawei have
recently secured a similar design capability thus limiting the
sustainable competitive advantage Samsung may have held by
imitating this asset on their design (The Verge, 2016).
Operational Assets Manufacturing, machinery etc. Call centres, website
operations. Amazon have a fully integrated system where existing customers
can receive free instant call backs from the customer service team, to resolve
issues. Apple similarly have an instore genius bar, while Samsung have
launched 8 UK stores.
People Assets Quality of human resources and abilities. I.e. strong
customer services? Are there good reviews, do competitors have good
reviews? Apples genius bar is highly regarded, while Samsung have failed to
meet up to the same expectations, with their London Westfields store closing
a year after its first launch.
Legally enforceable assets ownership of copyrights, patents, franchise or
licensing agreements. BA (tied and associated with Britain) are limiting
themselves to what they can do by using the British element within the
aviation industry and therefore likely to be low trust if they branched out. Can
be linked to core rigidities these limit what the business can do at times.
Systems IT systems, CRM, loyalty databases i.e. Sainsburys Nectar and
Tesco Clubcard. Can customers be tracked? myWaitrose offers free coffee to
customers, but this cannot necessarily be tracked with many people reporting
to have abused the system offering incorrect sign up details for free tea and
coffee including homeless people thus causing a backlash from middle class
target audience.
Marketing/Customer Based Assets Hooley et al (1998)
1. Image/Reputation/Brand
2. Unique Products and Services
3. Country of Origin e.g. VW and Fiat
Relates to an analysis of a brand and the positive/negative aspects
The aim of this asset is to remove all negativity associated with the brand
Are there any unique products, uniqueness is important to a competitive advantage.
Are there unique routes/service to which the end product is achieved? I.e. Apple
demonstration products.
Find examples of unique products/services that give a competitive advantage.
If there is no difference between competitors then the consumer has more of a
choice and therefore loyalty will be hard to obtain and market share will be difficult to
 keep, especially if competitors then achieve more of a sustainable advantage by
upping their offering.
Country of origin effect can you play on the origin of design i.e. VW pride on
German excellence while Fiat play on the Italian element throughout the design and
in advertising. BA/Emirates achieve the same in the airline industry (heritage).
Can more be achieved using the marketing/customer based assets?

Distribution Based Assets (Hooley et al, 1998)

Assets associated with the activity of distributing products and services:
1. Level of control over distribution channel
2. Geographical coverage
3. Quality of distribution network e.g. ability to guarantee supply, lead times
and ability to react quickly
Where are products being sold, what is the network where products and services are
reaching? How many of these are effective?
Who are they being sold to? Tyrell crisps refuse to use Tesco as an intermediary due to
the high pressure on reducing prices from a premium crisp.
Thorntons pride on being a mass-market premium brand set choose to sell products in
stores such as Poundland or budget corner shops thus negating brand equity through
placing less emphasis on the related brand/distribution based asset, and negatively
impacting on consumer perception as a result (Mintel, 2015).
Internally Based Assets (Hooley et al, 1998)
Can some assets be exploited to give an advantage?
1. Cost structure in relation to competition
2. Information systems marketing research activities needed to gather,
distribute and interpret information across an organisation
Is the cost-structure hampering profits? I.e. is staff turnover too high? Do loyalty
systems allow for targeting customers directly across multiple channels? I.e. Boots send
targeted personalised vouchers via post based on past shopping behaviours?
Assets Based on External Relationships
Agreements with third parties, B2B relationships formal and informal which then provide
access to other resources:
1. Access to markets i.e. Daewoo and Halfords, Dell and PC World
2. Outsourcing Agreements used to gain capabilities
Unique ties with certain external companies i.e. Samsung Care in Carphone Warehouse
stores, Beats with Apple, HTC with Boomsound, HP with Bose Sound
Daewoo/Chevrolet selling cars with Halfords brought them success, teaming up internal
business to overcome strategic problems after failing to penetrate the British market
Security is a huge concern within the airline industry, i.e. the recent explosions in
Istanbul meant that airlines have had to liase with security teams to help negate
customer concerns.
 Negative publicity around external relationships can affect the way the organisation is
perceived, i.e. easyJet elderly customer being left for 5 hours at the gate after a failure
from third-party special assistance Omni-serv and Edinburgh airport (Telegraph, 2016).
Porters Value Chain (1985) The Body Shop
The VC describes the activities within and around an organisation which together create a
product or service:
1. Primary activities: are directly concerned with the creation or delivery of a
product or service
2. Support activities: help to improve the effectiveness or efficiency of primary
activities
Model to conceptualise/depict in one place what is happening internally within the
business, what is controlled and what can be improved on if there are any negative
processes
Primary and support activities to help with strategies
There are core levels of activities which assist in serving the customer based on areas
such as manufacturing, operations, products, marketing and services
Primary Activities

Inbound Logistics: Activities concerned with receiving, storing and distributing inputs
(raw materials) used to make a firms products i.e. stock control, transport.
Operations: Transform inputs into the final product i.e. machining, packaging,
assembly, testing.
Outbound Logistics: Collection, storage and distribution of products to customers i.e.
warehousing, transport.
Marketing & Sales: Provides the means whereby customers are aware of a product
as well as allowing them to purchase i.e. sales admin, advertising and direct marketing
Service: Includes all those activities which enhance or maintain the value of a product
i.e. installation, repair, training, spares. Customer service?
Support Activities

Procurement: Refers to the process of acquiring the various resource inputs for the
primary activities
Technology Development: All activities have a technology, even if it is just know-how.
I.e. R&D, product design, process development, raw material improvements. This is
the innovative capacity of the form.
HRM: Activities concerned with recruiting, managing, training, developing and
rewarding employees.
Infrastructure: The system of planning, finance and quality control etc. are important
to an organisations performance in its primary activities.
Innovation Audit Kim & Mauborgne (1997) aspect of value chain

Research suggests there is a relationship between sales/profits and the level of

innovation
Pioneering products and services tend to provide increased sales and profits, and
usually allows the charging of a higher price point
Untapped population mass market lower levels of income provide a large market i.e.
India where you can purchase a brand new Tata for 1,000.
3 categories of innovation:
1. Settlers/Me-too: me-too products and services
2. Migrators/Value Improvement: Products and services that offer some value
improvement over the competition i.e. Lidl, Aldi or Tesco express quicker and
convenience
3. Pioneers/Value Innovator: Product and services that represent value innovations
and create new markets e.g. Apple
Successful organisations should have a balanced portfolio of products and services

Examples, Apple, The Body Shop, Thorntons (internal audit of products based on
innovation)
Value Innovators Defined:

Dont take into account the dynamics of industry completely against market
orientation.
Completely ignore what is going on, and instead look for blockbusting ideas. I.e. Apple
model has an idea for a product and tries to blow the competition out of the water
The goal or ambition is therefore to dominate the market - which Apple are shown to
have done very well
Dont benchmark against competitors, so go against marketing orientation theory.
(Focus on competitors, so they can then look at doing better activity)
Do not exploit resources, if they have an idea then they will get the resources they
need to offer certain products so this is going against the resource based view where
you look at what you have and what you can do with this.
Resource free dont let existing resources constrain them. Successful businesses
such as Apple are able to be in this position, and while Samsung try to adopt this me-
too behaviour, they fail in this effort due to the level of resources required. A recent
decline in sales mean they cannot afford to keep up with the competition and thus
have closed Samsung experience stores.
build on commonalities in features that customers value

This means they go for a mass-market approach, what is the one thing that everyone
values? They dont focus on small-niche markets such as Ferrari or Bentley, they want
everyone on their product i.e. Apple model, or Nandos that go for market domination
which is against segmentation theory (generational cohort theory) this is also why it is
very difficult to move Samsung files over to an Apple device, because Apple want
customers to be loyal.
clean slate approach we dont let what we can do today, condition what it takes to
win tomorrow
think in terms of the total solution that buyers seek
offering unprecedented value

Blockbusting ideas that think in terms of total solution, so the Apple iPhone has affected
the camera market, mp3 market (strong decline), gaming market, tv streaming market
All in one item, so thus people are willing to pay a premium for this product.

Examples of value innovators

Apple
 Dyson vacuum market, struggled to dominate elsewhere
Virgin have this ability in a range of industries, although now are
largely competing with Sky within the Cable TV market
Dell create your own laptop dominated for a while, but Apple and
other companies now offer more innovative solutions i.e. MacBook,
HP and Lenovo transformer pads.

Criticisms

This approach is similar to product orientation creating new innovative products. Does
this always work when not considering MO theory? Dyson is one example of a product
where consumers didnt want the product. A highly priced, purple washing machine that
did not fit within the given space in a kitchen. Dyson failed to look at the competitive
market and withdrew from the market within a year.
This is an example of costly and disruptive resources that can negatively impact on the
business in the long term.
Further knowledge would be required in order to be successful, yet this would result in
further cost and resources
Competitor replication e.g. Apple. Apple need to be constantly on top of their game,
with Samsung their biggest threat (constant lawsuits between the two), always
replicating each others ideas.
If a company is constantly bringing out new phones, new TVs and new technology,
eventually consumers will get a bit fed up leading to innovation wear out i.e. if a person
has purchased a TV 5 months ago, why would they then buy a new one?
Rapid change in PLC of TV:

Widescreen
Flatscreen LCD
LED
Smart LED TV
HD
Curved OLED
4K
UHD

PLC can be applied to product classes, brands and companies

Diffusion of Innovation (Rogers, 1983) over time

Illustrates the rate/pattern in which new to the market products are taken up
Model is useful in identifying potential target markets for new products

Innovators Consumers who embrace new ideas, prepared to pay

high prices to be the first in the market E.g. Apple iPhone
Early Adopters Slightly slower than innovators to adopt, likely to
seek information pre purchase
 Early Majority More risk averse
Late Majority Cautious about new products
Laggards Averse to change, very price sensitive, last in market to
adopt
Teece et al (1997) Terminology

Assets/Resources Things we own

Competencies Exploiting what we have
Capabilities (Dynamic/Flexible) Skill set

Unique Firm specific assets/capabilites that are difficult if not impossible to

Resources imitate. Trade secrets and certain specialised production facilities and
engineering experience are examples of this.
Provide a competitive advantage
Capabilities These relate to activities that constitute organisational routines and
processes i.e. the skill set involved in maximising resources to produce
the end product or service. Examples include quality/systems
integration.
Core Its best endowment against competitors what does the business do
Competencies best and how can this be exploited so other products can benefit?
I.e. Apple innovation leads to all Apple products
Dynamic Firms ability to integrate, build and reconfigure internal and external
Capabilities competencies to address rapidly changing competencies. How flexible
is our skill set to a changing market? Apple is a good example of this.
Dynamic capabilities thus reflect an organisations ability to achieve
new and innovative forms of competitive advantage given market
position (Leonard-Barton, 1992)
Products End products are the final good and services produced by the firm
based on utilising the competencies that it possesses.
The performance of the product (price/quality) relative to its
competitors at any time will depend on its competencies and over time
on capability