I/O Model Focus

Organizational analysis Environmental analysis

Strengths

Opportunities

Weaknesses

Threats

I/O Model: Above-Average Returns

External Environments
General Environment

Strategy dictated by the external environment of the firm (what opportunities exist in these environments?) Firm develops internal skills required by external environment (what can the firm do about the opportunities?) Outside-in

The External Environment

The I/O Model of Above-Average Returns

1. Study the external environment, especially the industry environment.
The general environment The industry environment The competitor environment

The External Environment An Attractive Industry

The I/O Model of Above-Average Returns

2. Locate an attractive industry with a high potential for aboveaverage returns.
An industry whose structural characteristics suggest above-average returns

The External Environment An Attractive Industry Strategy Formulation

The I/O Model of Above-Average Returns

3. Identify the strategy called for by the attractive industry to earn above-average returns.
Selection of a strategy linked with aboveaverage returns in a particular industry

The External Environment An Attractive Industry Strategy Formulation Assets and Skills

The I/O Model of Above-Average Returns

4. Develop or acquire assets and skills needed to implement the strategy. Assets and skills required to implement a chosen strategy

The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation

The I/O Model of Above-Average Returns

5. Use the firms strengths (its developed or acquired assets and skills) to implement the strategy. Selection of strategic actions linked with effective implementation of the chosen strategy

The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns

The I/O Model of Above-Average Returns

Superior returns: Earning of above-average returns

Resource-Based Model Focus

Organizational analysis Environmental analysis

Strengths

Opportunities

Weaknesses

Threats

Resource-Based Model
Each organization is a collection of unique resources and capabilities that provides the basis for its strategy

Capabilities evolve and must be managed dynamically (acquired and/or developed)

Differences in firms performances are due primarily to their unique resources and capabilities rather than structural characteristics of the industry

Resource-Based Model contd

Firms Resources Strategy dictated by the firms unique resources and capabilities

Find an environment in which to exploit these assets (where are the best opportunities?)
Differences in firms performances are due primarily to their unique resources and capabilities rather than structural characteristics of the industry

THE FIRM

Inside-out

Criteria for Resources and Capabilities That Become Core Competencies

Valuable
Allow the firm to exploit opportunities or neutralize threats in its external environment

Rare
Possessed by few, if any, current and potential competitors

Core Competencies

Nonsubstitutable
The firm is organized to obtain the full benefits of the resources

Costly to Imitate
When other firms cannot obtain them or must obtain them at a much higher cost

Resources

The RBV Model of Above-Average Returns

1. Identify the firms resources. Study its strengths and weaknesses compared with those of competitors.
Inputs into a firms production process

Resources

The RBV Model of Above-Average Returns

2. Determine the firms capabilities. What do the capabilities allow the firm to do better than its competitors. Capacity of an integrated set of resources to integratively perform a task or activity

Capability

Resources

The RBV Model of Above-Average Returns

3. Determine the potential of the firms resources and capabilities in terms of a competitive advantage. Ability of a firm to outperform its rivals

Capability

Competitive Advantage

Resources

The RBV Model of Above-Average Returns

4. Locate an attractive industry. An industry with opportunities that can be exploited by the firms resources and capabilities

Capability

Competitive Advantage
An Attractive Industry

Resources

The RBV Model of Above-Average Returns

5. Select a strategy that best allow the firm to utilize its resources and capabilities relative to opportunities in the external environment. Strategic actions taken to earn above-average returns

Capability

Competitive Advantage
An Attractive Industry Strategy Implementation

Resources

The RBV Model of Above-Average Returns

Capability

Competitive Advantage
An Attractive Industry Strategy Implementation Superior Returns Superior returns: Earning of above-average returns

The RBV Model

Resources

The I/O Model

The External Environment
An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns

Capability Competitive Advantage An Attractive Industry Strategy Implementation Superior Returns

SWOT Analysis
Framework: RBV Model Framework: I/O Model

Organizational analysis Strengths

Environmental analysis

Opportunities

Weaknesses

Threats