hi i'm dr ronald and this is a module on the resource-based view of an organization as an organizational framework the resource-based view determines the strategic resources that an organization can exploit and deploy to gain and sustain a competitive advantage when combined with the capabilities of an organization these firm specific resources form the competencies of a firm because of this resources are viewed as internal strategic assets that when combined and exploited in the right way can help the organizations pursue a sustainable competitive advantage but since resources from the form the core of the resource-based view it makes two fundamental assumptions first resources and capabilities are heterogeneous among close competitors which means that their structure and composition differs throughout the players in the industry in significant ways and it is those differences that allows organizations to build their competitive advantages or expose themselves to a disadvantage the market value of more strategic resources is natural but meaningful when those firms specific resources are used as drivers to build competitive differences second resources or the resource-based view believes that the resources attached to a firm cannot move quickly to different firms because of this inability to easily copy and transfer resources it is difficult for competitors to replicate the resources or resource combination of each other in the same industry therefore the resource differences that exist between rivals in the same industry can remain for quite an extended period of time these two assumptions about resources are critical to explaining superior firm performance in the resource-based model an organization's resources are all its assets capabilities organizational processes information knowledge and so on and so forth under its direct control to develop and implement value creating strategies in short resources are any assets that the firm can draw on when formulating and executing its strategic plan an organization can control three different types of key resources one tangible resources their physical capital two intangible resources which are called their human capital and three organizational capabilities their organizational capital tangible resources are simple to recognize the assets of an organization a firm uses these physical or financial assets to create value for their customers for example equipment machinery inventory vehicles land buildings and especially money cash but also the ability to raise money or the ability to borrow money while tangible resources are reasonably easy to copy by the competition rivals find it more challenging to reproduce the intangible resources of their competitors but this also makes it quite tricky for the firm itself to determine and assess its intangible assets and exploit them for their strategic benefits an organization usually embeds its intangible resources in its unique routines and practices that have evolved and accumulated over time over time throughout their operations for example experiences and capabilities of their employees patents copyrights and licenses even their own developed software algorithms or especially their brand reputation organizational culture and any kind of know-how that the organization might have on the other hand organizational capabilities are not specifically tangible or intangible assets but rather the abilities skills or competencies a firm employs in its operations to create value in short organizational capabilities point to an organization's capacity to deploy tangible and intangible resources over time to transform inputs into outputs for example outstanding customer service or excellent product development capabilities innovativeness in their product and services or just the simple good ability to hire motivate and retain their human capital now in an organization capabilities are the managerial skills essential to arrange and compose a diverse collection of firm resources to deploy them strategically capabilities are integrated into a firm's structure routines and culture and thus are by definition intangible to be exact the capabilities of an organization are its collective skills abilities and expertise they refer to the conditions of having the capacity to do something and within these conditions there is a potential for improvement of set skills abilities and expertise a competence on the other hand is the improved version of such a capability capabilities directly result from improving people-related areas such as communication training compensation and other hr related functions they reflect the identity and character of the organization by defining what the firm is good at doing and what its strategic position is in the context of its competitive environment for example apple's capabilities for competitive advantages are the unique design innovation capability and a very powerful brand image to formulate and implement a strategy that enhances the firm's chances of gaining and sustaining a competitive advantage the firm must have specific resources and capabilities that it can combine to form its unique core competencies the most highly successful firms can consciously and continuously identify their core competencies resources and capabilities to survive the uncertain and turbulent forces their external business environment exposed them to but these firms also determine how to manage and develop internal strength to response to these challenges uncertainties and opportunities in particular firms evaluate and develop strength in their internal operations to match the context of external pastel trends and the forces of their competitive environment now so how can an organization create and sustain a competitive advantage ahead of its rivals and what are the roles resources and capabilities of a firm play in formulating strategies and pursuing these advantages resources and capabilities are internal strategic assets that when combined from the core competencies unique to a specific firm the firm deploys its core competencies to leverage its operational activities to gain and sustain a competitive advantage in the industry since the firm based the strategic advantage on its core competencies it is difficult for its rivals to understand or replicate them underneath the products and services that make up the visible side of competition lies a diverse set of invisible competencies that make this happen competencies companies develop these core competencies through the interplay of resources and capabilities resulting in superior firm performance a firm typically extends and reinforces its core competencies over time to follow a path or trajectory a fundamental weakness is that once they set the evolutionary path of their core competencies they become entrenched and hard to change when required a strategic login happens when those core competencies are inflexible and cannot change quickly but an organization needs to manage its core competencies in a more agile and dynamic manner over time to account and adjust for changes in the business environment activities are distinct and fine-grained business processes such as order taking the physical delivery of products or invoicing customers each specific activity enables firms to add incremental value by transforming inputs into goods and services in the interplay of resources and capabilities resources reinforce core competencies while capabilities allow managers to orchestrate them strategic choices find their expression in a set of specific firm activities which leverage core competencies for competitive advantage the errors leading back from competitive advantage to resources and capabilities indicate that above average performance in the industry produces profits that the firm can reinvest into the firm and in retaining these earnings a firm can further fine-tune and upgrade its resources and capabilities in the pursuit of achieving and maintaining a strategic fit within the dynamic business environment they're operating in besides this dynamic loop of creating a competitive advantage there are two more noteworthy facts about core competencies first unless continuously nourished core competencies will eventually lose their capacity to generate a competitive advantage remember nokia or kodak how they failed to do so and then at the end perished second it is easy to get lost focusing on the visible components of core competencies like better products or services when analyzing its success in the industry while these are very apparent displays of the firm's core competencies it is even more essential to grasp the intangible components that lie underneath like innovativeness and creativity of an organization and their paths now the rio framework offers a means to identify strategic resources to build and sustain a competitive advantage the framework determines if a resource capability or competency is valuable rare difficult to imitate and organizable once an organization has identified these resources capabilities and competencies that fulfill the rio requirement it can upgrade them this strategic enhancement of core competencies and key resources is essential to improve its value creation and subsequently fortifies its competitive advantage a firm can enhance such strategic resources in various way for example by recruiting people with particular skills and abilities or by conducting research and development projects maybe even filing for patents to secure proprietary technologies or acquiring physical assets like buildings and other facilities and there are many many more examples the most critical aspect is strategically managing the combinations and integrations of resources and capabilities so that the created synergy adds an image that sets the organization apart from its rivals after all we have previously established that organizations are a bundle of resources and capabilities that determine the differences in organizational performance the rio framework is an analysis tool used in strategic planning it is designed to expose an organization's resources capabilities and competencies that drive and sustain its competitive advantage rio stands for four questions that focus on identifying the resources of a firm's competitive advantage and then leverage them as a part of the strategic planning identifying what drives or inhibits an organization's competitive advantages is also helpful for like a swot analysis in the end firms can extend their insights in transforming their strategy ideas into actionable project plans using strategic frameworks like balanced scorecard for example the firm can also use the framework to craft more precise vision statements based on a firm's essential and most critical resources capabilities and actual competencies it is necessary to perform the real analysis in the early stages of strategic planning before the strategy formulation because the exercise can help fine-tune the organization's strategic direction to execute a real analysis an organization probes its resources its capabilities and also its entire competencies arsenal to see if they meet the conditions of the four rio criteria the assessment team asked the following four questions about the selected resources and capabilities and competencies are they valuable are they rare are they costly or difficult to imitate and is the firm organized to capture their value those that satisfy all four conditions can deliver a sustainable competitive competitive advantage for the organization now the process is fairly simple and can be executed in four steps first list all the valuable rare and difficult to imitate resources and capabilities or competencies of the organization then determine if the firm is organized to exploit these for their advantage in the third step create safeguards and defense mechanisms to protect these resources capabilities and competencies that meet the real requirements by all means necessary and possible and in the last fourth step you need to continuously monitor and review the real resources and capabilities and competencies for any changes for any evolutions for any tractions in order to be prepared to manage them to upgrade them to improve them or to move on because the environment changed so need the resources capabilities or competencies need to change as well and align with changes in the business environment a successful organization produces value with every action they take they create satisfaction for their customers and profits for their shareholders and even for themselves firms that are better at creating value than those that produce less value are often better positioned in the industry and of course can achieve higher profits it is essential to first understand an organization's value chain before evaluating the value its activities generate in the end comprehending how your firm creates value can enable you to develop a greater understanding of the firm's competitive advantage the value chain refers to the many business activities and processes involved in producing a product or service in short it represents all the internal activities a firm engages in when transforming inputs into outputs the value chain also reflects the stages of the products or services life cycle which includes research and development new product development market research sales and more and more the activities that make up an organization's value chain consists of two value-contributing categories primary and support the activities that are directly involved with creating a product or service are called primary activities at the same time the activities that help the primary activities to be more efficient and effective are called supportive or secondary activities the value chain analysis assesses each activity in an organization's value chain to determine possibilities for improvement on how they deliver value performing this assessment helps the firm examining each value-creating activity individually to understand how they raise or reduce the total value from the final product or service they deliver in the end a value chain analysis provides some insight into the balance between the strategic options either reducing cost or increasing differentiation to create the ultimate competitive advantage in most cases if an organization improves the efficiency and effectiveness in one of its four supportive activities it will cause a ripple effect and subsequently benefit at least one of the primary activities as well now how do we do it an organization performs the value chain analysis for each of its product lines so if a firm produces more than one product or service the strategic planning team has to create more than one value chain so first they identify the main activities in the value chain which are the primary and supportive activities and then they determine the value of each activities based on cost and benefits and lastly identifying the opportunities to improve for the competitive advantage so how do we actually know which activity needs improvement in this case we need to look and assess the list of activities through the lens of the competitive advantage that you as an organization want to achieve now based on the direction and strategic options that you have set up at the beginning for example if you want to achieve a cost advantage and you would go for cost reduction and cost reduction focuses on efficiency and effectiveness so each activity would be analyzed in the realm of efficiency and effectiveness is the activity efficient enough is it effective enough can we improve there but if you want to achieve a differentiation advantage then you would look at the activities through a differentiation lens and differentiation concentrates on more on the investments to explore to innovate to be more creative but value chain analysis like all the other tools you have learned about is only one tool among many analyzing the value chain of your business is a very practical way of understanding and contextualizing the value-producing processes of the organization you are assessing however this is but one piece of the puzzle to craft your strategy the next step would be to integrate your findings with the results from the other frameworks and concepts at your depo disposal for example the pastel analysis five forces analysis and even rio with a new insight gained from the value chain analysis you might need to revise and adjust previous results and conclusions about your business environment and strategy this concludes the module on the resource-based view of an organization i'm dr ronald thank you for listening and i see you next time