978-1337406826 Chapter 4 Lecture Notes

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Chapter 4: Leveraging Resources and Capabilities
Chapter 4
Leveraging Resources and Capabilities
Learning Objectives
After studying this chapter, students will be able to accomplish the following objectives:
1. Define resources and capabilities.
2. Explain how value is created from a firm’s resources and capabilities.
3. Articulate the difference between keeping an activity in-house and outsourcing it.
4. Explain how to use a VRIO framework to understand a firm’s resources and capabilities.
5. Identify four things you need to do as part of a successful career and business strategy.
Chapter Overview
Chapter 4, Leveraging Resources and Capabilities, describes why some firms succeed while
others fail. According to the institution-based view, success and failure are determined by the
formal and informal rules of the game. There is much evidence, however, that this perspective
paints an incomplete picture. Within any industry, there are a number of firms that operate under
the same rules, yet some are wildly successful while others struggle for profit and eventually fail.
Why does this happen? The answer may lie in the resource-based view. This perspective
complements the institution-based view, suggesting that the success of a firm is determined in
part by its unique resources and capabilities. After defining these terms, this chapter describes
how firms leverage their assets in a value chain and how they decide when to use outsourcing.
Finally, the chapter explains how the resource-based view has gone beyond the traditional
SWOT analysis, leading to the development of the VRIO framework.
Opening Case Discussion Guide
LEGO’s Secrets
Relentless innovation and experimentation are one of the foremost characteristics of LEGO.
Derived from the Danish phase leg godt (“play well”), LEGO was founded in 1932 by Ole Kirk
Christiansen, a carpenter from Billund, Denmark—a rural town three hours away from
Copenhagen. (LEGO Group is still headquartered in Billund today.) As a firm self-styled “to
stimulate children’s imagination and creativity” and “to nurture the child in each of us,” LEGO is
known for its willingness to entertain numerous experiments in order to capture the hearts and
minds of its fickle primary customers—boys age seven to 16—as well as the wallets of their
parents. The now-ubiquitous LEGO brick was not the company’s original invention. Actually, it
was based on “Self-Locking Bricks,” patented in the UK in 1939 and released to the public
domain in 1947. While the brick proved to be one of the toy industry’s greatest innovations,
LEGO’s experiments marched on, with numerous hits and also numerous misses in the five
decades since the finalization of the basic brick design. Another LEGO hallmark is insisting on
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Chapter 4: Leveraging Resources and Capabilities
excellence. Coming from the founder, “only the best is good enough” is a company motto
engraved on a plaque that graces the entrance to LEGO Group headquarters’ cafeteria even
today.
LEGO is famous in the business world for generating a system, not merely a product. LEGO
made its bricks backward compatible—new bricks would click with old bricks of the 1950s
vintage. As a result, kids (and adults) can mix and match old and new sets and the LEGO
universe can grow exponentially. Likewise, the bewildering array of new LEGO gadgets and
experiences—such as board games, online games, competitions, books, magazines, theme parks,
retail stores, and movies—unleash a powerful and mutually reinforcing ecosystem (or product
family) centered on the brick. Dozens of books and hundreds of articles have been written,
slicing and dicing LEGO in a variety of ways in order to probe its secrets. In the end, what
exactly “it” is remains elusive.
Lesson Plan for Lecture
Brief Outline and Suggested PowerPoint Slides
Learning Objectives PowerPoint Slides
Learning Objectives Overview 2: Learning Objectives
LO1
Define resources and capabilities.
3: SWOT Analysis
4: Resources (Capabilities)
5: Exhibit 4.1: Examples of Resources and
Capabilities
LO2
Explain how value is created from a firm’s
resources and capabilities.
6–7: Value Chain
8–9: Exhibit 4.2: The Value Chain
10: Exhibit 4.3: Two-Stage Decision Model
in Value Chain Analysis
LO3
Articulate the difference between keeping
an activity in-house and outsourcing it.
11: Exhibit 4.4: In-House versus Outsource
12–14: Outsourcing
15: Exhibit 4.5: Location, Location,
Location
LO4
Explain how to use a VRIO framework to
understand a firm’s resources and
capabilities.
16: VRIO Framework
17: VRIO Framework - Value and Rarity
18: VRIO Framework - Imitability
19–20: VRIO Framework - Organization
21: Exhibit 4.7: The VRIO Framework and
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Chapter 4: Leveraging Resources and Capabilities
Firm Performance
LO5
Identify four things you need to do as part
of a successful career and business strategy.
22: Exhibit 4.8: Implications for Action
Key Terms 23–24: Key Terms
Summary 25–26: Summary

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