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Instructor Manual
Chapter 4: Firm Resources: Competitiveness and Growth
(Prepared by Klaus E. Meyer, March 2019)
Introduction to the Topic
Learning Objectives
1. Explain what firms’ resources are
2. Assess the resources of a firm using the VRIO framework
3. Use benchmarking to consider outsourcing and offshoring decisions
4. Participate in two leading debates on resources in an international context
5. Draw implications for action
General Teaching Suggestions
Some students may feel that organizations, especially large MNE’s, are abstract and cannot
relate to them thus it may help to personalize concepts. Once the student can see how the
concept applies to him or her, the student may then apply it to large groups of people – i.e.
organizations. Have students discuss their own resources and capabilities and how those
might be leveraged. Perhaps have the student prepare their own SWOT analysis. After doing
that, show the application of the concepts to organizations.
Opening Case Discussion Guide
The Opening case outlines the case of SAP, one of the most successful younger firms in
Germany, founded in the 1970s. The main focus is on how they developed their resources
over time, especially on the international stage, but also the challenges they faced in moving
from a national champion to a global player, and in facing repeated radical changes in their
industry. The key questions to raise here are: how did this company succeed at different
points in time? What is it that enabled SAP to compete and grow against stiff competition
from the USA (Oracle, like most big players in software, has its roots in California)? How
can SAP become a leader in the new area of ‘industry 4.0’ (also known as ‘Industrial Internet
of Things’)? The answers point to resources and capabilities.
This case leads into the themes of Chapter 4 also in an entirely different way: The product
that SAP produces actually helps other companies to manage their resources. In an MBA
class it is worthwhile to ask if anyone has practical experience with SAP software, and ask
them to explain what they use it for, and how they use it.
Chapter Outline, Section by Section
Section 1: Identifying Resources
Key Ideas
The first challenge for any analysis of a firm (and hence for any strategy assignment) is to
assess the resources and capabilities of the firm. Since they take so many different forms and
shapes, this section provides a few different ways of categorizing resources. The aim of this
section thus is to help students structure the ‘resource inventory’ they draw up before
engaging in any strategy type project.
Note: in the 3rd edition, a new In Focus on Rolls Royce replaces the two short In Focus on
Walmart and Burberry. Instructors may be familiar with this case from a longer Integrative
Case in earlier editions.
Key Concepts
resource-based view
A leading perspective in global business that posits that firm performance is fundamentally driven by
firm-specific resources.
competitive advantage
The ability of a firm to outperform its rivals
primary resources
The tangible and intangible assets as well as human resources that a firm uses to choose and implement
its strategies.
capability
Firm-specific abilities to use resources to achieve organizational objectives.
tangible assets
Assets that are observable and easily quantified.
intangible assets
Assets that are hard to observe and difficult (or sometimes impossible) to quantify.
goodwill
The value of a firm’s abilities to develop and leverage its reputation.
human resources
resources embedded in individuals working in an organization
organizational culture
employees' shared values, traditions and social norms within an organization
value chain
A chain of activities vertically related in the production of goods and services.
Section 2: Appraising Resources: The VRIO Framework
Key Ideas
The most popular framework in the scholarly literature to analyse resources is Jay Barney’s
VRIO framework. A VRIO framework suggests that only resources and capabilities that are
valuable, rare, inimitable, and organizationally embedded will generate sustainable
competitive advantage.
This chapter introduces the ideas behind the framework. Note especially Table 4.3, which can
be used as an analytical tool to be applied for assignments and case discussions.
Key Concepts
VRIO framework
The resource-based framework that focuses on the value creation (V), rarity (R), imitability (I), and
organizational (O) aspects of resources.
temporary competitive advantage
The ability to outperform rivals for a limited time
causal ambiguity
The difficulty of identifying the causal determinants of successful firm performance.
social complexity
The socially complex ways of organizing typical of many firms.
sustainable competitive advantage
The ability to deliver persistently above-average performance.
appropriability
The ability of the firm to appropriate the values for itself
Section 3: Applying Resource Analysis: Benchmarking
Key Ideas
This section introduces benchmarking as a key analytical tool used to compare the operations
of a company (or a specific unit or function within a company) against and appropriate other
organization to find out where the company has weaknesses, and how it can improve over
those weaknesses. Figure 4.2 provides an analytical tools (adapted from Grant) that my
students often find very useful for their strategy assignments.
Specific questions to which benchmarking then is applied is outsourcing and offshoring –
those subsections also introduce important additional concepts.
Key Concepts
benchmarking
An examination of resources to perform a particular activity compared against competitors.
outsourcing
Turning over an organizational activity to an outside supplier that will perform it on behalf of the firm.
business process outsourcing (BPO)
The outsourcing of business services such as IT, HR or logistics.
offshoring
Moving an activity to a location abroad
nearshoring
offshoring to a nearby location, i.e. within Europe
reshoring
Bringing activities back to a firm’s home country.
offshore outsourcing
Outsourcing to another firm doing the activity abroad
domestic outsourcing
Outsourcing to a firm in the same country.
captive offshoring
Setting up subsidiaries abroad—the work done is in-house but the location is foreign.
Section 4: Debates and Extensions
Key Ideas
The first debate issue concerns the possible long-term consequences of outsourcing for the
company. Substantially, companies outsourcing too much, face strategic risk in that they may
lose control over their competitive advantages. In Focus 4.3 and 4.4 on Poland and on Ostnor
can be used to illustrated these threats.
The second debate issue introduces the concept of ‘dynamic capabilities’, which is a very
‘hot topic’ in strategic management research (see recent issues of Strategic Management
Journal), though its practical usefulness for strategic analysis is yet to be proven.
Key Concepts
original equipment manufacturer (OEM)
A firm that executes the design blueprints provided by other firms and manufactures such products.
original design manufacturer (ODM)
A firm that both designs and manufactures products.
original brand manufacturer (OBM)
A firm that designs, manufactures, and markets branded products
dynamic capabilities
higher level capabilities that enable an organization to continuously adapt to new technologies and
changes in the external environment
Section 5: Implications for Practice
Key Ideas
The implications sections stresses the importance of building and exploiting resources for a
firm, and hence the importance of resource analysis for any strategic analysis assignment.
Key Concepts
No new concepts
Review Questions
Review questions are provided to students on the website accompanying the book. They
directly ask to summarize the material provided in the text. Instructors may also use the
questions to structure their lectures or review sessions.
Review Questions
(as provided to students on the website)
Material in the Book
1. In the resource based view, what are resources?
2. What is the difference between tangible and
intangible assets?
3. What are reputational resources?
4. Why are human resources potentially an important
resource of a firm?
5. What is the value chain of the firm?
enhance firm’s competitiveness!
7. Explain why resources need to fulfil the VRIO
criteria to enable firms to attain sustained
8. How can firms make their capabilities inimitable?
9. What is the question of organization important?
10. How do you do a benchmarking analysis?
11. What are the different purposes for which
12. Explain the offshoring and outsourcing
terminology!
13. What are the possible positive and negative long-
term implications of outsourcing?
14. Explain the differences between OEM, ODM and
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4.2, In Focus 4.1 & 4.2
Page 97-100
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Page 100-101
Page 101-102
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Page 102-105
Page 106-107
Page 107
Critical Discussion Questions
At the end the chapter, we provide discussion questions that aim to stimulate students
thinking beyond memorizing the material learned in the chapter. They are designed to be
used as a basis for in-class discussions, group work, or individual assignments. Below, I
provide some indicative answers of issues that may be raised in response to these questions.
Discussion Questions
(as provided in the book)
Indicative Responses
1. Pick any pair of rivals (such as
Samsung/Apple, Lego/Mattel, and
Boeing/Airbus) and explain why one
outperforms another. Apply both a
benchmark analysis (Figure 4.2) and a
VRIO framework (Table 4.3) to the
resources of the chosen pair.
maintenance relative to the top-three
rival schools/universities. If you were
the dean with a limited budget, where
would you invest scarce financial
resources to make your school number
labour force may not be unionized.
Would it be appropriate for an
established industry leader to
4. Since firms read information posted
1. This is a question in which the
answer is not as important as the
thought process and the ability to
clearly articulate. Students’
answers should demonstrate their
understanding of key terms, such
as resources and capabilities, as
well as their ability to use
clearly articulate. Students’
answers must address value, rarity,
imitability, and organization.
3. This is an ethical question where
standards overseas than at home
would be a major ethical issue
likely to trigger strong stakeholder
not optional for companies in
Europe.
may note that in the process of
fooling competitors, the firm could
mislead current and potential
stockholders, customers, and even
some within the company who
might make wrong decisions based
on that information.
Closing Case
The closing case provides further opportunities to apply ideas and concepts learned in this
chapter in a real world setting. The Closing Case for this Chapter is “Lego’s secrets”, which
emphasizes the resources that enable the sustained success of the company and its brand. Below
are some indicative responses to the case discussion questions.
Case Discussion Questions
(as provided in the book)
Indicative Responses
1. Applying the VRIO framework,
what are the sources of Lego’s
success?
2. How sustainable is Lego’s
success in the long run?
1. Students ought to list a long list of resources and
capabilities. The most important likely is the capability
of managing a diversified organization and the brand
name. These capabilities meet the VRIO criteria. E.g.
innovation and experimentation are among the foremost
characteristics of Lego. Critical for this assignment is
business, Lego inevitably encountered poor
performance, but recovered by refocusing on its core
3. According to the case, the key points are how Lego
developed new vision “to inspire and develop the
builders of tomorrow”, how it refocused on its core
business and how it reduced costs. In this case, focusing
on core resources were the key to enterprise
development.
Further Learning Activities
In addition to the cases and discussion questions provided in the book, instructors may want
to use any of the following activities to further engage students with the material.
1. The Integrative Case “BMW faces Technological Disruptions” provides a brief
introduction to numerous technological changes affecting the automotive industry. In
consequence, BMW has to take strategic decisions how to invest in new technologies,
and which projects to prioritize. This discussion allows to develop students’
understanding of the dynamics of resource development and exploitation over time
(Chapter 4) and to explain linkages between firms ownership advantages and outward
foreign direct investment (Chapter 6).
2. The case SSI Schaefer: Internationalization of Intra-Logistics introduces the notion
that companies traditionally operating as ‘manufacturing’ are moving to become
‘solutions provider’. This requires not only much higher degrees of customization and
after sales services, but changes how they can reach international customers. Thus, the
discussion of this case should start from an assessment of the firms’ resources and
capabilities and their evolution over time (Chapter 4) to an analysis of its foreign
direct investment motives (Chapter 6) and the assessment of specific options for
foreign entry (Chapter 12). The main business of the firm is to help firms optimize
their intra-logistics, and hence the case also raises many issues discussed in Chapter
17.
3. The Integrative Case “Bharti Airtel Acquires Resources and Capabilities” has been
prepared to discuss the different strategies and motivations that drive FDI (Chapter 6),
and how they are grounded in the firm’s own evolving resources and capabilities
(Chapter 4). They can also be used to discuss foreign entry strategies (Chapter 12) and
global mergers and acquisitions (Chapter 14).
4. The chapter introduces three different companies: SAP (Opening Case), Rolls Royce
(In Focus 4.1), and Lego (Closing Case). An insightful assignment is to ask students
to compare these four firms, and to explain what made each of them successful? How
and why are the resources and capabilities different that are needed to succeed in
these four different industries?
5. Currently, your firm has manufacturing and logistics units in the Russian cities of
Moscow and Saint Petersburg, which provide access to Russia’s vast country-wide
market. However, recent business regulations have discouraged growth in specific
portions of the country. As such, you have been asked to reconfigure your firm’s
strategy in Russia. Identify the location(s) where you should move operations.
Provide detailed and compelling rationale to support your decision.
One resource which can be used is “World Bank: Doing Business”. This
website can be found by entering the search term “business regulations” at the
globalEDGE™ Resource Desk search box located at
http://globaledge.msu.edu/resourceDesk/. Once at the Doing Business website, click
on the “Subnational Projects” link near the top. Then, find the most recent report on
Russia. Student answers will vary, but one option proposed may be due to its
proximity to Moscow.
Search Term: “business regulations”
Resource Name: World Bank: Doing Business
Website: http://www.doingbusiness.org/
globalEDGE™ Tags: Multi-Country
4. The technology company that you work for wants to enter a foreign market for the
first time. The objective is for the firm to make a sustainable international investment
that can create long-term competitive advantages and allow it to be recognized as
important in the industry. Evaluate the opportunities available to your company by
assessing the national conditions among leading emerging economies.
One resource which can be used is “Vale Columbia School on Sustainable
International Investment: Emerging Market Global Players”. This website can be
found by entering the search term(s) “sustainable international investment” or
“emerging market global player” at the globalEDGE™ Resource Desk search box
located at http://globaledge.msu.edu/resourceDesk/. Once at the Vale Columbia
School on Sustainable International Investment website, the opportunities which exist
should include the following countries: Argentina, Brazil, China, India, Israel,
Mexico, Russia, Slovenia, and Turkey. Students will need to evaluate the top
companies in each country to determine the ideal locations for market entry.
Search Term: sustainable international investment
Resource Name: Vale Columbia School on Sustainable International Investment:
Emerging Market Global Players
Website: http://vcc.columbia.edu/projects/
globalEDGE™ Tags: Rankings
Further Readings
At the end the chapter, suggested further readings are provided. The primary aim is to
provide students a starting point for further work, for example when preparing a class
assignment or dissertation. These references also are recommended for instructors not
familiar with the topic and wishing to ‘get ahead of the students’ before lecturing on a topic.
J. Barney, 1991, Firm resources and sustained competitive advantage, JM, 17: 99–120 – the original paper
that explained and popularized the resource-based view.
R. Grant, 2016, Contemporary strategy analysis, 9th ed., Oxford: Blackwell – a strategy textbook that is
grounded in the resource-based view, see especially chapters 5 and 6.
G. Hamel & C.K. Prahalad, 1994, Competing for the Future, Boston: Harvard Business School Press – a
management guru book using resource-based thinking.
C. Helfat, S. Finkelstein, W. Mitchell, M. Peteraf, H. Singh, T. Teece & S.G. Winter, 2007, Dynamic
Capabilities: Understanding Strategic Change in Organizations, Oxford: Blackwell – leading scholars
discuss the state-of-the-art of the resource based view and of dynamic capabilities research.
M. W. Peng, 2001, The resource-based view and international business, JM, 27: 803–829 – a paper
applying resource-based reasoning to the international sphere.
D. Teece, 2014. A dynamic capabilities-based entrepreneurial theory of the multinational enterprise,
JIBS, 45: 8–37. – a paper applying dynamic capability reasoning to the multinational enterprises.
