What makes a firms resources »strategically valuable«? Which qualities does a resource need to have in order to ensure a sustainable competitive advantage? A conceptual framework dealing with this question is the one presented by J. B. Barney in an article for the Journal of Management in the early 90’s [1] and which some of you may already heard of by the VRIO acronym.

Before we have a look at what makes resources valuable let’s first define what is meant by a resource. The article defines a resource as:

[...] [including] all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness.

Evaluating the internal resources of a firm incorporates a very different view on strategy than the thought schools solely focussing on the external environment. While the latter treats the competing firms as black boxes with very similar content the former opens this boxes for further inspection and acknowledges the possibility for inner differentiation. Strengths and weaknesses as active weapons instead of reactive positioning between threats and opportunities.

What makes this approach especially valuable is the broadening of the availiable strategic options. The provision of additional internal knobs open to adjustment for gaining competitive advantage. The following drawing illustrates the different perspectives.

One of the articles main points is that not every resource creates sustainable advantage. In the authors words a firm is

[...] said to have a sustained competitive advantage when ist is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy.

Barney draws the conclusion that every resource resulting in sustainable advantage has to possess four attributes to qualify:

Value

Resources are said to be valuable if the improve the efficiency and effectiveness of a firm.

Rareness

In addition sustainable resources have to be rare. If resources can be easily obtained by competitors all gained advantages will be of short duration. Eventually the others will catch up restoring competitional equilibrium.

Imperfect Imitability

This attribute prevents competing firms to imitate the resources under question. The article mentions three reasons preventing easy imitation:

1. History dependent: E. g. First mover advantages, brand names developed over a long timeframe, unique non recurring situations etc.
2. Causal ambiguity: If nobody really knows why a firm achieves superior results it’s special traits can’t be recreated. Interesting aspect of this is that even the firm itself mustn’t know how it does the trick because if some managers knew how they did the trick competitors could lure them away and pay them to copy the resources.
3. Social complexity: If superiority stems from special cultural aspects of a firm this quality is too complex to be recreated in a different company setting. Because social interactions in a firm can’t be directly managed this attribute is effectively preventing any duplication efforts.

Parting thoughts

One thing that came immediately into my mind when reading the article was the question if IT does qualify by these attributes. At first glance there is no chance: If something is easily replicatable it doesn’t qualify.  Carr wins, case closed. But on further inspection there is still hope for us IT folks: Is it really so easy to just do SOA or install an ESB to catch up with other firms which did so successfully? Let’s give this a th… NO IT ISN’T. But why is this so? In my opinion it’s the factor of social complexity coming into play. If you can’t bring people together to effectively use a technology (or to use it at all) it will fail. And so it does. Again and again and again. What follows is that IT can be a competitive advantage as well as a sustainable one but only if you master the soft sides of it, too.

The second thing  I had to think of was Lean Management. Once accepted as sort of Best Practice from the East, western management set out to copy the lean tools and procedures to gain back lost territory. Did it work? If they did so with the help of their eastern colleagues: sometimes. Just by observing and doing seemingly the exactly same things: almost never. Again social complexity is one of the factors at play here: Lean is more a holistic perspective on doing business than merely a set of tools which can be analyzed and used in isolation. This brings into play the second aspect: causal ambiguity. Because the frame of mind is totally different from the classical view on strategy we sometimes simply don’t have a clue why it works.

To me the whole framework is important because it counter-balances the very deliberate/deterministic positioning school of thought. Strategy is more than choosing a generic strategy based on analyis of external factors. It’s also about building inner strengths, core competencies if you will, to achieve sustainable results. With this perspective strategy gains back it’s creative sides which is all to easy lost in combat.

[1] Barney, J. B., Firm Resources and Sustained Competitive Advantage, Journal of Management Vol. 17 NQ 1, 1991

In our series on strategy today we’ll have a look at »Ten Big Ideas of Strategic Thinking«. The collection originates from an article of Robert J. Allio [1] and comprises some of the more influential ideas in strategy. The following will be a mashup of a summary for the single points and tidbits of my own opinions and views. It’s another contribution in gathering the numerous facets of view on the strategy beast.

1. Long Range Planning

Becoming fashionable not until the 1920s, Long Range Planning forces management to look beyond the immediate quarter or year. Although almost indispensable for gaining insights into the bigger context the own company exists in theres always the danger of »overplanning« resulting in big volumes of wasted paper.

2. Strategic Analysis

Allio further divides this important part in Strategic Thinking into four modules:

• Market segmentation: Provide different products or services for different customer (needs).
• Lifecycle: Align your strategy to the lifecycle stage of the industry. For industries in the embryonic or growth stage entrepreneurial strategies are needed while mature and aging industries demand for cost control and cash- flow focus.
• SWOT analysis: Combines internal analysis (strengths, weaknesses) with the observation of external forces (threats, opportunities). Most criticized point of the SWOT: The own strength and weaknesses can be difficult to assess objectively from an subjective standpoint. Furthermore they depend heavily on the actual context like market needs, trends, competitor stregths etc. which would mean that one would need to know the strategy before knowing the relevant strengths and weaknesses.
• Industry structure: Essentially summarized by Porters Five Forces (buyers, suppliers, entry barriers, substitutes and competition)

3. Quality

W. Edwards Deming is the name to mention here. While not enthusiasticly embraced in the US at first his ideas found a big audience in Japan and prepared the base for Lean Production. Demings teachings can be summarized into 14 points and form the roots for hypes that followed like Total Quality Management (TQM), Business Process Reengineering (BPR) and Six Sigma.

4. Portfolio Theory

Boston Consulting Groups Growth/Share Matrix entered the business world in the 1960s and was the first of the portfolio theories claiming that the classification of products, services and markets enables a firm to make guided decisions on resource allocation decisions. Later proponents were the 4×5 matrix of Arthur D. Little (industry maturity/competitive position) and McKinseys 3×3 (business strength/market attractiveness).

Although one of the most known tools together with the already mentioned SWOT the BCG Matriy has come under heavy fire recently. All in all it seems that the claims it makes can’t be confirmed by studies. Though being a very interesting topic  I will elaborate on the shortfalls of these models in another blog post and not go into detail this time.

5. Scenario Planing

Other than single-point forecasts, scenarios accept the reality that forecasting the future is impossible in the long term. Its proponents deal with this dilemma by planning not just for one outcome of reality but for a whole set of parallel business universes called scenarios. Scenario planning was made popular by Piere Wack and Arie de Geus who used this approach at Shell with acclaimed huge success. De Geus also wrote the article which started the broad interest in this special discipline (Planning as Learning, Harvard Business Review (1988)).

6. Resource Allocation Models

Credence of this strategic perspective falls into two camps: Protag0nists of the industrial organization (IO) camp claim that resources should be applied to the opportunities dictated by the industrial structure the company participates in. Again Michael Porter is the name to mention here who reduced the set of availiable strategies into three generic ones: niche, differentiation or cost leadership.

On the other side the the resource-based view is located. Prahalad and Hamel brought into play the core competencies of a company. They  view the generic model as much too limited and and demand that strategies should be based on core competencies alone.

7. Corporate Culture

The implementation of strategy means changing the way you do business. Since the culture of a company determines if this change comes easy or not it is an important factor to consider. Initiatives to align culture with new strategys are difficult endeavors and this brings Change Management into play. John Kotter is the name mostly associated with strategies to apply in the process of change. His studies focus on the reasons why these processes have failed in the past and lead to a change model with eigh phases.

8. Leadership

No doubt: Leadership is vital for making strategy happen. What remains doubtful is if it can be learned and thus be consciously applied in the strategy process.

9. Metrics that matter

For making strategy happen, managers must have means to monitor the implementation effort. Starting with the DuPont formula which decomposed the Return-on-Investement of initiatives in it’s parts later metrics concerning the soft factors followed culminating in form of the Balanced Scorecard.

10. Strategic Organization Design

As the saying goes: »Structure must follow strategy.« Starting at multidivisional designs the next steps in organization fashion were the conglomerate and actually the strategic business unit (SBU). In breaking the corporate barrier strategic alliances and virtual corporations constitute the actual focus of this perspective on strategy.

Parting words

This shall be it for today. In follow-up posts I’ll pick up some of the issues raised and offer some of my own views to the topics mentioned. As you already have seen in the earlier posts: Strategy is a beast with more than one face.

[1] Robert J. Allio, Strategic thinking: the ten big ideas, STRATEGY & LEADERSHIP VOL. 34 NO. 4, 2006, Emerald Group Publishing

Many organizations have a large amount of documents of the same type, lying around in shared folders or distributed over different organizational units. The information within these documents cannot be used for a search or accessed directly from outside the document. It is also not available for any kinds of filtering, grouping and sorting. The only known attributes from outside the document are the file name, the title, the date of the last change and the author, who created the document.

Imagine, you have contract documents with the name and the address of the customer inside and want to make it available from outside. So this is there the MOSS 2007 document library offers a smart solution for your problem.

In the first step, you create a document library on the server for Word documents and extend it with the text fields ‘Customer’ and ‘Customer Address’.

Custom document library in SharePoint 2007 with 'Customer' field

Now, if a new document for the library is created, it has the properties ‘Customer’ and ‘Customer Address’ directly available.

Document with custom properties in MS Office Word 2007

The document can now be saved and the values inserted for the two custom fields are visible in the list. So, you can use all out-of-the-box functions for list sorting, filtering, grouping and searching on your custom document content information.

Document library with new contract

But what happens, if you want to change the address of the customer? Just edit the value in the list and the document will be updated or edit the property of the document in MS Office Word 2007 and the list value will be updated.

Editing the properties in the list item

With this technique all important values inside a document can be used and even changed from outside.

Document with changed address value.

So, make your hidden information visible, searchable and changeable!