Resources and Rents - Collis and Montgomery

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  1. Principles
    1. Business unit strategy
      1. Involves industry analysis - Porter's five forces
      2. purpose
        1. internal alignment - align the firm's activities with the goals
        2. externally position yourself well inside the industry
      3. use generic strategies to differentiate and gain competitive advantage
    2. Resource based view (RBV) takes a different approach
      1. emphasizes
        1. stocks of assets that a company has
        2. capabilities that a firm has
      2. this is different from flows of revenue and expenses
  2. Resources
    1. Cannot be accumulated instantaneously --> are a competitive advantage
    2. Come in many forms
      1. Tangible - real estate, raw materials, etc
      2. Intangible - reputation, brand name, cultures, knowledge, patents (cannot be destroyed with use)
      3. organizational capabilities - assets, people and processes to turn input into output
    3. Why are resources valuable?
      1. How to decide how valuable a resource is
        1. competitive environment - how is this resource different than what competitors have
        2. demand of the resource - resource has to fulfill a need at a price that customer is willing to pay; substitutibility of the resource
        3. scarcity of the resource
          1. the resource cannot be imitated. How can this be?
            1. physically unique - i.e. real estate
            2. path dependency - i.e. brand name that takes years to create
            3. casual ambiguity - can not figure out why certain resource is performing well (i.e. good training or just skill; firm culture)
            4. economic deterrence - the market is not big enough for another player
        4. appropriability of the resource
    4. characteristics of resources
      1. capacity (short term / long term)
      2. durability (rate of decay)
      3. specificity (cash vs. production machine)
  3. Economic Rent
    1. Two types of rents
      1. Ricardian rents - rent from things that are scarce
        1. extremely rare but is long lasting
      2. Entrepreneurial or schumpeterian rents - rent due to being first to market
        1. more common but can be short lived.
  4. Resource based strategy
    1. How to do resource analysis
      1. ID resources
      2. decide on which you will compete with
      3. disaggregate resources (although advantage might be a combination of a physical resource and a capability)
      4. do a data-driven analysis
    2. Questions about investing in resources
      1. if current resources and resources needed to compete differ?
      2. do you choose flexible resources if you don't know your future strategy
        1. no investment -> can be locked out
      3. how to upgrade resources
        1. strengthening existing resources
        2. adding complementary resources
        3. developing new resources
        4. step by step upgrade can be low risk way to upgrade