Competing through Capabilities: Group Assignment

Reflection on first two sessions of the course: Competing through capabilities.

In the first two sessions of the course Competing through capabilities, we discussed the various facets of the Resource
Based View (RBV) of firms in emerging economy. Even though portfolio planning, the experience curve, Michael E. Porters
five forces and tools like these have brought rigor and legitimacy to strategy at both the business unit level and the corporate
level, yet the pace of global competition and technological change has left managers struggling to keep up. As markets move
faster and faster, many managers feel that strategic planning is too slow and static. Consequently, a framework with the
potential to cut through much of the aforesaid confusion emerged from the strategy field. The approach i.e. Resource Based
View (RBV) of firms is grounded in economics and explains how a companys resources drive its performance in a dynamic
competitive environment. The RBV combines the internal analysis phenomena within companies with the external analysis of
the industry and the competitive environment. Thus the RBV builds on the previous broad approaches to strategy by
combining internal and external perspectives.
The RBV sees companies as very different collections of physical and intangible assets and capabilities. Since different
companies have different set of experiences, different assets and skills and different organizational cultures, they cannot be
completely alike. These assets and capabilities determine how efficiently and effectively a company performs its functional
activities. It follows logically that a company will be positioned to succeed if it has the best and most appropriate stock of
resources. Thus it can be concluded that successful strategies are based on the possession of difficult-to-imitate resources
that create superior value for customers. The types of resources include physical resources, technology, people, financial
resources, brand, reputation, organizational capabilities etc. The value of the resources can be tested using the following few
key resource tests:
(i)
Test of inimitability (i.e. Is the resource hard to copy?) depends on factors such as physical uniqueness, path
dependency, causal ambiguity, asset compression diseconomies & economic deterrence
(ii)
Test of durability (i.e. How quickly does the resource depreciate?)
(iii)
Test of appropriability (i.e. Who captures the value that the resource creates?)
(iv)
Test of substitutability (i.e. Can a unique resource be trumped by another resource?)
(v)
Test of competitive superiority (i.e. Whose resource is really better?)
We also discussed the VRIN framework (V = Value, R = Rarity, I = Imitability, N = Non-substitutability) for resource based
analysis of a firms strengths and weaknesses. V & R lead to competitive advantage whereas I & N lead to sustenance of
the advantage. There are two ways to being successful. One approach is RIN VRIN (i.e. You have something rare. You
create value for it e.g. In its extremely successful days Nokia created services such as Nokia money, Nokia maps, Nokia Tej,
Nokia ovi). Second approach is V VRIN (i.e. You have something valuable. You make it rare e.g. Tata Skys introduction of
active platform). The main challenge is to apply the right approach at the opportune scenario.
We examined the General Motors-Reva case in the second session which talked about a proposed partnership between Reva
Electric Car Co. and General Motors, India for making an electric version of the Chevrolet Spark. The partnership was
proposed on the basis of advantages seen by the two companies in the others resources. Reva gained scale of production as
well as established distribution channels of GM for its own cars. Similarly, GM saw the opportunity to produce a new product
(electric car) inexpensively as well as gain speed to market. However, in May 2010, Mr. Maini abruptly sold control of Reva
to Mahindra & Mahindra, Indias largest producer of sports utility vehicles, which wanted to make further inroads into electric
engine technology. GM immediately cancelled the partnership with Reva. The language from both sides was spare, but what
was left unsaid spoke volumes about misunderstandings and unfulfilled expectations. The reason why the proposed
partnership did not work was the lack of commitment from both sides. There was nothing at stake for any of the companies to
stop them from not respecting the agreement. Thus it is very important in alliances or partnerships for both the parties to have
something at stake (maybe equity alliance etc.) so that they honour the agreement.
We also read the article: Leadership Lessons from India by Peter Capelli, harbir Singh, Jitendra V. Singh and Michael
Useem. The article talks about the differences in the way of thinking leaders of Indian companies and their Western
counterparts. It says that when CEOs of top Indian firms were interviewed and asked about the reasons for success of their
companies, none of them mentioned skill in financial markets or M&As or deal making talents that Western CEOs often claim
are the cornerstone of their organizations performance. As such they give importance to training and development of the
employees. Almost without exception Indian leaders said their source of competitive advantage lay deep inside their
companies their human capital. Even when they were asked to prioritize their key responsibilities as leaders, enhancing
shareholder value did not rank in their top three responsibilities. In general they gave priority to business strategy,
organizational culture and leading the employees as a role-model. The main reason for such an outlook may be because the
Indian market is still growing and has scope for further augmentation, whereas the markets in developed countries like USA
are already saturated and the leaders there have to dig deep to earn profits. Leaders of top Indian firms inspire their
employees in four different ways: (a) by creating a sense of mission, (b) engaging the employees through transparency and
accountability, (c) Empowering employees through communication, and (d) Investing in training.
One more interesting concept learned by us in the sessions was the concept of reverse innovation which implies that some
product which is meant to be used in a developing country first before spreading to the industrialized world. The process of
reverse innovation begins by focusing on needs and requirements for low-cost products in countries like India and China. Once
products are developed for these markets, they are then sold elsewhere - even in the West - at low price which creates new
markets and uses for these innovations. Typically, companies start their globalization efforts by removing expensive features
from their established product, and attempt to sell these de-featured products in the developing world. This approach,
unfortunately, is not very competitive, and targets only the most affluent segments of society in these developing countries.
Reverse innovation, on the other hand, leads to products which are created locally in developing countries, tested in local
markets, and, if successful, then upgraded for sale and delivery in the developed world. We discussed examples of Tata Nano
to Pixel, Godrej Chotukool refrigerator to Mitticool, Tata Swach etc.

Submitted by: Sourav Sharma(035), Prashant Shinde(031), Vishal Vaya(037)