3. I/O Model: Above-Average Returns
Strategy dictated by
the external
environment of the
firm (what
opportunities exist in
these environments?)
Firm develops internal
skills required by
external environment
(what can the firm do
about the
opportunities?)
External Environments
General
Environment
““Outside-in”Outside-in”
4. The I/O Model of
Above-Average Returns
The External
Environment
1. Study the external
environment, especially
the industry
environment.
The general environment
The industry environment
The competitor
environment
5. An Attractive
Industry
2. Locate an attractive
industry with a high
potential for above-
average returns.
An industry whose
structural characteristics
suggest above-average
returns
The External
Environment
The I/O Model of
Above-Average Returns
6. 3. Identify the strategy
called for by the
attractive industry to
earn above-average
returns.
Selection of a strategy
linked with above-
average returns in a
particular industry
The External
Environment
An Attractive
Industry
Strategy
Formulation
The I/O Model of
Above-Average Returns
7. Assets and Skills
4. Develop or acquire
assets and skills
needed to implement
the strategy.
Assets and skills
required to implement
a chosen strategy
The External
Environment
An Attractive
Industry
Strategy
Formulation
The I/O Model of
Above-Average Returns
8. Strategy
Implementation
Selection of strategic
actions linked with
effective
implementation of the
chosen strategy
The External
Environment
An Attractive
Industry
Strategy
Formulation
Assets and Skills
5. Use the firm’s strengths
(its developed or
acquired assets and
skills) to implement the
strategy.
The I/O Model of
Above-Average Returns
9. Superior Returns
The External
Environment
An Attractive
Industry
Strategy
Formulation
Assets and Skills
Strategy
Implementation
Superior returns: EarningSuperior returns: Earning
of above-average returnsof above-average returns
The I/O Model of
Above-Average Returns
11. Resource-Based Model
• Each organization is a collection of unique resources
and capabilities that provides the basis for its
strategy
• Capabilities evolve and must be managed
dynamically (acquired and/or developed)
• Differences in firms’ performances are due primarily
to their unique resources and capabilities rather
than structural characteristics of the industry
12. Resource-Based Model – cont’d
Strategy dictated by the firm’s
unique resources and
capabilities
Find an environment in which
to exploit these assets (where
are the best opportunities?)
Differences in firms’
performances are due
primarily to their unique
resources and capabilities
rather than structural
characteristics of the industry
Firm’s Resources
THE FIRM
““Inside-out”Inside-out”
13. Criteria for Resources and Capabilities
That Become Core Competencies
CoreCore
CompetenciesCompetencies
CoreCore
CompetenciesCompetencies
ValuableValuableValuableValuable RareRareRareRare
Costly to ImitateCostly to ImitateCostly to ImitateCostly to ImitateNonsubstitutableNonsubstitutableNonsubstitutableNonsubstitutable
Allow the firm to exploit
opportunities or neutralize
threats in its external
environment
Possessed by few, if any,
current and potential
competitors
When other firms cannot obtain them or must
obtain them at a much higher cost
The firm is organized to obtain the
full benefits of the resources
14. Resources
1. Identify the firm’s
resources. Study its
strengths and
weaknesses compared
with those of
competitors.
Inputs into a firm’s
production process
The RBV Model of
Above-Average Returns
15. Capability 2. Determine the firm’s
capabilities. What do the
capabilities allow the firm
to do better than its
competitors.
Capacity of an integrated
set of resources to
integratively perform a
task or activity
Resources
The RBV Model of
Above-Average Returns
16. 3. Determine the potential
of the firm’s resources
and capabilities in terms
of a competitive
advantage.
Ability of a firm to
outperform its rivals
Competitive
Advantage
Capability
Resources
The RBV Model of
Above-Average Returns
17. An Attractive
Industry
4. Locate an attractive
industry.
An industry with
opportunities that can
be exploited by the
firm’s resources and
capabilities
Competitive
Advantage
Capability
Resources
The RBV Model of
Above-Average Returns
18. Strategy
Implementation
Strategic actions taken
to earn above-average
returns
An Attractive
Industry
Competitive
Advantage
Capability
Resources
5. Select a strategy that
best allow the firm to
utilize its resources and
capabilities relative to
opportunities in the
external environment.
The RBV Model of
Above-Average Returns
19. Superior Returns
Superior returns: EarningSuperior returns: Earning
of above-average returnsof above-average returns
Strategy
Implementation
An Attractive
Industry
Competitive
Advantage
Capability
Resources
The RBV Model of
Above-Average Returns
