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Earning sustainable supra-normal returns by superior resources.

Explanation of Resource Based View (Perspective) of Barney. ('91)

Economic theory holds that in the normal course, and in the absence of

market imperfections, abnormal economic rents will get competedaway by rivals or new entrants to an industry. The Resource Based

View holds that firms can earn sustainable supra-normal returns if andonly if they have superior resources and those resources are protected

by some form of isolating mechanism preventing their diffusionthroughout industry.

Early adopters of the Resource Based View

Edith Penrose contributed to the RBV field as early as 1959, when

she argued: "a firm is more than an administrative unit; it is also acollection of productive resources the disposal of which between

different users and over time is determined by administrative decision.

When we regard the function of the private business firm from this

point of view, the size of the firm is best gauged by some measure ofthe productive resources it employs". And Birger Wernerfelt coinedthe term in 1984.

Jay Barney's Resource

Based View of the Firm

However most scholars

considerJay Barney as

the father of the modern

Resource-Based View ofthe Firm (RBV). Histheory ('91) suggests that

there can be heterogeneity

or firm-level differencesamong firms that allow

some of them to sustaincompetitive advantage.

Therefore, the RBVemphasizes strategic

choice, charging the

management of the firm with the important tasks of identifying,

developing and deploying key resources to maximize returns.

Barney (1991: "Firm resources and sustained competitive advantage")

made clear that abnormal rents can be earned from resources to theextent that they are VRIN:

Valuable (when they enable a firm to conceive or implement

strategies that improve its efficiency or effectiveness)Rare (valuable firm resources possessed by large numbers of

competing firms cannot be sources of either a competitive advantage

or a sustainable competitive advantage)

Imperfectly Imitable (because of {a combination of} three

reasons: unique historical conditions, causally ambiguous, socialcomplex)

Non-Substitutable (there must not be strategically equivalent

valuable resources that are themselves either not rare or imitable)

Other strategists on the Resource Based view of the firm

Differences may occur in the form of resources such as patents,

properties, proprietary technologies, or relationships. Most scholarsclaim that it is only/mainly intangible resources that explain

performance heterogeneity among firms and thus are the likely sources

of competitive advantage. (Galbreath and Galvin recently discoveredthat while RBV theory largely associates firm performance with

intangible resources, the association may not always hold trueempirically. One explanation may be that the strength of some

resources are dependent upon interactions or combinations with otherresources and therefore no single resource - intangible or otherwise -

becomes the most important to firm performance. (Academy of

Management Best conference Paper 2004 BPS: L6))

'VRIN resources' are tough to find. This becomes especially clear

when we look at the work done on strategies sometimes characterizedas 'economizing' (Porter, 1996). These includereengineering,
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enterprise systems,benchmarking, downsizing, and other similar

approaches of efficiency. Unfortunately, such techniques are availableto all competitors in an industry. They merely raise the bar for

everyone, usually in a transparent way, and do not produce long-termcompetitive advantage.

There is a dilemma in attainable resources not being sustainable.Clearly valuable resources that sustain advantage must be hard or

impossible to imitate -and therefore not available to those who do notalready have them. Imitable resources, on the other hand, can be

attained by their aspirants. But as soon as they show clear promise,

they risk being competed away: their strength becomes their weakness.Thus attainable resources are not sustainable.

Recent developments on the Resource Based View

More recently, the dynamic capability perspective has extended theResource Based View to the realm of evolving capabilities. By

developing capabilities based on sequences of path-dependent

learning, a firm can stay ahead of its imitators and continue to earnsuperior returns (Dierickx and Cool, 1991; Teece et al., 1997). There

is nothing to say, however, that most firms have the capacity to placethemselves on a learning curve that would prevent rivals from

leapfrogging them. To do so they would have to pick an optimalcapability development trajectory that is (a) strictly path dependent to

sustain first mover advantage, and (b) nonsubstitutable with an equally

efficient trajectory. Bounded rationality conditions might obstruct thefirst aim, conditions of equifinality the second. Again the goal of

inimitability is highly demanding, and asks the question of how toachieve it with assets, resources, or capabilities the firm does not

already have. Thus notwithstanding major advances in the field of

strategy, practitioners are left with a dilemma: how to developsustainable advantage that they do not possess, but is nonetheless

attainable.

A study by Danny Miller of a number of firms shows how some of

them were able to build not so much on resources and capabilities as

on asymmetries. Asymmetries are typically skills, processes, or assets

a firm's competitors do not and cannot copy at a cost that affords

economic rents. They are rare, hard or impossible to imitate and non-substitutable, although not connected to any engine of value creation,

and, in fact, often act as liabilities. By discovering andreconceptualizing these asymmetries, embedding them within a

complementary organizational design, and leveraging them across

appropriate market opportunities, many firms were able to turnasymmetries into sustainable capabilities.

Definition Strategic Agility. Description.

Strategic Agility is a company's ability or capacity to continuouslyadjust and adapt its strategic direction by identifying and decisively

seizing major, game-changing opportunities when they arise. Likeother forms of agility, such as operational agility, portfolio agility and

organizational agility, the underlying idea is being quick on your feet,

nimble, responsive, always alert. However in the case of strategicagility the focus is on the need for flexible, fast adaptive strategy

formation.

A major challenge with achieving strategic agility is to balance this

ability to respond and adapt quickly to changing market conditionswith having a relatively stable direction (strategic vision) and key

corporate resources.

Typical examples of this type of organizational agility are:

Rapidly establishing and scaling up a new business (Compare:

Business Incubator

).

Aggressively entering a new market (Compare:First-mover

Advantage, Time to Market).

Betting heavily on new technologies.

Making significant investments in capacity.

Specific organizational capabilities to be strategically agile include(Donald Sull in HBR, February 2009):
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Strong capability to finance big bets.

Flexible governance structure.

Long-term perspective by shareholders and executives.

Other organizational capabilities to be a strategically fast company are

(Jocelyn R. Davis ad Tom Atkinson in HBR, May 2010):

Align senior leaders to strategic initiatives.

Innovation teams capture and communicate lessons learned.

Develop the ability to explore new technologies rather than

improve quality or lower costs.

In their book 'Fast Strategy: How strategic agility will help you stay

ahead of the game' (2008), Yvez Doz and Mikko Kosonen formulate 4Key Enabling Capabilities

for Strategic Agility:

Strategic Sensitivity

(seeing and framing

opportunities and threats in anew way, in time)

o Casting a wide

net.

o Multiple levels

of analysis.

o Including understanding of one's creeping and binding

"lock ins".

Collective Commitment (collective decision-makingand

commitment)

o Keep the top level meetings focused on strategy.

o Create culture of holistic accountability instead of silos.

o Make time for full information sharing and interaction.

o Treat personal objectives and concerns as critical

inputs.

o Have a FAIR process that allows for needed

UNEQUAL resource allocation.

Resource Fluidity (fast and efficient resource mobilization,

redeployment)o Some resources are more fluid (money, brand) than

others (key people, fixed inputs, special relationships with clients).

o Challenge is cognitive and political rather than

procedural or financial.

o Generative growth (on the edges) is key.

o Maximize knowledge sharing with outside parties

(Compare: Co-Creation

).

o Experiment.

Management Depoliticization

o Most top teams are, for natural reasons, collections of

independent individuals with strong opinions rather than inspiring andinnovative teams.

o Teams need to be organized for mutual

interdependencies, with incentives to match.

o Cognitive diversity is a key precondition to high-quality

internal dialogs (Compare: Cross-Functional Team)

o Use young rising leaders as a shadow management

team focused on the future.

o Have an OPEN strategy process.

o Leaders must learn to ASK and ADAPT rather than to

DECIDE and TELL.
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Emotional Intelligence (Goleman)

Non-cognitive aspects of intelligence. Explanation of Emotional

Intelligence. Robert Thorndike ['37], David Wechsler ['40],

Howard Gardner ['83], Salovey & Mayer ['90], Daniel

Goleman. ['95]

Emotional Intelligence history

When psychologists began to write and think about intelligence, theyinitially focused on cognitive aspects, such as memory and problem-

solving. However, some researchers recognized the importance of non-

cognitive aspects early on:

Robert Thorndike was writing about social intelligence in

1937,

David Wechsler defined intelligence as the aggregate or global

capacity of the individual to act purposefully, to think rationally, andto deal effectively with his environment (Wechsler, 1958, p. 7).

Already in 1940 Wechsler referred to non-intellective as well asintellective elements (Wechsler, 1940), by which he meant affective,

personal, and social factors. Furthermore, already in 1943 Wechsler

was proposing that the non-intellective abilities are essential forpredicting ones ability to succeed in life.

Howard Gardner began to write about multiple intelligence in

1983. He proposed that intrapersonal and interpersonal intelligencesand the type of intelligence (typically measured by IQ and related

tests) are equally important.

Salovey and Mayer actually coined the term emotional

intelligence in 1990. They described emotional intelligence as "a form

of social intelligence that involves the ability to monitor own andothers feelings and emotions, to discriminate among them, and to use

this information to guide ones thinking and action" (Salovey & Mayer,1990). Salovey and Mayer also initiated a research program intended

to develop valid measures of emotional intelligence and to explore its

significance.

In doing the research for his first book, Daniel Goleman became

aware of Salovey and Mayers work in the early 1990s. Being trainedas a psychologist at Harvard, where he worked with David

McClelland, Goleman wrote the popular bestseller "EmotionalIntelligence" (1995), in which he offered the first ' proof' that

emotional and social factors are important.

Five Domains of Emotional Intelligence

Goleman in 1995 agrees with Salovey's Five Main Domains ofEmotional Intelligence (p. 43)

Knowing one's emotions. Self-awareness, recognizing a feeling

while it happens.

Managing emotions. The ability of handling feelings so theyare appropriate.

Motivating oneself. Marshalling emotions in the service of a

goal.

Recognizing emotions in others. Empathy, social awareness.

Handling relationships. Skill in managing emotions in others.

Four domains of Emotional Intelligence

More recently, Goleman favors only Four Domains of EI. The 4

domains have 19 categories, as described in his 2002-book "Primal

Leadership". 2 extra categories were added by the Hay Group:

Self-awareness (Emotional Self-Awareness. Accurate Self-

Assessment and Self Confidence)Self-management (Emotional Self-Control. Transparency

(Trustworthiness). Adaptability. Achievement Orientation. Initiative.

Optimism. Conscientiousness)
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Social awareness (Empathy. Organizational Awareness.

Service Orientation)

Relationship management (Inspirational Leadership. Influence.

Developing Others. Change Catalyst. Conflict Management. BuildingBonds. Teamwork and Collaboration. Communication)

An important thing to understand is that - according to Goleman -these EI competencies are not innate talents. They are learned abilities.

IQ or EI?

According to some scientists, IQ by itself is not a very good predictor

of job performance. Hunter and Hunter (1984) estimated that at bestIQ accounts for about 25 percent of the variance. Sternberg (1996) has

pointed out that studies vary and that 10 percent may be a morerealistic estimate. In some studies, IQ accounts for as little as 4 percentof the variance. In a recent meta-analysis examining the correlation

and predictive validity of EI when compared to IQ or general mentalability, Van Rooy and Viswesvaran (2004) found IQ to be a better

predictor of work and academic performance than EI. However, whenit comes to the question of whether a person will become a "star

performer" (in the top ten percent, however such performance is

appropriately assessed) within that role, or be an outstanding leader,IQ may be a less powerful predictor than emotional intelligence

(Goleman 1998, 2001, 2002).

IQ and EI: pure types

According to Goleman, IQ and EI should not be regarded ascompetencies with an opposite direction. They are rather separate

competencies. People with a high IQ but low EI (or the opposite) are,despite the stereotypes, relatively rare. There is a correlation between

IQ and some aspects of EI. The stereotypes (pure types) are:

(Pure) High-IQ male. He is typified - no surprise - by a wide

range of intellectual interest and abilities. He is ambitious andproductive. Predictable and dogged. And untroubled by concerns about

himself. He also tends to be critical and condescending. Fastidious and

inhibited. Uneasy with sexuality and sensual experience. Unexpressiveand detached. And emotionally bland and cold.

(Pure) High-EI male. He is socially poised. Outgoing and

cheerful. Not prone to fearfulness or worried rumination. He has a

notable capacity for commitment to people or causes, for taking

responsibility, and for having an ethical outlook. He is sympatheticand caring in his relationships. His emotional life is rich, but

appropriate. He is comfortable with himself, others, and the socialuniverse he lives in.

(Pure) High-IQ female. She has the expected intellectualconfidence. Is fluent in expressing her thoughts. Values intellectual

matters. And has a wide range of intellectual and aesthetic interests.She tends to be introspective. Prone to anxiety, rumination, and guilt.

And hesitates to express her anger openly.

(Pure) High-EI female. She tend to be assertive and expresses

her feelings directly. And feels positive about herself. Life holdsmeaning for her. She is outgoing and gregarious. And expresses her

feelings appropriately. She adapts well to stress. Her social poise lets

her easily reach out to new people. She is comfortable enough withherself to be playful, spontaneous, and open to sensual experience. She

rarely feels guilty, or sinks into rumination.

Assessing and measuring Emotional Intelligence

Instruments used for measuring Emotional Intelligence

EQ-I (Bar-On, 1997): a self-report instrument to assess those

personal qualities that enabled some people to possess better emotional

well-being than others.


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Multifactor Emotional Intelligence Scale (Mayer, Caruso, &

Salovey, 1998): a test of ability where the test-taker performs a seriesof tasks that are designed to assess the persons ability to perceive,

identify, understand, and work with emotion.

Emotional Competence Inventory (ECI) (Goleman, 1998): a

360 degree instrument, where people evaluate the individuals within

an organization (Individual Feedback Reports). Or the organization asa whole (Work Force Audits). These audits can provide an

organizational profile for any size group within the company. TheEmotional Competence Inventory works with the 19/21 competencies

described above (See under Four Domains of EI).

Management by Exception

"Management by Exception is a management technique by whichmanagers concentrate only on exceptional deviations instead of trying

to correct each and every deviation.

The advantage of the technique of management by exception is that itallows the manager to concentrate on problems that need his attention

and to avoid dealing with those that can be well handled by thesubordinated themselves.

Advantages:

1. It allows the manager to devote more time for important issues by

letting the subordinates deal with the issues of a routine nature.2. The manager need not bother about routine matters.3. Since the manager devotes more time for vital issues, he will be able

to make better decisions.4. The subordinates are given authority to make decisions on certain

matters without any interference by the executives.

5. The management is also able to utilize the available talent at thelower levels

6. Helps to identify the responsible person."

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