I/O Model Vs Resource

based Model – Two

approaches to Strategic
Management
Dr. M Manjunath Shettigar
MA (Econ), MBA, MPhil, PhD
Two approaches (Models) to Strategy
• The Industry Organization (I/O) Model
of Above-Average Returns
• The Resource-Based Model
of Above-Average Returns
The Industry Organization (I/O) Model
of Above-Average Returns

Product
Diversification
differentiation

Barriers to market Industry

entry concentration

The Firm’s
Economies Market
of scale Strategic frictions
Choices

1–3
Industry Organization (I/O) Model:
underlying assumptions
• 1. the external environment is presumed to impose pressures and
constraints that determine that would result in above average profit
• 2. Most firms competing in an industry or a segment in the industry
possess the similar resources
• 3. Resources are highly mobile and easy to acquire. Hence any
resource difference between firms is temporary
• 4. Organizational decision makers are assumed to be rational and
committed to acting in the firm’s best interest, as shown by their
profit maximizing behavior.
Five Forces Model of Competition

Substitutes

Suppliers Industry Rivalry Buyers

Potential
Entrants

1–5
The Resource-Based Model
of Above-Average Returns

Core
Capability competence
An integrated set A source of
of resources competitive
Resources advantage
Physical, human, and
organizational capital
(tangible and intangible)

1–7
Resource based View (RBV) Model:
underlying assumptions
Two Critical Assumptions of the RBV approach
1. Resource Heterogeneity »
Different firms may have different resources
2. Resource Immobility »
It may be costly for firms without certain resources to acquire or
develop them » some resources may not spread from firm to firm
easily
Resources As Core Competencies

Costly to imitate

How resources
Rare become core Valuable
competencies

Non-substitutable
1–9
RBV approach - example
Strategic Decision Making

Industry Organization Resource-Based

(I/O) Model Model

Competitive
Strategy
Decision

1–12
The Reality ?!