Compare and contrast the industrial organization (I/O) model and the resource-based view of the firm (RBV) model. Provide at least three similarities and three differences between these two models.

What will be an ideal response?

Similarities -

1. Both models provide guidance to managers about the factors to consider when selecting and implementing strategies.

2. Both models acknowledge that firms must use their resources and capabilities to take advantage of opportunities and overcome threats in the external environment.

3. Both models acknowledge that there are some factors over which managers have little control - factors in the external environment.

4. Both models acknowledge that there are some factors over which managers have considerable control - factors in the internal environment.

Differences -

1. The I/O model suggests that the external environment is the most important factor to consider when selecting and implementing strategies, while the RBV model argues that the internal environment is the most important.

2. The I/O model focuses on identifying which industries or industry segments are the most attractive in terms of the opportunities and threats presented in the external environment. The RBV model focuses on identifying the resources and capabilities, strengths and weaknesses that a firm possesses and determining what the firm can do better than the competition. The selection of industries and industry segments is based about the unique bundle of resources and capabilities possessed by the firm, not on the features of the external environment that make an industry attractive in terms of profit potential.

3. The I/O model assumes that since all firms within an industry must deal with the same opportunities and threats, the resources, capabilities and strategies that they use will be fairly similar. The RBV model argues that each firm possesses a unique bundle of resources and capabilities, which leads each firm to select and implement strategies that might be different from the competition.