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1. It is argued that the part of discrepancy belween firms' stock market value and their book value roflect the fact than intangible resources are typicaily undervalued or not valued at al in their balance sheets. For the companios listed in Table 51 , which types of resource are tikely to be absent or undervalued in the firms balance sheets? 2 Grwen the profile of lcelandair's resources and capabilities outtined Strategic Capsulo 5.8 , how might Icelandair best exploit its resources and capabilities to (a) expand passenger numbers traveling to and from Iceland and (b) profitably grow its share of the North Atiantic market? In about 1000 kc, Duvid, an kraeli shepherd boy, took up the challenge of meoting Goliach, the champion of the Phulsticies in single combat. Gollaths theight was slix cubits and a span (three meters). He had a bronze heimet on his head and wore a coar of scale armor of bronze weighing five thousand sheksis ( 58kg i. on his legs he wore boonse greaves, and a brorize javelin was sung on his back' King Saul of the kraelites offered David armor and a heimet, but Dovid discarded them 7 cannot go in these, he gaid to sjul because I am not used to them. Then he took his staff in his hand, chose five smooth stories fiom the stream, pur them in the pouch of his shepherds bag and, with his sling in his hand. approached the Philistine. As the Philistine moved closer to attack him David ran quklly toward the buttle line to meet him. Reaching into his bag and taking out a stone, he slung it and struck the Philistine on the fore. head. The stone sank into his forehead, and he fell facedown on the ground: Davia's victory reflects a strategy based upon expleiting his three core strengths courageand seff-confidence, speed and mobilty, and expertise with a sing. This srategy allowed him to negate Gollath' core strengths? she advariced offensive arid defenswe equipment, and combut experience. Mad he followed King Ssuls advice and adopted a conventionas strategy for armed single combat, the outcome would almost cerfainty have been very different. 17.39-49. To understand why the resource-based view has had a major impact on strategy thinking. let us go back to the starting point for strategy formulation the underlying purpose of the firm that can be answered by posing the question: What is our business? Conventionally, this question has been answered in terms of the market being served: "Who are our customen?" and "Which of their needs are we seeking to server" However. in a world where customer preferences are volatile and the identity of customers and the technologies for serving them are changing, a market-focused strategy may not provide the spability and constancy of direction needed to guide strategy over the long term. When the external environment is in a state of flux, the firm itself, in terms of the bundle of resources and eapabilities it possestes, may be a more stable basis on which to define its identity. This emplasis on resources and capabilities as the foundation of firm strategy was popalarized by C. K. Prahabd and Cary Hamel in their 1990 bandrurk paper The Core Competence of the Corporation." The potential fos capabilitios to be the "roess of competiviverses, the sources of new peoducts, and the foundation for strategry is exempli: fied by Honda and 3Mt, among other companies (Strategy Capoule 5.2). The geater the rate of change in a firm's external envircinment, the more likely it is that intemal resourcs and capahilities, rather than extemal market focus, will provide a mecure foundation for long-tern strategy. In fast-moving, technolony-based industries. If the key success factor in the arline business is providing safe, reliable transportation between city pairs at a competitive price, we can begin by identifying the resources and capabilities needed to achieve that goal, We can then use the value chain to fill out more system. atically this list of resources and capabilities. Table 53 and Figure 5.8 show the major resources and capabilities required in the aitline business and assess Icelandair's position relative to a peer group of competitors. In terms of strategy implications, a key resource that distinguishes icelandair is location iceland's population of 326,000 offers a passenger and freight market that ice. tandair can easily dominate, but is too small to support an international airline. Hence. to achieve efficient scale, kelandair must (a) collaborate with other firms and the icelandic government to develop keland as a tourist destination and (b) compete on North Atlantic routes between European and North American cities For (b) to be vable, kelandair needs to make routes that involve a stopover at its Reykjavik hub competitive with the point-to:point routes offered by the major US and European airtines This requires (a) using kelandair's operational efficiency to undercut other aiffines on price and (b) exploiting kelandair's operational and customer service capabilities, its human resource strengths, and the appeat of Reykjavk/keland as a stopover to estab. lish a differentiation advantage. Kelandair's strategy is encapsuated in its vision statement "To unlockicelands potential as a yearround destination, to strengthen ke. land's position as a connecting hlb, and to maintain our focus on flexibility and experience? FIGURE 5.8 Icelandair's resource and capability profile Strategic importance [110] Icelandair's relative strength [110]b Resources Fleet Financial resources Location and route network Landing stots Brand Planes are transferrable, main differentiator is age of fleet [2] Critical for (a) buying other resouices (b) surwining downturns [7] Critical to market access and exploiting network economies [9] Key determinant of access to congested airports [6] Important indicator of quality and reliabelity [5] Human iesources Capabilities Fight operations Cabin services Cabin services Mantenance Marketing General management Operational copsblities are critical to cost efficiency and user satsfaction [9] Gitically important in business class; less important in economy class [6] Belevant to reliability and safety, but easily outsourced [3] important for buliding brand awareness and stimulating demand [5] Essential for developing and maintaining operational, customer service, marketing, and support capabilities [8] Above-average age of fleet until new planes are defivered in 2018-21 [2] Strong balance sheet; positive cash flow [8] Tiny domestic maket and inferior North Atlantic routes (3) Limiced presence at the key copocity-constrained arports of Europe and North Ametica [3] Lacks international prominence and still tainted by former image as a "hippy airline' [4] [8] Well-educated, well-trained, and well-motivated employees [8] Strong record of operational efficlency, safety, and flexibility: cost per averinge seat mile below that of US and European legacy carriers [8] Customer reviews suggest parity in business class and superior quality/price combinstion in economy [6] Safety record and reliability performance suggest superior capability [7] A key element in icelandairs access in expanding touilst traffic and market share of Nonth Atiantic market [8] Icelandair has a dynamic hands-on senion management team that supports a flexible and cominitted approsch to manacgerient [9] Notes: measurment