Resources and Capabilites

1. RESOURCE, CAPABILITIES,
CORE COMPETENCIES, AND ACTIVITY
ANALYSIS
The fundamental building
blocks for building
winning strategies

2. Key Elements of Business Strategies:
Understanding Resources, Capabilities, and
Competencies is the key
 Selecting a business strategy that exploits valuable
resources and distinctive competencies (ie.
competitive advantages)
 Ensuring that all resources and capabilities are fully
employed and exploited
 Building and regenerating valuable resources and
distinctive competencies -- competitive advantages

3. Rationale for the Resource-based
Approach to Strategy
 When the external environment is subject to
rapid change, internal resources and
capabilities offer a more secure basis for
strategy than market focus
 Resources and capabilities are the primary
source of profitability. Firm-specific strategic
differences account for 50-70 percent of
observed differences in firms’ profits

4. Resources, Capabilities, and Competitive
Advantage: The Basic Relationships
COMPETITIVE
ADVANTAGE STRATEGY
INDUSTRY
KEY
SUCCESS
FACTORS
ORGANIZATIONAL
CAPABILITIES
RESOURCES
Tangible Intangible Human

5. Categories of Firm Resources
• Financial
• Physical
• Human
• Technological
• Reputational
$ ¥ £

6. Valuable Resources and Competencies:
The “key” to Competitive Advantages
 Resources can be:
– Physical ie the wiring into your home (ramp for
the info highway)
– Human ie. skilled and creative employees
(Wal*Marts’ dedicated employees)
– Intangible ie. brand names and technological
know-how (Coca-Cola, Disney, Sharp LCDs)
– Organizational Capabilities embedded in the
business’ routines, processes, culture (Japanese
auto makers)

7. Defining Organizational Capabilities
Organizational Capabilities = firm’s capacity for
undertaking a particular activity. (Grant)
Distinctive Competence = things that an organization
does particularly well relative to competitors. (Selznick)
Core Competence = capabilities that are fundamental to a
firm’s strategy and performance. (Hamel and Prahalad)

8. Appropriability
Scarcity
Demand
Value creation zone
The dynamic interplay of three fundamental market forces
determines the value of a resource.
Source: Collis and Montgomery, Corporate Strategy (1996)
What Makes a Resource Valuable?

9. Easy to Imitate:
Cash
Commodities
Can be Imitated (but may not be):
Capacity Pre-emption
Economies of Scale
Difficult to Imitate:
Brand Loyalty
Favorable cost position
Employee Satisfaction
Reputation for Fairness
Cannot be imitated:
Patents
Unique location
Unique assets
(e.g. Mineral rights)
Source: Collis and Montgomery, Corporate Strategy: Resources and the Scope of the Firm (1996).
Resource Imitability

10. First-Mover Advantages in Resource Acquisition
 Patents
 Brand Recognition
 Reputation
 Accumulated Learning
 Attractive Locations
 Installed Base

11. Identifying a Company's Capabilities
Source: Robert M. Grant,Contemporary Strategy Analysis, Basil Blackwell, 1991.
• Corporate head office
• Management information
• Research and development
• Manufacturing
• Product design
• Marketing
• Sales and distribution
• Capability in basic
research
• Ability to produce
innovative products
• Speed of new
product development
e.g., IBM, AT&T,
Sony
• 3M
• Canon
Functional Area Capability Example
Identifying a Company’s
Capabilities and Value Chain

12. Summary: Key Elements of
Resource-Based Strategy
 Select a strategy that exploits principal
resources and competencies.
 Ensure that resources are fully
employed and exploited.
 Build a resource base.
Source : Hamel and Prahalad

13. Strategic Implications of
Competing on Resources
 Investing in resources, continually
 Upgrading resources, creating or acquiring
new resources, finding alternatives resources
 Leveraging resources
 Rapid redeployment of resources