This document discusses analyzing an organization's resources and capabilities. It addresses two main issues: how resources can deliver value added and profits, and which resources provide competitive advantage. The analysis considers both value added, by exploring how an organization transforms inputs into outputs, and competitive advantage, by finding special resources that enable it to compete sustainably. Key questions relate to identifying an organization's resources and capabilities, their importance in strategy, improving competitive advantage, and other important company resources.

1. Analyzing resources
and capabilities
Chap-4

2. Analyzing the resources and capabilities of an organization involves not
only exploring the role and contribution of the main resources, but also
developing an understanding of two main issues:
 first, how resources can deliver superior profits in private companies
and provide the best services in publicly owned organizations – called
the delivery of value added in strategy;
 second, which resources and capabilities deliver competitive advantage
to the organization and how they can be improved over time.
The resource and capabilities analysis therefore proceeds along two
parallel and interconnected routes: value added and sustainable
competitive advantage.
The value-added route explores how the organization takes goods from its
suppliers and turns them into finished goods and services that are then
sold to its customers: essentially, adding value to the inputs from its
suppliers is fundamental to the role of every organization.
The competitive advantage route attempts to find the special resources
that enable the organization to compete: how and why some resources
deliver sustainable competitive advantage is crucial to strategy
development.

3. Individual
Organization’s Resource
& Capabilities
Value Added
How? Where?
Sustainable
Competitive
Advantage
Value
Chain
Value
System
Green
Strategy
7 main
concepts of
VRIO
Diagram
• Core Competencies
• Innovation
• Architecture
• Reputation
• Knowledge
Value added can contribute to
SCA and Vice Versa

4. ANALYSING RESOURCES AND
CAPABILITIES
 The resources of an organization are those assets that deliver value added in
the organization.
 The capabilities of an organization are those management skills, routines and
leadership that deploy, share and generate value from the resources of the
organization.
5 key questions related to resources and capabilities:
1. What are the resources and capabilities in an organization?
2. Why do we have them at all?
3. Why are resources and capabilities important in strategy?
4. How can we improve competitive advantage?
5. What other company resources are also important?

5. Analyzing the basic resources
and capabilities :
It is useful to divide resources into three broad categories.
1 Tangible resources are the physical resources of the
organization that contribute to its value added.
2. Intangible resources are those resources that have
no physical presence but represent real benefit to the
organization, like brand names, service levels and technology.
3 Organizational capabilities are the skills, routines,
management and leadership of the organization.
Managerial and other difficulties in
undertaking the analysis :
This is fraught with difficulty for three main reasons:
1 because there is often uncertainty about the industry conditions and the
actions of competitors;
2 because the many factors making up the analysis are complex and the
underlying causes difficult to understand;
3 because there is often disagreement within the organization over what
constitutes a competitive resource.

6. Prescriptive and emergent approaches to
resource analysis :
Prescriptive strategists take the view that it is important to use resources
efficiently and build on resource strengths. Resources are to some extent
regarded as objects to be manipulated. Hence it is possible for strategy to
mold resources in order to provide a more efficient organization.
For emergent strategists, the environment is changing fast as a result of
forces beyond the control of the organization. Resources need to be
flexible and aimed at survival. Analyzing resources as static and
unchanging therefore is not appropriate.

7. THE MAKE-OR-BUY DECISION
It is useful to explore the reasons for an organization to possess and use
any resources beyond the minimum amount needed to stay in
existence. Arguably, in an efficient market, there will be outside more
specialized suppliers that will be able to sell some activities more
cheaply to the organization than it can make them for itself.
The make-or-buy decision is part of a broader strategic reappraisal of
resources. Over the past 30 years, many organizations have come to redefine
the boundaries of their resources – what they make is only part of the
resources owned by the firm.

8. Benefits :
• Outside suppliers can achieve economies of scale that in-house
departments producing only for their own needs cannot.
• Outside suppliers are subject to the pressures of the market and
must be efficient and innovative to survive. Overall corporate success
may hide the inefficiencies and lack of innovativeness of in-house
departments.
Costs :
• Production flows need to be co-ordinated through the value chain of
the organization. This may be compromised when an activity is
purchased from an independent market firm rather than performed in-
house.
• Private information may be leaked when an activity is performed by
an independent market firm – such information may be crucial to the
competitive advantage held by the organization.
• There may be costs of transacting with independent firms that can be
avoided by performing the activity in-house.

9. RESOURCE ANALYSIS AND
ADDING VALUE
Added value can be defined as the difference between the market value
of the output of an organization and the cost of its inputs. Value can be
added in an organization:
• either by raising the value of outputs (sales) delivered to the
customer;
• or by lowering the costs of its inputs (wages and salaries, capital
and materials costs) into the company. Alternatively, both routes
could be used simultaneously.

10. ADDING VALUE: THE VALUE
CHAIN AND THE VALUE SYSTEM
The value chain identifies where the value is added in an organization and
links the process with the main functional parts of the organization. It is
used for developing competitive advantage because such chains tend to
be unique to an organization.
The value system shows the wider routes in an industry that add value to
incoming supplies and outgoing distributors and customers. It links the
industry value chain to that of other industries.

11. The value chain:
The value chain links the value of the activities of an organization with its
main functional parts.
1 the added value that each part of the organization contributes to the
whole organization
2 the contribution to the competitive advantage of the whole
organization that each of these parts might then make.
The company is then split into the primary activities of production, such as
the production process itself, and the support activities , such as human
resources management, that give the necessary background to the running
of the company but cannot be identified with any individual part.

12. The value system :
Organizations are part of a wider system of adding value involving the supply and
distribution value chains and the value chains of customers. This is known as the
value system.

13. Linkages between the value chain and
value system:
• a common raw material (such as sugar in various food products); or
• a common distributor (such as a car parts distributor for a group
with subsidiary companies manufacturing various elements in a car).
Competitors have much more difficulty in doing is imitating the special and possibly
unique linkages that exist between elements of the value chain and the value
systems of the organization.
It is necessary to search for special and possibly unique linkages that either exist or
might be developed between elements of the value chain and between value
systems associated with the company.
One fundamental problem with the value chain, value system and its linkages is
their broad perspective across the range of the company’s resources. They are
sometimes rather vague at identifying he precise nature and scope of the
advantages such resources possess against competitors.
Another difficulty with value-added analysis is its focus on assets that can be clearly
measured.

14. THE RESOURCE-BASED VIEW (RBV)
The RBV stresses the importance of the individual resources of the
organization in delivering the competitive advantage and value added of the
organization. The essence of the RBV development is its focus on the
individual resources of the organization, rather than the strategies that are
common to all companies in an industry. Sustainable competitive advantage
then comes by striving to exploit the relevant resources of the individual
organization when compared with other organizations. Relevance means the
identification of resources that are better than those of competitors,
persuasive to the customer and available from the range of strengths
contained inside the organization.
Sustainable competitive advantage
and the RBV:
The real benefits come from advantages that competitors cannot easily
imitate, not from those that give only temporary relief from the
competitive battle. To be sustainable , competitive advantage needs to be
more deeply embedded in the organization – its resources, skills, culture
and investment over time.

15. Some sources of competitive advantage:
• Differentiation. • Low costs.
• Niche marketing. • High performance or
technology.
• Quality. • Service.
• Vertical integration. • Synergy.
• Culture, leadership and style of an organization.
High-Technology
Business
Service Business Small
Business
Manufacturing business
where the company is a
market leader
Technical excellence Reputation for
quality of service
Quality Low costs
Reputation for
quality
High quality and
training of staff
Prompt
service
Strong branding
Customer service Customer service Personalized
service
Good distribution
Financial resources Well-known name Keen prices Quality product
Low-cost
manufacturing
Customer-oriented Local
availability
Good value for money

16. The seven elements :
• Prior or acquired resources .
• Innovative capability .
• Being truly competitive .
• Substitutability .
• Appropriability .
• Durability .
• Imitability .
• Tangible uniqueness .
• Causal ambiguity .
• Investment
deterrence
The VRIO Framework:
• Valuable .
• Rare .
• Cannot be imitated .
• Organizing capability .

17. IDENTIFYING WHICH RESOURCES AND
CAPABILITIES DELIVER SUSTAINABLE
COMPETITIVE ADVANTAGE
Basic resource analysis:
• Tangible resources : the physical resources of the organization.
• Intangible resources : the many other resources that are important but
are not physically present.
• Organizational capability : the skills, structures and leadership of the
organization that bind all its assets together and allow them to interact
efficiently.

18. Why
Firms
posses
resource?
• Tangible SCA
• HR SCA
• Intangible SCA
• Org Capacity SCA
• Innovative Capacity
• Reputation
• Architecture
• Core competencies
• Some knowledge
content
• Future
Technology
• Buy in
technology
• Joint venture
Define SCA
Now---
But what
about
future???
The particular importance of
three distinctive capabilities:
John Kay argued that the distinctive capabilities of an organization's
resources are particularly important in delivering competitive
advantage. Distinctive capabilities relate to three possible unique
resource areas in an organization: architecture, reputation and
innovative ability. They are complex and not necessarily capable of
quantified analysis but they will undoubtedly contribute to the
distinctive development of a company’s strategy.

19. He introduced and explored them by explaining that an organization has a
series of contracts and more informal relationships:
• with its employees inside the organization;
• with its suppliers, distributors and customers outside in the environment;
and
• possibly between a group of collaborating firms inside and outside the
immediate industry.
1 Architecture is the network of relationships and contracts both inside
and outside the fi rm.
2 Reputation is the strategic standing of the organization in the eyes of
its customers and other stakeholders. This allows an organization to
communicate favorable information about itself to its customers.
3 Innovative capability is the special talent possessed by some
organizations for developing and exploiting innovative ideas.
The relationships have been built over time.

20. The particular importance of core competencies:
Core competencies are a group of production skills and
technologies that enable an organization to provide a particular
benefit to customers. There are three areas that distinguish the
major core competencies:
1 Customer value . Competencies must make a real
impact on how the customer perceives the organization and its
products or services.
2 Competitor differentiation . This must be competitively
unique. If the whole industry has the skill, then it is not core unless
the organization's skills in the area are really special.
3 Extendable . Core skills need to be capable of providing
the basis of products or services that go beyond those currently
available. The skill needs to be removed from the particular
product group in which it currently rests. The organization needs
to imagine how it might be exploited in the whole area of its
operations.

21. Knowledge management as the main source of competitive
advantage?
In recent years, some strategists have taken the view that the knowledge
management of the organization represents the main source of competitive
advantage. They argue that the retention, exploitation and sharing of
knowledge are extremely important in the ability of companies to stay ahead of
their rivals. By knowledge is meant the accumulation over time of the skills,
routines and capabilities that shape the organization's ability to survive and
compete in markets.
Resource-based view and SMEs
RBV is also relevant for small and medium-size enterprises (SMEs). Such organizations
tend to have a smaller number of resources, but they can also be more flexible and
entrepreneurial. Typically, organizations of this size often develop strategies that might
include:
 higher levels of personal service;
 specialist expertise;
 design skills;
 regional knowledge;
 bespoke solutions.

22. IMPROVING COMPETITIVE ADVANTAGE
Any enhancement of value added and competitive advantage will come about
through a course of action over time. This is a strategic process with all that this
implies in terms of the human resources of the organization, its change of
culture and its leadership. The process may be emergent as well as prescriptive .
It is convenient and relevant to consider three elements :
1 benchmarking;
2 exploiting existing resources – leveraging;
3 upgrading resources.
Benchmarking:
Benchmarking – the comparison of practice
with that of other organizations in order to
identify areas for improvement. The other
organization does not necessarily have to be
in the same industry. The comparison simply
has to be with another whose practices are
recognized as leading the fi eld in that
particular aspect of the task or function.
Explore results of
Benchmarking exercise
Redefine Performance
Target
Redevelop assets and system of
org
Develop new performance
objective by individual and
groups

23. Exploiting existing resources –
leveraging:
In any organization, it is essential to exploit its existing resources to the full
– this is sometimes called leveraging resources. existing resources can be
exploited in five areas:
1 Concentration
2 Conservation
3 Accumulation
4 Complementarity
5 Recovery
Upgrading resources:
1 Add new resources to support or enhance an existing product or
service area .
2 Enhance directly the resources that are threatened by competition .
3 Add complementary resources that will take the organization beyond
its current competition .

24. ANALYSING OTHER IMPORTANT
COMPANY RESOURCES: ESPECIALLY
HUMAN RESOURCES
There are at least three approaches:
• Financial perspective , including cash flow, shareholding, tax and
related issues.
• Operations (production) perspective involving such matters as
lean production, inventory control and quality manufacturing and
services.
• Human resources perspective examining topics such as
organizational culture, leadership and change.
Analyzing the current organizational
culture:
1. History and ownership
2. Size
3. Technology
4. Leadership and mission
5. Cultural web

25. Shaping the future cultural style of the
organization:
1. The power culture
2. The role culture
3. The task culture
4. The personal culture
Qualifying the four cultural types-
1 Organizations change over time .
2 Several types of culture usually exist in the same
organization .
3 Different cultures may predominate, depending
on the headquarters and ownership of the company
.
4 Organizational culture changes only slowly .
Testing the analysis of culture for strategic
relevance:
• Risk . • Rewards . • Change . • Cost reduction . •
Competitive advantage