This document discusses the importance of resources, capabilities, and competencies in developing business strategies. It outlines that selecting strategies that exploit valuable resources and competencies, fully utilizing resources and capabilities, and building new resources and competencies are key elements of strategy. Understanding a firm's resources in areas like financial, physical, human, technological, and reputation can help identify competitive advantages. Organizational capabilities refer to a firm's ability to undertake activities, and core competencies are capabilities fundamental to strategy and performance. The value of resources depends on their appropriability, scarcity, and ability to create value.

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