RESOURCE, CAPABILITIES,

CORE COMPETENCIES, AND ACTIVITY

ANALYSIS

The fundamental building

blocks for building winning
strategies
EXHIBIT 4.1 Creating Strategic Fit to Leverage Internal Strengths

4–2
EXHIBIT 4.2 Linking Resources and Capabilities to Firm Performance
The resource-based view of the firm
Competitive advantage
Industry’s critical
Strategy FIT success factors

Capabilities
Competencies
Organizational routines
Norms and directives

Resources
Tangible: Intangible: Human:
• financial • technology • competences and
• physical • reputation specialized knowledge
• culture • interaction and
communication abilities
• motivation
Fernando Alberti, PhD
 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)
 Categories of Firm Resources

• Financial $ ¥ £
• Physical
• Human
• Technological
• Reputational
 First-Mover Advantages in Resource Acquisition

 Patents
 Brand Recognition
 Reputation
 Accumulated Learning
 Attractive Locations
 Installed Base
 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
 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
 Resources, Capabilities, and Competitive
Advantage: The Basic Relationships

INDUSTRY
KEY
COMPETITIVE SUCCESS
ADVANTAGE STRATEGY FACTORS

ORGANIZATIONAL
CAPABILITIES

RESOURCES

Tangible Intangible Human

 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)
What Makes a Resource Valuable?

Value creation zone

Appropriability
Scarcity

Demand

The dynamic interplay of three fundamental market forces

determines the value of a resource.
Source: Collis and Montgomery, Corporate Strategy (1996)
 Resource Imitability
Cannot be imitated:
Patents
Unique location
Unique assets
(e.g. Mineral rights)

Difficult to Imitate:
Brand Loyalty
Favorable cost position
Employee Satisfaction
Reputation for Fairness

Can be Imitated (but may not be):

Capacity Pre-emption
Economies of Scale
Easy to Imitate:
Cash
Commodities

Source: Collis and Montgomery, Corporate Strategy: Resources and the Scope of the Firm (1996).
 Identifying a Company’s
Identifying a Company's Capabilities
Capabilities and Value Chain
Functional Area Capability Example

• Corporate head office

• Capability in basic e.g., IBM, AT&T,
• Management information
research Sony
• Research and development
• Ability to produce • 3M
• Manufacturing innovative products
• Canon
• Product design • Speed of new
product development
• Marketing

• Sales and distribution

Source: Robert M. Grant, Contemporary Strategy Analysis, Basil Blackwell, 1991.

 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

 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