Resources and

Capabilities

Identifying Attributes of
Strategic Resources
Resource:
A resource is any thing or quality that is useful.
Firms usually begin their history with a relatively small amount of
strategically relevant resources and skills, and each companys
uniqueness shows how these resources are expected to perform in the
marketplace.
The resource-based theory holds that sustainable competitive
advantage (SCA) is created when firms possess and employ resources
and capabilities that are:
1. Valuable because they exploit some environmental opportunity
2. Rare in the sense that there are not enough for all competitors
3. Hard to copy so that competitors cannot merely duplicate them
4. Nonsubstitutable with other resources

Competitive Advantage
Occurs when the entrepreneur is
implementing a value-creating
strategy not simultaneously being
implemented by any current or
potential competitors.

Sustained Competitive
Advantage
Competitive advantage with a
very important addition: current
and potential firms are unable to
duplicate the benefits of the
strategy.

Valuable Resources
Resources are valuable when they help the organization
implement its strategy effectively and efficiently.
A valuable resource exploits opportunities or minimizes
threats in the firms environment.
Examples of valuable resources and capabilities are:
a. Property
b. Equipment
c. People
d. Skills (marketing, financing, accounting)

Rare Resources
A resource can be considered rare as long as it is not
widely available to all competitors.
If supply and demand are in equilibrium, and the
market-clearing of the resource is generally affordable, it
would cease to be rare.
Examples of rare resources are:
a. Good location
b. Good leaders
c. Control of natural resources

Hard-to-Copy Resources
Where duplication is not possible at a price low enough
to leave profits, the resource is said to be hard to copy.
Three factors make it difficult for firm to copy each
others skills and resources:
1. Unique Historical Conditions
2. Ambiguous Causes and Effects
3. Complex Social Relationships

1. Unique Historical Conditions:

The defining moment for many organizations is their
founding.
At birth:
o Organizations are imprinted with the vision and purpose
of their founders
o The initial assets and resources are unique for that place
and time
o Firms founded at different times in other places cannot
obtain these resources; thus, the resources cannot be
duplicated.

2. Ambiguous Causes and Effects:

Causal ambiguity exists when the relationship between
cause and effect is not well understood or ambiguous.
In business , this means that there is doubt about what
caused what and why things happened.
When these things are imperfectly understood, it is difficult
for other firms to duplicate them.

3. Complex Social Relationships:

As long as a firm uses human and organizational resources,
social complexity may serve as a barrier to imitation.
The interpersonal relationships of managers, customers
and suppliers are all complex.
The most complex social phenomenon is organizational
culture.

Nonsubstitutable Resources
Nonsubstitutable resources are strategic resources
that cannot be replaced by common resources.
Keep in mind that very different resources can be
substitutes for each other. For example:
a. An expert-system computer program may substitute for
a manager
b. A charismatic leader may substitute for a well-designed
strategic-planning system

Resource Attributes and

Competitive Advantage

Resource Types
Resource-based theory recognizes six types of resources,
which are also called the PROFIT factors:
1.
2.
3.
4.
5.
6.

Physical
Reputational
Organizational
Financial
Intellectual and Human
Technological

Physical Resources
Physical resources are the tangible property the firm uses in
production and administration. These include the firms:
Plant
Equipment
Location
Amenities available at location
Natural resources (minerals, energy resources or land)

Reputational Resources
Reputational resources are the perceptions that people in
the firms environment have of the company. Reputation
can exist:
At the product level as brand loyalty
At the corporate level as global image
Reputational capital may be relatively long-lived as
compared to technological resources.

Organizational Resources
Organizational resources include the firms structure,
routines, and systems. The term ordinarily refers to the
firms:
Formal reporting systems
Information-generation
Decision-making systems
Formal or informal planning
The organizations structure is an intangible resource that
can make the difference between the organization and its
competitors.

Financial Resources
Financial resources represent money assets. Financial
resources are generally the firms:
Borrowing capacity
Ability to raise new equity
Amount of cash generated by internal operations.
Being able to raise money at below-average cost is an
advantage attributable to the firms credit rating and
previous financial performance.

Limitations of Financial Resources:

Are Financial Resources Valuable? No doubt about it.
Are Financial Resources Rare? Sometimes yes and
sometimes no.
Are Financial Resources Hard to Copy? No.
Are Financial Resources Nonsubstitutable with
Resources That Are Common? Technically, no.

Intellectual and Human

Resources
Intellectual and human resources include the knowledge,
training and experience of the entrepreneur and his o her
team of employees and managers. It includes:
Judgment
Insight
Creativity
Vision
Intelligence
Social Skills

Technological Resources
Technological resources are made up of processes, systems,
or physical transformations. These may include:
Labs
Research and Development facilities
Testing and quality control
Technological secrets and proprietary processes are
resources as well.

Distinction between Technological

Capital and Intellectual Capital
Technological Capital
Physical, intangible, or
legal entities and are
owned by the
organization.

Intellectual Capital
Embodied in a person or
persons and is mobile. If
the person or persons
leave the firm, so does the
capital.

A Psychological Approach
Personality Characteristics:
Over the past few decades, entrepreneurial research has
identified a number of personality characteristics that
differentiate entrepreneurs form others. These are:
1. The Need for Achievement (n Ach)
2. Locus of Control
3. Risk-taking Propensity

The Need for Achievement (n Ach)

People with high levels of n Ach have:
Strong desire to solve problems on their own
Enjoy setting goals and achieving them through their
own efforts
Like receiving feedback on how they are doing
However, the link between n Ach and entrepreneurship has
not always help up in empirical testing.

Locus of Control
In locus of control theory, there are two types of people:
1. Externals who believe that what happens to them is a
result of fate, chance, luck or forces beyond their
control.
2. Internals those who believe that for the most part the
future is theirs to control through their own effort.
A logical prediction of this theory would be that internals
are more entrepreneurial than externals. Evidence
supporting this hypothesis, though, has been inconclusive.

Risk-Taking Propensity
Because the task of new venture creation is apparently
fraught with risk and the financing of these ventures is
often called risk capital, researchers have tried to
determine whether entrepreneurs take more risks than
other businesspeople.
In Brockhauss research, the risk-taking propensities of
entrepreneurs were tested. The results were than
compared with those obtained from a sample of
managers. The conclusion was that risk-taking propensity
is not a distinguishing characteristic of entrepreneurs.

Inadequacy of the Trait Approach

Overall the trait approach has failed to provide the
decisive criteria for distinguishing entrepreneurs from
others.
Resource-based theory suggests, if all entrepreneurs
have a certain trait or characteristic, it is not an
advantage to any of them, for it is neither rare nor hard
to duplicate.
We must look for circumstances that produce
differences, not similarities.

Sociological Approach
The sociological approach tries to explain the social
conditions from which entrepreneurs emerge and the
social factors that influence the decision.
It is a function of two factors:
1. The Impetus factors
2. Situational factors

Impetus for Entrepreneurship

There are four factors in impetus for entrepreneurship:
1. Negative displacement
2. Being between things
3. Positive push
4. Positive pull

1. Negative Displacement:
It is the alienation of individuals or groups of individuals from the
core of society. These individuals or groups may be seen as not
fitting in to the main flow of social and economic life.
They are sensitive to the allure of self-employment: having no one to
depend on, they depend on no one but themselves.
The triggers of negative displacement may be:
Immigrant status
Fired
Angered, bored
Middle aged
Divorced

2. Between things:
People who are between things are more likely to seek
entrepreneurial outlets than those who are in the middle
of things. For example, individuals who are:
Between military and civilian life
Between student life and a career
Between prison and freedom

3. Positive Pull:
Positive influences also lead to the decision to investigate
entrepreneurship, and these are called positive pull
influences. They can come from:
A potential partner
A mentor
A parent
An investor
A customer

4. Positive Push:
Positive push factors include such things as:
Having influence of a strong father
A career path that offers entrepreneurial opportunities
An education that gives the individual the appropriate knowledge
and opportunity
Correct career choices
Two types of career paths can lead to entrepreneurship:
1. Industry Path Get a job in a particular industry and learn
everything about that industry, and then develop a business that
fills a niche or gap created by industry change.
2. Sentry Path Emphasizes the money and the deal. Lawyers,
consultants, brokers, they all are experts in the art of the deal
and not part of any particular industry.

Situational Characteristics
Situational characteristics help determine if the new
venture will take place.
There are two situational factors:
1. Perceptions of Desirability
2. Perceptions of Feasibility

1. Perceptions of Desirability:
Entrepreneurship must be seen as desirable in order to be
pursued. The factors that effect the perceptions of
desirability come from individuals:
Culture
Family
Peers
Colleagues
Mentors

2. Perceptions of Feasibility:
Entrepreneurship must be seen as feasible if the process is
to continue. Readiness and desirability are not enough.
Potential entrepreneurs require support from others:
Emotional
Financial
Physical

Entrepreneurial Event
The entrepreneurial event is the creation and
management of a new venture. One model of this process
comprises 5 components:
1. Initiative taking
2. Consolidation of resources
3. Management of the organization
4. Autonomous action
5. Risk-taking