RESOURCE, CAPABILITIES,

CORE COMPETENCIES, AND ACTIVITY

ANALYSIS

The fundamental building

blocks for building
winning strategies
 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

Categories of Firm Resources

• Financial $ ¥ £

• Physical

• Human

• Technological

• Reputational
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)
 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)
 What Makes a Resource Valuable?

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)

 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).
First-Mover Advantages in Resource Acquisition

 Patents
 Brand Recognition
 Reputation
 Accumulated Learning
 Attractive Locations
 Installed Base
 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