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 SUCCESS FACTORS

COMPETITIVE ADVANTAGE

STRATEGY

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 = firms 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 firms strategy and performance. (Hamel and Prahalad)

What Makes a Resource Valuable?

Scarcity

Appropriability

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 Companys Identifying a Company's Capabilities Capabilities and Value Chain

Functional Area Capability Example

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

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