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 = 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? 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
• Capability in basic e.g., IBM, AT&T, research Sony • Ability to produce • 3M innovative products • Canon • Speed of new product development Identifying a Company’s Capabilities and Value Chain Identifying a Company's Capabilities Functional Area Capability Example • Corporate head office • Management information • Research and development • Manufacturing • Product design • 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