Competing on resources

& capabilities

Rationale of the Resource-based

Approach to Strategy
When the external environment is
subject to rapid change, internal
resources & capability offer a more
secure basis for strategy then market
focus.
Resources & Capabilities are the
primary sources of profitability.

RBV

o Resource based view of the firm (RBV)

Combination of internal analysis of

phenomena within companies with
external analysis of industry and the
competitive environment

o Resources

Assets [Tangible & Intangible]

Skills

Intangible Resources

Organizational attributes
[ Knowledge, Style, System &
reputation]
Those that confer Legal/Regulatory
protection
Contracts
Patents
Licenses
Industry regulation

Intangible Resources

Informational
Data base on technology, suppliers,

customers, competitors, regulators,

historical data

Personal and inter-organization

relationship
Personal contacts
Org, membership in trade associations

Skill, Capability &

Competence

Skill
Ability of individuals

Capability
Ability residing in a bundle of

resources & skill

Competence
Ability residing in the organization

Value Chain, Organizing, Strategic

Capability

Defining resources
Resources
Types

Source

Tangible; balance
sheet resources

Acquired resources

Intangible; notional

Inherent

Appraising Resources
Resourc
e

Characteristics

Indicators

Financial Borrowing capacity.

resource Internal funds/
s
generation

Debt/equity
Credit rating
Net cash flow

Physical Plant & equipment:

Resource Size,location,
s
technology,flexibility.
Land & buildings.
Raw materials

Market value of
fixed assets.
Scale of plants.
Alternatives for
fixed assets

Human
Training,experience,
Employee
Resource adaptability,commitme qualifications,p

Appraising Resources
Resource

Characteristics

Indicators

Technologic Patents,copyrights,
al
know how, R&D
resources
facilities.
Technical and
scientific employees

No. of patents
owned.
Royalty
income.
R&D
expenditure.
R&D staff

Reputation

Brand equity.
Product price
premium
recognition

Brands. Stability of
customer base.
Reputation with
suppliers.

Identifying Organizational
Capabilities: Functional
Approach
Function

Capability

Corporate
Financial control
Managemen Strategic control
t
Motivating and coordinating
business units
MIS

Speed and responsiveness thro rapid

information transfer.
Research capability.
Development of innovative new
products

R&D

Research capability
Development of innovative new

Identifying Organizational
Capabilities: Functional
Approach
Function

Capability

Manufacturi
ng

Efficient volume manufacturing.

Continous improvement.
Flexibility

Design

Design capability

Marketing

Brand management

Sales &
Distribution

Promoting reputation
Responsiveness to market trends
Sales Promotion
Efficiency and speed of distribution
Customer service

Successes built on resources

o Walt Disney; leveraging the Disney brand
name they have now expanded successfully to
a wide array of businesses
o Nike; now a global brand name for anything to
do with sports
o Coke; from cola to a beverage company
o IBM; acquisition of PwC

Resources for effective strategy

o Inimitability

Physical
Path dependency
Casual ambiguity

o Durability
o Appropriability
o Substitutability
o Competitive superiority

Inimitability- physical

Resource:
Resource:
Physicalasset
asset
Physical

Inimitability- path dependency

Resource:
Resource:
Technology
Technology

Inimitability- causal ambiguity

Resource:
Resource:
?????
?????

Durability

Resource:
Resource:
Relationship
Relationship

Appropriatibility

Resource:
Resource:
Capability
Capability

Substitutability

Resource:
Resource:
Compatibility
Compatibility

Competitive superiority

Resource:
Resource:
RawMaterial
Material
Raw
and
and

Resources: VRIO Framework

1.
2.
3.
4.

Valuable
Rareness
Imitability
Organization

Continuum of Resources Sustainability

Level of Resource Sustainability
Low
(Easy to Imitate)

High
Hard to imitate
Slow-Cycle
Resources
Strongly shielded
Patents, brand name
Gillette: Sensor razor

Standard-Cycle
Resources
Standardized mass
production
Economies of scale
Complicated processes
Chrysler: Mini-van

Fast-Cycle
Resources
Easily duplicated
Idea driven
Sony: Walkman

Typical Value Chain for a

Manufactured Product

Raw
Materials

Primary
Manufacturing

Fabrication

Product
Producer

Distributor

Retailer

Corporate Value Chain

Firm Infrastructure
(general management, accounting, finance, strategic planning)
Human Resource Management
(recruiting, training, development)

Support
Activities

Technology Development
(R&D, product and process improvement)
Profit
Margin

Procurement
(purchasing of raw materials, machines, supplies)
Inbound
Logistics
(raw
materials
handling and
warehousing)

Operations
(machining,
assembling,
testing)

Outbound
Logistics
(warehousing
and
distribution
of finished
product)

Primary Activities

Marketing
and Sales
(advertising,
promotion,
pricing,
channel
relations)

Service
(installation,
repair, parts)

Strategic Business Unit

Independent product-market unit with:

1.
2.
3.
4.

Unique mission
Identifiable competitors
External market focus
Control of its business functions

Marketing Mix Variables

Product

Place

Promotion

Price

Quality
Features
Options
Style
Brand name
Packaging
Sizes
Services
Warranties
Returns

Channels
Coverage
Locations
Inventory
Transport

Advertising
Personal selling
Sales promotion
Publicity

List price
Discounts
Allowances
Payment periods
Credit terms

Source:Philip Kotler, Marketing Management: Analysis, Planning, and Control, 4th ed. (Englewood Cliffs,
N.J.: Prentice-Hall, 1980), p. 89. Copyright 1980. Reprinted by permission of Prentice-Hall, Inc.

Sales

The Product Life Cycle

Introduction

Growth*

Maturity
Time

Decline

R&D Mix
Basic R&D
Product R&D
Process (Engineering) R&D

Technological Discontinuity

Product Performance

What the S-Curves Reveal

Mature
Technology
New
Technology

Research Effort/Expenditure
In the corporate planning process, it is generally assumed
that incremental progress in technology will occur. But past
developments in a given technology cannot be extrapolated
into the future, because every technology has its limits. The
key to competitiveness is to determine when to shift resources to a technology with more potential.

End
Products

Business
Units

Core
Product
s

Core Competence providing stability

So what are core competencies?

They are collective learning in the
organization, especially how to co ordinate
diverse production skills & integrate
multiple streams of technologies.Eg. Sonys
capacity to miniaturize or Philips s Opticalmedia expertise.
It is about harmonizing streams of
technology, it is also about the organization
of work and the delivery of value. by
bringing about a shared understanding of
customer needs & tech. Possibilities.

So what are core competencies?

Core competence is communication,

involvement, and a deep commitment to
working across organizational boundaries.
Core competence does not diminish with use.
Unlike physical assets, which do deteriorate
over time, competencies are enhanced as they
are applied & shared.
But competencies still need to be nurtured and
protected.
Competencies are the glue that binds existing
businesses.

So what are core competencies?

They are also the engine for new business
development. Patterns of diversification & market
entry may be guided by them, not just the
attractiveness of the markets.
Eg. 3M-competency with sticky tapes. With
businesses as diverse as Post-it notes,
magnetic tape, photographic films etc. the
company has widely shared competencies in
substance, coating & adhesives & has devised
various ways to combine them.
It seems to be an extremely diversified
portfolio of businesses but below it lie a
few shared core competencies.

Let us be clear!!!
Companies like Canon, NEC and Honda may
seem very diverse but if we study the core
competencies underlying them, disparate
businesses become coherent.
Canons core competencies in optics,
imaging and microprocessor control have
enabled it to enter, even dominate, markets
as seemingly diverse as copiers, laser
printers, cameras, image scanners etc.
Cultivating core competencies does not mean
outspending rivals on research & development.

Let us be clear!!!
Nor does core competencies mean
shared costs, as when 2 SBUs use a
common facility.
This would be a post ad hoc effort to
rationalize production across existing
businesses, not a premeditated effort to
build the competencies out of which the
businesses themselves grow.

Look at it this way

Building core competencies is more
ambitious & different than integrating
vertically.
When managers decide to integrate they do
not look into the inventory of skills and look
forward to applying them in non traditional
ways.
Of course, decisions about competencies do
provide a logic for veticial integration.Eg.
Canon Copiers

So what is core competence

after all.
It an underlying idea that provides an
organization the capacity to leverage its
resources to the maximum.
It is a simple idea, that harmonizes multiple
technologies and skills.
Cc is not just technology.
It includes collective learning (tacit & implicit
knowledge)
Is not just capabilities
It is not an asset.
It uniquely differentiates you from your
competitors across multiple businesses,
markets & countries.

So what is core competence

after all.
It is made of core & Competence.
It provides unique differentiation.
Is difficult to imitate.
Companies today need a logic beyond
financial logicCore competencies
provide an opportunity for a business to
sustain itself over a large period of time
in this ever changing marketing
dynamics.

3 tests to identify core

competencies in a company
Core competence provides potential access
to a wide variety of markets.
Core competence should make a significant
contribution to the perceived customer
benefits of the end product.
Core competence should be difficult for
competitors to imitate. It will more be
difficult if it is a complex harmonization of
individual technologies and production skills.

Mistakes
Too many companies have surrendered
core competencies when they cut
investment in what they mistakenly
thought were just cost centers .
Outsourcing can provide a shortcut to a
more competitive product, but it
typically contributes little to building the
people-embodied skills that are needed
to sustain product leadership.

Lessons to learn
First, the costs of losing a core
competence can be only partly
calculated in advance.
Secondly, since core competencies are
built thru a process of continuous
improvement & enhancement that may
span a decade or longer, a company that
has failed to invest in cc building will find
it hard to enter an emerging market.

Form Core Competencies to Core

Products
The tangible link between identified core
competencies and end products is what we call
the core products-the physical embodiment of
one or more core competencies.eg. Honda
engines.
Core product reduces fragmentation(pulls
together)
Unifies underlying skills(builds a critical mass)
Allows selling to competitors.
Thus increase your volume of core products &
reduce incentives of competitors.

How to identify Core Competencies

Prepare Current & potential Product/Market Profile
-Product/Service
-Key success factors
Source of competitive advantage
-cost/differentiation
Describe all organizational capabilities to have competitive
advantage
-resources/skills/capabilities
Put under tests of
-wide access
-difficult to copy
-customers benefits

A new view of the corporation

Portfolio of business
Portfolio of core competencies
Portfolio of core competencies(physical
incorporation of core competencies)

Strategic Intent
Resource alone is a poor predictor of
success.
How effective can you be to get the
maximum impact?
Strategic intent, maximizes the impact
of resources.

What is strategic intent?

Firm A
Modest aspirations
Slack
Resources High
High risk-Low creativity

Stretch lies at the heart of SI

Firm B
High Aspirations
Stretch
Modest Resources
Low Risk- High creativity.

What is SI?
SI is not a mission statement.
It is an obsession with winning that can
be cultivated & kept over a 10-15 years
to win global competitive war.
It is Obsession & focus
Motivation & direction.
Eg.CNN Global news network, Canon
beat Xerox.

What is SI?
SI must have an emotional content.
Must be personalized.
Must be translated in terms that can
effect every single worker in his/her job.
SI is not centralization
It doesn't have to be totally unique.
It is a commitment to goal.
Is not enforced from top to bottom but
from bottom to us.

What is SI?
it is a journey, a view of the future in
which the world is continuously
changing.
It gives a framework to which we would
need to continue taking the idea & test
it to what is happening in the real world.

What is SI?
SI = Stretch(aspirations that unleash
the creativity)

SI =Direction(foundation for
consistency)

SI = Emotionally Compelling(unleashing
the intelligence & enthusiasm
from all levels)

So what does SI do?

It captures the essence of winning
Is stable over time
Sets a target that deserves personal
effort and commitment

To Conclude.
To actually reap the benefits of Core
Competence and Strategic Intent,
companies and their Top Management
have to move away from reaping benefits
on a small scale. They need to think
about scenarios 10-20 years ahead. It
follows that dedication is required as far
as commitment, expenditure and focus
on the long term goals goes.

Strategic Fit vs Strategic Stretch

Strategic Intent:

Captures essence of winning

Stable over time

Outpace competition with new rule

Balance portfolio of competitive advantage

What it consist of:
Participants do things differently
Creates sense of urgency
Competition focus at each stage
One challenge at a time
Shared gain/pain
Competitive innovation

The framework to analyze

resources and capabilities
Resources: Identify the firms resources,
appraise strength and weakness
Capability: Identify capabilities
Potential for SCA: Appraise the rentearning potential of resources/capability
Strategy: Select a strategy