Analyzing Resources and Capabilities

Author: Robert M. Grant

Ph.D. in Management Studies (City University, London) Full Professor at Bocconi University Visiting fellow at Georgetown University Research areas Organizational capability and knowledge management Diversification strategies Organizational change in the energy sector

The Resources Of The Firm

The resource-based view emphasizes the uniqueness of each company and suggests that the key to profitability is not thought doing the same as other firms but rather through exploiting differences. Establishing competitive advantage involves formulating and implementing a strategy that exploit a firms unique strenghts.

Resources are the productive assets owned by the firm

Tangible Intangible Human Resources

Capabilities are what the firm can do.

Organizational Capabilities
a firms capacity to deploy resources for a desired end result. Prahalad and Hamel - core competences - to distinguish those capabilities fundamental to a firms strategy and performance. make a disproportionate contribution to ultimate customer value, or to the efficiency with which that value is delivered and provide a basis for entering new markets

Identifying Organizational Capabilities

Functional analysis identifies organizational capabilities in
relation to each of the principal functional areas of the firm. Value-chain analysis separates the activities (primary and support activities) of the firm into a sequential chain.

Capability as Process and Routine

Organizational process the
sequence of actions through which a specific task is performed Routinization - is an essential step in translating directions and operating practices into capabilities

The Hierarchy of Capabilities Broadly defined capabilities are

formed from the integration of more specialized capabilities E.g. Toyotas manufacturing capability integrates capabilities relating to supply chain management, production scheduling, quality control procedure, etc

Appraising Resources and Capabilities

Establishing Competitive Advantage

Sustaining Competitive Advantage

Durability The useful life span of most resources is shortening due of technological changes. Brand, however, show resilience to time: Heinz sauces, Kelloggs. Transferability Some resources are transferable, such as raw materials, employees with standardized skills, some are entirely firm specific or their value depreciates on. Replicability Capabilities based on complex organizational routines are less easily replicable

Scarcity
E.g. In oil and gas exploration, 3D seismic analysis is critical to reduce costs, but such technology is widely available.

Relevance
E.g. Retail banking shifts toward ATMs and online transactions => retail branch networks became less relevant for customer service.

Conclusions - A Framework for Analyzing Resources and Capabilities

4. Develop strategy implications:
(a) In relation to strengths - How can these be exploited more effectively and fully? (b) In relation to weaknesses - Identify opportunities to outsourcing activities that can be better performed by other organizations.

STRATEGY

3. Appraise the firms resources and capabilities in terms of: (a) strategic
importance (b) relative strength

POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE

2. Explore the linkages between resources and capabilities 1. Identify the firms resources and capabilities

CAPABILITIES

RESOURCES