Daniel Crawford
Alex Bregger
Chase Barlow
Mark Angelhardt
In This Chapter…
o The role of resources and capabilities in strategy formation
o Identifying the organizations resources
o Identifying the organizations capabilities
o Appraising resources and capabilities
o Developing resources and capabilities
o Putting Resource and capability analysis to work: a
practical guide.
Opening Case: Hyundai Motor
Company
A man goes into a parts’ garage:
Man: ‘Can I have a windshield wiper for a
Hyundai, please?
Parts Man: ‘Yeah that seems like a fair swap’
Question: Why do Hyundai's have heated rear
windows?
Answer: To keep your hands warm whilst you’re
pushing it!
Opening Case: Hyundai Motor
Company
o Started making cars in 1967 on knockdown
basis.
o Within 30 years they were able to acquire
capability to develop its own cars, launching
the Accent in 1994 and the Avante in 1995.
o As a latecomer to the market, Hyundai
recognized its need to acquire key capabilities
and set out to obtain these through a series of
phased developments.
Key Phases in Hyundai's development
process
Capabilities
Assembly
Production
engineering
Local
Marketing
SKD/CKD
Ford
Cortina
Casting
Chassis
Tooling
Body
production
export
marketing
FWD
engineering
CAD/CAM
Assembly
control system
Advanced
handling
Pony
Excel
1970
1974
Hydrodynamics
Thermodynamics
Fuel engineering
Emission control
Lubrication
Kinetics
Ceramics
Electronic control
“Alpha
Engine”
Large scale
design
Global
logistics
Lifecycle
engineering
Accent
Avante
Sonanta
Products
1968
1985
1994-95
Hyundai’s International Expansion
o Chung Moo Koo takes over as Chairman
o Needed to gain sales outside the small market
of South Korea
o Faced two problems: building capabilities
abroad, and marketing skills and
knowledge.(shoddy image).
What they did…
o Hired talent with knowledge of the car industry.
o Established production plants in India, USA, Europe
and China. Customized products for each country.
o Introduced 10-year 100,000 mile warranties for
vehicles, to overcome perceptions of poor quality.
Opening Case: Hyundai Motor
Company
o 2009 Hyundai Automotive group over takes Ford to
become the worlds largest car manufacturer by sales.
o Despite being in a recession, Hyundai manages to
increase sales by 11%
o Hyundai’s emergence as a world class car producer is a
remarkable example of capability development over a
short period of time.
The Role of Resources and Capabilities
in Strategy
o As we saw in chapter 1, strategy is concerned with
matching a firms resources and capabilities to the
opportunities that arise in the external environment.
o In this chapter we move from the external environment
towards the internal environment
The Internal Environment
o The unstable nature of the external causes the internal
to be more secure for formulating strategy.
o Use of the resources and capabilities as a base for
profitability is called Resource Based View
o In a world where consumer preferences are volatile, a
market based view may not provide the stability to
base a long term strategy on
Support for a Resource Based View
3M corporation, expanded from sandpaper to adhesive
tape
oProduct list now compromises over 30,000 products
Strategy is set on key technologies relating to adhesives.
Canon Inc., first success was cameras but now makes
faxes, calculators, prints, and video
o Strategy is built around three things: Precision mechanics, microelectronics, and fine
optics
Honda Motor Company, worlds biggest motorcycle
producer and lead supplier of cars.
oNever defined itself as either motor cycle or vehicle company
Strategy has been built on its development and expertise in the
manufacturing of engines.
Identifying Your Resources
o Tangible Resources
o Intangible Resources
o Human Resources
Tangible Resources
o Can be located on the firm’s financial
statements
o The firms physical assets
Intangible Resources
o Brand names
o Patents
o Reputation
o Technology
o Intangible resources remain largely invisible on
financial statements
Human Resources
o The expertise and effort offered by employees
o Competency modeling
o Organizational culture
Identifying Your Capabilities
“A firms capacity to deploy resources for a desired
end result”
o Distinctive competence vs. Core competences
Functional Analysis
o Identifies organizational capabilities in relation
to each of the principal functional areas of the
firm
o Identifies the capabilities of each business
function
Value Chain Analysis
o Separates the activities of the firm into a
sequential chain
o Distinguishes between primary activities and
support activities
Appraising Resources and Capabilities
Emphasis: strategy is a quest for profit
Profit depends on 3 factors:
oEstablishing a Competitive Advantage
oSustaining that Competitive Advantage
oAppropriate the returns to that Competitive Advantage
Competitive Advantage
o Two necessary conditions
Scarcity: resource is scare; not widely available to anyone
Relevance: must be relevant to the market and still able to
differentiate your market position
o Sustaining the Competitive Advantage
Resources must avoid imitation (transferability &
replicability ) and maintain durability
Ex: Kellogg’s’ cereals, Heinz Sauces, Coca-Cola
Appropriating Returns
o Maintaining the Competitive Advantage relies heavily on
individual employees
oAppropriate your returns to maintain your most successful and
innovative employees
oEx: Domencio de Sole (Chairman) & Tom Ford (Vice
chairman) leave Gucci in 2004
In just 3 days the Co. is worth $1.2 BILLION less than it was
with the two
Developing Resources and Capabilities
o Difficult to understand the linkage between resources and
capabilities
oCompanies rich in resources don’t always perform the best
Ex: Soccer teams with modest budgets (Arsenal, Bayern
Munich, and Valencia) often out perform the star-studded
teams (Chelsea, Real Madrid, Man. City)
At Beijing Olympics the U.S. sprint relay team did not win
a single medal despite having some of the world’s fastest
runners
Path Dependency and the Role of Early
Experiences
Core Capabilities: Rigid or Dynamic?
“Core capabilities are simultaneously core rigidities – they
inhibit firms’ ability to access and develop new capabilities”
o This idea is challenged from two directions
Flexibility in routines: avoid fixed patterns of response;
even basic operations must display capacity to adapt
Dynamic Capability: a firm’s ability to integrate,
reconfigure internal/external competencies, to adapt to
rapidly changing environments
Putting Resources and Capability
Analysis to work
Step 1: Identifying resources and
Capabilities
o To draw up a list of the
key resources and
capabilities, we first start
from outside the firm.
o We look at other
successful firms in the
industry, and determine
what resources or
capabilities allow for this
success
World Car Industry
 Manufacturing capability
 NPD
 Effective supply chain
management
 Global distribution
 Brand strength
 Scale-efficient plants
 Up-to-date capital
investment
 Strong balance sheet
Step 2: Appraising resources and
capabilities
Assessing Importance
o Resources and capabilities
need to be appraised
against two criteria
o Importance: which R’s and
C’s are most important in
conferring sustainable
competitive advantage.
o Strengths and
Weaknesses as compared
to competitors

bear in mind, objective is establish
completive advantage, not attract
customers.

Many resources and capabilities are not
scarce and therefore are not as important.
TQM and technological advances become
diffused into industries. These are needed to
play but not needed to win.

Brand strength, global distribution networks
and fast-cycle NPD are harder to acquire or
develop internally
Assessing Relative Strengths

Need to avoid the tendency towards
arrogance (ignore past glories)

Benchmarking

About insight and understanding
Step 3: Developing strategy
implications
Superfluous Strengths
o Resources or Capabilities
where a company has
particular strengths, but they
don’t seem vital to
competitive advantage
o Can’t ignore, initiating
innovative development to an
apparent inconsequential
strength can become a
valuable resource
o Capcom
 Exploiting Strengths:
Formulate strategy to ensure
that resources are deployed to
the greatest effect
 Managing Weaknesses: most
decisive (and often most
successful) solution is to
outsource.
Developing Resources and Capabilities
o GM has four times the output and four times the R&D
expenditure, yet Honda has been the world leader in power
train technology for 30 years.
o You don’t have to be the firm with the most or best resources
o One resource needed: managers with requisite knowledge for
capability building.
o Best-performing firms are often those whose founders had
prior experience in closely related sectors
Organizational Capabilities
Approaches
o Acquiring: mergers,
acquisitions and alliances
o Internal Development:
Focus and Sequencing
 Does organizational structure
narrow its repertoire and make
it difficult to adapt to new
circumstances
 Dynamic Capability, (Teece &
friends) refers to a firm’s
ability to integrate, build and
reconfigure competences to
address rapidly changing
environments
 Don’t be rigid.