Lecture #6:
Analyzing Resources & Capabilities
• The role of resources and capabilities in
strategy
• Appraising the profit potential of
resources and capabilities
• Developing the firm’s resources and
capabilities
Fall 2000
MGTO321 (L1 & L2) -- Dr. JT Li
1
From an Industry
Focus to a Resource Focus
THE FIRM
THE
INDUSTRY
ENVIRONMENT
Goals and Values
Resources and
Capabilities
STRATEGY
STRATEGY
Structure and
Systems
The Firm-Strategy
interface
Fall 2000
Competitors
Customers
Suppliers
The Strategy-Environment
Interface
MGTO321 (L1 & L2) -- Dr. JT Li
2
The Relationships Between Resources,
Capabilities and Competitive Advantage
COMPETITIVE
ADVANTAGE
INDUSTRY KEY
SUCCESS FACTORS
STRATEGY
ORGANIZATIONAL
CAPABILITIES
RESOURCES
TANGIBLE
•Financial
•Physical
Fall 2000
INTANGIBLE
•Technology
•Reputation
•Culture
HUMAN
•Specialized skills
and knowledge
•Communication &
interactive abilities
•Motivation
MGTO321 (L1 & L2) -- Dr. JT Li
3
Evolution of Honda: A Strategy
Based Upon Resources and Capabilities
50cc 2-cycle engine
Founding of
Honda motor
company
4 cycle
engines
405cc
motor
cycle
Related products:
ground tillers, marine
engines, generators,
pumps, chainsaws
1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995
First product:
clip-on engine
for bicycles
Fall 2000
The 50cc
super
-cub
N360 mini
car
1000cc
Goldwing
touring
motor cycle
MGTO321 (L1 & L2) -- Dr. JT Li
Acura Car
division
4
Appraising Resources
RESOURCE
Tangible
Resources
CHARACTERISTICS
•Borrowing capacity
•Internal fund generation
INDICATORS
•Debt/ Equity ratio
•Credit rating
•Net cash flow
•Plant and equipment
•Land and buildings
•Raw materials
•Value of fixed assets
•Scale of plants
•Technology
•Patents, copyrights, know how
•R&D facilities
•Technical staff
•No. of patents owned
•Royalty income
•R&D staff
•Reputation
•Brands
•Customer loyalty
•Company reputation
•Brand equity
•Price premium
•Recognition
Training, experience, adaptability,
commitment
Employee qualifications,
pay rates, turnover.
•Financial
•Physical
Intangible
Resources
Human
Resources
Fall 2000
MGTO321 (L1 & L2) -- Dr. JT Li
5
Identifying Organizational capabilities :
Functional Approach
FUNCTION
Corporate
Management
CAPABILITY
•Financial management
•Strategic control
•Coordinating decentralized
business units
•Managing acquisitions
EXAMPLES
•Coca Cola
•GE
•Shell
MIS
•Speed and responsiveness through
rapid information transfer
•Wal-Mart
R&D
•Research capability
•Merck
•Development of innovative new products •Sony
Manufacturing
•Efficient volume manufacturing
•Continuous improvement
•Flexibility
•Ford Motor
•Toyota
•Benetton
Design & Marketing
•Design capability
•Brand management
•Swatch
•Proctor & Gamble
Sales & Distribution
•Responsiveness to market trends
•Efficiency and speed of distribution
•Customer service
•The Gap
•Federal Express
•Walt Disney
Fall 2000
MGTO321 (L1 & L2) -- Dr. JT Li
•Nationsbank
6
The Value Chain
SUPPORT
ACTIVITIES
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
MARKETING
LOGISTICS
& SALES
SERVICE
PRIMARY ACTIVITIES
Fall 2000
MGTO321 (L1 & L2) -- Dr. JT Li
7
The Profit Earning Potential
of Resources and Capabilities
THE EXTENT OF THE
COMPETITIVE ADVANTAGE
ESTABLISHED
THE PROFIT
EARNING POTENTIAL
OF A RESOURCE OR
CAPABILITY
Scarcity
Relevance
Durability
SUSTAINABILITY OF THE
COMPETITIVE
ADVANTAGE
Mobility
Replicability
Property rights
APPROPRIABILITY
Fall 2000
MGTO321 (L1 & L2) -- Dr. JT Li
Relative bargaining
power
Embeddedness of
resources
8
The Framework for Analyzing
Resources and Capabilities
4. Select a strategy
3. Appraise the profit-earning
potential of resources/
capabilities
2. Identify capabilities
1. Identify the firm’s resources.
Appraise strengths and
weaknesses
Fall 2000
STRATEGY
POTENTIAL FOR
SUSTAINABLE
COMPETITIVE
ADVANTAGE
5. Identify resource gaps that need
to be filled.
CAPABILITIES
RESOURCES
MGTO321 (L1 & L2) -- Dr. JT Li
9