An application paper requires you to identify one relevant article from a respectable news source (i.e.,
WSJ, Forbes, Fortune) and critically review through the perspective of the material and work assigned for the week. Each paper should be 2-double spaced pages long (Times New Roman, 12-point font). Please, make sure to include the printout of the article in the paper’s Appendix.
Week 4:
Firm Resources and Capabilities
Learning Objectives
By the end of today’s session, you should be able to:
Delineate the role of resources and capabilities in shaping firm strategy.
Discuss the role of resources and capabilities in achieving and maintaining a competitive advantage.
Identify ways in which firms can develop resources and capabilities.
Define core competencies.
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Some Definitions
Resources are factors of production such as labor, capital, processes and knowledge.
Capabilities refer to the action (production) limits of the firm.
Activities refer to specific well-defined and effective business processes (i.e., invoicing, delivery).
A core competency is a unique firm level strength.
A competitive advantage is an inherent and underlying advantage that gives the firm the potential for a profitability edge over its competitors.
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Why It Makes Sense to “See” the Firm through the Lens of Its Resources and Capabilities
The Resource-Based-View of the Firm Framework
Resources and capabilities are the fundamental determinants of what a firm can achieve.
Ability to minimize resource intensity usage while maximizing capabilities determines a firm’s profit potential.
Environments are complex and dynamic. As they change, focusing on firm’s resources and capabilities offers a less “risky” option to developing firm strategy.
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Assumptions of the Resource-Based-View of the Firm Framework
Resource heterogeneity – bundles/combinations of resources, capabilities and competencies vary (and sometimes are unique) across firms.
Resource immobility – resources, capabilities and competencies (and their bundles) are “sticky”, and they don’t easily transition from firm to firm.
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Resource Types
Types:
Tangible.
Intangible.
Human resources (both tangible and intangible).
How do you identify resources:
Can it be used to create value that directly or indirectly can be monetized?
Does it have any economic application?
Can it enhance the value of an existent resource?
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Resources
Grant et al. (2012)
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| RESOURCE | CHARACTERISTICS | INDICATORS | |
| Tangible Resources | Financial | Borrowing capacity Internal funds generation |
Debt/Equity ratio Credit rating Net cash flow |
| Physical | Plant and equipment: Size, location, technology flexibility. Land and buildings Raw materials |
Market value of fixed assets. Scale of plants Alternative uses for fixed assets |
|
| Intangible Resources | Technology | Patent, copyrights, know-how, R&D facilities Technical and scientific employees |
Number of patents owned Royalty income R&D expenditure R&D staff |
| Reputation | Brands, customer loyalty, company reputation (with suppliers, customers, government) | Brand equity Customer retention Supplier loyalty |
|
| Human Resources | Training, experience,adaptability, commitment and loyalty of employees | Employee qualifications, Pay rates, turnover |
Example: Reputation
2021 Most Admired Firms:
Apple
Amazon.com
Microsoft
Walt Disney
Starbucks
Berkshire Hathaway
Alphabet
JPMorgan Chase
Netflix
Costco Wholesale
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What Makes Reputation?
Ability to attract and retain talented people.
Management excellence.
Socially responsible.
Creativity/innovativeness
High quality service/product.
Efficiency.
Financial soundness.
Long-term investment value.
Effectiveness in doing business globally
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Capabilities
Grant et al. (2012)
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| FUNCTION | CAPABILITY | EXEMPLARS |
| CORPORATE FUNCTIONS | Financial control Management development Strategic innovation Multidivisional coordination Acquisition management International management |
ExxonMobil, PepsiCo General Electric, Shell Google, Facebook Unilever, Shell Cisco Systems, General Electric Shell, Ford |
| MANAGEMENT INFORMATION | Comprehensive, integrated MIS network linked to managerial decision making | Wal-Mart, Capital One, Dell |
| R&D | Research Innovative new product development Fast-cycle new product development |
IBM, Merck 3M, Apple Canon, |
| OPERATIONS | Efficiency in volume manufacturing Continuous improvements in operations Flexibility and speed of response |
Briggs & Stratton, YKK Toyota, Harley-Davidson Four Season Hotels |
| PRODUCT DESIGN | Design capability | Apple, Samsung |
| MARKETING | Brand management Building reputation for quality Responsiveness to market trends |
Procter & Gamble, Unilever Johnson & Johnson MTV, L’Oreal |
| SALES AND DISTRIBUTION | Effective sales promotion and execution Efficiency and speed of order processing Speed of distribution Customer service |
PepsiCo, Pfizer Ticketmaster, Netflix Amazon.com Singapore Airlines, Caterpillar |
Effective Combinations of Resources and Capabilities Can Lead to:
Core competencies.
Competitive advantages.
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The Relationship between Resources, Capabilities and Firm Strategy
Grant et al. (2012)
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The Relationship between Resources, Capabilities and Competitive Advantage
Grant et al. (2012)
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The Link Between Resources, Capabilities, Core Competencies and Competitive Advantage
Rothaermel (2021)
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Under What Conditions Can a Resource or Capability (or Combination) Yield a SUSTAINABLE Competitive Advantage?
A resource and a capability (or combination of the two) must be (VRIO):
Valuable.
Rare
Inimitable
Organizable
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VRIO Framework
Grant et al. (2012)
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A Dynamic “State of Mind”
The Dynamic Capabilities Framework
Or How to Maintain Competitive Advantage
Dynamic capability – the ability of a firm to continuously create, adapt, redesign, improve and/or leverage resource and capabilities.
The framework:
Embeds change as a consistent characteristic of the system.
Focus on continuous accumulation of resources and capabilities (and innovative bundling).
Places a premium on adaptive capacity.
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