Capabilities

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5
Analyzing Resources and Capabilities

Analysts have tended to define assets too narrowly, identifying only those that can be measured, such as plant and equipment. Yet the intangible assets, such as a particular technology, accumulated consumer information, brand name, reputation, and corporate culture, are invaluable to the firm’s competitive power. In fact,these invisible assets are often the only real source of competitive edge that can be sustained over time.
—HIROYUKI ITAMI, MOBILIZING INVISIBLE ASSETS

You’ve gotta do what you do well.
—LUCINO NOTO, FORMER VICE CHAIRMAN, EXXON MOBIL

OUTLINE
l Introduction and Objectives l The Role of Resources and l Organizational Capabilities Classifying Capabilities The Architecture of Capability lAppraising Resources and Capabilities Establishing Competitive Advantage Sustaining Competitive Advantage Appropriating the Returns to Competitive Advantage l Putting Resource and Capability

Capabilities in Strategy Formulation
Basing Strategy on Resources and Capabilities Resources and Capabilities as Sources of Profit l The Resources of the Firm Tangible Resources Intangible Resources HumanResources

Analysis to Work: A Practical Guide
Step 1 Identify the Key Resources and Capabilities
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PART II

THE TOOLS OF STRATEGY ANALYSIS

Step 2 Appraising Resources and Capabilities Step 3 Developing Strategy Implications l Developing Resources and Capabilities The Relationship between Resources and Capabilities Replicating CapabilitiesDeveloping New Capabilities Approaches to Capability Development

l Summary l Self-Study Questions l Appendix: Knowledge Management

and the Knowledge-based View of the Firm
l Notes

Introduction and Objectives
In Chapter 1, I noted that the focus of strategy thinking has been shifted from the external environment towards its internal environment. In this chapter, we will make the sametransition. In looking within the firm, we will concentrate our attention on the resources and capabilities that firms possess. In doing so, we shall build the foundations for our analysis of competitive advantage (which began in Chapter 3 with the discussion of key success factors).

By the time you have completed this chapter you will be able to:
l Appreciate the role of a firm’s resources andcapabilities as a basis for

formulating strategy.
l Identify and appraise the resources and capabilities of a firm. l Evaluate the potential for a firm’s resources and capabilities to confer

sustainable competitive advantage.
l Use the results of resource and capability analysis to formulate strategies that

exploit internal strengths while defending against internal weaknesses.
l Identify themeans through which a firm can develop its resources and

capabilities.

We begin by explaining why a company’s resources and capabilities are so important to its strategy.

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CHAPTER 5

ANALYZING RESOURCES AND CAPABILITIES

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The Role of Resources and Capabilities in Strategy Formulation
Strategy is concerned with matching a firm’s resources andcapabilities to the opportunities that arise in the external environment. So far, the emphasis of the book has been the identification of profit opportunities in the external environment of the firm. With this chapter, our emphasis shifts from the interface between strategy and the external environment towards the interface between strategy and the internal environment of the firm – more specifically, withthe resources and capabilities of the firm (see Figure 5.1). Increasing emphasis on the role of resources and capabilities as the basis for strategy is the result of two factors. First, as firms’ industry environments have become more unstable, so internal resources and capabilities rather than external market focus has been viewed as a securer base for formulating strategy. Second, it has become...