Resources and Capabilities
Resources and capabilities are the assets of an organisation that determine its level of competitiveness and its ability to achieve its vision. Identifying these assets is therefore critical to developing and analysing an organisation’s strategy.
Thompson et al. (2022, p.100)^1 states:
A resource is a competitive asset that is owned or controlled by a company; a capability (or competence) is the capacity of a company to perform some internal activity competently. Capabilities are developed and enabled through the deployment of the company’s resources.
The literature contends that the effective utilisation and investment in both tangible and intangible assets have a positive impact on an organisation’s competitive advantage, its profitability and also its growth (Kamasak 2017; Khan, Yang & Waheed 2019)[^2][^3].
In reference to these tangible and intangible assets, those considered tangible include:
- Financial assets such as cash and securities held
- Physical assets such as land and buildings, plant and equipment
- Technological assets such as patents, copyrights, production and innovation technology.
- Organisational resources such as IT and communications infrastructure and other control systems.
With reference to intangible assets and resources, these would include:
- The knowledge and intellectual capabilities of the organisation’s staff
- Brands and reputation of the organisation, any trademarks and logos and goodwill combined with the loyalty of customers.
- Any relationships the organisation has with other organisations that create value and build trust.
- The culture of the organisation and its values and behaviour. ^1
Distinguishing between resources and capabilities is important. Analysing these factors for an organisation can also allow examination regarding the quality of the factors, if improvements are necessary or possible and ranking of the contributors to strategy.
VRIN Tests for SCA
Not all resources or assets contribute to the competitive ability of an organisation, however utilising the VRIN framework to examine the resources can be of considerable benefit. The VRIN framework can also assist in identifying which assets an organisation has which may be superior to their competition’s.
Consider the competitive value of the resource or capability. Does it assist the organisation in building its value proposition for customers and build profit?
Is the resource or capability rare? How many competitors in the market have the same resource or capability?
How unique is the resource or capability? Can it be easily copied by competitors?
Can the resource be replaced by an alternate resource? Do competitors have the same resource or alternate substitute?
The first two tests of value and rarity determine how a resource or capability contributes to an organisation’s competitive advantage. The inimitable and non-substitutable checks provide insights into the sustainability of the organisation’s competitive advantage.
Source: Hanson et al. (2022 p. 86)
Community as a Resource for Non Profits
In an extensive article, Gibson, Gibson and Webster (2021) discuss the value of community as a resource. There are strong comparisons with ESG reporting and recognition of stakeholders for an organisation and not just shareholders. Community is particularly of value to non profits as it is the market in which they operate, build goodwill and establish trust and reputation. The following table demonstrates the approach to VRIO where community is a resource.
The strengths of an organisation impact whether it can take advantage of opportunities in the market. If an organisation has strengths that do notweaknesses, relate to identified opportunities, then they are of no value. Analysing strengths and weaknesses, consider the impact on the competitive abilities of the organisation for the future. A SWOT analysis considers both internal and external factors that can influence an organisation’s operation in the marketplace.
The value of a SWOT analysis is that it can assist in decisions about whether to enter markets and matching the organisation’s competencies with opportunities for growth.
The SWOT analysis looks at the organisation’s strengths and weaknesses, which are internal factors. The threats and opportunities are external factors affecting the organisation.
Questions to ask when doing a SWOT
SWOT Analysis Steps
Value Chain Analysis
The analysis of the value chain for an organisation is important to consider the organisation’s cost and its customer value proposition.
Company Value Chain
Organisations have a series of activity starting with the sourcing of resources, goods and services that are converted to goods and services sold by the organisation. This is the company value chain. The figure below demonstrates a sample company value chain.
The figure shows that there are both primary and support activities that the organisation engages in and all of these activities have costs. The understanding of these costs can improve the cost structure of an organisation which can in turn lead to improved profitability or a lowering of pricing for customers. Thompson et al. (2022)^1 suggests that by applying activity based costing in the value chain an organisation can determine how its cost situation relates to its competition.
Benchmarking is an important aspect of comparing costs and efficiency in an industry to measure an organisation’s costs against industry averages. Assessing costs regularly can assist an organisation determine if it is maintaining pace within the industry or falling behind. If the latter is the case, then their competitive position could be impacted.
Competitive Strength Assessments
Comparing an organisation’s strengths against its competitors can assist in determining competitive advantage.
The table below demonstrates the use of a weighted average competitive strength assessment. This can be used to compare and organisation to industry averages or even a rivals perceived position against the industry or another organisation.
This module has focused on the analysis of the organisation from an internal perspective. Several tools have been looked at including a VRIN framework to consider the competitive strengths of an organisation’s resources and capabilities. Also, the SWOT analysis was looked at as a means of examining an organisation’s internal strengths and weaknesses and its external opportunities and threats. Finally, the module considered value chain analysis to consider an organisation’s cost structure and the use of benchmarking on a weighted competitive strength basis to compare the organisation with its competitors.
[^1]: Thompson, A, Peteraf, M, Gamble, J & Strickland, A 2022, Crafting and executing strategy: The quest for competitive advantage, concepts and cases, 23rd edn, McGraw-Hill, New York.
[^2]: Kamasak, R 2017, ‘The contribution of tangible and intangible resources, and capabilities to a firm’s profitability and market performance’, European Journal of Management and Business Economics, vol. 26, no. 2, pp. 252-275, DOI:10.1108/EJMBE-07-2017-015.
[^3]: Khan, SZ, Yang, Q & Waheed, A 2019, ‘Investment in intangible resources and capabilities spurs sustainable competitive advantage and firm performance’, Corporate Social Responsibility & Environmental Management, vol. 26, no. 2, pp. 285-295, DOI:10.1002/csr.1678.
[^4]: Gibson, CB, Gibson, SC & Webster, Q 2021, ‘Expanding Our Resources: Including Community in the Resource-Based View of the Firm’, Journal of Management, vol. 47, no. 7, pp. 1878–1898