Integrating resource-based theory in a practice-relevant form

Dr Paul Knott
College of Business and Economics, University of Canterbury,
Private Bag 4800, Christchurch, New ealand
Email: paul.knott@canterbury.ac.nz
Abstract
Purpose: The paper addresses the limited development of techniques to analyze firms
internal sources of competitive performance. !t seeks to enhance the contribution of the
"idely diffused #$!% &value'rarity'imitability'or(anization) model to practical strate(y
makin(.
Design/methodology/approach: The paper dra"s on the resource based literature to
assemble an inte(rated set of steps that evaluate a firms resources and competence.
Findings: The paper proposes an e*panded version of the #$!% model that represents
resource and competence as a conditional outcome from attributes and asymmetries present in
the firm. !t sho"s ho" the conditions convert asymmetries bet"een "eaknesses+ missed
opportunities+ ri(idities and resources.
Research implications: ,y synthesisin( resource'based theory in a practice'relevant form+
the paper delineates a concrete set of practices that relate to firms dynamic capability to
mana(e resources and competence.
Practical implications: The paper details an approach to resource and competence analysis
that leads directly to decisions about ho" a firm can mana(e the resources in question. The
model (ives a central role to the conditions under "hich a firms attributes (ive rise to a
resource or competence+ and hence su((ests active mana(ement of these conditions.
Originality/value: The paper presents resource'based theory in a form that focuses on the
doin( of strate(y+ in contrast to the traditional focus of this literature.
ey!ords: #$!% analysis+ resource'based vie"+ strate(y as practice+ strate(y tool+ dynamic
capability.
Paper type: -onceptual paper
Introduction
%ne of the critical tasks in strate(ic analysis is for mana(ers to understand the relationship
bet"een the resources they control and the performance of the firm. .trate(y courses reflect
this by (ivin( prominent place to techniques and theories that attempt to structure this
analysis. Prominent amon(st these is the resource'based vie" of the firm &/ernerfelt+ 0123+
,arney+ 0110). 4rom the resource'based literature+ the #$!% &value'rarity'imitability'
or(anization) technique &,arney+ 5665) has become the most "idely advocated method for
assessin( a particular firms resources. !n common "ith other strate(y tools+ this technique
ori(inated in theory development &,arney+ 0110) and not initially as a tool for practical
application. .ubsequent development as a means of understandin( a firms resources &,arney+
5665) has helped #$!% to diffuse "idely+ but it is not clear that this has fully addressed the
perceived imbalance in techniques available for the resource and market aspects of strate(ic
analysis &/ernerfelt+ 0117).
This paper considers resource analysis from the perspective of the doin( of strate(y+ or
strate(y'as'practice+ centred on ho" mana(ers undertake strate(y activity &/hittin(ton+
0118). !n this perspective+ strate(y tools such as #$!% analysis represent one of the
influences mana(ers can dra" on "hen carryin( out strate(y'makin( episodes &/hittin(ton+
5668). 9sually+ mana(ers use tools only as a (uide or as a startin( point for an activity. %ften
they use only parts of tools+ and adapt them to suit their local needs &:arzabko"ski and
/ilson+ 5668). .urveys of mana(ers sho" that core competencies remain popular as a
concept &$i(by and ,ilodeau+ 566;). !t is less clear that firms use associated analysis
techniques such as #$!%. Teachin( e*perience su((ests that this technique has practical
limitations in its e*istin( form+ includin( inadequate translation of theoretical concepts into
application (uidelines+ and insufficiently developed links bet"een analysis and action.
!n response to these limitations+ this paper develops an e*panded version of #$!% that
includes a more comprehensive set of analysis steps and emphasises active mana(ement of
the conditions under "hich firm attributes become resources or competence. The paper first
brin(s to(ether the aspects of resource'based theory that relate to resource and competence
analysis. 4ollo"in( this+ it evaluates e*istin( forms of analysis available for practical use. The
core of the paper outlines steps in applyin( a more fully developed analysis based on #$!%+
and sho"s ho" the analysis links to intervention to nurture the firms resources and
5
competence. <n e*ample application then sho"s ho" mana(ers could use this method in
practice.
Resources" competence and dynamic capability
.cholars seekin( to represent fully the impact of a firms characteristics on its performance
and (ro"th have "ritten from the distinct+ but linked+ perspectives of resources+ competence
and dynamic capability. The resource'based vie" of the firm describes conditions under
"hich unique or distinctive resources possessed by a firm are a source of sustained
competitive advanta(e &,arney+ 0110). The appeal of creatin( or discoverin( a sustained
source of advanta(e over other firms has helped this concept to enter strate(y courses and
te*tbooks as "ell as (eneratin( si(nificant volumes of research. =o"ever+ important caveats
temper this appeal. ,ecause >sustained? in resource based theory refers only to resistin(
attempts at duplication &Porter+ 0127@ ,arney+ 0110)+ a firm may still lose a sustained
advanta(e over time+ especially if supply or demand conditions chan(e. The cost of resources
may prevent them from representin( competitive advanta(e if this neutralises or e*ceeds the
above'normal value that they produce &,arney+ 5665). The measure of value of a resource can
only be the value the firm is able to capture in market e*chan(e &,o"man and <mbrosini+
5666). Aost problematic is that resource'based analysis is only helpful if it can identify
resources that "ill lead to future competitive advanta(e &,lack and ,oal+ 0113). This is
difficult for many of the least imitable resources+ because these emer(e over time as the firm
develops. This paper addresses the problem by emphasisin( competitive dynamics as part of
resource'based analysis and by closely linkin( the analysis to decisions about mana(in(
future conditions to support a resource or competence.
$esources that the resource'based vie" evaluates can be tan(ible or intan(ible assets that a
firm controls and can use to conceive of or implement strate(ies &,arney and =esterly+ 5668).
!ntan(ible resources can include skills@ human assets@ information and or(anizational assets@
and relational and reputational assets. These all represent "hat a firm has. <nother class of
intan(ible resource is capabilities or competences that represent "hat a firm does &=ill+ :ones+
Balvin and =aidar+ 566;). Prahalad and =amel &0116) defined competences as the collective
learnin( that (ives firms the ability to deploy their resources productively. This makes them
ar(uably more important to a firms competitive performance than the resources on "hich
they are based &Penrose+ 0171)+ and hence "orthy of particular attention "hen evaluatin( the
basis of a firms performance. 4or this reason+ this paper emphasises competence as an
C
important class of resource that analysis usin( the resource base vie" must cover.
-ompetence is usually distinctive to each firm and not separable from the firm+ as it evolves
"ith the firms development &Dierick* and -ool+ 0121@ <huDa and Katila+ 5663). %n the other
hand+ this idiosyncrasy in firm'level competence makes it infle*ible and hence difficult to
apply in a competitive conte*t &,ruma(im+ 0113).
Aore recently+ the dynamic capabilities concept has evolved as a dynamic version of the
resource'based vie" that suits rapidly evolvin( environments. Teece+ Pisano and .huen
&011;) defined dynamic capability as a firms ability to inte(rate+ build+ and reconfi(ure
competence. This falls "ithin ,arneys &0110) definition of resources+ since this includes the
ability to conceive of and choose as "ell as implement strate(ies. 4irms that actively mana(e
conditions so that their attributes (ive rise to resources or competence+ as envisa(ed in this
paper+ "ill in effect enhance their dynamic capability to mana(e competence.
=avin( outlined the three pertinent theoretical perspectives that relate to applyin( resource'
based theory+ the paper no" revie"s ho" these translate into currently available techniques.
#echni$ues to analy%e sources of competitive performance
4rom a practice perspective+ the key challen(e in relation to a firms resources and
competence is ho" mana(ers &or strate(ists) can evaluate and hence intervene in the
relationship bet"een these resources and the performance of the firm. This section outlines
the status and limitations of the analytical techniques that are "idely advocated to facilitate
this process+ and hence sets the conte*t for synthesisin( resource'based theory in a form that
adds to the e*istin( techniques.
<r(uably+ the most established technique for this purpose is the value chain &Porter+ 0127).
This encoura(es the breakdo"n of a firms value creation system into individual+ linked
activities. The analyst can then evaluate individual activities and the links bet"een them. This
dissection approach has the advanta(e of close connection "ith mana(in( individual
activities+ but at the e*pense of evaluatin( systemic qualities &such as distinctive competence)
that e*ist across the business.
Techniques to evaluate systemic qualities such as firm'level competence have not been
"idely used. < model that indirectly evaluates competence and is both simple and close to
practice is the concept of four basic buildin( blocks of competitive advanta(e &=ill et al.+
566;). This model su((ests that competitive advanta(e can only be achieved by a firm that
3
has superior performance in one or more of the Ebuildin( blocks efficiency+ quality+
innovation and customer responsiveness. The model is helpful in classroom case analysis as it
provides a simple "ay of linkin( internal attributes "ith customers and competitors.
=o"ever+ it is not "idely diffused and is let do"n by a lack of ti(ht definitions for each block.
The only "idely kno"n analysis technique that directly applies the resource'based vie" of the
firm is the #$!% technique representin( the empirical indicators of usefulness of a resource
for (eneratin( sustained advanta(e &,arney+ 0110+ 5665). This+ if applied fully by a user "ith
a (ood understandin( of the resource'based vie"+ is effective at helpin( mana(ers evaluate
e*istin( sources of sustained+ or temporary+ competitive advanta(e. =o"ever+ in its present
form it has important limitations from an application perspective. The evaluation process
often surfaces a back"ards'lookin( e*planation of e*istin( performance and does not
adequately reinforce the role of mana(ement in nurturin( future performance. This is
especially true for intan(ible resources embedded in the firm+ "hich are inherently hard to
manipulate &Priem and ,utler+ 5660). #$!% lacks clear semantic lo(ic to account for
characteristics that impede certain activities in the firm at the same time as enhancin( others
&Feonard',arton+ 0115@ AcEvily and -hakravarthy+ 5665). E*istin( theory addresses these
issues+ but e*istin( analysis techniques do not.
!n summary+ e*istin( techniques are stron( in respect of component breakdo"n+ but "eak in
respect of evaluatin( intan(ible or systemic resources. T"o crucial needs that they serve
poorly are presentin( internal resources in a competitive conte*t and inte(ratin( analysis "ith
intervention. 4ortunately+ resource based theory has the potential to address these needs. The
sections belo" sho" ho" the theory can (enerate a more comprehensive version of #$!%
that overcomes the limitations in currently available techniques.
Developing &RIO as a practical tool
This section responds to the limitations of current analysis techniques by e*pandin( the #$!%
model and developin( (uidance in the use of this e*panded model as a practical tool. 4i(ure 0
e*pands on the flo"chart used to evaluate a resource usin( the #$!% criteria. -ritically+ it
emphasises the role and impact of internal and e*ternal conditions on "hether firm attributes
become firm resources+ and hence emphasises the benefit of mana(in( these conditions
actively. The sections that follo" e*plain more fully the e*panded and additional steps
outlined in 4i(ure 0.
7
Firm attribute
or Asymmetry
Valuable?
Resource or
Competence
Rare?
Competitive
advantage
Costly to Imitate? Sustained
competitive
advantage Firm Organised
to exploit?
External conditions
Internal conditions
Expanded conditions for a resource or competence
VRIO resource evaluation flowchart
Competitive
parity
Y
N
Temporary
competitive
advantage
Y
N
Missed
opportunity
Rigidity
Y
Y
N
N
After resource evaluation
Evaluate interaction between firm attributes.
Manage internal and external conditions acting on firm attributes.
Before resource evaluation
Select firm attributes (candidate resources) to evaluate.
Competitive dynamics
4i(ure 0: E*panded #$!% resource evaluation flo"chart
!electing candidate resources to test
This task is a critical determinant of the quality of #$!%'based analysis+ but is often
problematic because of the variety of firm attributes that can constitute resources. -ommon
errors include selectin( product or service attributes+ or adopted strate(ies of the firm+ instead
of resources. !t is equally limitin( to perform resource analysis at a level of a((re(ation that is
too hi(h &overly va(ue+ and hard to intervene constructively) or too lo" &missin( key
systemic qualities).
,arney &5665) uses the value chain to derive resources to evaluate usin( #$!%. This approach
shares the merits and limitations of the value chain itself. !t is effective for evaluatin(
individual activities on a freestandin( basis+ but not suited to brin(in( out systemic qualities
across the firm+ such as an unusual culture. Taken on its o"n+ this approach is also susceptible
to producin( back"ards lookin( description+ since it focuses on the details of a le(acy activity
system.
8
4i(ure 0 uses the terms firm attribute &,arney+ 0110) and asymmetry &Ailler+ Eisenstat and
4oote+ 5665) for the candidate resources that #$!% evaluates. The term asymmetry
emphasises distinctive characteristics that are (enerally present in firms+ but may be
unreco(nised and hence not harnessed to create value. 4or e*ample+ Ailler et al &5665)
describe ho" -itibank realised that its net"ork of international banks had unused potential to
service multinational firms. 9sin( these terms separates more clearly the process of
identifyin( firm attributes from the process of assessin( "hether they are valuable and hence
constitute resources. The most useful firm attributes to assess are distinctive+ endurin(
qualities embedded in the history of the firm that have persisted over time and throu(h
chan(e. These embody the qualities of path dependence &Penrose+ 0171) and social
comple*ity &-ollis+ 0110@ ,arney+ 5665) from the resource'based literature+ and hence are
more likely to form the basis of sustained advanta(e for the firm. <lso follo"in( the resource'
based literature+ firm attributes for evaluation can include "hat the firm has &resources) or
"hat the firm does &competence)+ and may be skills+ human assets+ information and
or(anizational assets+ or relational or reputational assets &=ill et al"+ 566;).
T"o techniques from the competence literature assist "ith the process of identifyin( suitable
firm attributes to evaluate. %ne involves constructin( them systematically from individual
components in a process that claims a hi(her de(ree of neutrality than ad'hoc approaches
&Klein+ Bee and :ones+ 0112). This "ill not suit all applications+ since the process of
assemblin( the data is time consumin( and itself prone to bias. < complementary approach
starts "ith distinctive and valuable qualities of a product or service+ and seeks to represent the
attributes and interactions in the firm that (enerate these qualities &Knott+ Pearson and Taylor+
0118). This is more likely than the value chain to surface qualities that are "idely dispersed
"ithin the firm+ thou(h an intuitive heuristic is currently lackin( to assist "ith the process.
<ddin( these approaches to the value chain makes available three startin( points for findin(
asymmetries that may be sources of performance: component value'creatin( activities+
synthesis of kno"led(e components+ and cause'and'effect dissection of outputs.
#ntegrating e$ternal assessment of value
<n e*ternal+ market'based assessment of value is essential to determine "hether the firm
attributes under consideration represent resources of the firm &,o"man and <mbrosini+
566;). <s ,arney &0110) and -ollis &0113) point out+ the value of a firms attributes depends
on the conte*t+ so the prevailin( market and industry conditions "ill impact positively or
ne(atively on the value of a firms attributes. !n the absence of a ri(orous assessment of
;
e*ternal value+ resource analysis becomes an internally focused audit that has little bearin( on
competitive performance.
The #$!% model incorporates e*ternal assessment of value by the criterion of "hether a
resource enables a firm to choose or implement a strate(y that e*ploits an opportunity or
neutralizes a threat &,arney+ 5665). 4i(ure 0 (oes further than this by emphasisin( this
e*ternal assessment of value as one of the conditions that determine "hether a firm attribute
or asymmetry represents a resource. !n doin( so+ it e*plicitly sho"s that e*ternal conditions
can make the critical difference bet"een a resource or competence and a ri(idity or "eakness
of the firm. The same set of firm attributes may lead to competitive advanta(e under some
conditions and disadvanta(e in others &Feonard',arton+ 0115@ /est and De-astro+ 5660).
!n addition+ there are three key respects in "hich ,arneys &5665) criterion for value needs
clarification. The first is that the firms resources are only valuable if they lead to superior
efficiency+ customer'perceived value+ innovation or customer responsiveness &=ill et al"+
566;). This in turn represents performance relative to competitors+ the assessment of "hich
,arneys &5665) specification of value does not sufficiently force. The second key point is
that the analysis must define value only as that "hich the firm captures in market e*chan(e
&,o"man and <mbrosini+ 5666+ 566;)+ and not a notional+ internal assessment based on
assumptions about the future. Thirdly+ and equally importantly+ the analysis must define value
relative to the cost of the resources employed &,arney+ 5665). Dra"in( on these three points+
a pharmaceuticals firm evaluatin( part of its research and development capability should
assess its value in terms of (enerated income streams and market'valued intellectual property.
!t should assess performance relative to competitors usin( both value measures and other
metrics such as patent rates or speed to market. !t must assess both performance and income
relative to the costs of fundin( the activity.
#ntegrating assessment of internal conditions
The internal conditions in a firm are crucial determinants of "hether the firm e*ploits a (iven
attribute to form a resource or competence. The established #$!% method+ ho"ever+
evaluates this almost as an afterthou(ht+ as it assumes that the de(ree to "hich the firm is
or(anised to e*ploit a resource ali(ns closely "ith the other evaluation criteria. The e*panded
#$!% analysis in 4i(ure 0 emphasises central consideration of the effect internal conditions
in the firm have on the attribute or asymmetry. The absence of the ri(ht conditions "ill mask
the potential of the underlyin( attributes. < chan(e in conditions could reveal a latent
2
capability in the firm or could render a resource inoperative or dysfunctional. 4or e*ample+
the performance potential represented by a firms tradition of e*cellence in customer'facin(
activities may be masked or unmasked by chan(es in the effectiveness of its office facilities.
!nternal conditions+ such as the office facilities mentioned above+ are distinct from the type of
firm attributes that the analysis evaluates. The key differences are that they are readily
susceptible to chan(e+ that they have not evolved "ith the firms development+ that they are
not distinctive+ and that they typically e*ist for limited times.
%nalysis of com&etitive dynamics
=avin( determined "hether a firm attribute is a resource or competence for the firm+ the ne*t
steps in 4i(ure 0 assess the de(ree to "hich the resource or competence (ives the firm
sustained competitive advanta(e. <s in the e*istin( #$!%+ these steps assess ho" quickly
competition is likely to reduce any performance advanta(e. 4i(ure 0 uses the competitive
dynamics headin( to emphasise that this represents a dynamic+ for"ard'lookin( part of the
analysis that is different in nature to the analysis of e*istin( firm attributes and e*istin(
conditions. The step belo" on mana(in( conditions looks at dynamics such as evolvin(
markets and technolo(y.
The rarity criterion assesses ho" many other firms have an equivalent resource. !f many do+
they "ill quickly compete a"ay any performance advanta(e based on position or strate(y. !f
fe" do+ this "ill take lon(er and "ill rely mostly on firms imitatin( the resource &or
substitutin( a functional equivalent). The speed at "hich firms "ill compete a"ay a
performance advanta(e "ill depend on the difficulty of imitatin( the resource and on the
capabilities of the competin( firms.
Evaluating the interaction between firm attributes
4i(ure 0 adds this step to the e*istin( #$!% evaluation process. This addresses the "eakness
attributed to #$!% that because it evaluates resources on an individual basis+ it does not
adequately consider ho" they contribute &or other"ise) to the firm as a functionin( system
&4oss+ 011;). :ust as value chain analysis reco(nises that performance can be reduced or
enhanced by the quality of linka(e bet"een activities &Porter+ 0127)+ a full resource and
competence analysis must reco(nise that performance can be reduced or enhanced by
discordance or complementarities bet"een resources. The likelihood that complementary
1
combinations of resources and competence "ill be more costly to imitate enhances this effect
by producin( a more sustained performance advanta(e.
< common form of complementary interaction bet"een attributes combines a resource "ith a
competence that e*ploits+ maintains and enhances the resource. 4or e*ample+ o"nership of a
brand "ill be more valuable if the firm has the ability to maintain and enhance the value of
the brand. -onversely+ it "ill be less valuable if the firm lacks this ability. !n other cases+
resources in a firm may clash+ for e*ample creative traditions "ith systematic operations.
'anaging conditions to nurture resources and com&etence
The above steps in the e*panded evaluation process+ lookin( at the impact of internal and
e*ternal conditions on a firm attribute+ hi(hli(ht that these conditions radically alter the
outcome. This final step in the e*panded application of #$!% considers the dynamic
evolution of these conditions and the distinct responses called for by the four types of
outcome. These responses "ould help create+ maintain or enhance resources or competence
based on a (iven attribute of the firm. They build on and replace those outlined by ,arney
&5665) "ithin the e*istin( #$!% frame"ork.
Is the firm Organised to ep!oit it"
(nternal conditions)
Is it Va!uab!e
in current
External conditions?
NO YE
YE
NO
Resource or
Competence
Rigidity
Missed
opportunity
#ea$ness
4i(ure 5: %utcome from a firm attribute accordin( to conditions
4i(ure 5 represents the possible outcomes from an attribute of the firm by dra"in( on the
above criteria for assessin( internal and e*ternal conditions. The top ri(ht quadrant hi(hli(hts
06
that an e*istin( resource or competence depends on the continuation of suitable conditions.
-han(in( e*ternal conditions+ such as disruptive technolo(ies+ may render obsolete sources of
competitive advanta(e that are other"ise po"erful. !nternal conditions may chan(e "hen a
firm attempts to apply e*istin( resources to ne" opportunities+ as recommended by =amel
and Prahalad &0113). !n some cases+ this "ill undermine the e*istin( resource or competence+
for e*ample by re'assi(nin( people to a less conducive environment.
The bottom ri(ht quadrant represents an attribute of the firm that it has or(anised to e*ploit+
but "hich in the prevailin( e*ternal conditions is not demonstrably valuable. This
corresponds to "hat Feonard',arton &0115) referred to as ri(idity: functionin( "ithin the
firm+ but not matched "ith e*ternal needs and likely (eneratin( no &or even ne(ative) value.
Fe(acy technolo(ical capabilities are prone to fallin( in this cate(ory. !f the firm can re'
deploy this attribute to a ne" market or application &ne" e*ternal conditions)+ it can chan(e
the outcome to a valuable resource or competence. !f not+ the firm should chan(e the internal
conditions so that they no lon(er e*ploit or support the attribute.
!f a firm possesses an attribute that it could use to (enerate value by e*ploitin( an opportunity
or neutralisin( a threat+ but currently it does not+ this represents a missed opportunity. ,y
mana(in( the internal conditions to e*ploit the attribute+ the firm could (enerate a value'
creatin( resource or competence. The application presented belo" illustrates this by sho"in(
ho" an improved product pipeline and better market a"areness allo"ed commercial value to
be realised from the e*istin( scientific and product development skills.
/here a firm possesses an attribute that in current conditions does not have the potential to
create value+ and the firm has not or(anised to e*ploit it+ this attribute represents a "eakness
in the firm. Gon'valuable patents or outdated and unused kno"led(e assets "ould fall into
this cate(ory. The situation corresponds "ith "hat ,arney &5665) recommends for a non'
valuable resource. !t is rational that the firm does not e*ploit such attributes+ because
e*ploitin( them "ould not (enerate value.
'(ample application of the e(panded model
Taken to(ether+ the steps summarised in 4i(ure 0 and outlined above represent a more
complete form of resource and competence analysis than e*istin( e*positions of the #$!%
technique. This section provides a simplified "orked e*ample of the e*panded model. The
application considers the specialty chemicals product division of a maDor firm studied by the
00
author. 4i(ure C applies the e*panded model to an e*ample attribute of the firm+ and the
para(raphs belo" e*plain its lo(ic.
Strong
functiona!
traditions
!on"traditional competition
#rocess"driven customers
%rofitab!e
specia!ist
industria!
chemica!
N%&
capabi!ity
Rare
combination
Competitive
advantage
Costly to
Imitate
combination Sustained
competitive
advantage
Managed product pipeline
!ew mar$et awareness
External conditions
Internal conditions
Expanded conditions for a resource or competence
VRIO resource evaluation flowchart
Y Y
Y
Y
After resource evaluation
nternal conditions% maintain balance between functional traditions& product pipeline& and mar$et integration
External conditions% extend t'e activity to new product areas& expecting evolving competition
Before resource evaluation
Firm attributes% researc' and ot'er functional traditions embedded in t'e business
Competitive dynamics
4i(ure C: E*panded #$!% model applied to industrial chemicals case
!elect candidate resources( The application first selects the firms research orientation and
associated functional traditions as the candidate resources to test. These are "orthy of
evaluatin( because they represent "ell'established+ distinctive+ historical characteristics of the
firm. They are systemic qualities+ but are not va(ue as they can readily be associated "ith
specific mana(ers and activities. The firm possesses additional attributes that are "orthy of
evaluatin(+ includin( intellectual property resources. < complete analysis "ould repeat the
evaluation process described belo" for these other attributes.
#ntegrate e$ternal assessment of value( The division supplied key inputs to process'driven
industrial customers for "hom "asta(e rates "ere an important cost driver. !t also faced
emer(in( competition from less technolo(y'intensive firms based in lo"er cost countries. The
firms response to this e*ternal threat and opportunity had been to use its stron( functional
traditions to (enerate a ran(e of products that si(nificantly reduced "asta(e rates for its
customers. <s a result+ the products captured value in market e*chan(e+ as they achieved
05
improved sales and mar(ins+ thou(h the firm "ould also need to take account of product
development costs.
#ntegrate assessment of internal conditions( The functional traditions alone "ould not have
(enerated these profitable products. The traditions did not include a close relationship "ith
the supplied industry or the close understandin( needed to see and e*ploit the value'creatin(
opportunity. This had come via the appointment of technically and commercially e*perienced
individuals from this industry. !n addition+ the recent creation of a systematically mana(ed
product pipeline had been critical to inte(ratin( the traditional functions sufficiently that they
could efficiently develop and launch the ne" products.
%naly)e com&etitive dynamics( 9nder current e*ternal and internal conditions+ the firms
functional traditions form the basis of a profitable ne" product development capability+
despite the hi(h cost of these functions. This capability is some"hat rare+ particularly as the
ne"er competitors do not possess the functional traditions on "hich it based. The fact that
multiple specialist functions are involved makes it more comple* and costly for other firms to
create the required level of e*pertise. <s a result+ the analysis su((ests that this capability
(ives the firm a competitive advanta(e that competitive action "ill not quickly erode.
Evaluate interaction between attributes( !n considerin( the internal dynamics in the firm+ the
maDor issue is "hether the firm can sustain the combination of qualities behind its hi(h
performin( product development. This requires it to mana(e an apparently fra(ile balance
bet"een the specialist functional traditions that (enerate the technical basis for innovation and
the results'oriented product pipeline that delivers it efficiently to the market.
'anage conditions( The internal conditions are crucial to enable the firms specialist
functions to (enerate value. !n the absence of current market linka(es+ for e*ample+ it "ould
be unable to differentiate its products sufficiently to compensate for the hi(h cost of these
functional traditions. The firm should also take account of the dynamics of e*ternal
conditions+ despite havin( apparently sustainable advanta(es. <lthou(h its specialist functions
respond to technolo(y and market developments+ they likely "ill fail to respond adequately if
chan(e occurs beyond certain boundaries.
Practical implications
The e*panded #$!% model this paper presents for resource and competence analysis
incorporates a number of si(nificant refinements to e*istin( methods. Aost importantly+ it
(ives a central role to the conditions under "hich a firms attributes (ive rise to a resource or
0C
competence. This links the analysis directly "ith active mana(ement of these conditions+ and
discoura(es users from (eneratin( a static picture that may be rooted in the past. This
represents a different emphasis than the more "idespread portrayal of firm resources and
competence as a fi*ed endo"ment set by historical antecedents.
The e*panded model emphasises the value criterion as a question of fit "ith e*ternal
conditions+ and hence su((ests that value is susceptible to chan(e "ith conditions. 4or
internal conditions in the firm+ it encoura(es a more creative vie" than the simple choice of
"hether or not to e*ploit a resource. !t sho"s ho" different conditions actin( on a firms
attributes can convert them bet"een "eaknesses+ missed opportunities+ ri(idities and
resources. The e*panded model further emphasises purposeful and for"ard'lookin( analysis
by sho"in( ho" mana(ers can evaluate the rarity and imitability criteria in #$!% by
considerin( the impact of industry competitive dynamics.
,ecause none of the above is helpful unless the analyst has made (ood choices of firm
attribute to evaluate+ the e*panded model also includes this selection process as an e*plicit
step+ and provides ne" (uidance.
Research implications
This paper contributes principally to t"o research themes. ,y synthesisin( resource'based
theory in a practice'relevant form+ it delineates a concrete set of practices that relate to the
dynamic capability to mana(e resources and competence. This contributes to the dynamic
capability literature+ "hich so far has not substantially detailed the content of the different
types of dynamic capability &$e(nHr+ 5662). 4irms could dra" upon the practices this paper
outlines to establish their o"n routines to mana(e their resources and competence. 4rom a
strate(y'as'practice perspective+ the paper contributes by presentin( resource'based theory in
a form that focuses on the doin( of strate(y+ in contrast to the traditional focus of the
resource'based literature on determinants of firm performance. 4rom the same perspective+
the ne*t step "ould be to research ho"+ if at all+ mana(ers currently undertake formal analysis
of their firms resources and competence. The enhanced and e*tended #$!% analysis
proposed in this paper could then be tested usin( action research involvin( mana(ers in
implementin( the steps it recommends.
03
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0;