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 #$!% &value'rarity'imitability'or(anization) model to practical strate(y makin(. Design/methodology/approach: The paper dra"s on the resource based literature to assemble an inte(rated set of steps that evaluate a firm s resources and competence. Findings: The paper proposes an e*panded version of the #$!% 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 firm s 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. Key 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 #$!% &value'rarity'imitability' or(anization) technique &,arney+ 5665) has become the most "idely advocated method for assessin( a particular firm s resources. !n common "ith other strate(y tools+ this technique ori(inated in theory development &,arney+ 0110) and not initially as a tool for practical application. .ubsequent development as a means of understandin( a firm s resources &,arney+ 5665) has helped #$!% 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 firm s resources and

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 firm s 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 firm s competitive performance than the resources on "hich they are based &Penrose+ 0171)+ and hence "orthy of particular attention "hen evaluatin( the basis of a firm s performance. 4or this reason+ this paper emphasises competence as an

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 firm s 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 firm s ability to inte(rate+ build+ and reconfi(ure competence. This falls "ithin ,arney s &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.

Techniques to analyze sources of competitive performance

4rom a practice perspective+ the key challen(e in relation to a firm s 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 firm s 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 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 VRIO 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.

Before resource evaluation

Select firm attributes (candidate resources) to evaluate.

VRIO resource evaluation flowchart Expanded conditions for a resource or competence Competitive dynamics

Rigidity
External conditions

N Y Y N Missed opportunity Resource or Competence

Firm attribute or Asymmetry

Valuable?
Firm Organised to exploit?
Internal conditions

Rare? Competitive
Y N Competitive parity advantage

Costly to Imitate? Y N

Sustained competitive advantage

Temporary competitive advantage

After resource evaluation

Evaluate interaction between firm attributes. Manage internal and external conditions acting on firm attributes.

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.

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 firm s attributes depends on the conte*t+ so the prevailin( market and industry conditions "ill impact positively or ne(atively on the value of a firm s 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 ,arney s &5665) criterion for value needs clarification. The first is that the firm s 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 ,arney s &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

capability in the firm or could render a resource inoperative or dysfunctional. 4or e*ample+ the performance potential represented by a firm s 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 firm s 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

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.

YE

Missed opportunity

Resource or Competence

Is it Va!uab!e in current External conditions?

NO

#ea$ness

Rigidity

NO

YE

Is the firm Organised to e p!oit it" ( nternal conditions)

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.

Before resource evaluation

Firm attributes% researc' and ot'er functional traditions embedded in t'e business

VRIO resource evaluation flowchart Expanded conditions for a resource or competence Competitive dynamics

External conditions

Strong functiona! traditions

!on"traditional competition #rocess"driven customers Y Managed product pipeline Y !ew mar$et awareness
Internal conditions

%rofitab!e specia!ist industria! chemica! N%& capabi!ity

Rare
combination Y Competitive advantage

Costly to Imitate combination Y

Sustained competitive advantage

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

4i(ure C: E*panded #$!% model applied to industrial chemicals case !elect candidate resources( The application first selects the firm s research orientation and associated functional traditions as the candidate resources to test. These are "orthy of evaluatin( because they represent "ell'established+ distinctive+ historical characteristics of the firm. They are systemic qualities+ but are not va(ue as they can readily be associated "ith specific mana(ers and activities. The firm possesses additional attributes that are "orthy of evaluatin(+ includin( intellectual property resources. < complete analysis "ould repeat the evaluation process described belo" for these other attributes. #ntegrate e$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 firm s 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 firm s 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 firm s 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.

"ractical 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 firm s 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 firm s 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.

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