IDENTIFICATION AND

CLASSIFICATION OF
RESOURCES
Session 2
Preview
Identification of resources
Functional approach
Value chain
Activity Map
Business Model
Value System/ ecosystem
Classification of resources
Summary- RBV (Rumelt, 84, wernerfelt 84, Conner 91, Barney 91, Grant 91, Peteraf, 93)
The firm is a bundle of heterogenous resources that are
partly immobile (non-tradeable)
Sustainable competitive advantage is derived from the
possession and utilization of valuable, rare, inimitable non
substitutable resources
In the long run, a firm continues to exist if it is more
effective than its rivals in picking resources with
heterogenous productivity

Dynamic capability- competence based view
Nelson and winter,82, Dietritch and Cool,89, Prahlad and hamel,90, Leonard Barton, 92, Amit and Schoemaker 93, Grant 1996, Teece et al, 97, Eisenhardt and Martin 2000
The firms is a repository of knowledge the accumulation
of which proceeds in an incremental and path dependent
way
The firms capability base is the evolutionary outcome of
its experiences and acts both as a source of competitive
advantage and as a constraint
In the long run, a firm continues to exist if it leverages and
develops capabilities sooner, more innovatively or more
fortuitously than the competition

Knowledge based view-
Nonaka,94, Von Krogh et al 94, Grant, 96, Spender 96, Nonaka 2002, Nonaka and Toyama 2003
The firm is a knowledge creating function that integrates
the knowledge resident in individuals into goods and
services
Knowledge is the principal productive resource of the firm
Competitive advantage conferred by an organizational
capability depends on the efficiency of knowledge
integration
In the long run, a firm can exist only if its knowledge
creation rate is higher than that of the market
Strategic industry factors or CSF or KSF
(Amit and Shoemaker, 93)
Portfolio of resources and capabilties that have become
the prime determinants of economic rent in a particular
industry
SIFs are determined in the market, they change over time
and drive competition

Difference between resources (assets)
and capabilities)

Classifying resources: What are resources
Wernerfelt, 1984- anything that can be thought of as a
strength or weakness, tangible and intangible
Barney, 1991- All assets, capabilities, organizational
processes, firm attributes, information, knowledge etc
controlled by a firm that enable conception and
implementation of strategy
Penrose- 1989- Land labour, capital and equipment, human
and physical resources
Hofer and Schendel 1978- organizational and technological
resources
Tangible intangile, human


Types of resources
Tangible Intangible Human
Financial (Cash,
securities, borrowing
capacity)
Physical- plant,
equipment, land, mineral
reserves

Technology (patents,
copyrights, trade secrets)
Reputation (Brand,
relationships)
Culture

Skills/knowhow
Capacity for
communication and
collaboration
motivation
Organizational reporting
structure & relationships
Capabilities and competences
Capabilities- repeatable pattern of action in the use of assets
to create, produce or offer products to market
Capabilities arise from the coordinated activities fo groups of
people who pool their individual skills in using assets to
generate organizational action
Competence is he ability to apply assets in a coordinated
way in order to reach a certain aim (Vermelyen and Heene,
1979)
Levels of competences
Individual operative competences
Group level competences
Firm or organization level competences
Intermediate competences in terms of management
competence for mobilization of inputs from other
members of the organization
Organization level competences
Organizational knowledge related
Databases and other information about consumers, competitors ;
technology
Enabling performance of group tasks
Routines, standard operating procedures
Established way of doing things
Corporate culture, norms and shred values
Furthermore, intangible assets have been described as
resources that are created as a result or outcome of
capabilities

Organizational resources: architecture
Combination of assets and competencies
System of relationships within the firm or between
the firm and suppliers and customers or both
Creating a distinctive architecture requires core
competencies related to tasks
such as selection of most suitable suppliers
Relationships outside the organisation
Creation of appropriate culture
Ability to respond to change

Networks and external resources
Networks
Web of linkages between organization and environment
Both individual (personal contacts) and organizational level (eg.
Membership of industry organizations)
Internal element corresponding to external resources
Market orientation, consumer/customer insights
Capability to gather external resources
Core competencies
Unique combination of knowledge, capabilities,
structures, technologies, and processes in an
organization that makes it possible to provide products or
services that no other organization can provide in the
same way, at the same moment and at the same speed
Result of cumulative learning process that takes place
within an organization about how to coordinate and
deploy assets and capabilities , adding the most to the
realization of the organizations goals and objectives
Understanding importance of resources
1. Is the resource or skill critical to fulfilling a customers
need better than that of the firms competitors?
2. Is the resource scarce? Is it in short supply or not
easily substituted for or imitated?
3. Appropriability: Who actually gets the profit created by
a resource?
4. Durability: How rapidly will the resource depreciate?

Impact of resources
Success due to key resources- part of strategic core
Example in defense forces
Skills: soldiering and weapon training
Cultural traditions: Independent action, adherence to mission
Commitment to ideology- motivation
General staff- overall coordination
Combination of all the above
Hierarchy of capabilities

Identifying organizational capabilities- a
functional classification
Function Capability Exemplars
Corporate
management
Financial management, strategic control,
coordinating business units, M&A
Exxon Mobil, GE,
IBM< Samsung,
BP, P&G,
Citigroup, Cisco
MIS Speed and responsiveness through rapid
information transfer
Walmart, Dell
R&D Research Capability, Development of
innovative new products
Merck, Apple,3M
Manufacturing Efficient volume manufacturing,
Continuous improvement, Flexibility
Nucor, Toyota
Design Design Capability Apple, Nokia
Marketing Brand management, Quality, reputation P&G, LV, J&J
Sales, dist,
service
Sales responsiveness, efficiency and
speed of distribution, customer service
Pepsico, pfizer, LL
Bean, Dell,
Caterpillar
Hierarchy of capabilities (eg. Telecom mfr)
Cross functional capabilities (eg. NPD, customer support,
quality management)
Broad functional capabilities (eg. Operations, R&D and
design, MIS, Marketing & Sales, HR)
Activity related capabilities (Mfg, materials mgmt, product
engineering)
Specialized capabilities (Assembly of telset and PCB)
Single task capabilities (where individuals specialized
knowledge is put to use)
m

Value chain
Strategically relevant activities
The same outcome can be achieved in different ways
Linkages
Resources underlying the different activities/linkage

Value chain- knowledge base
Knowledge about performing the particular value chain
activity
Knowledge about how other activities in the value chain
can be modified
Surplus knowledge or spillovers not related to the value
chain
Competencies at various points on the value chain
Value system/Ecosystem
Understanding how the value chain of a firm is embedded
in a larger stream of activities
Competencies related to
Having competitive advantage within the value system
Coordinating and developing the value system


Tradeoffs in the value chain

Generate long list of strength and weaknesses from
primary and support activities on the firms value chain
Reconceptualize long list in terms of resources and
capabilities and complete deeper inspection with the
application of key questions
Determine where along the value chain potential
competitive advantage lies. Look at each competitively
relevant resource and capability relative to its potential as
a cost or uniqueness driver



Classify into resources and capabilities- and evaluate each
against the VRIO criterion ( value, rarity, imitability and
organisation)
Classify quality of capability into- inadequate, adequate,
attractive, potential, competitive, distinctive
It may also make sense to classify source of advantage as
a cost driver or uniqueness driver and also identify where
(which component of the value chain, which part of the
organization) it is located
Activity Map
Linear and nonlinear sequence of activities
Analysis of customer value
Choice of a set of activities to deliver a unique mix of
value
Understanding linkages and competencies involved

What Determines Organizational Capability in Football?

Who are the
outstandingly
successful team
managers (coaches)
in British football?
Matt Busby Manchester U. 1945-70
Alf Ramsey Ipswich 1955-64
Bill Shankley Liverpool 1959-74
Jock Stein Glasgow Celtic 1965-78
Brian Clough Derby/Notts F. 1972-84
Bob Paisley Liverpool 1974-83
Alex Ferguson Aberdeen 1980-86
Manchester U. 1986-
Arsene Wenger AMonaco 1985-95
Arsenal 1996-
Jose Mourinho Porto 2000-04
Chelsea 2004-
Building Team Capabilities in Soccer:
Alex Ferguson at Manchester United

Find/develop young players
Scouting staff doubled find the best.
Building youth team1992 youth team included Ryan
Giggs, David Beckham, Paul Scholes, Nicky Butt,
Gary Neville
Training
State-of-the-art training complex
Rigorous training schedule (+war on booze)
Developing coordination
Training for team skills
Building team spiritteam functions with single
spirit & constant flow of mutual support; Talent
without unity of purpose is hopeless
Structuring the team
Build a core of group internally Supplement with key
purchases
Blending personalities as well as skills
Player rotation for experimentation & flexible
coordination
Building the wider teamcoaches, scouts,
physiotherapists, psychologists, even cleaners
Cross-functional integration
Business Model
How a company buys and sells goods and services and
earns money (value proposition, value appropriation,
value capture)
The concept that describes opportunity and strategy
Capabilities that define resources necessary
Value proposition
Reasoning back from CSFs- understanding capability
requirement
Approaches to identifying
resources/capabilities
Starting from the inside Starting from the outside (KSF)
Value chain approach/Activity maps Understanding how customers choose
Understand the capabilities of
organizations
Resources required to survive
competition
Understanding which resources
support the efficient activities

What resources do we need to deliver
KSFs
Assessing a Companies Resources
and Capabilities: The Case of VW



Importan
ce
VWs
Relative
Strength
C1. Product
development

9

4

C2. Purchasing

7

5

C3. Engineering

7

9

C4.
Manufacturing

8

7

C5. Fin mgmnt

6

3

C6. R&D

6

4

C7. Markg & sales
9

4

C8. Government
relations

4

8



Importa
nce

VWs
Relative
Strength

R1. Finance

6

4

R2. Technology

7

5

R3. Plant and
equipment

8

8

R4. Location

7

4

R5. Distribution

8

5

Appraising VWs Resources and Capabilities

R
e
l
a
t
i
v
e

S
t
r
e
n
g
t
h

Strategic Importance
Superfluous Strengths
Key Strengths
Zone of Irrelevance Key Weaknesses
1
1
5 10
5
10
R1
R2
R3
R4
R5
C1
C2
C3
C4
C5
C6 C7
C8
(Hypothetical only)
Additional focus on
superfluous strengths
resource combinations
resource combinations in a particular context
rigidity of resource combinations and inability to adapt it
when new resources become available

Classify as resource/capability, whether valuable, rare,
costly to imitate, exploited by the organization, application
in multiple markets, whether it is a core competence,
economic performance in terms of higher prices or lower
costs, and whether it is a strength, weakness or is it
neutral