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Resources and capabilities

Terms in this set (7)

Primarily, one should choose those capabilities that can provide a basis for competitive advantage. Distinctive competences are those that does particularly well relative to its competitors. Core competences distinguish those capabilities fundamental to firm's strategy performance. They contribute to ultimate customer value and provide a basis for entering new markets. To identify firms capabilities, we need to have some basis for classifying and disaggregating its activities. Two approaches are commonly used: functional and value chain analysis.

Functional analysis identifies organisational capabilities in relation to each of the principle functional areas of the firm. One needs to classify the principle function of the firm and identify organisational capabilities located within each function, giving examples of firms that are widely recognised for capabilities in particular functions. For example: operations can be classified in terms of planning and scheduling. Hyundai, for instance, has an ability to coordinate and schedule production activities across its supply chain. It also has capability in low-cost production.

Value chain analysis separates activities of the firm into sequential chain. Value chain distinguishes between primary and support activities. Capabilities correspond to each activity. By exploring different activities and, most crucially, the linkages between them it is possible to gain insight in organisation's main capabilities. For example: Hyundai's primary activity of operations can be defined in terms of design and product development, assembly, flexible manufacturing and quality control.
Tangible resource

Hyundai owns and operates three car production bases in Korea and invested in seven overseas manufacturing plants in China, Europe, India and US. Additional production plants in Russia and Brazil are underway.
The company has established offshore manufacturing bases in both established and emerging markets. This makes company less vulnerable to trade conflicts and helps it to accumulate local market knowledge.

Intangible resource

Hyundai build it's brand over time. It is now considered one of the top 100 most valuable brands worldwide.
Brand image is critically important to car manufacturers, particularly in fast growing economies like India and China where many consumers are purchasing cars for the first time and associate brand recognition with quality and status.

Human resource

The company employs 75,000 people worldwide. In order to gain expertise needed to build its own models, it recruited experienced senior staff who had worked in the European and US car industry. On the production side, the company usually chooses to locate its overseas manufacturing plants in the less developed areas of its target region in order to keep labour costs down.
The ability to recruit and retain the service of talented designers and engineers is critical to on-going success but keeping total labour cost as low as possible is also very important. The car industry is intensively competitive and in order to succeed producers need to offers consumers value for money. Car manufacturers whose costs exceed the industry average are unlikely to thrive in such an aggressive competitive market place.
How long advantage can be sustained depends on whether resources and capabilities are durable and whether rival can imitate the competitive advantage they offer.

Durability. More durable resources are more secure basis for competitive advantage. Increasing pace of technological changes is shortening the useful life span of most resources including capital equipment. Brands, however, can show resilience to time. If Janet is able to sustain customer loyalty and recognition, she might be able to keep competitive advantage.

Transferability. The simplest means of acquiring the resources and capabilities necessary for imitating another firm's strategy it to buy them. The ability to buy a resource of capability depends on transferability - the extent to which it is mobile between companies. Some resource such as finance, raw materials are transferable, some resources are not easily transferred - either they are entirely firm specific or their value depreciates on transfer. Competitors can easily gain access to resources such as flowers. However, are less likely to access location that might help Janet to sustain competitive advantage.

Reliability is if a firm cannot buy a resource or capability but must build it. Financial services, most innovations in new derivative products can be imitated easily. In retailing too, competitive advantages that derive from store layout or point-of-sale technology can be copied easily. Less replicable are capabilities based on complex organisational routines or unique corporate cultures. If Janet is able to build organisational routines with her new employees, she is able to sustain competitive advantage.
What gives your company a competitive edge is strategically valuable resources (the ones enabling enterprise to perform activities better or more cheaply than rivals). These can be physical assets (a prime location), intangible assets (a strong brand), or capabilities (a brilliant manufacturing process). For example, Japanese auto companies have consistently excelled through their capabilities in lean manufacturing.

Strategically valuable resources have five characteristics:

1) They're difficult for rivals to copy. Some resources are hard for rivals to copy because they're physically unique; for example, a desirable real estate location. Others must be built over time, such as Gerber's brand name for baby food.
2) They depreciate slowly. Disney's brand name was so strong that it survived almost two decades of benign neglect between Walt Disney's death in 1966 and the installation of Michael D. Eisner and his management team in 1984.
3) Your company—not employees, suppliers, or customers— controls their value. Your company does not lose a critical resource when a key employee leaves.
4) They can't be easily substituted for. Because of easy substitution, the steel industry lost a major market in beer cans to aluminium can makers.
5) They're superior to similar resources your competitors own. A maker of medical-diagnostics test equipment bested rivals at designing an easy interface between its machines and people who use them. Armed with this capability, it expanded into doctors' offices, a fast-growing segment of its market. There, office personnel, not just technicians, could operate its equipment.

To keep your edge sharp, build your strategies on resources that pass these five tests. Regularly invest in those resources. And acquire new ones as needed, as Intel did by adding a brand name—Intel Inside—to its technological resource base