1. The Role of Resources and Capabilities in Strategy Formulation

2. Internal Environment
Analysis of the Internal Environment has been concerned with issues of strategy implementation:
appropriate organisational structure
systems of control
top management structure and style

3. “concentration of strength against weakness.”
Internal Environment
Liddell Hart, a prominent military historian, argued that there is only one underlying principle of war:
“concentration of strength against weakness.”

4. Resource-based Strategy
What is our business?
Who are our customers?
Which of their needs are we seeking to serve?

5. In general ...
the greater the rate of change in a company’s external environment, the more it must seek to base long-term strategy upon its internal resources and capabilities than upon an external market focus.

6. Resource as the basis for corporate profitability
Conventional approaches to competitive advantage focus upon the “generic” sources (cost, differentiation)
Resource-based view concentrates upon the resources and capabilities that underlie these advantages.

7. Resource as the Basis for Corporate Profitability
Other structural sources of market power are similarly based upon firms’ resources:
Monopolistic price-setting power depends upon market share that is a consequence of cost efficiency, financial strength, or some other resource.

8. Resources as the Basis of Superior Profitability
Patents
Brands
Retaliatory capacity
Barriers to Entry
Industry
Attractiveness
Market Share
Monopoly
Rate of Profit
in Excess of the
Competitive Level
Firm Size
Financial Resources
Vertical
Bargaining Power
Process Technology
Size of Plants
Access to Low-cost
Inputs
Cost
Advantage
Competitive
Advantage
Differentiation
Advantage
Brands
Product Technology
Marketing, Distrib.,
Service Capabilities

9. A Resource-based Approach Comprises Three Key Elements
Selecting a strategy that exploits a company’s principle resources and capabilities,
e.g Sony, Black&Decker, Marks & Spencer, BMW, Motorola

10. A Resource-based Approach Comprises Three Key Elements
Ensuring that the firm’s resources are fully employed and its profit potential is exploited to the limit.
Walt Disney’s remarkable turnaround between 1980 and 1990 involved very little change in basic strategy.

11. A Resource-based Approach Comprises Three Key Elements
Building the company’s resource base. Resource analysis is not just about deploying assets; it is crucially concerned with filling current resource gaps and building company’s future resource base.
Procter & Gamble, Johnson & Johnson, Motorola.

12. The starting point for analysis is to identify and assess the resources and capabilities that the firm has available to it.

13. The Resources of the Firm - at two levels of aggregation
Individual resources; items of capital equipment, the skills of individual employees, patents, brand names, etc.
How the resources work together to create capabilities and competitive advantage

14. INDUSTRY
KEY
SUCCESS
FACTORS
COMPETITIVE
ADVANTAGE
STRATEGY
ORGANISATIONAL
CAPABILITIES
RESOURCES
Tangible
Intangible
Human
Physical Financial
Technology Culture
Reputation
Specialised
skills &
knowledge
Communicative Motivation
& interactive
abilities

15. Financial Resources Main characteristics Key indicators
The firm’s borrowing capacity and its
internal funds generation determine its
investment capacity and its cyclical
resilience.
Key indicators
Debt/equity ratio.
Ratio of net cash to capital expenditure.
Credit rating.

16. Physical Resources Main characteristics Key indicators
The size, location, technical sophistication, and flexibility of plant and equipment, location and alternative uses for land and buildings, reserves of raw materials ...
Key indicators
Resale values of fixed assets
Vintage of capital equipment
Scale of plants
Alternative uses of fixed assets.

17. Human Resources Main characteristics Key indicators
The training and expertise of employees determine the skills available to the firm. The adaptability of employees determines the strategic flexibility of the firm.
The commitment and loyalty of employees determines the firm’s ability to maintain competitive advantage.
Key indicators
Educational, technical, professional qualifications of employees. Pay rates relative to industry average.

18. Technological Resources
Main characteristics
Stock of technology including proprietary technology (patents, copyrights, trade secrets) and expertise in its application of know-how. Resources for innovation (research facilities, technical and scientific employees).
Key indicators
Number and significance of patents. Revenue from patent licenses. R&D staff as a percentage of total employment.

19. Reputation Main characteristics Key indicators
Reputation with customers through the ownership of brands, established relationships with customers, the association of the firm’s products with quality, reliability, etc. The reputation of the company with the suppliers of components, finance, labour services, and other inputs.
Key indicators
Brand recognition. Price-premium over competing brands. Percentage of repeat buying. Objective measures of product performance. Level and consistency of company performance.