1. Garry Carr

2. Analysing Resources & Capabilities
OUTLINE
The role of resources and capabilities in strategy formulation.
The resources of the firm
Organizational capabilities
Appraising the profit potential of resources and capabilities
Putting resource and capability analysis to work—a practical guide
Creating new capabilities. 2

3. Environment-Strategy
Shifting the Focus of Strategy Analysis: From the External to the Internal Environment
THE FIRM
Goals & Values
Resources &
Capabilities
Structure &
Systems
THE
INDUSTRY
ENVIRONMENT
Competitors
Customers
Suppliers
STRATEGY  
STRATEGY
The
Firm-Strategy
Interface
The
Environment-Strategy
Interface 3 5

4. Rationale for the Resource-based Approach to Strategy
When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus.
Resources and capabilities are the primary sources of profitability 4

5. The evolution of Honda Motor Company
Technical
Research
Institute
founded
Competes in
Isle of Man TT
motorcycle
races
4-cylinder
750cc
motorcycle
1st gasoline-powered
car to meet US Low
Emission Vehicle Standard
Civic Hybrid
(dual gasoline/
electric)
Portable
generator
Power products:
ground tillers, marine
engines, generators,
pumps, chainsaws
snowblowers
Honda wins
Indy Championship
Civic GS
(natural
gas
powered)
1st motorcycle:
98cc, 2-cycle
Dream D
405cc
motor
cycle
Acura Car
division
N360 mini
car
Home co-
generation
system
4 cycle
engine
The 50cc
Supercub
1000cc
Goldwing
touring
motor cycle
Honda
Civic
Enters Indy
car racing
Enters Formula 1
Gran Prix racing
First product:
Model A
clip-on engine
for bicycles
Begins production of diesel engines 5 2 2

6. Canon: Products and Core Technical Capabilities
Precision
Mechanics
Fine
Optics
35mm SLR camera
Compact fashion camera
EOS autofocus camera
Digital camera
Video still camera
Video security systems
Camcorders
Plain-paper copier
Color copier
Color laser copier
Laser copier
Basic fax
Laser fax
Scanners
Binoculars
Mask aligners
Excimer laser aligners
Stepper aligners
Inkjet printer
Laser printer
Color video printer
Digital commercial
printer
Calculator
Notebook computer
Micro-
Electronics 6 4 4

7. Links between Products & Capabilities: Capability-Based Strategy at 3M
Road signs
& markings
Videotape
Sandpaper
Carborundum
mining
Floppy disks &
data storage
products
Scotchtape
Audio tape
Acetate
film
Post-it notes
Housewares/kit-
chen products
PRODUCTS
Surgical tapes
& dressings
Pharmaceuticals
Materials sciences
Flexible
circuitry
Health sciences
CAPABILITIES
Microreplication
New-product
development &
introduction
Thin-film
technologies
Abrasives
Adhesives 7

8. Evolution of Capabilities and Products: 3M
Road signs
& markings
Videotape
Sandpaper
Carborundum
mining
Floppy disks &
data storage
products
Scotchtape
Audio tape
Acetate
film
Post-it notes
Housewares/kit-
chen products
PRODUCTS
Surgical tapes
& dressings
Pharmaceuticals
Materials sciences
Flexible
circuitry
Health sciences
CAPABILITIES
Microreplication
New-product
development &
introduction
Thin-film
technologies
Abrasives
Adhesives 8

9. The Links between Resources, Capabilities and Competitive Advantage
INDUSTRY KEY
SUCCESS FACTORS
COMPETITIVE
ADVANTAGE
STRATEGY
ORGANIZATIONAL
CAPABILITIES
RESOURCES
TANGIBLE INTANGIBLE HUMAN
Financial
Physical
Skills/know-how
Capacity for communication & collaboration
Motivation
Technology
Reputation
Culture 9

10. Appraising Resources RESOURCE CHARACTERISTICS INDICATORS
Tangible Resources
Financial
Borrowing capacity
Internal funds generation
Debt/Equity ratio
Credit rating
Net cash flow
Physical
Plant and equipment:
Size, location, technology flexibility.
Land and buildings
Raw materials
Market value of fixed assets.
Scale of plants
Alternative uses for fixed assets
Intangible Resources
Technology
Patent, copyrights, know how, R&D facilities
Technical and scientific employees
No. Of patents owned
Royalty income
R&D expenditure
R&D staff
Reputation
Brands. Customer loyalty, company reputation (with suppliers, customers, government)
Brand equity
Customer retention
Supplier loyalty
Human Resources
Training, experience,adaptability, commitment and loyalty of employees
Employee qualifications,
Pay rates, turnover 10

11. The World’s Most Valuable Brands, 2008
Rank
Brand
Brand value
in 2008, $ bill.
Change
from 2007
Country
of origin 1
Coca-Cola
66.7
-1%
USA 2
IBM
59.0
+11% 3
Microsoft
-2% 4 GE
53.1
+14% 5
Nokia
35.9
+35%
Finland 6
Toyota
34.1
+37%
Japan 7
Intel
31.3 6% 8
McDonald’s
31.0 0% 9
Disney
29.3 10
Google
25.6
+96% 11
Mercedes Benz
+28%
Germany 12
Hewlett-Packard
23.9
+26% 13
BMW
23.3
+36% 14
Gillette
22.1
+5% 15
American Express
21.9
+18% 16
Louis Vuitton
21.6
+34%.
France 17
Cisco
21.3
+22% 18
Marlboro 19
Citi
20.2
+1% 20
Honda
19.1
+21% 11
Source: Interbrand

12. Identifying Organizational Capabilities: A Functional Classification
CAPABILITY
EXEMPLARS
CORPORATE FUNCTIONS
Financial control
Management development
Strategic innovation
Multidivisional coordination
Acquisition management
International management
Exxon Mobil, PepsiCo
General Electric, Shell
Google, Haier
Unilever, Shell
Cisco Systems, Luxottica
Shell, Banco Santander
MANAGEMENT INFORMATION
Comprehensive, integrated MIS network linked to managerial decision making
Wal-Mart, Capital One, Dell Computer
R&D
Research
Innovative new product development
Fast-cycle new product development
IBM, Merk
3M, Apple
Canon, Inditex (Zara)
OPERATIONS
Efficiency in volume manufacturing
Continuous improvements in operations
Flexibility and speed of response
Briggs & Stratton, YKK
Toyota, Harley-Davidson
Four Season Hotels
PRODUCT DESIGN
Design capability
Nokia, Apple
MARKETING
Brand management
Building reputation for quality
Responsiveness to market trends
Procter & Gamble, Altria
Johnson & Johnson
MTV, L’Oreal
SALES AND DISTRIBUTION
Effective sales promotion and execution
Efficiency and speed of order processing
Speed of distribution
Customer service
PepsiCo, Pfizer
L. L. bean, Dell Computer
Amazon.com
Singapore Airlines, Caterpillar 12

13. A Hierarchy of Capabilities: A Telecom Manufacturer
CROSS FUNCTIONAL CAPABILITIES
BROAD FUNCTIONAL CAPABILITIES
ACTIVITY RELATED CAPABILITIES (Operations related only)
SPECIALIZED CAPABILITIES (Manufacturing related only)
SINGLE-TASK CAPABILITIES (Only those related to PCB assembly)
New product development capability
Customer Support capability
Quality management capability
Operations Capability
R&D and design capability
MIS
capability
Marketing and sales capability
HR management capability
Manufacturing capability
Materials management capability
Process engineering capability
Product engineering capability
Test engineering capability
Printed circuit-board assembly
Telset assembly
System assembly
Automated through-hole component insertion
Manual insertion of components
Wave soldering
Surface mounting of components
INDIVIDUALS’ SPECIALIZED KNOWLEDGE 13 7 7

14. The Rent-Earning Potential of resources and Capabilities
THE EXTENT OF THE
COMPETITIVE ADVANTAGE
ESTABLISHED
Scarcity
Relevance
Durability
THE PROFIT
EARNING POTENTIAL
OF A RESOURCE OR
CAPABILITY
SUSTAINABILITY OF THE
COMPETITIVE ADVANTAGE
Transferability
Replicability
Property rights
Relative
bargaining power
APPROPRIABILITY
Embeddedness 14 8 8

15. Starting from the inside Starting from the outside
Two Approaches to Identifying an Organization’s Resources and Capabilities
Starting from the inside
Starting from the outside
Key Success Factors
How do customers choose?
What do we need to survive
competition?
What resources & capabilities
do we need to deliver these
KSFs? 15

16. Summary: a Framework for Analysing Resources and Capabilities
4. Develop strategy implications:
(a) In relation to strengths--How can these
be exploited more effectively and fully?
(b) In relation to weaknesses
--Identify opportunities to outsourcing
activities that can be better
performed by other organizations.
--How can weaknesses be corrected
through acquiring and developing
resources and capabilities?
STRATEGY
POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE
3. Appraise the firm’s resources and capabilities in terms of:
(a) strategic importance
(b) relative strength
2. Explore the linkages between resources
and capabilities
CAPABILITIES
1. Identify the firm’s resources and
capabilities
RESOURCES 16 10 10