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Chapter 4: Analysing the organisation’s resources and

capabilities

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Learning objectives

Understanding resources, capabilities, dynamic capabilities and strategic capabilities

Identifying strategic capabilities in an organisation

Developing capabilities Strategic capability analysis


Creating competitive advantage

What is competitive advantage? What the organisation does better than competitors

which is valuable to its customers and which is difficult for competitors to imitate or replicate.

Resources The tangible and intangible assets of the organisation.

Capabilities The processes, systems or organisational routines

which the organisation uses to coordinate its resources for productive use.


Creating competitive advantage

Strategic capabilities Those capabilities that are rare, are better than

the capabilities of competitors and are difficult to imitate or replicate.

Normal capabilities Those capabilities that are necessary for the

organisation to carry out its tasks.


Resources, capabilities and the creation of value

Capabilities

Resources

Better than Competitors?Rare?Difficult to imitate?

Strategic capabilities

Competitive advantage

Customer value

Figure 4.1


The resource-based view

Four necessary conditions for creation of competitive advantage from capabilities: organisations are different, and can remain so for

long periods some of their capabilities are rare and valuable these capabilities are difficult to imitate these capabilities are not easily traded


The VRIO/VRINE model

Resources must be: Valuable – defined by market demand Rare – be scarce with some degree of surplus

demand Inimitable – not able to be easily imitated Non-substitutable Organised – effectively arranged and deployed in

the organisation Exploitable – able to be nurtured and converted to

a viable business initiative


Dynamic capabilities:Managing knowledge, learning and innovation

Moves from examining current capabilities to how future capabilities are developed

Competitive advantage depends on the ability to build capabilities

Knowledge management an important aspect of building capabilities Turns existing information into decisions about

future capabilities Using knowledge increases its value Organisations must develop the ability to manage

‘knowledge workers’



Components of knowledge management: An accessible database of information An organisational language that enables individuals to

understand the meaning of organisational information Networking between individuals both inside and outside the

organisation Ability and incentive to transfer information among

individuals The ability to transfer knowledge effectively and use

it is an extremely difficult dynamic capability to achieve



Successful knowledge management is similar to managing innovation and should: Foster a desire for knowledge Reward employees for seeking, sharing and

creating knowledge Set ambitious goals for product and process

innovation Tie incentives to goals achieved through

collaboration with others



Rotate jobs to facilitate communication Regularly update databases Encourage training and networking with

external partners Allow people to participate in projects not

linked to their usual work



Innovation is another underlying dynamic capability

The ability to build and sustain innovation depends on five major classes of activities:

integrating problem solving across different cognitive and functional barriers

implementing new methodologies and processes experimenting and prototyping importing and absorbing technical knowledge from

outside learning from the market


Physical technical system

Organisation values and

norms

Managerial systems

Individual skills and

knowledge

Experimenting

Implementing and integrating

Importing Knowledge

Problem Solving



norms

Managerial systems


knowledge



norms

Managerial systems


knowledge

Experimenting


Importing Knowledge

Problem Solving

Experimenting


Importing Knowledge

Problem Solving

Leonard’s Core Technical Dynamic Capability

Figure 4.4


Identifying strategic capabilities

To identify strategic capabilities each activity, process, system and routine should be examined to see if it meets all the tests of the resource-based view Is it valuable to customers? Is it rare? Is it superior to competitors? Is it difficult to imitate or replicate? Is it specific to the organisation?



Functional analysis examine each function of the organisation easily understood and comprehensive but follows

conventional thinking, may not identify cross-functional capabilities

Resource analysis examines the resources available to the organisation intangible resources such as key personnel, reputation

and brand image may be competitive resources



Processes and systems analysis underlying processes and systems are the true creators

of competitive advantage processes and functions may be within or cross-

functional systems are usually complex, but how they link and

support each other determines whether they are strategic capabilities


Measuring capability performance

Once identified, strategic capabilities need to be measured to see if they are true competitive advantages.

Some means of measuring capabilities are: Internal self-perception Intra-industry comparisons Benchmarking Cost drivers and strategic cost analysis Competitive intelligence


Managing capabilities

Community of practice networks Build on the informal structure Require structures and systems to

encourage knowledge, learning and innovation dissemination

Should be managed through ‘non-visible’ management


Managing capabilities

Knowledge reward systems Provides incentives for individual holders

of knowledge to share and disseminate Cash awards for creative outputs Showcase new ideas to all sections of the

organisation Reward idea generators when ideas used

in other parts of the organisation


Strategic capabilities and core rigidities

Why can strategic capabilities become ‘core rigidities’? Attacking core rigidities attacks the current

economic foundation of the organisation Attacking current strategic capabilities

attacks the current power structure Organisational routines are ingrained.

Habits govern behaviour


Summary: Resources and capabilities

The internal strategic capabilities of an organisation

Underlying theories of RBV The VRIO/VRINE model Tests to define strategic capabilities Identifying strategic capabilities How strategic capabilities can become

liabilities

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