Resources and Capabilities

Resources and CapabilitiesIdentifying Attributes of Strategic ResourcesResource:A resource is any thing or quality that is useful.Firms usually begin their history with a relatively small amount of strategically relevant resources and skills, and each companys uniqueness shows how these resources are expected to perform in the marketplace.

The resource-based theory holds that sustainable competitive advantage (SCA) is created when firms possess and employ resources and capabilities that are:Valuable because they exploit some environmental opportunityRare in the sense that there are not enough for all competitorsHard to copy so that competitors cannot merely duplicate themNonsubstitutable with other resources

Competitive AdvantageSustained Competitive AdvantageOccurs when the entrepreneur is implementing a value-creating strategy not simultaneously being implemented by any current or potential competitors.

Competitive advantage with a very important addition: current and potential firms are unable to duplicate the benefits of the strategy.

Valuable ResourcesResources are valuable when they help the organization implement its strategy effectively and efficiently.A valuable resource exploits opportunities or minimizes threats in the firms environment.Examples of valuable resources and capabilities are:PropertyEquipmentPeopleSkills (marketing, financing, accounting)Rare ResourcesA resource can be considered rare as long as it is not widely available to all competitors. If supply and demand are in equilibrium, and the market-clearing of the resource is generally affordable, it would cease to be rare. Examples of rare resources are:Good locationGood leadersControl of natural resourcesHard-to-Copy ResourcesWhere duplication is not possible at a price low enough to leave profits, the resource is said to be hard to copy.Three factors make it difficult for firm to copy each others skills and resources:Unique Historical ConditionsAmbiguous Causes and EffectsComplex Social Relationships 1. Unique Historical Conditions:The defining moment for many organizations is their founding.At birth:Organizations are imprinted with the vision and purpose of their foundersThe initial assets and resources are unique for that place and timeFirms founded at different times in other places cannot obtain these resources; thus, the resources cannot be duplicated. 2. Ambiguous Causes and Effects:

Causal ambiguity exists when the relationship between cause and effect is not well understood or ambiguous.

In business , this means that there is doubt about what caused what and why things happened.

When these things are imperfectly understood, it is difficult for other firms to duplicate them. 3. Complex Social Relationships:

As long as a firm uses human and organizational resources, social complexity may serve as a barrier to imitation.

The interpersonal relationships of managers, customers and suppliers are all complex.

The most complex social phenomenon is organizational culture.Nonsubstitutable ResourcesNonsubstitutable resources are strategic resources that cannot be replaced by common resources.Keep in mind that very different resources can be substitutes for each other. For example:An expert-system computer program may substitute for a managerA charismatic leader may substitute for a well-designed strategic-planning system

Resource Attributes and Competitive Advantage

Resource TypesResource-based theory recognizes six types of resources, which are also called the PROFIT factors:

PhysicalReputationalOrganizationalFinancialIntellectual and HumanTechnological

Physical ResourcesPhysical resources are the tangible property the firm uses in production and administration. These include the firms:PlantEquipmentLocationAmenities available at locationNatural resources (minerals, energy resources or land)Reputational ResourcesReputational resources are the perceptions that people in the firms environment have of the company. Reputation can exist:At the product level as brand loyaltyAt the corporate level as global image

Reputational capital may be relatively long-lived as compared to technological resources.Organizational ResourcesOrganizational resources include the firms structure, routines, and systems. The term ordinarily refers to the firms:Formal reporting systemsInformation-generationDecision-making systemsFormal or informal planning

The organizations structure is an intangible resource that can make the difference between the organization and its competitors.Financial ResourcesFinancial resources represent money assets. Financial resources are generally the firms:Borrowing capacityAbility to raise new equityAmount of cash generated by internal operations.

Being able to raise money at below-average cost is an advantage attributable to the firms credit rating and previous financial performance. Limitations of Financial Resources:

Are Financial Resources Valuable? No doubt about it.Are Financial Resources Rare? Sometimes yes and sometimes no.Are Financial Resources Hard to Copy? No.Are Financial Resources Nonsubstitutable with Resources That Are Common? Technically, no.Intellectual and Human ResourcesIntellectual and human resources include the knowledge, training and experience of the entrepreneur and his o her team of employees and managers. It includes:JudgmentInsightCreativityVisionIntelligenceSocial SkillsTechnological ResourcesTechnological resources are made up of processes, systems, or physical transformations. These may include:LabsResearch and Development facilitiesTesting and quality control

Technological secrets and proprietary processes are resources as well.Distinction between Technological Capital and Intellectual Capital Technological CapitalIntellectual CapitalPhysical, intangible, or legal entities and are owned by the organization.Embodied in a person or persons and is mobile. If the person or persons leave the firm, so does the capital.

A Psychological ApproachPersonality Characteristics:Over the past few decades, entrepreneurial research has identified a number of personality characteristics that differentiate entrepreneurs form others. These are:The Need for Achievement (n Ach)Locus of ControlRisk-taking PropensityThe Need for Achievement (n Ach)People with high levels of n Ach have:Strong desire to solve problems on their ownEnjoy setting goals and achieving them through their own effortsLike receiving feedback on how they are doing

However, the link between n Ach and entrepreneurship has not always help up in empirical testing.Locus of ControlIn locus of control theory, there are two types of people:Externals who believe that what happens to them is a result of fate, chance, luck or forces beyond their control.Internals those who believe that for the most part the future is theirs to control through their own effort.

A logical prediction of this theory would be that internals are more entrepreneurial than externals. Evidence supporting this hypothesis, though, has been inconclusive.Risk-Taking PropensityBecause the task of new venture creation is apparently fraught with risk and the financing of these ventures is often called risk capital, researchers have tried to determine whether entrepreneurs take more risks than other businesspeople.

In Brockhauss research, the risk-taking propensities of entrepreneurs were tested. The results were than compared with those obtained from a sample of managers. The conclusion was that risk-taking propensity is not a distinguishing characteristic of entrepreneurs.Inadequacy of the Trait ApproachOverall the trait approach has failed to provide the decisive criteria for distinguishing entrepreneurs from others.

Resource-based theory suggests, if all entrepreneurs have a certain trait or characteristic, it is not an advantage to any of them, for it is neither rare nor hard to duplicate.

We must look for circumstances that produce differences, not similarities. Sociological ApproachThe sociological approach tries to explain the social conditions from which entrepreneurs emerge and the social factors that influence the decision.It is a function of two factors:The Impetus factorsSituational factorsImpetus for EntrepreneurshipThere are four factors in impetus for entrepreneurship:Negative displacementBeing between thingsPositive pushPositive pull 1. Negative Displacement:

It is the alienation of individuals or groups of individuals from the core of society. These individuals or groups may be seen as not fitting in to the main flow of social and economic life.

They are sensitive to the allure of self-employment: having no one to depend on, they depend on no one but themselves.

The triggers of negative displacement may be:Immigrant statusFiredAngered, boredMiddle agedDivorced 2. Between things:

People who are between things are more likely to seek entrepreneurial outlets than those who are in the middle of things. For example, individuals who are:Between military and civilian lifeBetween student life and a careerBetween prison and freedom 3. Positive Pull:

Positive influences also lead to the decision to investigate entrepreneurship, and these are called positive pull influences. They can come from:A potential partnerA mentorA parentAn investorA customer 4. Positive Push:

Positive push factors include such things as:Having influence of a strong fatherA career path that offers entrepreneurial opportunitiesAn education that gives the individual the appropriate knowledge and opportunityCorrect career choices

Two types of career paths can lead to entrepreneurship:Industry Path Get a job in a particular industry and learn everything about that industry, and then develop a business that fills a niche or gap created by industry change.Sentry Path Emphasizes the money and the deal. Lawyers, consultants, brokers, they all are experts in the art of the deal and not part of any particular industry.Situational CharacteristicsSituational characteristics help determine if the new venture will take place.There are two situational factors:Perceptions of DesirabilityPerceptions of Feasibility 1. Perceptions of Desirability:Entrepreneurship must be seen as desirable in order to be pursued. The factors that effect the perceptions of desirability come from individuals:CultureFamilyPeersColleaguesMentors 2. Perceptions of Feasibility:Entrepreneurship must be seen as feasible if the process is to continue. Readiness and desirability are not enough. Potential entrepreneurs require support from others:EmotionalFinancialPhysicalEntrepreneurial EventThe entrepreneurial event is the creation and management of a new venture. One model of this process comprises 5 components:Initiative takingConsolidation of resourcesManagement of the organizationAutonomous actionRisk-taking