Unlocking Competitive Advantage: Identifying a Firms Strategic Resources and Capabilities

MGMT 475 RESOURCES AND CAPABILITIES ANALYSIS Another dimension of internal analysis focuses on identifying the firm’s most valuable strengths. We call these their sources (causes) of competitive advantage. These will be things the firms HAS or DOES that best explain their ability to achieve competitive advantage. What is it that makes them special and enables them to achieve superior performance? Now if a firm is not achieving good performance, that focus shifts a bit to ask “does the firm have any strengths that should be used as the basis for improving performance…i.e. do they have potential sources of competitive advantage? Overall, we need to distinguish strategic assets from non-strategic assets. An asset is anything that is useful, i.e. that serves a purpose. I need a chair and a desk and a computer with software to type this right now. I also must have knowledge and skill to think, construct the sentences, use grammar, etc. I have those assets. Strategic assets are more specific – they have value and purpose toward executing a strategy. Firms have assets such as furniture and file cabinets and offices, but those are not really directly relevant to effectively executing their strategy. Even employees (in general)…some employees HURT execution of strategy!! Thus, what we are after here is the strategic assets the firm possesses that enable – or can enable if not being used correctly now – execution of their strategic choices that can lead to superior performance. Strategic assets, what Barney (2005) and management scholars refer to generally as resources (as in resource-based theory), are things the firm possesses or things they perform regularly (so, they possess a ‘resource’ as an ability to perform an important activity well). Let’s keep working to be clear on the difference between resources (things they HAVE) versus capabilities (activities/routines they DO). This guide can help you be more comprehensive and organized in your work to identify, describe, and prioritize a firm’s most important resources and capabilities, that is – to identify the most valuable internal ‘strengths’ of the firm relevant to executing their competitive strategy. Recall that performance is a function of strategic alignment and competitive advantage. Our analysis must therefore assess (a) if the firm possess the resources and capabilities necessary to execute their strategy and (b) which resources and capabilities they possess best explain their current advantages. To do this analysis step, we need to identify and prioritize those resources and capabilities that are most important and relevant to the firm’s strategy. To simplify our analysis, let’s break it into two categories: inputs and activities. Inputs are latent assets…they don’t provide value just by themselves; they must be transformed somehow. Activities require specific and relevant inputs. A great location (resource) won’t lead a restaurant to superior performance if it has no staff or has poor supplies of food for the kitchen. The ability of a restaurant to deliver the best steaks doesn’t just happen because they have a good chef…they need capabilities to buy the right amounts of beef and other ingredients, they need to right type of kitchen equipment, they need quality waitstaff, etc. Resources and capabilities work together in an operating system to execute strategic choice