resources and capabilities durability

8/4/2019 Resources and Capabilities Durability

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RESOURCES AND CAPABILITIES

DURABILITY OF COMPETITIVEADVANTAGE.


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Competitive advantage derives from a firmsdistinctivecompetencies, which are of two

types:Resources and capabilities.

1. Resources refer to the financial,

physical, human, technological, andorganizational resources of the company.They can be divided into tangibleresources, such as land, buildings, plant,

and equipment; and intangibleresources,such as brand names, reputation, patents,and technological or marketing knowledge.


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a. Resources that are firm-specific and

difficult to imitate are unique. Resourcesthat create a strong demand for the firms

products are valuable.

b. Unique and valuable resources lead to adistinctive competency.

2. Capabilities refer to a companys skills

at coordinating its resources and puttingthem to productive use.


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a. These skills reside in the way a company

makes decisions and manages its internalprocesses.

b. Capabilities are, by definition, intangible.

They reside not so much in individuals as inthe way individuals interact, cooperate, and

make decisions within the context of an

organization.


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3. The distinction between resources and

capabilities is of the utmost importance inunderstanding the source of a distinctive

competency.

A company may have unique and valuable

resources, but unless it has the capability to use

those resources effectively, it may not be able to

create or sustain a distinctive competency.

Thus, unique and valuable resources are helpful increating distinctive competencies, but capabilities

are essential.


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The relationship between strategies and

resources and capabilities:


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Distinctive Competencies, Resources,

and Capabilities

The roots of competitive advantage:


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Distinctive Competencies and role of

Resources and CapabilitiesResources

Tangible (physical) and intangible (non-physical) Allow a company to create value for its customers

Must have skills to take advantage of the resources

Firm-specific and difficult-to-imitate resources

as well as valuable resources that create strong

demand for a companys products lead todistinctive competencies

Capabilities Coordinating resources & putting to productive use

Skills reside in the organizations rules, routines

and procedures

Product of its organization, processes & controls

Firm-specific capabilities to manage its resources

lead to distinctive competencies


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Distinctive Competencies to Gain

Competitive AdvantageDistinctive CompetenciesFirm-specific strengths allow a company to

differentiate its products and/or achieve

substantially lower costs than its rivals in

order to gain a competitive advantage.


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Analyzing Competitive Advantage and

Profitability :

i) Managers must understand the financial

impact of their strategies. They can compare

their processes and outcomes to competitors,

using benchmarking .

ii) The most widely used measure of financial

performance is profitability.

Profitability can be measured in different ways,but return on invested capital (ROIC) is one of

the most widely used.


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The Durability of Competitive Advantage:

i) Durability refers to the length of time that a

competitive advantage lasts, once it has

been created. Successful companies earn

above-average returns, which send a

signal to competitors.ii) Three factors lead to durability:

high barriers to imitation,

poor capability of competitors, and

low dynamism in the industry.


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Barrierstoimitationare factors thatmake it difficult for a competitor to copy acompanys distinctive competency .

a) The easiest distinctive competencies toimitate are those based on firm-specific

tangible resources such as buildings, plant,and equipment, which are visible tocompetitors and can be readily purchased .

b) Intangible resources are more difficult toimitate. Brand names symbolize acompanys reputation, and are protected

by law


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c) Marketing and technological know-how are

intangible resources that are relatively easy

to imitate.

Avoiding Failure: Sustaining Competitive

Advantage


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1.Focus on the Building Blocks of Competitive

Advantage

Develop distinctive competencies and superior

performance in:

Efficiency Quality

Innovation Responsiveness to

Customers

2.Institute Continuous Improvement and Learning

Recognize the importance of continuous learningwithin the organization


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3. Track Best Practices and Use

BenchmarkingMeasure against the products and

practices of the most efficient global

competitors

4. Overcome Inertia

Overcome the internal forces that arebarriers to change

resources and capabilities durability

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