Resource & Capability Analysis

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Discussion and evaluation of how organizational resource and capability analysis informs strategic direction.

Resources

A resource is anything that a firm has or has learned to do that enables it to conceive and implement strategies that improve its efficiency and effectiveness. (Haberberg and Rieple 2001: the strategic management of organizations, CH 7)

The basic resources of any organization are the Money, Men and Material. These are deployed in running the unit with a view to facing competition in the marketplace, secure market share, and achieve growth with profits. Since these generic resources are common for all organizations.

To distinguish one unit from the other are the unique features of its strategic resources.

A strategic resource is a resource that makes a particular difference to a firm’s strategic position. (Haberberg and Rieple 2001: the strategic management of organizations, CH 7)

Analysis of resources

Resource-based view of a firm is a concept developed by Jay Barney to analyze operations and measure performance of an organization. According to Barney, a firm has to identify its resources, evaluate them to identify the key resources which give the firm its competitive advantage and protect them to maintain the strategic advantage.

In the process of analysis, the resources are classified on four criteria, VRIN defined as below:

  • V for valuable resources, using which a firm can devise strategies for improving efficiency and effectiveness.
  • R for rare resources, which are not available for competitors.
  • I for imperfectly imitable, meaning those that can not be easily imitated or copied to appear as those belonging to the firm, and,
  • N for non-substitutable, meaning which cannot be substituted by any other easily available resource.

(Barney, J. 1991: Firm Resources and Sustained Competitive Advantage).

It is seen that firms strive to acquire VRIN resources and greater their success in this acquisition, the better is their relative position in the competitive market place. In resources difference may occur from one unit to another such as patents, properties, technologies or relationship. Thus, the firms put in place organizational changes combining businesses and / or activities on location or product or market segment or some such strategic basis. Porter points out those changes ought to be strategic management actions for sustaining competitive advantage (Porter, 2004).

Capabilities

According to Leonard-Barton (1992, p. 113-4) “is the knowledge set that distinguishes and provides competitive advantage”. This suggests that pursuit of greater organizational knowledge is a central motivator for organizations seeking to develop their organizational capabilities (OC). The OC can help the organization in the following ways.

  • Increasing competitive advantage through basing strategy on an understanding of the strengths and weaknesses of the workforce (Barney 1991; Grant 1991).
  • Establishing the Human Resources Development function as a strategic partner. In this way OC acts as a linchpin between strategy and human resources (HR), therefore HR becomes a proactive source of competitive advantage, rather than reactive in focusing on performance gaps (Ulrick and Lake 1991).
  • Driving organizational outcomes, such as stakeholder satisfaction and customer satisfaction (Ulrick and Lake 1991; Yeung and Berman 1997).
  • Communicating valued behaviors, raising competency levels and reinforcing positive values (Finegold, Lawler III et al. 1998).

The following layout will help to understand how to increase the workforce capabilities which leads the organization to the success.

Conclusion

Resources enable a firm to commence business activities, while strategy enables it to sustain, survive and grow. A firm’s resource base keeps changing as it evolves over a period of time. Strong broad OC providing organizations with greater capacity to be innovative and flexible, with increased competitive advantage. By defining an organization’s Core OC the expectations of the workforce are explicit, enabling employees to manage their own careers. Therefore, it is necessary that while designing strategies for survival and growth and to maintain competitive advantage, its resources and capabilities are analyzed and evaluated so that the strategy and resources and capabilities are in fine balance for success.   

References

Haberberg and Rieple 2001: the strategic management of organizations

Barney, J. (1991), Firm Resources and Sustained Competitive Advantage.

Porter, M.E. (2004), Competitive advantage, Free Press, New York.

Unknown, Value Based Management. Available at http://www.valuebasedmanagement.net/

methods_barney_resource_based_view_firm.html (As retrieved on April 14, 2006)

Whittington, R. (2000): What is strategy and does it matter, Ch.2., Thomson Learning.

Leonard-Barton, D. (1992). "Core Capabilities & Core Rigidities: A Paradox in Managing New

Product Development." Strategic Management Journal 13(special): 111-128.

Ulrick, D. and D. Lake (1991). "Organizational Capability: Creating Competitive Advantage."

Academy of Management Executive 5(1): 77-91.

Yeung, K. A. and B. Berman (1997). "Adding Value through Human Resources: Reorienting

Human Resource Measurement to drive Business Performance." Human Resource Management 36(3): 321-335.

Finegold, D., E. E. Lawler III, et al. (1998). Organizing for Competencies and Capabilities:

Bridging from Strategy to Effectiveness. Tomorrow's Organization: Crafting Winning

Capabilities in a Dynamic World. San Francisco, California, Josey-Bass.

http://archive.audit.vic.gov.au/reports_par/agp99cv.html