"Effective managers live
in the present ‒ but concentrate on the future."
~ James L. Hayes
Resources and Capabilities Defined
inputs into a firm's production process; can be classified into three
1. Physical capital
capability is a
capacity for a set of resources to integratively perform a
Stretch task of an
Questions To Answer
What is your
strongest business asset?
unique resources do you have?...
New Paradigm: Resource-based
View of Firms
The resource-based theory and resource-based view
(RVB) of firms and
is based on the concept of
economic rent and the
view of the company as a collection of
distinctive and reproducible
has a coherence and integrative role that places it well ahead of many other
strategic decision making.
Traditional strategy models such as
Michael Porter's five forces model
focus on the company's external competitive environment.
Most of them do not attempt to look inside the company. In contrast, the
resource-based perspective highlights the need for a fit between the
external market context in which a company operates and its internal
In contrast to the Input / Output Model (I/O model), the
resource-based view is grounded in the perspective that a firm's internal
environment, in terms of its resources and capabilities, is more critical to
the determination of strategic action than is the external environment.
for Building a High-growth Business
"Instead of focusing on the accumulation of resources necessary to
the strategy dictated by conditions and constraints in the external
environment (I/O model), the resource-based view suggests that a firm's
unique resources and capabilities provide the basis for a strategy.
chosen should allow the firm to best exploit its
opportunities in the external environment,"
write M.A. Hint, R.D. Ireland, and R.E. Hoskisson in Strategic Management
‒ Competitiveness and Globalization.
The resource based view of strategy emphasizes economic rent
Economic rent, or Economic Value Added
(EVA), is what companies earn over and above the cost
of the capital employed in their business. It is the measure of the
competitive advantage, and
is the only means by
which companies in competitive markets can earn economic rent. The objective of a company is to increase its
economic rent, rather than its profit as such. "A company which
increases its profits but not its economic rent
through investments or acquisitions which yield less than the cost of
capital ‒ destroys
writes C. C. Markides in A
Dynamic View of
The perspective of
economic rent forces the question 'why can't competitors do that?' into
Each organization is a collection of unique resources and
provides the basis for its
the primary source of its returns. In the 21st-century hyper-competitive
landscape, a firm is a collection of evolving capabilities that is managed
dynamically in pursuit of
above-average returns. Thus,
differences in firm's performances across time are driven primarily by their
unique resources and capabilities rather than by an industry's structural
Resources are inputs into a firm's
production process, such as capital, equipment,
skills of individual employees, patents, finance, and talented
. Resources are either tangible or intangible in nature. With
increasing effectiveness, the set of resources available to the firm tends
to become larger. Individual resources may not
yield to a
competitive advantage. It is through the
integration of sets of resources that competitive advantages are formed.
A capability is the
capacity for a set of resources to integratively perform a stretch task or
an activity. Through continued use, capabilities become stronger and more
difficult for competitors to understand and imitate. As a
competitive advantage, a capability should be neither too simple that it is
highly imitable, nor too complex that it defies internal steering and