Leg 3. From Cape Town to Melbourne (VII). Competitive Advantage as a result of Resources and Capabilities.
Good Morning. It is a beautiful day here in town. Yesterday MAPFRE team surpassed Dongfeng Race Team leadership. “Spanish crew MAPFRE broke the Leg 3 deadlock on Wednesday after 10 days at sea, snatching the lead from Dongfeng Race Team with just 1,500 nautical miles left to Melbourne”.
Meanwhile, all the teams are moving forward expecting to arrive for Christmas. I am going to continue with the topic of Competitive Advantage as a result of Resources and Capabilities today. Tomorrow I will release how to apply the Organizational Capabilities analysis with some tweaks here and there, trying to adapt it to simple terms for any mortal human being, and I hope to finish this Leg 3 by Saturday morning. I hope to arrive at Melbourne before Christmas too. Hey Alex Guillermo Lozano Artolachipi which is your favorite sailing team? I am with yours too!. Lots of kisses!
Let´s start. Let´s go and recap what we have covered over the week connecting the dots with the source of competitive advantage.
Resources are a source of supply or support: available factors or means which help a person or business or country government to accomplish their objectives. Oxford Dictionary defines “resources as a stock or supply of money, materials, staff, and other assets that can be drawn on by a person or organization in order to function effectively”. Resources can be tangible or intangible.
Tangible Resources are assets that can be seen and quantified, such as property, plant and equipment and formal reporting structures. The four types of tangible resources are financial, organizational, physical, and technological.
Intangible Resources are assets that are rooted deeply in the firm´s history and have accumulated over time. Intangible resources are embedded in unique patterns of routines, which are difficult to analyze and imitate. Some examples of intangible resources are: knowledge, trust between managers and employees, ideas, the capacity for innovation, managerial capabilities, organizational routines, goodwill, the brand, the culture of the company, scientific capabilities and the firm´s reputation for its goods and services and the particular ways in which the company interacts with people (employees, customers, and suppliers). The three types of intangible resources are human, innovation, and reputational. And, a resource is strategic to the extent that it is valuable, rare, difficult to imitate, and nonsubstitutable.
Capabilities are the firm’s capacity to deploy resources that have been purposely integrated to achieve the desired end. Capabilities emerge over time through complex interactions among tangible and intangible resources. Capabilities can be tangible, like a business process that is automated, but most of them tend to be tacit and intangible. Why? Because critical to forming competitive advantages, capabilities are often based on developing, carrying, and exchanging information and knowledge through people. Because a knowledge base is grounded in organizational actions that may not be explicitly understood by all employees, repetition and practice increase the value of a firm’s capabilities.
“The strategic value of resources is indicated by the degree to which they can contribute to the development of organizational capabilities, from there to core competencies, and, ultimately, competitive advantage. Typically, resources alone do not yield a competitive advantage. Resources must be bundled for specific tasks, functions or projects in order to become a capability”.
In order to wrap up the last concept: let me share with you a simple example of all what I have shared from other authors with an example of the mayonnaise. There is a restaurant which utilizes mayonnaise in several of its most requested main dishes and salads. The mayonnaise is done by the restaurant chef.
To make the basic mayonnaise, as tangible resources we need oil, eggs, lemon, salt, and pepper. Additional ingredients added depending on the dish could be but are not limited to, mustard, garlic, anchovy, capers, onion, hot pepper, spices, and herbs.
The equipment needed is an electric mixer or blender, or a whisk, several recipients, a measuring cup and measuring spoons. There is also a recipe involved (the quantities for each ingredient). And there is time needed from the cook who prepares it. On top of that, we will need to add electricity if we wish to use electrical equipment.
The economic value of the mayonnaise is a monetary value (we calculate the fixed and variable costs to make it), but the real value of the mayo is grounded in a variety of factors, such as the quality and freshness of raw materials, the additional ingredients used. To the restaurant, there are intangible factors such as the skills used by the cook who integrates the ingredients, and finally how much mayonnaise will be poured into the final dish. The Mayonnaise itself is not sold alone in a restaurant but as a component of several dishes. Finally, the customers taste the mayonnaise bundled with other natural pieces of the dish requested (if it is a salad, or a hamburger, moosewood dressed-up Salmon Cakes with Herbed Mayonnaise, or fries), which all together are amazingly mixed to taste good in the customers’ palate. The restaurant ambiance, the presentation, the music, the excellent service from the waiters all these factors add value to create a capability. During all this restaurant process there are several capabilities in place.
Capabilities are the firm’s capacity to deploy resources that have been purposely integrated to achieve the desired end. Capabilities emerge over time through complex interactions among tangible and intangible resources. Capabilities can be tangible, like a business process that is automated, but most of them tend to be tacit and intangible. Critical to forming competitive advantages, capabilities are often based on developing, carrying, and exchanging information and knowledge through the firms’ employees. Because a knowledge base is grounded in organizational actions that may not be explicitly understood by all employees, repetition and practice increase the value of a firm’s capabilities. The foundation of many capabilities lies in the skills and knowledge of a firm’s employees and, often, their functional expertise. In consequence, the value of people in developing and using capabilities and, ultimately, core competencies cannot be overstated. Talent management is the key to success.
The Resources View Based Theory (RVB) is utilized as the basis for any framework approach to analyzing organizational capabilities. All the concepts described here are the fundamentals to apply this framework. The resource view-based (RVB) theory is like an old wine which has evolved for the better through the years. Resource View Based (RVB) theory now has evolved and is applied to different type of organizations (even it will be good to apply it to my digital “satellite organization” type). “First, the resource-based theory offers a complete framework for analyzing organizations. Second, the ideas offered by resource-based theory have been developed and refined through scores of research studies involving thousands of organizations. In other words, there is solid evidence backing it up”. For the latter reasons I decided to respect the RVB framework and bring you the following summary of the rationale behind the RVB Theory: The profit returns to resources and organizational capabilities depend upon the extent to which a firm deploys them to establish a competitive advantage:
If you wish to download the last presentation in PDF Format click here: Eliescalante Leg 3 Competitive Adv as a result of resources and capabilities II.
Tomorrow we will finalize this theme. We have covered the concepts and the fundamentals of the Resources View Based theory. Norm Smallwood and Dave Ulrich from RBL Group have been dedicating years and years of their lives to this theme. They hold expertise in identifying, appraising, developing organizational capabilities through their Competency Model. But the foundations of this Model and many others rely on the Resources View Based Theory explained today. I will let you with a video of them. Thank you so much and wishing you a lovely day.
Disclaimer: All the pictures or videos shown on this blog are not mine. I do not own any of the lovely photos posted unless otherwise stated.
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