Chapter 4:

Analysing the
organisation’s
resources and
capabilities
Learning objectives

 Understanding resources, capabilities,

dynamic capabilities and strategic
capabilities
 Identifying strategic capabilities in an
organisation
 Developing capabilities
 Strategic capability analysis

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Creating competitive advantage

 What is competitive advantage?

 What the organisation does better than competitors
which is valuable to its customers and which is difficult
for competitors to imitate or replicate.
 Resources
 The tangible and intangible assets of the organisation.
 Capabilities
 The processes, systems or organisational routines
which the organisation uses to coordinate its resources
for productive use.

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Creating competitive advantage

 Strategic capabilities
 Those capabilities that are rare, are better than
the capabilities of competitors and are difficult
to imitate or replicate.
 Normal capabilities
 Those capabilities that are necessary for the
organisation to carry out its tasks.

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Resources, capabilities and the
creation of value

Resources

Better than Competitors?

Strategic Competitive
Rare?
capabilities advantage
Difficult to imitate?

Capabilities
Customer
value
Figure 4.1
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
The resource-based view

 Four necessary conditions for creation of

competitive advantage from capabilities:
 organisations are different, and can remain so for
long periods
 some of their capabilities are rare and valuable
 these capabilities are difficult to imitate
 these capabilities are not easily traded

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

The VRIO/VRINE model

 Resources must be:

 Valuable – defined by market demand
 Rare – be scarce with some degree of surplus
demand
 Inimitable – not able to be easily imitated
 Non-substitutable
 Organised – effectively arranged and deployed in
the organisation
 Exploitable – able to be nurtured and converted to
a viable business initiative

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Dynamic capabilities:
Managing knowledge, learning and innovation

 Moves from examining current capabilities to

how future capabilities are developed
 Competitive advantage depends on the
ability to build capabilities
 Knowledge management an important aspect
of building capabilities
 Turns existing information into decisions about
future capabilities
 Using knowledge increases its value
 Organisations must develop the ability to manage
‘knowledge workers’

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Dynamic capabilities:
Managing knowledge, learning and innovation

 Components of knowledge management:

 An accessible database of information
 An organisational language that enables individuals to
understand the meaning of organisational information
 Networking between individuals both inside and outside the
organisation
 Ability and incentive to transfer information among
individuals
 The ability to transfer knowledge effectively and use
it is an extremely difficult dynamic capability to
achieve

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Dynamic capabilities:
Managing knowledge, learning and innovation

 Successful knowledge management is

similar to managing innovation and should:
 Foster a desire for knowledge
 Reward employees for seeking, sharing and
creating knowledge
 Set ambitious goals for product and process
innovation
 Tie incentives to goals achieved through
collaboration with others

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Dynamic capabilities:
Managing knowledge, learning and innovation

 Rotate jobs to facilitate communication

 Regularly update databases
 Encourage training and networking with
external partners
 Allow people to participate in projects not
linked to their usual work

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Dynamic capabilities:
Managing knowledge, learning and innovation

 Innovation is another underlying dynamic

capability
 The ability to build and sustain innovation
depends on five major classes of activities:
 integrating problem solving across different cognitive
and functional barriers
 implementing new methodologies and processes
 experimenting and prototyping
 importing and absorbing technical knowledge from
outside
 learning from the market

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Leonard’s Core Technical Dynamic
Capability
Experimenting

Physical
technical
system

Organisation
Importing Managerial Implementing
values and
Knowledge systems and integrating
norms

Individual
skills and
knowledge

Figure 4.4 Problem

Solving
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Identifying strategic capabilities

 To identify strategic capabilities each activity,

process, system and routine should be
examined to see if it meets all the tests of the
resource-based view
 Is it valuable to customers?
 Is it rare?
 Is it superior to competitors?
 Is it difficult to imitate or replicate?
 Is it specific to the organisation?

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Identifying strategic capabilities

 Functional analysis
 examine each function of the organisation
 easily understood and comprehensive but follows
conventional thinking, may not identify cross-functional
capabilities
 Resource analysis
 examines the resources available to the organisation
 intangible resources such as key personnel, reputation
and brand image may be competitive resources

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Identifying strategic capabilities

 Processes and systems analysis

 underlying processes and systems are the true creators
of competitive advantage
 processes and functions may be within or cross-
functional
 systems are usually complex, but how they link and
support each other determines whether they are
strategic capabilities

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Measuring capability performance

 Once identified, strategic capabilities need to

be measured to see if they are true
competitive advantages.
 Some means of measuring capabilities are:
 Internal self-perception
 Intra-industry comparisons
 Benchmarking
 Cost drivers and strategic cost analysis
 Competitive intelligence

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Managing capabilities

 Community of practice networks

 Build on the informal structure
 Require structures and systems to
encourage knowledge, learning and
innovation dissemination
 Should be managed through ‘non-visible’
management

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Managing capabilities

 Knowledge reward systems

 Provides incentives for individual holders
of knowledge to share and disseminate
 Cash awards for creative outputs
 Showcase new ideas to all sections of the
organisation
 Reward idea generators when ideas used
in other parts of the organisation

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Strategic capabilities and core
rigidities

 Why can strategic capabilities become

‘core rigidities’?
 Attacking core rigidities attacks the current
economic foundation of the organisation
 Attacking current strategic capabilities
attacks the current power structure
 Organisational routines are ingrained.
Habits govern behaviour

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia

Summary: Resources and capabilities

 The internal strategic capabilities of an

organisation
 Underlying theories of RBV
 The VRIO/VRINE model
 Tests to define strategic capabilities
 Identifying strategic capabilities
 How strategic capabilities can become
liabilities

Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia