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The analysis of resources and capabilities: principles
Published on February 27, 2022 7 min
Other Talks in the Series: Key Concepts: Introduction to Strategy
Hello and welcome to this series of introductory talks on business strategy. My name is Robert Grant. I'm a Professor of Strategic Management at Bocconi University in Milan, Italy. I'm also the author of Contemporary Strategy Analysis, a leading strategic management textbook used in business programmes throughout the world.
In this talk, we shift our attention from the industry environment back to the firm itself. We consider what is probably the most important aspect of the firm, in guiding its strategy and in determining its importance, the firm's resources and capabilities. My goals for this talk are for you to first appreciate the strategic role of resources and capabilities. And finally, to gain expertise in identifying and appraising the firm's resources and capabilities. I shall begin by outlining how resources and capabilities form the basis for strategy and are the primary source of competitive advantage. I shall then show how we can identify and appraise resources and capabilities.
Let's begin by considering a fundamental question in business strategy. Should strategy, primarily, be externally focused in terms of being directed towards the needs of customers? Or should it be, primarily, internally focused in terms of seeking to exploit a firm strengths in its resources and capabilities? The notion that firms exist to serve customer needs is long established and is central to a marketing approach to strategy. However, a customer-focused strategy can run into problems when the technology for serving customer needs is changing. A firm may have difficulty in adapting. Kodak was a world leader in photography. However, with the advent of digital imaging, Kodak had difficulty adjusting, and ultimately went bankrupt. Rather than sticking with imaging and trying to adapt to a digital world, maybe Kodak would have done better focusing upon its chemical-based capabilities and seeking to deploy these in other markets. Second, a resource-based approach may offer a firm greater flexibility, especially in terms of opportunities to diversify. Google began as a leader in Internet search. Its core capability is developing algorithms. It has used that expertise to diversify into a range of markets. Home security, health care, autonomous driving systems. The extent of this diversification based on the company's capabilities in algorithm development, is reflected in the fact that Google has changed its name to Alphabet. Hence, resources and capabilities could offer a more secure and versatile basis for strategy than can a focus upon customer need.