In this topic 10 sections
- 36Resources and capabilities: the essential distinction
- 37Build a resource inventory
- 38Intellectual property and other intangible strengths
- 39People, values and organisational conditions
- 40Knowledge, learning and innovation
- 41Map capabilities across the organisation
- 42Develop or obtain the capability needed
- 43Test whether an advantage is defensible
- 44Benchmark, renew and retest
- 45Sources and further reading
Resources and capabilities: the essential distinction
Resources are inputs available to the organisation; capabilities are what it can reliably accomplish by combining them. Equipment, funding, information and specialist expertise are resources. Delivering a dependable service requires those inputs to work together. Buying the same equipment as a successful competitor does not automatically reproduce its performance.
| Identify | Question to ask | Simple illustration |
|---|---|---|
| Resource | What useful input can we access or control? | A diagnostic instrument and trained technicians |
| Capability | What coordinated activity can we perform repeatedly? | Identifying faults accurately and completing repairs on time |
| Strategic relevance | Why does that activity matter in this market? | Customers lose income while equipment is unavailable |
Concept sources: Grant: resources and competitive advantage, Felin and colleagues: organisational capabilities — Concept references; comparison and illustration prepared for these notes.
Describe a capability with an action and an outcome, rather than a department name. “Marketing” identifies a function; “retaining suitable customers through reliable after-sales support” identifies something the organisation must do. A capability becomes strategically important when it contributes to the factors customers value or the requirements needed to compete.
Assess access as well as ownership. A leased facility or a partner's specialist service may support the strategy. Record the conditions, costs and continuity of that access. People contribute skills through a working relationship; the organisation does not own the people themselves.
Build a resource inventory
An inventory should explain usefulness and constraints, not merely list possessions. The following categories help organise the investigation; some resources influence more than one category.
| Resource group | What to inspect | Strategic question |
|---|---|---|
| Physical and financial | Facilities, equipment, available cash and funding capacity | Can these support the proposed scale, timing and cash demands? |
| Intangible | Software, data, brands, designs, relationships and organisational know-how | Which benefits depend on information, reputation or accumulated knowledge? |
| Human | Expertise, judgement, experience and available working time | Are the necessary skills available where and when the work occurs? |
Concept sources: WIPO: intangible assets and intellectual property, CIPD: workforce planning, business.gov.au: business growth resources — Concept references; resource checklist prepared for these notes.
Examine utilisation before assuming that more assets are needed. A facility may have spare capacity at one time and be overloaded at another. Redeployment, maintenance or a changed timetable may help, although the relevant limit could be trained staff rather than equipment. Distinguish a resource that exists on paper from one that is actually available for the proposed activity.
Accounting recognition and strategic usefulness answer different questions. IAS 38 applies recognition and measurement requirements to intangible assets; internally generated brands and customer lists are examples that are not recognised as intangible assets. Therefore, a balance sheet alone is not a complete resource inventory. Equally, an unrecognised asset is not automatically valuable, and a book-to-market difference is not a precise valuation of hidden capabilities.
Concept sources: IFRS Foundation: IAS 38 Intangible Assets — Accounting recognition reference.
Intellectual property and other intangible strengths
Intellectual property protects particular kinds of intellectual output. Patents concern inventions; trademarks distinguish the source of goods or services; copyright concerns protected creative expression; trade secrets concern commercially valuable confidential information. These categories have different requirements and limits. Do not assume one registration protects every part of a business idea.
A protected asset still needs a commercial use. Ask which customer benefit it supports, how the organisation will maintain it, and what alternative solutions customers could choose. Protection may help defend a position; it does not, by itself, prove customer demand or eliminate competition.
Concept sources: WIPO: What is Intellectual Property? — Concept reference; commercial questions are study prompts.
People, values and organisational conditions
People and organisational practices influence whether resources become useful capabilities. Workforce planning connects future work with skills, staffing and deployment. Options can include developing existing staff, recruiting, changing job design or obtaining external expertise. Each has different timing, cost, dependency and retention implications.
Values need to be visible in everyday decisions. A stated commitment to accuracy loses credibility if managers reward speed while ignoring avoidable errors. Communicating purpose, showing expected behaviour and responding consistently to concerns make the connection between strategy and work clearer.
- Skill and capacity
- Identify the work required, the expertise available and the time needed to develop proficiency.
- Behaviour and incentives
- Examine what managers actually encourage, tolerate and reward.
- Coordination
- Clarify decisions, responsibilities and handovers so that specialist contributions fit together.
Concept sources: CIPD: workforce planning, CIPD: organisational climate and culture, NIST: leadership behaviours, Felin and colleagues: capabilities — Concept references; cards prepared for these notes.
Culture is a broad concept. Make analysis specific by examining the working conditions employees experience: how mistakes are discussed, whether information is shared and whether conflicting priorities can be raised. A slogan such as “innovative culture” gives less useful evidence than examples of how people propose, test and improve work.
Knowledge, learning and innovation
Explicit knowledge can be expressed in a usable form, such as instructions or recorded specifications. Tacit knowledge includes experience-based judgement that can be difficult to explain fully. A manual and an experienced colleague can therefore contribute different things to learning.
Nonaka's knowledge-creation model distinguishes four interacting modes, often remembered as SECI. They are not a rule that every learning activity must follow a fixed sequence.
| Mode | What changes | Illustration in a conservation workshop |
|---|---|---|
| Socialisation | Experience helps another person develop tacit understanding | A trainee observes and practises handling fragile paper |
| Externalisation | People articulate aspects of their experience | A restorer explains warning signs and records useful judgement prompts |
| Combination | Explicit information is reorganised into new explicit knowledge | Inspection notes and material specifications inform a revised procedure |
| Internalisation | Using explicit knowledge develops practical understanding | Repeated supervised use of the procedure builds judgement |
Concept sources: Nonaka: A Dynamic Theory of Organizational Knowledge Creation — Concept reference; table and workshop illustration prepared for these notes.
Knowledge management makes learning available beyond the person who first gained it. Record useful lessons with context, make them findable and incorporate them into relevant work. Mentoring, project reviews and communities of practice can complement documents. A repository is not evidence of learning if nobody can locate or apply its contents. Review access permissions and sensitive information as part of the design.
Concept sources: NASA: lessons learned — Reference for capturing, sharing and applying lessons.
Innovation requires implementation, not just an interesting suggestion. The Oslo Manual distinguishes introduced products and implemented business processes from ideas still awaiting use. An innovation also need not be a commercial success. Test whether a change improves a meaningful outcome, and keep learning when the result differs from expectations.
Concept sources: OECD and Eurostat: concepts and definitions for measuring business innovation — Concept reference.
Map capabilities across the organisation
A functional review examines activities such as finance, operations and people management. An end-to-end review follows the work needed to create a result, including handovers between functions. Use both: a strong department can coexist with a poor overall customer experience.
Capabilities can also be combined at different levels. Accurate scheduling and reliable preparation may support a broader ability to deliver complex services dependably. This is a way to investigate coordination, not a universal hierarchy that every organisation must adopt. Investigate repeated successes and failures to identify what the organisation can genuinely reproduce.
Concept sources: Felin and colleagues: individuals, processes and structure, Teece: dynamic capabilities and asset coordination — Concept references.
Develop or obtain the capability needed
A capability gap requires a development route, not just a spending request. Compare how quickly each route can deliver a dependable outcome, what must be learned and how much control the organisation needs.
| Route | Main contribution | Main issue to manage |
|---|---|---|
| Build internally | Develop staff and improve routines through training and practice | Learning takes time; allow capacity for experimentation and feedback |
| Recruit or acquire | Bring in specialist expertise, or obtain an existing business with relevant resources | Retaining people and integrating knowledge, systems and working practices |
| Partner or contract | Access complementary expertise, technology or delivery capacity | Agree responsibilities, information access, performance expectations and exit arrangements |
Concept sources: business.gov.au: growing workforce and capabilities, BDC: buying and integrating a business, BDC: strategic alliance options — Concept references; route comparison prepared for these notes.
These routes can be combined. External support may meet an immediate need while staff develop longer-term expertise. However, access to another organisation's capability is not the same as possessing it internally. Decide what knowledge must remain available if the relationship ends, and test whether the proposed arrangement actually removes the constraint. Acquisition also involves integration work; signing a purchase agreement does not finish capability development.
Test whether an advantage is defensible
Barney's resource-based analysis examines value, rarity, difficulty of imitation and non-substitutability, commonly remembered as VRIN. Apply these tests to the resource or capability that allegedly creates an advantage, rather than to the business name as a whole.
| Test | Evidence to seek |
|---|---|
| Valuable | A relevant benefit or cost improvement that helps the organisation respond to its situation |
| Rare | The capability is not widely available among the competitors that matter |
| Difficult to imitate | Rivals face obstacles such as accumulated experience, complex relationships or uncertainty about how results are produced |
| Non-substitutable | Readily obtainable alternatives cannot deliver a strategically equivalent benefit |
Concept sources: Barney: Firm Resources and Sustained Competitive Advantage — Concept reference; assessment table prepared for these notes.
A useful capability shared by most rivals may be necessary simply to remain competitive. Non-substitutability is distinct from copying: another firm might achieve the same benefit through a different approach. Durability is conditional on the environment, not a promise of permanent success.
Benchmark, renew and retest
Benchmarking compares performance or practices to learn where improvement is possible. The comparator can be inside or outside the industry if the process is genuinely comparable. Define the activity and measure consistently; then investigate why a difference exists instead of assuming another organisation's method will transfer unchanged.
- Define the capability
- Measure the outcome
- Select a useful comparator
- Investigate the difference
- Test an improvement
- Review the result
Concept sources: ASQ: What is Benchmarking? — Concept reference; review flow prepared for these notes.
Compare quality, scope and workload alongside speed or cost. A quicker service may be dealing with simpler work. Numerical comparisons help locate a difference; observation, interviews and performance history help explain it. Use external information obtained legitimately and protect confidential information.
Dynamic capabilities concern changing the organisation's resource base, rather than simply performing today's work well. Learning, combining new resources and reconfiguring existing activities can support renewal. The practical issue is whether the organisation can recognise a need for change and implement a useful response without assuming that every change creates value.
Concept sources: David Teece: Dynamic Capabilities — Author's overview of capability renewal.
Sources and further reading
- Grant (1991), The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation.
- Felin, Foss, Heimeriks and Madsen (2012), Microfoundations of Routines and Capabilities: Individuals, Processes, and Structure.
- WIPO, Intangible Assets and Intellectual Property.
- WIPO, What is Intellectual Property?.
- IFRS Foundation, IAS 38 Intangible Assets.
- CIPD, Workforce planning.
- CIPD, Organisational climate and culture.
- NIST, Leadership Behaviors That Count (and Can Benefit All Organizations).
- Nonaka (1994), A Dynamic Theory of Organizational Knowledge Creation.
- NASA, Lessons Learned.
- OECD and Eurostat (2018), Oslo Manual: concepts and definitions for measuring business innovation.
- Barney (1991), Firm Resources and Sustained Competitive Advantage.
- ASQ, What is Benchmarking?.
- David Teece, Dynamic Capabilities.
- business.gov.au, Guide to growing your business.
- BDC, Know your strategic alliance options.
- BDC, What are the steps to buying a business?.