Centre for Strategy and Performance

Resource and Competence-based Strategy

Practically all firms base their business objectives on satisfying their customers’ needs. This is a valuable approach for aligning products, services and objectives with existing markets. It satisfies the Opportunities and Threats half of a SWOT (Strenghts, Weaknesses, Opportunities, and Threats) analysis. Resource and competence-based strategy making provides real insight into your firm’s Strengths and Weaknesses, an aspect many firms neglect. Why? Partly because it is much easier to analyse markets that are, so to speak, "out there" than to talk about strengths and weaknesses which are "in here, in you, round this table and just outside that door". And partly because there are few pragmatic methods to help managers, see reference 3.

However the achievement of any of your business objectives is dependent on your strengths and weaknesses. For example, all firms in a market may wish to reduce their new product lead-times but one will do so more quickly and reliably than others. Why is that? Is it because of the market? No - it is to do with the resources each company has or can access (cash, knowledge, equipment, values, reward systems etc.) and the effectiveness of the management of those resources towards reducing lead-time.

Resource-based strategy is the one approach that concentrates on the individuality of each firm, the important differences between each firm and its competitors. According to this approach every firm, including yours, is unique. And it is on the peculiarities that make your firm unique that sustainable competitive advantages can be based. Being aware of and then improving and protecting these unique resources and managing them more effectively will reinforce your strengths and ameliorate your weaknesses and thereby improve your competitive position.

Resource and competence-based approaches are particularly valuable when:

You are considering changing the boundaries of your business, for example:

• By acquisition or divestment
• Entering joint ventures or other partnership arrangements
• Considering Make versus Buy alternatives
• Entering new markets
• Taking on new technologies
• Disaster is at hand.
• You are trying to build a more sustainable competitive advantage.
• You need fresh perspectives on how to improve your business.
• You wish to take account of your resources in plans to achieve your objectives.

References

1. Barney, J.B. (1996). Gaining and Sustaining Competitive Advantage , Addison-Wesley, Reading, MA.

Especially Chapter 5 "Evaluating Firm Strengths and Weaknesses: Resources and Capabilities".

2. Grant, R.M. (1991). "The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation", California Management Review, Spring,114-135.

For one of the best overviews of the area.

3. Mills, J.F., Platts, K.W., Bourne, M.C.S., & Richards, A.H. (2002). "Competing through Competences", Cambridge University Press, Cambridge, UK.

A unique (we believe) source of practical tools for using these ideas and written for practising managers.

4. Prahalad, C.K. & Hamel, G. (1990). "The core competence of the corporation"' Harvard Business Review, May-June, pp. 79-91 (Reprint # 90311).

For why managers got excited about the internal analysis of firms and the most popular reprint from HBR ever (at least up to 2001).

5. Teece, D.J., G. Pisano and A. Shuen (1997). "Dynamic Capabilities and Strategic Management", Strategic Management Journal., Vol. 18, No. 7, 509-533.

A classic paper which, prior to its publication in 1997, might well have been the most photocopied working paper in the history of strategy research.

by John Mills, jfmeng.cam.ac.uk