Instructors’ Manual to Accompany Contemporary Strategy Analysis (9th edn. Wiley, 2016)
CHAPTER 5. ANALYZING RESOURCES AND CAPABILITIES
Introduction
Resources and organizational capabilities (or “competencies”) are important both as a foundation for
strategy formulation and the primary source of a firm’s profits. The resource-based approach to strategy has
Specifically, Chapter 5 deals with the following topics:
• The concept of resource-based and capability-based strategies.
In teaching resource and capabilities, I place little emphasis on teaching the resource-based view of the firm
(RBV) as a body of theory and focus more on how to put resource and capability analysis into action. This
involves three major stages:
• How to identify a firm’s resources and capabilities
Class Outline
I use one of two cases to introduce resource and capability analysis: Walmart or Harley-Davidson. My
approach varies according to which of these cases I use, in the case of Walmart I focus on the principal
functions and value–chain activities of Walmart in order to diagnose the sources of Walmart’s competitive
However, each case involves some core common tasks:
• Identifying the principal resources and capabilities
• Assessing their strategic importance in terms of the two major determinants of imitability:
In following up the case discussion, I proceed as follows:
1. I ask students which should be the primary basis for formulating strategy: the external market
(customer requirements in particular) or the firm’s resources and capabilities. Here I draw upon
2. I emphasize the distinction between resources and capabilities—companies may acquire the
resources, but this doesn’t guarantee capabilities. Sports teams are useful examples in this regard—
3. In terms of reinforcing the approach to resource and capability analysis applied in the case
discussion (of Walmart or Harley-Davidson), I go over systematically the principal stages of the
analysis:
a. In identifying the resources and capabilities of a firm, I outline two approaches: the
externally-focused approach starts with Key Success Factors in the industry then asks what
resources and capabilities are needed to meet these success factors; the internally-focused
approach begins with the firm’s value chain and identifies the capabilities and resources
for each major value chain activity.
Cases
To the extent that almost all cases present issues of competitive advantage, then almost all cases require
some identification and appraisal of the resources and capabilities of the firm in relation to those of
competitors. However, in several cases, the characteristics of the companies and their strategic situations,
place especially heavy emphasis on resources and capabilities.
On the identification and appraisal of resources and capabilities:
To make recommendations about whether and how Doug McMillan should adjust Walmart’s strategy
requires insight into the basis of Walmart’s competitive advantage. The case allows students to identify
and assess Walmart’s resources and capabilities through reviewing its main functions and major operating
activities, including: purchasing, distribution and warehousing, in-store operations, marketing,
information technology, human resource management, and management decision processes. By
reviewing Sam Walton’s leadership and the business values and principles that he instilled, the case
places a strong emphasis on the role that Walmart’s corporate culture plays in its organizational
capabilities. Although Sam Walton died in 1992, these values and principles are central to Walmart’s
management system and its identity.
Harley-Davidson, Inc.: May 2015 (R.M. Grant, Contemporary Strategy Analysis: Text and Cases, 8th
edn. Wiley, 2013)
Harley-Davidson offers a highly effective context for applying the framework of resource and capability
analysis. A key lesson from Harley-Davidson is that, despite weaknesses in many critical resources and
capabilities—technology, purchasing, manufacturing efficiency, global distribution—Harley has done a
brilliant job of leveraging its critical reputational resources in order to establish itself as the world’s most
profitable motorcycle company. However, the very effectiveness of Harley’s strategy has made it difficult
for the company to adapt to a changing motorcycle market, exemplifying the dilemma that “core
competencies are also core rigidities”.
Manchester United: Preparing for Life without Ferguson ((R.M. Grant, Contemporary Strategy Analysis:
Walt Disney Company.
Disney is a particularly interesting company for addressing the exploitation of its rich trove of resources
and capabilities. Disney is particularly rich in durable, tangible and intangible resources and its turnaround
during the 1980s under Michael Eisner and Frank Wells is an example of an effective resource-based:
Although profitable, Airborne Express is considerably smaller than its two major rivals UPS and Federal
Express. The case allows an assessment of Airborne’s resources and capabilities relative to those of FedEx
and UPS and an assessment of its potential for survival and competitive advantage in relation to these
giants.
Compared to most banks, Capital One has taken a radically different approach to competing in the US
credit card industry. Using IT and statistical analysis to capturing new business, analyze credit risk, and
tailor credit card offerings to the characteristics of individual customers, Capital One has emerged as one of
the most profitable and rapidly growing credit card issuers in the US. The case allows students to examine
the capabilities that underlie Capital One’s superior performance and identify other markets where Capital
One might deploy those same capabilities.