Discuss the relationships among resources, capabilities, core competencies, competitive advantage and firm performance.

Question

What will be an ideal response?

Answer 1

Students' responses to this question will vary, however some important points are as follows:

Resources are the tangible and intangible assets that a company uses to perform the basic tasks and activities of the business. When the company is able to integrate or use a number of resources together to accomplish necessary tasks, they are demonstrating that they also possess capabilities that are needed to run the business.

Managers must also decide which capabilities they will use as fundamental or core competencies - capabilities that they will emphasize and work at performing especially well as they try to achieve the company's vision. If these core competencies are different from those performed by other firms in the industry, then these capabilities might also form distinctive competencies.

Managers can use value chain analysis to pinpoint or identify which capabilities might make good candidates for distinctive competencies. It would make sense for managers to focus on developing, maintaining, or enhancing core competencies that add direct value for customers (i.e. primary value chain activities) and consider outsourcing those activities that only provide indirect value for customers.

By focusing energy and resources on the core competencies that create value for customers, managers might be able to transform these competencies into sources of competitive advantage. It is important to remember, however, that core competencies can only produce competitive advantage for a firm if they create value for customers, are not held by other competitors (e.g. are rare), are difficult to recreate or imitate, and have no viable substitutes that can provide the same value for customers.

Once a firm has been able to create one or more competitive advantages, managers should begin to see some positive performance results - revenues and profitability should increase. It is important to note, however, that the firm must be able to charge prices that are high enough to cover the costs of creating competitive advantages that create value for customers.