The internal resources, capabilities and competences of an organisation: formula sheet

Key formulas

Capability chain

Resources + Competences (activities and processes) → Strategic capability → Competitive advantage (where unique and hard to imitate)

A memory aid for how the terms link. Resources alone do not create advantage.

Resource types

Tangible (physical, financial) | Intangible (brand, IP, knowledge, relationships) | Human (skills, experience)

Always give a case-based example for each type you name.

Threshold vs unique

Threshold = needed to compete at all | Unique = valuable and hard to imitate, source of advantage

Threshold items are needed to compete but do not by themselves give advantage. They can still be critical to survive.

Test for a core competence

Valuable to customers + Rare + Hard to imitate + Non-substitutable

A VRIN/VRIO-style checklist. VRIO itself tests value, rarity, inimitability and organisation. Extendability to other markets is an extra Prahalad and Hamel criterion. Name the test you use.

Prahalad and Hamel's three tests of a core competence

Core competence = access to many markets + significant customer benefit + difficult to imitate

All three should be met. Use them as a checklist against the scenario.

Kay's distinctive capabilities

Distinctive capability = architecture, reputation, innovation (plus strategic assets)

Each must be hard for rivals to copy to give sustainable advantage.

Resource versus competence

Resources = what you have; competences = what you do well with them

Threshold resources and competences are needed just to compete. Unique ones create advantage.

VRIO test sequence

Valuable? → Rare? → Costly to imitate? → Organised to exploit?

Apply to one resource at a time and stop reading down the chain at the first 'no'.

Outcome: not valuable

V = No → competitive disadvantage

Resource adds no value or destroys it. Consider fixing, redeploying or disposing of it.

Outcome: valuable only

V = Yes, R = No → competitive parity

A threshold resource. Needed to compete, gives no edge.

Outcome: valuable and rare

V = Yes, R = Yes, I = No → temporary competitive advantage

Rivals can copy it, so the lead is short-lived.

Outcome: valuable, rare, costly to imitate

V, R, I = Yes, O = Yes → sustained competitive advantage

If O = No, the advantage is only potential and not fully exploited (unused competitive advantage).

Margin in the value chain

Margin = Total value created − Total cost of value activities

Value is what customers are willing to pay. Advantage comes from a larger margin than rivals.

Primary activities

Inbound logistics + Operations + Outbound logistics + Marketing and sales + Service

These are directly involved in creating and delivering the product to the customer.

Support activities

Firm infrastructure + Human resource management + Technology development + Procurement

These support all primary activities and can be a source of advantage on their own.

Value network

Organisation's value chain + suppliers' chains + channel chains + customers' chains

Look for value created or lost at the links between organisations.

Historical analysis

Current performance compared with the same organisation's past performance

Shows trends. Does not show position against rivals.

Industry-norm analysis

Organisation's measure compared with the sector average or typical level

Shows relative position. An average may be below best practice.

Best-in-class analysis

Organisation's measure compared with the best performer, in or outside the sector

Sets a stretching target. Needs good data.

Benchmark gap

Gap = organisation's value − benchmark value

For costs, a positive gap means you are more expensive than the benchmark. For measures where higher is better, such as margin, a negative gap means you are behind. Always state the direction.

SWOT classification

Strengths and Weaknesses = internal. Opportunities and Threats = external

Do not put an external factor, such as a new competitor, under weaknesses.

Teece's three dynamic capabilities

Sensing → Seizing → Transforming

Sense opportunities and threats, seize them through investment and structure, then reconfigure the asset base. Use these as your answer headings.

Knowledge types

Tacit knowledge (personal, experience-based) vs Explicit knowledge (codified, documented)

Tacit knowledge is harder to copy and to transfer. Explicit knowledge is easier to share but also easier for rivals to copy.

Nonaka and Takeuchi knowledge conversion

Socialisation (tacit→tacit), Externalisation (tacit→explicit), Combination (explicit→explicit), Internalisation (explicit→tacit)

Use it to show how knowledge is created and spread inside the organisation.

Senge's five disciplines of a learning organisation

Systems thinking, Personal mastery, Mental models, Shared vision, Team learning

Pick the ones that fit the case rather than listing all five with no application.

Quick revision

• Resources are inputs the organisation owns or can access; capabilities are how well it uses and combines them.
• A core competence is a capability that is valuable to customers and hard for rivals to copy.
• Threshold capabilities are needed just to compete; they do not give advantage by themselves.
• VRIO asks four questions: Valuable, Rare, Inimitable, Organised to exploit.
• A resource that is valuable but not rare gives only competitive parity.
• Sustainable advantage needs all four VRIO tests to be met.
• The value chain splits activities into primary and support activities and looks for where margin and cost arise.
• A value network extends analysis to suppliers, distributors and partners outside the organisation.
• Benchmarking compares performance against internal, competitor, industry or best-practice standards.
• Dynamic capabilities are the ability to sense change, seize opportunities and reconfigure resources.
• Organisational knowledge, especially tacit knowledge, can be hard for rivals to copy.
• Always link an internal finding to the strategy under discussion and give a recommendation.

Common mistakes

• Listing resources without saying whether they are threshold or unique. Fix: For every resource, add one line: do rivals have it, and can they copy it? That judgement earns the marks.
• Treating resources, capabilities and competences as the same thing. Fix: Say resources are what you have, competences are the activities and processes that use them, and strategic capability is the resources and competences together. Use the case to show the difference.
• Listing assets such as factories or cash as core competences. Fix: Ask whether it is something the firm does well. Assets are resources; the skill in using them is the competence.
• Naming a competence but not testing it. Fix: Apply each of the three tests to scenario facts and give a verdict.
• Listing resources and stating they are 'valuable' without testing rarity or imitability Fix: Take every resource through all four questions and cite scenario evidence for each.
• Treating every strength as a sustained advantage Fix: Stop at the first 'no'. A valuable but common resource is parity only.
• Listing the nine activities with generic definitions Fix: Only discuss activities the case supports. Give each a scenario fact and a consequence.
• Treating support activities as less important Fix: Check HR, technology and procurement. They often drive advantage, such as skilled staff or low-cost buying.
• Listing types of benchmarking from memory without applying them to the scenario. Fix: After each type, say how it would work for this organisation and what data it would use.
• Putting external points, such as new regulation, under strengths or weaknesses. Fix: Ask whether the organisation controls the factor. If not, it is an opportunity or threat.

Exam tips

• Always tie each resource to a fact in the case. Generic definitions earn few marks.
• Use the threshold versus unique distinction as your main analysis. It shows judgement.
• Look for intangibles and human skills first. The case writer often hides the real advantage there.
• Show professional skills by giving a clear, commercial recommendation, not just a list.
• If the requirement mentions sustainability of advantage, discuss imitation, substitution and the need to renew competences.
• In SBL, always tie the competence to scenario facts. Generic theory earns few marks.
• Use the three Prahalad and Hamel tests as a visible structure; markers can see you applying them.
• Show professional skills: weigh evidence, challenge whether a claimed strength is truly hard to copy, and give clear advice.