Resources are an organization’s assets and are thus the basic building blocks of the organization.
They include tangible assets, such as its plant, equipment, finances, and location, human assets, in terms of the number of employees, their skills, and motivation, and intangible assets, such as its technology (patents and copyrights), culture, and reputation.
Capabilities refer to a corporation’s ability to exploit its resources. They consist of business processes and routines that manage the interaction among resources to turn inputs into outputs. For example, a company’s marketing capability can be based on the interaction among its marketing specialists, distribution channels, and sales people. A capability is functionally based and is resident in a particular function. Thus, there are marketing capabilities, manufacturing capabilities, and human resource management capabilities. When these capabilities are constantly being changed and reconfigured to make them more adaptive to an uncertain environment, they are called dynamic capabilities.
A competency is a cross-functional integration and coordination of capabilities.
For example, a competency in new product development in one division of a corporation may be the consequence of integrating management of information systems (MIS) capabilities, marketing capabilities, R&D capabilities, and production capabilities within the division.
A core competency is a collection of competencies that crosses divisional boundaries, is widespread within the corporation, and is something that the corporation can do exceedingly well. Thus, new product development is a core competency if it goes beyond one division.
For example, a core competency of Avon Products is its expertise in door-to-door selling.
FedEx has a core competency in its application of information technology to all its operations.
A company must continually reinvest in a core competency or risk its becoming a core rigidity or deficiency, that is, a strength that over time matures and may become a weakness.
Although it is typically not an asset in the accounting sense, a core competency is a very valuable resource—it does not “wear out” with use. In general, the more core competencies are used, the more refined they get, and the more valuable they become.
When core competencies are superior to those of the competition, they are called distinctive competencies.
For example, General Electric is well known for its distinctive competency in management development. Its executives are sought out by other companies hiring top managers.
Barney, in his VRIO framework of analysis, proposes four questions to evaluate a firm’s competencies: