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Competing on Resources11.pdf
Competing_on_Resources11.pdf
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Page 12
Competing on Resources
•
•
•
B
EST
OF
HBR
harvard business review •
j
uly–august 2008
page 11
hotels, retailing, and publishing, was installed
in response to a hostile-takeover threat trig-
gered by the underutilization of the com-
pany’s valuable resources.
Good corporate strategy, then, requires con-
tinual reassessment of the company’s scope.
The question strategists must ask is, How far
can the company’s valuable resource be ex-
tended across markets? The answer will vary
widely because resources differ greatly in their
specificity, from highly fungible resources
(such as cash, many kinds of machinery, and
general management skills) to much more spe-
cialized resources (such as expertise in narrow
scientific disciplines and secret product formu-
las). Specialized resources often play a critical
role in securing competitive advantage, but,
because they are so specific, they lose value
quickly when they are moved away from their
original settings. Shell Oil’s brand name, for ex-
ample, will not transfer well outside autos and
energy, however valuable it is within those
fields. Highly fungible resources, on the other
hand, transfer well across a wide range of mar-
kets but rarely constitute the key source of
competitive advantage.
The RBV helps us understand why the
track record of corporate diversification has
been so poor and identifies three common
and costly strategic errors companies make
when they try to grow by leveraging re-
sources. First, managers tend to overestimate
the transferability of specific assets and ca-
pabilities. The irony is that because valuable
resources are hard to imitate, the company it-
self may find it difficult to replicate them in
new markets. Despite its great success in
Great Britain, Marks & Spencer has failed re-
peatedly in attempts to leverage its resources
in the North American market—a classic ex-
ample of misjudging the important role that
context plays in competitive advantage. In
this case, the concepts of path dependency
and causal ambiguity are both at work. Marks
& Spencer’s success is rooted in its 100-year
reputation for excellence in Great Britain and
in the skills and relationships that enable it to
manage its domestic supply chain effectively.
Just as British competitors have been unable
to duplicate this set of advantages, Marks &
Spencer itself struggles to do so when it tries
to enter a new market against established
competitors.
Second, managers overestimate their ability
to compete in highly profitable industries.
Such industries are often attractive precisely
because entry barriers limit the number of
competitors. Entry barriers are really resource
barriers: The reason competitors find it so hard
to enter the business is that accumulating the
necessary resources is difficult. If it could be
done easily, competitors would flock to the op-
portunity, driving down average returns. Many
managers fail to see the connection between
company-level resources and industry-level
profits and convince themselves that they can
vault the entry barrier, without considering
which factors will ultimately determine success
in the industry. Philip Morris’s entry into soft
drinks, for example, foundered on the difficul-
ties it faced managing the franchise distribu-
tion network. After years of poor performance
in that business, it gave up and divested 7-Up.
The third common diversification mistake
is to assume that leveraging generic resources,
such as lean manufacturing, will be a major
source of competitive advantage in a new
market—regardless of the specific competi-
tive dynamics of that market. Chrysler seems
to have learned this lesson. Expecting that
its skills in design and manufacturing would
ensure success in the aerospace industry,
Chrysler acquired Gulfstream Aerospace—
only to divest it five years later in order to
concentrate on its core businesses.
Despite the common pitfalls, the rewards for
companies that leverage their resources appro-
priately, as Disney has, are high. Newell is an-
other stunning example of a company that has
built a set of capabilities and used them to se-
cure commanding positions for products in a
wide range of industries. Newell was a modest
manufacturer of drapery hardware in 1967,
when a new CEO, Daniel C. Ferguson, articu-
lated its strategy: The company would special-
ize in high-volume production of a variety of
household and office staple goods that would
be sold through mass merchandisers. The com-
pany made a series of acquisitions, each of
which benefited from Newell’s capabilities—
its focused control systems; its computer links
with mass discounters, which facilitate paper-
less invoicing and automatic inventory restock-
ing; and its expertise in the “good-better-best”
merchandising of basic products, in which re-
tailers typically choose to carry only one brand,
with several quality and price levels. In turn,
each acquisition gave Newell yet another op-
For More on the
Resource-Based
View
Raphael Amit and Paul J.H. Schoe-
maker, “Strategic Assets and Organi-
zational Rent,”
Strategic Management
Journal
, January 1993.
J.B. Barney, “Strategic Factor Mar-
kets: Expectations, Luck and Business
Strategy,”
Management Science
, October
1986.
Kathleen R. Conner, “A Historical
Comparison of Resource-Based The-
ory and Five Schools of Thought
Within Industrial Organization Eco-
nomics: Do We Have a New Theory of
the Firm?”
Journal of Management
,
March 1991.
Ingemar Dierickx and Karel Cool,
“Asset Stock Accumulation and Sus-
tainability of Competitive Advantage,”
Management Science
, December 1989.
Margaret A. Peteraf, “The Corner-
stones of Competitive Advantage: A
Resource-Based View,”
Strategic Man-
agement Journal
, March 1993.
Richard P. Rumelt, “Theory,
Strategy, and Entrepreneurship,”
The
Competitive Challenge: Strategies for
Industrial Innovation and Renewal
, ed.
David J. Teece (Ballinger, 1987).
Birger Wernerfelt, “A Resource-
Based View of the Firm,”
Strategic
Management Journal
, April–June 1984.
For the exclusive use of D. Newberry
This document is authorized for use only by Dave Newberry in BUSE 37000 (Autumn 14) Marketing Strategy (Sections 03, 04, 81) at , 2014.
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