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Competing on Resources
harvard business review •
uly–august 2008
ing among a host of players, including cus-
tomers, distributors, suppliers, and employees.
What has happened to leveraged buyout firms
is revealing. A critical resource of LBO firms
was the network of contacts and relationships
in the investment banking community. How-
ever, this resource often resided in the indi-
viduals doing the deals, not in the LBO firms as
a whole. These individuals could—and often
did—depart to set up their own LBO funds or
move to another firm where they could reap a
greater share of the profits that their resource
generated. Basing a strategy on resources that
are not inextricably bound to the company
can make profits hard to capture.
4. The test of substitutability: Can a unique
resource be trumped by a different resource?
Since Porter’s introduction of the five-forces
framework, every strategist has been on the
lookout for the potential impact of substitute
products. The steel industry, for example, has
lost a major market in beer cans to aluminum
makers in the past 20 years. The resource-
based view pushes this critical question down
a level to the resources that underpin a
company’s ability to deliver a good or service.
Consider the following example. In the early
1980s, People Express Airlines challenged
the major airlines with a low-price strategy.
Founder Donald C. Burr pursued this strategy
by developing a unique no-frills approach and
an infrastructure to deliver low-cost flights.
Although the major airlines were unable to
replicate this approach, they nevertheless
were able to retaliate using a
to offer consumers equivalent low-cost fares—
their computer reservation systems and
yield-management skills. This substitution
eventually drove People Express into bank-
ruptcy and out of the industry.
5. The test of competitive superiority:
Whose resource is really better?
Perhaps the
greatest mistake managers make when evalu-
ating their companies’ resources is that they
do not assess them relative to competitors’.
Core competence has too often become a “feel
good” exercise that no one fails. Every com-
pany can identify one activity that it does
relatively better than other activities and
claim that as its core competence. Unfortu-
nately, core competence should not be an
internal assessment of which activity, of all
its activities, the company performs best. It
should be a harsh external assessment of what
it does better than competitors, for which the
distinctive competence
is more appropri-
ate. How many consumer packaged-goods
companies assert that their core competence
is consumer marketing skills? They may in-
deed all be good at that activity, but a corpo-
rate strategy built on such a core competence
will rapidly run into trouble because other
competitors with better skills will be pursuing
the same strategy.
The way to avoid the vacuousness of ge-
neric statements of core competence is to dis-
aggregate the corporation’s resources. The
consumer marketing skills
, for exam-
ple, is too broad. But it can be divided into
subcategories such as effective brand manage-
ment, which in turn can be divided into skills
such as product-line extensions, cost-effective
couponing, and so on. Only by looking at
this level of specificity can we understand
the sources of a company’s uniqueness and
measure by analyzing the data whether it is
competitively superior on those dimensions.
Can anyone evaluate whether Kraft General
Foods’ or Unilever’s consumer marketing
skills are better? No. But we can demonstrate
quantitatively which is more successful at
launching product-line extensions.
Disaggregation is important not only for
identifying truly distinctive resources but
also for deriving actionable implications. How
many companies have developed a statement
of their core competencies and then have
struggled to know what to do with it? One
manufacturer of medical-diagnostics test
equipment, for example, defined one of its core
competencies as instrumentation. But this
intuitively obvious definition was too broad to
be actionable. By pushing to deeper levels of
disaggregation, the company came to a power-
ful insight. In fact, its strength in instrumenta-
tion was mainly attributable to its competitive
superiority in designing the interface between
its machines and the people who use them. As
a result, the company decided to reinforce its
valuable capability by hiring ergonomists, and
it expanded into doctors’ offices, a fast-growing
segment of its market. There, the company’s
resources created a real competitive advan-
tage, in part because its equipment can be op-
erated by office personnel rather than only by
Although disaggregation is the key to
identifying competitively superior resources,
In practice, core
competence has too often
become a “feel good”
exercise that no one fails.
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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