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Competing on Resources
harvard business review •
uly–august 2008
page 8
sometimes the valuable resource is a combi-
nation of skills, none of which is superior by
itself but which, when combined, make a bet-
ter package. Honeywell’s industrial automation
systems are successful in the marketplace—a
measure that the company is good at some-
thing. Yet each individual component and
software program might not be the best avail-
able. Competitive superiority lies either in the
weighted average (the company does not rank
first in any resource, but it is still better on av-
erage than any competitor) or in its system-
integration capability.
The lesson for managers is that conclusions
about critical resources should be based on ob-
jective data from the market. In our experi-
ence, managers often treat core competence as
an exercise in intuition and skip the thorough
research and detailed analysis needed to get
the right answer.
Strategic Implications
Managers should build their strategies on
resources that meet the five tests outlined
above. The best of these resources are often
intangible, not physical, hence the emphasis
in recent approaches on the softer aspects of
corporate assets—the culture, the technology,
and the transformational leader. The tests cap-
ture how market forces determine the value of
resources. They force managers to look inward
and outward at the same time.
However, most companies are not ideally
positioned with competitively valuable re-
sources. More likely, they have a mixed bag of
resources—some good, some mediocre, and
some outright liabilities, such as IBM’s mono-
lithic mainframe culture. The harsh truth is
that most companies’ resources do not pass the
objective application of the market tests.
Even those companies that are fortunate
enough to have unusual assets or capabilities
are not home free. Valuable resources must
still be joined with other resources and embed-
ded in a set of functional policies and activities
that distinguish the company’s position in the
market—after all, competitors can have core
competencies, too.
Strategy requires managers to look forward
as well. Companies fortunate enough to have
a truly distinctive competence must also be
wise enough to realize that its value is eroded
by time and competition. Consider what hap-
pened to Xerox. During what has become
known as its “lost decade,” the 1970s, Xerox
believed its reprographic capability to be
What Ever Happened to the Dogs and Cash Cows?
In the late 1960s and early 1970s, the wisdom
of the day was that companies could transfer
the competitive advantage of professional
management across a broad range of busi-
nesses. Many companies responded to the
perceived opportunity: Armed with decen-
tralized structures and limited, but tight,
financial controls, they diversified into a
number of related and unrelated businesses,
mostly through acquisition. In time, such
conglomerates came to resemble miniature
economies in their own right. There ap-
peared to be no compelling limits to the
scope of corporations.
As the first oil crisis hit in 1973, corporate
managers faced deteriorating performance
and had little advice on how to act. Into this
vacuum came the Boston Consulting Group
and portfolio management. In BCG’s now
famous growth/share matrix, corporate man-
agement was finally given a tool with which
to reassert control over its many divisions.
This simple matrix allowed managers to
classify each division, since renamed a strate-
gic business unit, into a quadrant based on
the growth of its industry and the relative
strength of the unit’s competitive position.
There was a prescribed strategy for each posi-
tion in the matrix: Sustain the cash-generating
cows, divest or harvest the dogs, take cash
from the cows and invest in question marks
in order to make them stars, and increase the
market share of the stars until their industry
growth slowed and they became the next gen-
eration of cash cows. Such simple prescriptions
gave corporate management both a sense of
what their strategy should accomplish—a
balanced portfolio of businesses—and a way
to control and allocate resources to their
The problem with the portfolio matrix was
that it did not address how value was being
created across the divisions, which could be as
diverse as semiconductors and hammers. The
only relationship between them was cash. As
we have come to learn, the relatedness of busi-
nesses is at the heart of value creation in diver-
sified companies. The portfolio matrix also
suffered from its assumption that corporations
had to be self-sufficient in capital. That im-
plied that they should find a use for all inter-
nally generated cash and that they could not
raise additional funds from the capital market.
The capital markets of the 1980s demonstrated
the fallacy of such assumptions.
In addition, the growth/share matrix failed
to compare the competitive advantage a busi-
ness received from being owned by a particu-
lar company with the costs of owning it. In the
1980s, many companies built enormous corpo-
rate infrastructures that created only small
gains at the business unit level. During the
same period, the market for corporate control
heated up, focusing attention on value for
shareholders. Many companies with supposedly
model portfolios were accordingly dissolved.
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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