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Competing on Resources
harvard business review •
uly–august 2008
inimitable. And while Xerox slept, Canon took
over world leadership in photocopiers.
In a world of continuous change, companies
need to maintain pressure constantly at the
frontiers—building for the next round of com-
petition. Managers must therefore continually
invest in and upgrade their resources, however
good those resources are today, and leverage
them with effective strategies into attractive
industries in which they can contribute to a
competitive advantage.
Investing in resources.
Because all resources
depreciate, an effective corporate strategy
requires continual investment in order to
maintain and build valuable resources. One
of Eisner’s first actions as CEO at Disney was
to revive the company’s commitment to ani-
mation. He invested $50 million in
Framed Roger Rabbit
to create the company’s
first animated feature-film hit in many years
and quadrupled its output of animated feature
films—bringing out successive hits, such as
Beauty and the Beast
, and
The Lion
Similarly, Marks & Spencer has periodically
reexamined its position in its only business—
retailing—and has made major investments
to stay competitive. In the early 1980s, the
British company spent billions on store reno-
vation, opened new edge-of-town locations,
and updated its procurement and distribution
systems. In contrast, the U.S. retailer Sears,
Roebuck diversified into insurance, real es-
tate, and stock brokerages, while failing to
keep up with the shift in retailing to new mall
locations and specialty stores.
The mandate to reinvest in strategic re-
sources may seem obvious. The great contri-
bution of the core competence notion is its
recognition that, in corporations with a tradi-
tional divisional structure, investment in the
corporation’s resources often takes a backseat
to optimizing current divisional profitability.
Core competence, therefore, identifies the
critical role that the corporate office has to
play as the guardian of what are, in essence,
the crown jewels of the corporation. In some
instances, such guardianship might even
require explicitly establishing a corporate
officer in charge of nurturing the critical
resources. Cooper Industries, a diversified
manufacturer, established a manufacturing
services group to disseminate the best
manufacturing practices throughout the
company. The group helped “Cooperize”
acquired companies, rationalizing and im-
proving their production facilities. The head
of the services group, Joseph R. Coppola, was
of a caliber to be hired away as CEO of Gid-
dings & Lewis, the largest U.S. machine tool
manufacturer. Similarly, many professional
service firms, such as Coopers & Lybrand,
have a senior partner in charge of their
critical capabilities—client-relationship man-
agement, staff training, and intellectual de-
velopment. Valuable corporate resources are
often supradivisional, and, unless someone is
managing them on that basis, divisions will
underinvest in them or free ride on them.
At the same time, investing in core compe-
tencies without examining the competitive dy-
namics that determine industry attractiveness
is dangerous. By ignoring the marketplace,
managers risk investing heavily in resources
that will yield low returns. Masco did exactly
that. It built a competence in metalworking
and diversified into tightly related industries.
Unfortunately, the returns from this strategy
were lower than the company had expected.
Why? A straightforward five-forces analysis
would have revealed that the structure of the
industries Masco entered was poor—buyers
were price sensitive with limited switching
costs, entry barriers were low, and suppliers
were powerful. Despite Masco’s metalworking
expertise, its industry context prevented it
from achieving exceptional returns until it de-
veloped the skills that enabled it to enter more
attractive industries.
Similarly, if competitors are ignored, the
profits that could result from a successful
resource-based strategy will dissipate in the
struggle to acquire those resources. Consider
the value of the cable wire into your house as
a source of competitive advantage in the mul-
timedia industry. Companies such as Time
Warner have been forced by competitors,
who can also see the value of that wire, to bid
billions of dollars to acquire control of even
modest cable systems. As a result, they may
never realize substantial returns on their in-
vestment. This is true not only for resources
acquired on the market but also for those core
competencies that many competitors are si-
multaneously trying to develop internally.
Upgrading resources.
What if a company
has no unusually valuable resources? Unfortu-
nately, that is a common experience when
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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