This essay will discuss how resources and competences are linked with regards to a firm’s performance and under what conditions they can be fully utilized to create a competitive advantage for the company in question.
Generally it can be found that in a particular industry some firms will out- perform other firms usually to do with their internal environment. The main reason for this is due to the resources and competences, or capabilities that a firm possesses. Resources refer to ‘inputs to an organisation’s production or operating processes’, and they can either be tangible or intangible. In the business industry it is generally thought that intangible resources tend to be more valuable than tangible ones, the reason for this being that you cannot just buy intangible resources, they are hard to acquire and are built up over time, with time being an important aspect of strategic management. For example, a company such as The Body Shop has spent many years building up their brand image and forming relationships with suppliers and customers, meaning they possess very valuable, intangible assets. Whittington (2005) said ‘in a knowledge-based economy, intellectual capital is likely to be a major asset of any organisation’, further illustrating the importance of intangible resources. Characteristics of tangible resources, such as equipment, are that they are easily traded, ownership is generally easy to specify, and they need to be maintained to stop them from degrading over time with over use. Competencies, on the other hand, refer to the skills or capabilities that a firm has acquired. Grant (1991) defines competencies as ‘the capacity of a set of resources to interactively perform a task or activity’. This definition shows how...