ITIL posits that organizations have two fundamental types of assets: resources and capabilities. Resources are money-derived. You can spend money and immediately acquire a resource. For example, a book is a resource because you can immediately purchase it. A physical server is a resource because you can buy one and have it shipped to you. Capabilities are things that organizations develop with time. You can buy the book “Teach Yourself Red Hat Linux in 24 Hours” (a resource) but actually knowing how to use Red Hat Linux is a capability. You cannot spend money and immediately acquire a capability. Project management, service management, IT governance, and process improvement are all capabilities. Our company’s goal is to help higher education improve IT management capabilities. IT management capabilities, though costly to develop, improve IT effectiveness and reduce IT costs. We’re here to help you learn which capabilities will help you the most now, what to keep in mind for the long-term, and how to effect the organizational changes needed. Firms create value by exploiting internal resources and capabilities to meet market demands. What constitutes a resource can be varied and diverse. Back to: STRATEGY & PLANNING Tangible resources include:
Intangible resources include:
Resources along, generally, do not result in competitive advantage. Competitive advantage results from how resources are employed. The value of the resources is measured by the extent to which it contributes to the development of a competitive advantage. CapabilitiesA company’s capabilities concerns it ability to deploy resources. They generally materialize through the development and exchange of information, knowledge, and processes. While resources are acquired, capabilities are developed. The use and execution of capabilities is accounted for within Porter’s Value Chain. The value chain classified capabilities as primary and secondary. Primary activities add direct value to the firm. Related Topics
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When analyzing a company, one of the most important things you should find out is:
These questions seem obvious but Analysts rarely cover them properly. When analyzing a Company, 99% of Professionals just check the Balance Sheet to decide if it is a good Company or not… That is all.
A “Resources and Capabilities” analysis is a study about the potential of a company. Instead of focusing on its results, it highlights the Tools and Internal Opportunities a company could use for maximizing its outcome.
As you may already know, we have been working in Venture Capital for years. We are used to analyze companies in terrible situations and, to decide whether to invest in them or not, we have to find their hidden potential and see beyond their Balance Sheets.
We’ll now analyze different real companies in order to give you helpful practical examples. But first, we have to answer the next questions:
A Resource is something a Company owns.
A Capability is what a Company is able to do (with its Resources).
Capabilities are usually confused with Competitive Advantages. They are similar, but not the same.
A Competitive Advantage could be a Resource. Example If you own an Oil Well, you have a Competitive Advantage in the Energy sector, but maybe, you’re not Capable of obtaining profits out of it, if you didn’t have the proper technology.
We know it may seem confusing. Let’s see it with another example:
 Imagine that Ferrari chooses you for driving its car in the next F1 World championship. Would you be able to win the competition? Well… No. You would have all the Resources of Ferrari:
However, you would never be Capable of wining the F1 World Championship.
In this simple but effective example you can easily appreciate the difference between a Resource and a Capability. You can also think about this:
Pepsi could buy Coca-Cola’s formula if Coca-Cola wanted to sell it. But Pepsi would have it very difficult to replicate how customers perceive Coca-Cola.
Traditionally, Resources are classified into three categories:
We personally consider that Human category should belong to Intangible, but sometimes, in small creative companies one or two gifted employees can make the difference, so we’ll maintain this classification. Let’s analyze them in more detail:
There are lots of different ways of sorting these Resources. We propose you the next one:
Financial: Facilities and Land:
Technology:
Marketing:
Know-How:
Human resources:
Employees:
As you can see, some of these factors are difficult not to be considered as a Capability. However, all of them can be copied or bought. Then, how can we sort the Capabilities? We prefer not to do it: It is impossible to sort Capabilities correctly with a generic list.
The best way of describing a Capability is with numbers:
We’ll explain it better with one example:
Maybe this example makes some young fans angry but… sometimes, life is difficult. When George Lucas filmed Star Wars more than 40 years ago, he didn’t have lots of Resources:
A similar production, Star Trek, had been pretty disappointing so, Star Wars was expected to be a failure as well.
What happened?
With very little Resources (compared to nowadays big productions) he was Capable to create a wonderful masterpiece. Some decades later Disney bought Star Wars franchise (on 2012) for $4 billion.
They decided, of course, to release more Star Wars movies. On 2015, Disney released “Star Wars episode VII: The force awakens“. The movie was very successful, but it was not the masterpiece George Lucas created 40 years before with 7.5 times less budget.
Moral of the Story: Although Disney had much more Resources than George Lucas had 40 years before they were not Capable of producing the masterpiece he created. What about the Box office collection? Maybe Disney’s movie collected more money…
This example is interesting for learning the difference between Resources and Capabilities. As you can see, Capabilities should be measured as we did in this example:
If a Company is good at something, its numbers will better than average in certain Services, Activities or Products.
Now, we’ll analyze different real companies in order to identify their Resources and Capabilities.
Let’s begin:
Nintendo is one of the best Companies for understanding the Resources and Capabilities Analysis. Although it is a big company, it is pretty small when compared to its competitors: However, it has been Capable of creating Innovative products and successful franchises such as Mario, Pokemon and Zelda Let’s first look at its Main Resources: Tangible:
Intangible:
Human:
What about the Capabilities? Aren’t Sony and Microsoft dominating the Gaming Console market? Yes, but Nintendo has been able to produce the most valuable video-game franchises ever: If you check Wikipedia’s best-selling video game franchises list you’ll notice that:
We find fascinating that 6th position: in few years Wii, reached the Top 10 of best-selling franchises ever. Sony is a $80 billion Revenue company; 8 times bigger than Nintendo ($11 billion annual Revenues).
However, their franchises are not as successful as Nintendo’s. Money isn’t everything.
Now, you may be thinking that Capabilities are everything, but Resources are also necessary for succeeding. We’ll give you an example of how, sometimes, Resources are not sufficiently considered:
There is no need of introducing Google Maps: the best mapping system service ever created.
On 2010s, Apple realized that, in a world where data is everything, Google was the King.
Since Apple was (and somehow it still is) the leading mobile-phone company (in prestige, not in market share) they decided to start “fighting” Google.
On 2012 they released Apple Maps: a direct competitor of Google Maps. The result? If you wanted to go from Los Angeles to San Francisco, Apple maps told you that the shorter route was through Paris. Ok, that is a joke, but it made terrible mistakes. What happened?
What had Google (other big company that also has extremely smart people) that Apple didn’t? Data. The most important Resource Google had that Apple didn’t, was an enormous amount of data.
Apple couldn’t obtain the same result in just few months. Apple Maps’ mistakes were so big that the company encouraged its users to use other mapping application.
In this example you can appreciate how important Resources are. You may have some of the best professionals in the world, but if you lack the Necessary Resources for Success… you’re doomed to fail.
When analyzing a company, it is very important to analyze its Resources and Capabilities deeply.
Resources are everything the company owns. They can be divided into:
Capabilities could be defined as:
To think that one of them is more important than the other is a terrible common mistake.
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What is a companys resources and capabilities?
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