We think about firms as bundles of resources and capabilities. The distinction is fairly important. Resources are what the firm possesses. Capabilities are what it is able to do with these resources. You might sometimes hear the word, competence or core competence and these are distinctive capabilities that the firm has developed over time and the idea is that the firm would use its resources to create capabilities which are distinctive and thus allow the firm to obtain an advantage in the marketplace when compared to its competition. And of course, because the environment changes, the firm is constantly forced to also change by developing new resources and new capabilities.
What are some types of resources available to the firm? Very broadly, we can distinguish between tangible and intangible resources. I'll again also talk about human capital. That is, the people who work for the firm, their skills, their motivation, their ability to succeed, to work successfully in teams, etc. Capabilities arise when resources are used together, are deployed together in the direction of a certain objective and a core competence is when a certain capability has a very large effect, a disproportionate contribution to creating value or to creating efficiency with which the value is delivered and perhaps also in separating the firm from it's competitors.
Resources and customers. You might think of resources as being directed to its customers. That is, the resource or the asset is necessary to satisfy customers and to meet a market need and also influences the customer to choose our firm's offerings over a competitor's offerings.
Resources and competitive position. Resources can also be thought of in terms of how it separates the firm from the rest of the competitors in the industry. Here we use a very key phrase, sustainable, defensible, competitive advantage. What we're saying is the capability of the core competence allows the firm to get an advantage over competition that it can defend and it can also sustain over some period of time in the future. Because as we mentioned earlier, strategies about responding to environment change, which does occur over several future periods, over several months, over several years, okay. And what's also valuable to think about is that, competitors might take a long time to obtain the same resource or capability. Hence, time is a fairly critical element of thinking about resources and competitive position.
Resources as they relate to key success factors. Industry key success factors and their relation to resources and capabilities. Once we identify key success factors, in a firm, in an industry, we can also decide which resources are needed to be able to have that key success factor and key success factors also suggest if there's a prioritization taking place. Which resources to obtain first and exploit first. KSF, Key Success Factors, also suggest that if there are gaps, the kinds of resources that the firm must give precedence to for development. That is, these resources are most critical for the future and therefore, develop the following resources and still lead to key success factors.