Resource development within the firm. Since we just mentioned that the firm is constantly seeking to develop resources, it is perhaps useful to also remember that the firm does possess resources. Therefore, the firm should have an inventory of resources within the firm. Assets, competencies, skills, capabilities and knowledge, once it has this inventory, then it can decide if there are gaps. If there are strengths and weaknesses in the resource base and of course, in assessing resources and deciding if there are weaknesses it's useful to think of scarcity as well as relevance in terms of establishing a link to the customer and in establishing a competitive advantage.
Value of resources to the firm. Resource assessment, are there some criteria that can be used to determine if a resource is important, is valuable to the firm? And here are some ideas that might help in deciding if in fact this is a key resource. First, value, does the resource provide a competitive advantage? Does it allow the firm to extract value from participating in the marketplace? Rareness, is this particular resource unique to the firm? Because clearly, if other competitors do not possess it and if this resource can be in fact used to create value, then it puts the firm in an advantageous position. Third, imitability, this simply means, if I possess a resource then can a competitor imitate me and obtain the same resource? Can it be easily copied? Or, is it very costly for others to imitate? Four, organization, this simply asks, is the firm organized to exploit this resource? This is somewhat difficult in some ways to understand because what we're really saying is that resources have to be bundled into capabilities and that capability then has to be delivered in some fashion. Value has to be delivered to the customer. This means perhaps combining R&D with an intellectual property protection, legal department within the firm and with designers and a manufacturing organization that can create a product from the design and from the IP. And then of course, a marketing organization that can develop a brand and deliver the product to customers at a price that is satisfactory. So this is the organizational component. That the firm needs to put together different pieces in order to organize so that it can exploit a particular resource.
Lastly, durability, in other words is this resource likely to last over time? Is it durable? So that the firm can in fact get advantage. This is a common sense idea. Because if it costs a lot of money to develop a resource but if the resource is not durable then perhaps the firm is better off not devoting time to that particular resource. So together, value, rareness, imitability, organization and durability. These five criteria are resources that together can help create a sustainable, defensible, competitive advantage.
What do we mean by sustainable? When we say sustainable competitive advantage? We mean that first of all the competitive advantage lasts for some time. But secondly it's difficult to imitate. Then third, transparency, that competitors find it hard to see the link between the resources and capabilities on the one hand and the specific strategies of the companies following. Four, transferability that the competitors cannot easily create or acquire a similar bundle. That is, such capabilities are not transferable easily to another firm. And finally, replicability, which is the idea that even if similar bundles are put together the firms cannot manage these resources to yield a similar result. In other words, it is not quite as simple as just buying the resource. It also needs management and organization, which the firm may not have.
Related to this idea of sustainable competitive advantage is the idea of explicit versus tacit knowledge. Explicit knowledge is knowledge that is clearly laid out and can be in fact communicated to someone else, another firm, a competitor. While tacit knowledge is something that lies in the minds of people and is not easily disclosed or understood or shared outside the company.
Why are some resources hard to transfer or replicate? Resource is sometimes immobile. For example, think of high-level people in the company, superb scientists. They may not wish to leave the company and move geographically to another location. So this is a geographic immobility issue that makes that resource scarce. It's also an idea of asymmetry of information. That is, the person who owns the resource knows its value best. Where as the person that's acquiring the resource is not quite clear on the value. Simple idea is when you hire a new employee. It is hard for the employer to know whether the salary he's offering is in fact appropriate for the level of skills the employee possesses and this will not become known for a while until the employee has actually worked for sometime in the firm.
A third issue is the complimentarity of resources. That is a resource by itself may not be very useful, and therefore just acquiring one resource may not be very useful. An example is the ThinkPad, the famous IBM laptop which was acquired about two or three years ago by Lenovo a Chinese company. Acquiring the brand, the ThinkPad, did not mean that they would be able to offer everything that IBM offered along with the sale of the ThinkPad. Namely the reputation, the service the quality perhaps of software and so forth.
We've also talked about replicability that is, can you replicate the capabilities easily in a competitor? And this is difficult because of two reasons. One, asset mass. That is, companies have strong initial resource positions. They may have a network of very large factories, spread out across the US and this means that it takes time for the other company to do the same thing as well as capital to acquire that set of resources. Similarly, time compression diseconomies, that is, even if you're willing to incur the cost to develop the assets, you can't really do it in a crash program effort because it takes a certain amount of time. An example is an R&D project, it may take a couple of years to carry out an R&D project, to get to a successful conclusion and you can't compress this time frame very easily. So both the existing asset mass of a competitor, as well as the time compression diseconomies together make it difficult to replicate a competitor's success and its key success factors.
And finally, organizational capabilities. Here you have a social network issue, that is, an organization is a network of people who have connection amongst themselves, inside and outside the company and just because you buy a resource doesn't mean you also obtain that network of people. So together these are some reasons why resource can be hard to transfer or to replicate.
A graphic showing the sustainability of competitive advantage and here, what we're talking about is, are they easy or hard to imitate? Certain resources are hard to imitate because they're cycled very quickly, that is, they're publicly disseminated quite quickly. Whereas some other resources are very difficult to imitate because they're protected by brands and patents and tacit knowledge and so it takes a long time for these to cycle out of the company to the industry and to competition. And in the middle, what you might call standard cycle resources. Such as mass production techniques, scale economies, which other companies can also reach if they acquire the requisite volume and the requisite investment in factories and hardware and machines.