Resources and capabilities analysis: The HR Perspective (2022)

Creating a sustainable formula to stay relevant in the long haul is a major goal for any organization. The strategy that you develop to achieve this goal eventually determines your bottom line. To bring this strategy to fruition, stakeholders and managers need to analyze their resources and capabilities carefully. After all, these capabilities will drive the quality, innovation, operational efficiency, and reputation of your business.

After all, these capabilities will drive the quality, innovation, operational efficiency, and reputation of your business.

However, when you are gauging your workforce’s skills and competencies, you need to look beyond the quantifiable measures. The qualitative measures constitute the extensive analysis of resources and their capabilities. This blog explains the role of this analysis in the formulation of an effective business strategy. Along with that, the best practices are mentioned to help you do so.

Let’s begin with understanding the basics,

1. The resource and capability matrix

What exactly do we mean by capabilities here? It is simply a collection of the skills, experience, and qualifications your resources possess. In addition, capabilities mean what we develop with time to meet the future dynamic demands. The skills of your resources are the elements that are used to generate a product or an output.

The onus lies on project managers to balance these skills according to the organization’s needs. In the end, the competitive advantage that we aim for is achieved by the right mix of talent. We then assign them to the right jobs and utilize their skills to the maximum potential.

2. The significance of resource analysis in strategy formulation

As already discussed, the aim of our strategy is to build a sustainable competitive advantage. Now how does resource analysis help? You analyze and filter the resources to keep the right amount of skills and competencies at your firm. This helps you focus on developing a finished, quality product using their capability.

The products developed by your talent pool drive customers, brand loyalty, and profitability. Once these aspects are addressed, you are automatically maintaining your competitive edge. Overall, an extensive resource analysis defines the success of your business strategy.

(Video) Resources and Capabilities Analysis: The Human Resource Perspective

Now, the question is, how do you evaluate the competitive advantage of your resources?

3. The VRIN test- Evaluate the competitive advantage of resources

Evaluating the competitive advantage of resources is tedious, hence it’s always better to have a framework in place.

The VRIN test- an acronym for valuable, rare, inimitable, and non-substitutable that allows you to build a structured system.

The first two aspects decide if the resource is contributing to organizational growth. The latter two determine the degree to which the competitive advantage potential can be sustained.

Let’s understand how these attributes help in decision-making:

  • Valuable – If the resources’ skills and work add value to the organization’s goal and contribute to the competitive advantage.
  • Rare – Are the resources and their skills rare to find or widely available among the competitors? The rarer the resources are to find, the better is a competitive advantage.
  • Inimitable– If your resources’ skills and capabilities are hard and expensive to imitate, you get a more sustainable competitive advantage.
  • Non-substitutable– If your workforce is easily substitutable, you may lose your competitive advantage sooner if they are.

Note that if the individual resources pass all the four tests, you have a team of resources who can do so. At the same time, you need to develop those resources (who do not pass the test) into competitive advantages.

Here’s how,

4. Developing Your Resources and Capabilities into Competitive Advantages

Before you begin the process of developing resources into competitive advantage, you need to do an extensive analysis to guage who has the competitive potential.

Assessing the competency and potential of your workforce is the first step of the analysis. The next is to start taking measures to develop them into a sustainable competitive advantage and finally appropriate the returns from the sustained competitive advantage.

(Video) Analyzing the Firm 2 Resources and Capabilities

Below are three steps for achieving the same and enhancing your bottom line:

  • Identify key responsibilities and capabilities
  • Leverage transferability
  • Replicability

4.1 Identify the key resources and capabilities

Gaining complete visibility into your resources’ strengths and weaknesses is the key to make data-driven decisions and maximize profitability. Once you know what your resources are capable of, you can use their talent to the maximum potential.

At the same time, it’s your job to focus on their weaknesses and help them develop these skills. It will eventually enhance their competitive edge.

4.2 Leverage transferability

Transferable or portable skills are competencies that can be utilized for multiple tasks. They are a great way to ensure that your firm’s competitive advantage is at its’ sustainable best. Resources are encouraged to develop multiple skills with the same proficiency.

With the market volatility, comes a wide range of ad hoc project demands. When your resources can utilize their primary and secondary skills to different project tasks, they can fulfill these demands at ease. This transferability will help them deploy their personnel and capabilities at best, regardless of where they are placed.

4.3 Replicability

You may face situations when your resources may not have the capabilities you are looking for. These capabilities are either expensive to hire or difficult to replicate. In such cases, you can make an extra effort and build these capabilities from the ground up. Taking insights from the history and the previous patterns, you can replicate them to ensure you do justice to your projects. Your project’s quality is not compromised in this case.

Moreover, organizing training programs to help your resource pool acquire the niche skills will help you replicate them.

A succession planning and backup strategy for replication must be in place for the strategic resources with niche skills. This can be accomplished in advance with knowledge transfer and shadowing and must not be left till the last minute.

(Video) Resources and capabilities mini lecture

These steps will help you keep your competitive advantage at its best in the long haul. Now, the last, but one of the most important steps to sustain the competitive advantage is benchmarking.

Here is a brief description of it,

5. Best benchmarking practices

Strategic benchmarking is the practice of comparing and evaluating your competitor’s data and finding out the internal scope of improvement.

It enables us to gain a competitive advantage in the present and the future as well. These are some of the best benchmarking practices you can follow:

5.1 Exploit key strengths

Deploying the right people to the right job is the key to strategic execution after the capabilities analysis. These skills will set your firm’s reputation apart from other competitors.

5.2 Managing key weaknesses

Countering your weaknesses is a recipe for disaster. Instead, managing them smartly and upgrading them will enhance your efficiency and fill the existing skill gaps.

5.3 Appraising resources and capabilities

Reviewing and appraising your talent pool with regular feedback will empower your decision-making. It will help you reach a consensus on whether you need to upgrade, enhance, or bring in more talent. These timely checks will keep you relevant in the long run and sustain your competitive advantage.

6. The summary

Leveraging your resources and capabilities to the best extent is the key to maintaining and sustaining your competitive advantage. After all, resources are the success drivers of your firm. The above mentioned best practices to develop a competitive advantage will improve your firm’s profitability and sustainability. In addition, it will also help you find the discrepancies in the current system and fill the gaps with continuous improvements.

How has been your journey of resources and capabilities analysis so far?

(Video) Resource Based View | SCMT 4653

Resources and capabilities analysis: The HR Perspective (8)

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FAQs

WHAT IS resources and capabilities analysis? ›

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.

What are resources and capabilities examples? ›

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.

What are HR capabilities? ›

HR capability can be defined as the routines embedded in the tacit and implicit knowledge of members of an organization functioning to acquire, develop, nurture, deploy, and redeploy human resources in a dynamic, competitive environment (Boxall 1998; Kamoche 1996; Teece et al.

What are the four key criteria by which resources and capabilities can be assessed? ›

VRIO is an acronym for a four-question framework focusing on value, rarity, imitability, and organization, the criteria used to evaluate an organization's resources and capabilities.

What is the importance of resources and capabilities? ›

Resources and Capabilities are the sources of competitive advantage and the primary source of profitability for any firm. Resources and capabilities empower a company to drive the business and face competition with their products & offerings for the need of customers.

WHAT IS resources and capabilities in strategic management? ›

While resources refer to what an organization owns, capabilities refer to what the organization can do. More specifically, capabilities refer to the firm's ability to bundle, manage, or otherwise exploit resources in a manner that provides value added and, hopefully, advantage over competitors.

What is the difference between a resource and capability? ›

C.a resource represents a competitive asset that is owned or controlled by the company, whereas a capability is a competently performed internal activity that is developed through the deployment of the company's resources.

Why is it important for managers to understand a company's resources and capabilities? ›

It is essential that managers be able to identify the company's resources and capabilities in order to craft strategy. Resource and capability analysis is a powerful tool for sizing up a company's competitive assets and determining if they can support a sustainable competitive advantage over market rivals.

What is the relationship between resources and capabilities? ›

Resources are those intangible and tangible assets linking to the firm in a semipermanent way, whereas capabilities are related to the way of accomplishing different activities, depending on the available resources (Grant, 1991; Wernerfelt, 1984). A firm's resources and capabilities have value only in context.

What are the 5 HR capabilities? ›

The 5 Main Roles in HR
  • Talent Management. The talent management team in the HR department covers a lot of ground. ...
  • Compensation and Benefits. ...
  • Training and Development. ...
  • HR Compliance. ...
  • Workplace Safety.
27 Jun 2022

What is HR capability development? ›

The Capability Development Manager is a key role in the HR Capability team which leads a range of learning and development, performance, talent and succession activities alongside other HR continuous improvement projects within the Learning and Development strategy.

What is an HR capability model? ›

The Global HR Capability Model is an index of the core functional capabilities that are needed for high-performing HR organizations. The model is rooted in more than 30 years of experience examining HR capabilities and based on conversations with hundreds of global HR leaders.

How do you conduct a resource analysis? ›

6 steps to performing an effective resource analysis
  1. Analyze your resource pool. ...
  2. Compare confirmed workload vs capacity. ...
  3. Look at utilization rates. ...
  4. Check existing placeholders for new resources. ...
  5. Drill down into the numbers. ...
  6. Do scenario planning for all the what-ifs.
12 May 2022

What are resources capabilities and core competencies? ›

A resource or capability is a core competency if it is valuable, rare, costly to imitate, and non-substitutable. A capability or resource is valuable when it allows the company to capitalize on opportunities or defend against external threats.

What are organizational resources and capabilities? ›

Resources are the organization's assets, knowledge and skills. Capabilities can be defined as the organization's ability to effectively make use of its resources.

How do resources and capabilities relate to competitive advantage? ›

According to the resource-based view, in order to develop a competitive advantage the firm must have resources and capabilities that are superior to those of its competitors. Without this superiority, the competitors simply could replicate what the firm was doing and any advantage quickly would disappear.

What are examples of capabilities? ›

The definition of a capability is something that a person or thing is able to do. When a person can cook, this is an example of a situation where he has the capability to cook. When a computer can open a file, this is an example of a situation where the computer has the capability to open the file.

How do capabilities work together with resources to enable companies to create value? ›

What is capability? How do capabilities work together with resources to enable companies to create value? Capabilities are processes that firms have developed to perform activities. Capabilities and resources work hand in hand to create value.

What is capability analysis? ›

Capability analysis is a set of calculations used to assess whether a system is statistically able to meet a set of specifications or requirements. To complete the calculations, a set of data is required, usually generated by a control chart; however, data can be collected specifically for this purpose.

What is a strategic capability analysis? ›

The process of evaluating a business' strategic capability is known as a strategic value analysis. It relies on data from annual reports, public surveys and market trends to determine which businesses in a given industry have strategic capabilities that others lack.

What are the types of resources in strategic management? ›

The major resources used by organizations are often described as follow: (1) human resources, (2) financial resources, (3) physical resources, and (4) information resources. Managers are responsible for acquiring and managing the resources to accomplish goals.

What do you mean by resource analysis? ›

Resource Analysis determines the quantity and location of resources needed to produce hydrogen. Additionally, resource analysis quantifies the cost of the resources, as a function of the amount that can be available for hydrogen production.

What is capability analysis? ›

Capability analysis is a set of calculations used to assess whether a system is statistically able to meet a set of specifications or requirements. To complete the calculations, a set of data is required, usually generated by a control chart; however, data can be collected specifically for this purpose.

What is the difference between a resource and a capability? ›

C.a resource represents a competitive asset that is owned or controlled by the company, whereas a capability is a competently performed internal activity that is developed through the deployment of the company's resources.

What is the relationship between resources and capabilities? ›

Resources are those intangible and tangible assets linking to the firm in a semipermanent way, whereas capabilities are related to the way of accomplishing different activities, depending on the available resources (Grant, 1991; Wernerfelt, 1984). A firm's resources and capabilities have value only in context.

What is the role of resource analysis in strategy formulation? ›

The Role of Resource Analysis in Strategy Formulation

Firms that base their strategy on the development of specific capabilities have shown better adaptability than those that base their strategy on their customers or on how to serve them.

What is resource analysis in business plan? ›

Firstly, Resource Analysis is the process of identifying and evaluating all the resources that are available to achieve an objective. Secondly, Resources include anything that can help or hinder your organisation meeting its objectives. For instance, resources include people, equipment, time, and money.

What are the benefits of process capability analysis? ›

The benefits of conducting a Process Capability Study allows you to determine the “short” term stability and capability of a process. Process Performance Studies are performed to identify how well a process, that is in statistical control, performs long term (for example, one week or longer).

How is capability analysis done for a process? ›

An important technique used to determine how well a process meets a set of specification limits is called a process capability analysis. A capability analysis is based on a sample of data taken from a process and usually produces: 1. An estimate of the DPMO (defects per million opportunities).

What is a process capability analysis used for? ›

Process capability analysis is a set of tools used to find out how well a given process meets a set of specification limits. In other words, it measures how well a process performs.

Why is IT important for managers to understand a company's resources and capabilities? ›

It is essential that managers be able to identify the company's resources and capabilities in order to craft strategy. Resource and capability analysis is a powerful tool for sizing up a company's competitive assets and determining if they can support a sustainable competitive advantage over market rivals.

What are examples of capabilities? ›

The definition of a capability is something that a person or thing is able to do. When a person can cook, this is an example of a situation where he has the capability to cook. When a computer can open a file, this is an example of a situation where the computer has the capability to open the file.

How do organizations use resources and capabilities in creating value? ›

Therefore, the capabilities of an organization coordinate, control, and deploy resources of an organization. An organization creates goods and services to create value for its customers with the help of its strategic capabilities and resources. These goods and services consume the assets of the organization.

How do resources and capabilities relate to competitive advantage? ›

According to the resource-based view, in order to develop a competitive advantage the firm must have resources and capabilities that are superior to those of its competitors. Without this superiority, the competitors simply could replicate what the firm was doing and any advantage quickly would disappear.

What are resources capabilities and core competencies? ›

A resource or capability is a core competency if it is valuable, rare, costly to imitate, and non-substitutable. A capability or resource is valuable when it allows the company to capitalize on opportunities or defend against external threats.

How would you perform the internal analysis to identify the resources and capabilities of the firm? ›

Follow these steps to perform an effective internal analysis and improve company functionality:
  • Set your objective.
  • Choose a framework.
  • Conduct research.
  • Follow the framework.
  • Set your priorities.
  • Apply the findings.

Videos

1. Resources to Capabilities to Competencies
(Soma Datta)
2. Strategic Management Lecture # 3 - Resources and capabilities
(Sergey Anokhin)
3. #Strategy :: Evaluating a Company’s Resources, Capabilities, and Competitiveness
(Dr. Sharon Schembri - supporting business students)
4. Business Strategy 04 - Internal Factors: Resources, Capabilities & Core Competencies
(Ajarn Olli)
5. Dynamic Capabilities Perspective and HR Strategy
(Academ Lib)
6. Human Resource Capabilities
(Ashley Wolf)

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