Resources and Capabilities

A company’s business model and strategy must be well matched to its collection of resources and capabilities. A resource is a competitive asset that is owned or controlled by a company. A capability is the capacity of a company to competently perform some internal activity. Capabilities are developed and enabled through the deployment of a company’s resources.

What is most telling about a company’s aggregation of resources and capabilities is how powerful they are in the marketplace. The competitive power of a resource or capability is measured by how many of four tests for sustainable competitive advantage it can pass.

The tests are often referred to as the VRIN tests for sustainable competitive advantage - an acronym for valuable, rare, inimitable, and nonsubstitutable. The first two tests determine whether the resource or capability may contribute to a competitive advantage. The last two determine the degree to which the competitive advantage potential can be sustained.

Resources and capabilities must be continually strengthened and nurtured to sustain their competitive power and, at times, may need to be broadened and deepened to allow the company to position itself to pursue emerging market opportunities.

A dynamic capability is the ability to modify, deepen, or reconfigure the company’s existing resources and capabilities in response to its changing environment or market opportunities.