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The Qualification and Quantification of Resources and Capabilities

The identification and assessment of resources and capabilities are subjective. That is, how valuable, how rare, how inimitable, and how well is the firm organized to exploit its resources. In the RBV, resources and capabilities must be unequivocally valuable, rare, and costly to imitate. In addition, the firm must be able to exploit its resources. Many firms do not have unequivocal resources. Thus, they do not have the strengths to capitalize on opportunities, diminish threats, and reduce weaknesses (i.e., fill resource gaps).

Every participant in a SWOT analysis has a personal concept of what the words valuable, rare, inimitable, and exploitable mean in any given situation. In each person's mind there is an inherent subjective scaling of the criteria (e.g., "valuable, absolutely," or "valuable, well maybe"). These personal concepts become more useful when analysts quantified them for comparative analysis. Here, an analyst might use a 100-point scale (e.g., "valuable, absolutely—100" or "valuable, well maybe—30"). Once the participants quantify their personal concepts, they can debate the issues and perhaps reach a useful consensus (e.g., valuable, within a consensus range of 60 to 80 for the following reasons . . .). Quantification elevates the analysis of resources and capabilities from a "yes"/"no"/"maybe" level (e.g., "yes" it is valuable, "no" it is not valuable) to a more productive level that facilitates serious debate and objectivity.

The trap in using the RBV is to identify undifferentiated assets as resources. The human tendency in a competitive managerial environment is to protect one's turf, objectively if possible and subjectively if necessary. To correct for this tendency, analysts can debate and quantify the assessment of resources and capabilities and match these strengths to opportunities in the external environment to see if there is a strategic fit. Table 3.1 uses a 100-point scale, with 100 being the best, to assess three of NGC's capabilities relative to its primary competitors.

The numbers in the table reflect competitive barriers. The higher the number is, the greater is the barrier. For example, NGC has an A+ financial rating. The assessment indicates this is a very valuable resource (90); it is very rare (80); it is somewhat costly to imitate (40); and the firm is very

Table 3.1. A Hypothetical Assessment of Three of NGC's Capabilities NGC's A+ NGC's UK Cyber NGC's Portfolio Financial Rating Range Investment Analysis Tool

How valuable?

90

100

80

How rare?

80

80

10

How costly to imitate (inimitability)?

40

100

20

How exploitable by NGC?

90

90

90

Relative importance

250

370

200

Possible

400

400

400

well positioned to exploit it (90). In sum, the A+ rating is worth 250 points out of 400 possible points, perhaps indicating NGC's A+ rating gives it at least competitive parity. The columns compare three hypothetical NGC capabilities.

A comparison of the four columns indicates the U.K. cyber range has the greatest potential for creating a sustainable competitive advantage. Relative to its competitors' resources and capabilities, the cyber range is extremely valuable (100); it is very rare (80); it is extremely costly to imitate (100); and NGC is extremely well positioned to exploit it (90).

Last, NGC's portfolio-analysis tool is very valuable (80); it is not rare (10); it is not costly to imitate (20), but the firm is very well positioned to exploit it (90). Notice too, it is a complementary resource that sustains NGC's business units.

After the firm's analysts have assessed its resources and capabilities qualitatively and quantifiably as relative strengths or weaknesses, the remaining question is this: how and when will the firm fill its resource gaps? The purpose of the SWOT analysis is to use the strengths of the firm to capitalize on opportunities, diminish threats, and reduce weaknesses (e.g., fill resource gaps), so there should be plan to reduce the firm's weaknesses as well as a plan to capitalize on its strengths.

 
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