2004 assessing core intangible resources

European Management Journal Vol. 22, No. 1, pp. 110122, 2004 2004 Elsevier Ltd. All rights reserved.Pergamon

Printed in Great Britain0263-2373 $30.00doi:10.1016/j.emj.2003.11.010

Assessing Core IntangibleResourcesABRAHAM CARMELI, Bar-Ilan University, Israel

This study aims at introducing a framework bywhich scholars and practitioners may investigate afirms profile of resources. The framework, labeledas Strategic Analysis Technique (SAT), is an ende-avor to better understand the firms core resources(i.e., most valuable, rare, inimitable and non-substitutable) that generate sustainable competitiveadvantage and lead to superior performance. Theresource profile of growing public firms in Israelwas examined and compared with slow-growingfirms. The results of this examination illustrated theframework. The study also sheds light on one ofthe most difficult challenges that resource-basedstrategists face understanding the drivers of sus-tainable competitive advantage. 2004 Elsevier Ltd. All rights reserved.

Keywords: Strategic analysis technique, Core intan-gible resources, Sustainable competitive advantage

Introduction

Assessing the profile of core resources and capabili-ties of firms is one of the most compelling challengesfor strategy scholars and practitioners, especiallythose who are interested in the resource-based viewof strategic management (RBV). RBV emphasizes theinternal side of a firm. While only a decade ago cor-porate strategy mainly viewed the logic of compe-tition as a war of position, where the guiding factorwas where to compete, resource-based view scholarsand practitioners hold that instead of where to com-pete, firms should focus their efforts on the way theyare competing (Stalk et al., 1992). The question of howto compete implies the importance of the internalside of the firm. A firm is perceived as a bundle ofresources, which is the basis for executing its goals(Penrose, 1959). As such, resources and capabilitiesare essential components of strategic investmentdecisions for corporate growth (Canals, 2000). Weneed to know what is the resource profile needed togenerate the highest rent for a firm in a particularindustry.

Whereas significant contributions have been made to

European Management Journal Vol. 22, No. 1, pp. 110122, February 2004110

the theoretical side of the RBV, little has been done,so far, with respect to its empirical side. Establishingan empirical platform is, according to Hoskisson etal. (1999, p. 442), one of the resource-based theorysgreat challenges, because it emphasizes the idiosyn-cratic nature of a firms resources and capabilities.Most of the methods used were qualitative. Forexample, Rouse and Daellenbach (1999) suggestedadopting fieldwork-based or ethnographic-type, andZahra and Pearce (1990) supported in-depth casestudies as a promising approach for research in stra-tegic management. Recently Hoskisson et al. (1999)pointed out that the recent advance of the RBV hasposed new challenges regarding the use of quantitat-ive methodsand the integration of quantitative andqualitative methodological tools is likely to be a fruit-ful course, especially re-emphasising issues inside thefirm through the RBV (p. 447).

The present study is concerned with the developmentof a framework, labeled as a Strategic Analysis Tech-nique (SAT), for identifying the resource profile ofthe firm. SAT tries to enhance the ability ofresearchers and managers to better understand thecore resources (i.e., most valuable, rare, inimitableand non-substitutable) possessed by a particular firmor a group of firms with common characteristics. Itconsists of four main steps when analysing theresource profile of a firm. A preliminary task is toidentify the potential strategic resources within anindustry or populations of industries with commoncharacteristics. Once this in-depth analysis is com-pleted, SAT consists of four main steps and one forre-evaluation. First, it requires selecting the mostvaluable resources (up to 7) and ranking them fortheir importance to the success of the firm. In all ofthe remaining steps, only valuable resources will beexamined. Second, the valuable resources will beranked according to the degree of their rarity. Third,the valuable resources will be ranked according tothe extent to which they are inimitable. Fourth, thevaluable resources will be ranked according to theextent to which substitutes are not immediately avail-able. Finally, the evaluator is required to look at theoriginal list of resources (created in the preliminaryphase) again, and select and score up to seven

ASSESSING CORE INTANGIBLE RECOURCES

resources that meet all the four conditions, namelythe most valuable, rare, difficult to imitate andnon-substitutable.

The study begins with a brief discussion of theinsights and definitions proposed by a resource-based view of strategic management. The third sec-tion introduces a framework for identifying theresource profile of firms. The resource profile ofgrowing public firms in Israel is examined and com-pared with slow-growing firms, and serves to illus-trate the developed framework. The discussion andconclusion are presented in the final section.

Resources, Sustainable CompetitiveAdvantage, and Performance

The resource-based view (RBV) suggests that strategyresearchers should devote more effort to looking atfirms in terms of their resources relative to their pro-duct market activities (Wernerfelt, 1984). Underlyingthis approach is the assumption of resource hetero-geneity of the competitors in a definite industry(Amit and Schoemaker, 1993; Barney, 1997; Prahaladand Hamel, 1990). That is, firms can be thought of asbundles of productive resources, and different firmspossess different bundles of resources (Barney, 1997;Peteraf, 1993). Another assumption is resource immo-bility, according to which some of these resources areeither very costly to copy or inelastic in supply(Barney, 1997).

In a dynamic and competitive environment, the realsource of competitive advantage is underlined by theorganizations ability to consistently meet environ-mental changes, as well as to change the industrystructure. The latter could be gained only by identi-fication, development and preservation of strategiccapabilities (Bartmess and Cerny, 1993). Gaining andpreserving sustainable competitive advantage (SCA)and superior performance is a function of the core(strategic) resources and capabilities that each organi-zation brings to the competition (Aaker, 1989; Barney,1995; Conner, 1991; Grant, 1991). The influentialstudy of Prahalad and Hamel (1990) established thisapproach. These authors argued that superiority ofcorporations [cf., NEC vs GTE (now Verizon)] overtheir competitors is due to a distinction in their corecompetencies and the way they are deployed. A yearearlier, Aaker (1989) argued that a firm with superiorperformance developed key assets and skills over itsrivals. Hence, a firm should build its own competi-tive strategy on its core resources and capabilities aswell as in relation to environmental opportunitiesand threats (Barney, 1991; Peteraf, 1993; Reed andDeFillippi, 1990) because those resources and capa-bilities are the major source of SCA creation (Barney,1995; Conner, 1991; Grant, 1991; Peteraf, 1993).

Scholars have been using different terms such as

European Management Journal Vol. 22, No. 1, pp. 110122, February 2004 111

resources, capabilities, competencies, skills andassets, as basic constructs of RBV. Differencesbetween these constructs are well analysed by Javi-dan (1998). The present study uses the termresources to simplify the discussion below. Amitand Schoemaker (1993) defined resources as stocksof available factors that are owned or controlled bythe firm (organization) (p. 35). Wernerfelt (1984)describes a resource as anything, which could bethought of as a strength or weakness of a given firm(organization) (p. 172). In using the term resource, Imean a strategic resource, that is, one that differen-tiates the firm strategically and creates SCA(Leonard-Barton, 1992). Sustainable CompetitiveAdvantage occurs only when a firm is implementinga value-creating strategy that is not simultaneouslybeing implemented by any current or potential com-petitors and when these other firms are unable toduplicate the benefits of this strategy (Barney, 1991,p. 102). Resources are the substance of strategy, thevery essence of SCA (Collis and Montgomery, 1998,p. 27). They are the substance of strategy becauseSCA is a match between the organizations resourcesand skills and the environmental opportunities andrisks it faces, and the purposes of the organization(Hofer and Schendel, 1978, p. 11). Resources are thevery essence of SCA because a firms ability to gainand preserve its profitability depends on its ability todefend its advantage position, which, basically, relieson its resources (Conner, 1991).

According to Barney (1991), resources contribute toSCA creation only if they are valuable (i.e., contributeto the improvement of the firms performance), rare(i.e., possessed by a small number of firms relativelyto the number of firms that need it to create a perfectcompetition dynamics), inimitable (i.e., costly to copyby the competitors), and non-substitutable (i.e., noimmediate substitute is available for the competitorsto fulfil the same function). As shown in Table 1, ifa firm possesses resources that do not follow any ofthese criteria, we can expect this firm will not possessa competitive advantage and will earn below normalperformance. If a resource that a firm possesses isonly valuable but not rare, inimitable and non-substi-tutable, then we can expect that this firm will be in acompetitive parity and earn average return. If a firmpossesses resources, which are following only twocriteria value and rareness then we can expectthat this firm will be in a competitive advantage pos-ition, but not in a sustained competitive advantage.Assuming these two criteria are held, and two othercriteria, inimitability and non-substitutability, areadded and exist simultaneously, then we can expectthat these resources will produce a sustainable com-petitive advantage.

Resources are, basically, classified into two categor-ies: tangible and intangible. Tangible resources con-sist of all physical items that the organization pos-sesses, such as facilities, raw materials and otherequipment. Intangible resources comprise all items


Table 1 Resource Criteria with Respect to Sustainable Competitive Advantage Creation and Performancea

Resource value Resource rare Resource inimitability Resource non- Advantage position Firms performancesubstitutability

Not valuable Not rare Imitable Substitutable Advantage absent Below normalValuable Not rare Imitable Substitutable Competitive parity NormalValuable Rare Inimitable Substitutable Temporary Above normal

competitive (short-term)advantage

Valuable Rare Inimitable Non-substitutable Sustainable Superiorcompetitiveadvantage

aThe framework, in part, is based on the works of Barney (1997) and Hitt et al. (2001).

not appearing in the material reports (balance sheets)such as organizational culture, reputation, andinternal control. Intangible resources are always con-sidered to play an important role in firms value cre-ation. Tangible resources are flexible, and can bemore easily imitated than intangible resources, whichare, by definition, inflexible (Chatterjee and Werner-felt, 1991). Thus, intangible, more than tangible,resources have potential for competitive advantagecreation. As pointed out by Canals (2000) as indus-trial society becomes a services society, where knowl-edge and information are the mainstays of businessgrowth, the importance of intangible resources willcome increasingly to the forefront (p. 118). Teece(2000) showed that a firms superior performancedepends on its ability to innovate, defend intangibleassets (i.e., knowledge), and use those assets. Itamiand Roehl (1987) view intangible resources (they usethe term invisible assets) as the most important factorsin long-term success, and furthermore, as the realsource of competitive power and the key factor incorporate adaptability (pp. 1213). Their last claimderives from the premise, according to which thoseintangible resources: (a) are hard to accumulate, (b)have the ability to be in multiple uses simul-taneously, and (c) are both input and output of cor-porate activities. Collis and Montgomery (1998)explain that intangible resources play an importantrole in the creation of competitive advantage becausethey are not being consumed in usage (p. 28). Porter(1987) pointed out the importance of the ability totransfer products into new markets, which relies onthe nature of those resources. Assuming that intan-gible resources are for multiple uses simultaneously,then their strategic importance in creating valueincreases (Itami and Roehl, 1987). This approach callsupon diversified firms to invest further effort todevelop core intangible resources.

A Framework for Identifying a FirmsProfile of Core Resources

Given the importance of core (strategic) resources increating sustainable competitive advantage and lead-


ing to superiority, it is important to assess theresource profile of superior performers, and compareit to less successful firms. Though there is a strongcall for using quantitative approaches, most of thestudies, thus far, used qualitative methods to assessa firms profile of resources. This section develops aframework by which strategy researchers and topexecutives will be able to identify their firms profileof core (strategic) resources. At the end of the section,the potential contributions of the developed frame-work are summarized.

The framework is comprised of two phases. The firstphase consists of a preliminary qualitative analysis.The second phase consists of five quantitative-based steps.

Participants

The research population consisted of ninety Israelipublic companies traded mainly on the Tel-AvivStock Exchange (TASE), but also on the US and Lon-don stock exchanges. This research population wasjustified since these companies are under the perma-nent review of investors, investment banks, and otherstakeholders around the world. It also accorded withthe design of the study to use both subjective andsecondary data. The list of companies was taken fromthe Standard & Poors Directory of Public Compa-nies & Financial Institutions (S&P) (1999). In orderto encourage companies to participate in the study,complete confidentiality was guaranteed. Hence, allcompanies are referred to anonymously.

Questionnaires were mailed directly to the firmschairmen or CEOs in order to enhance the likelihoodthat they or one of the top managers (i.e., Vice Presi-dent of Business Development or Chief FinancialOfficer) would complete the questionnaires. Since allpotential participants held high-level managerialpositions, the potential for significant data biases wasdiminished. Participants were required to note theirspecific role on the survey (many supplied their busi-ness card). In addition, some of the participants con-tacted the researcher to clarify various issues. Over-


all, it is reasonable to conclude that all theparticipants were the persons who held the positionindicated in the survey.

Twenty-two questionnaires were returned, aresponse rate of 24.4 per cent. Twelve firms wereidentified as growing firms (successful firms in termsof annual growth), and the others as slow-growing(less successful) firms. The dividing line betweengrowing and slow-growing firms was taken as 15 percent annual growth in US dollars.

The companies surveyed act in a variety of industriessuch as diversified holdings, software, pharmaceut-ical, energy, textile, banking, electronics, real estateand chemical. To control for industry effects the firmswere grouped by their perception of the degree towhich their industry is uncertain and unstable. Thus,the firms were classified according to their annualgrowth and perceived environmental uncertaintyand instability. Two categories of successful firmswere created: (1) growing firms in a certain andstable environment (2) growing firms in an uncertainand unstable environment. In addition, two identicalcategories of less successful firms were formed inorder to enable a comparison between growing andslow-growing firms. A complete list of the firms,their industries, and classification according to suc-cessful vs less-successful, and degree of perceivedenvironmental uncertainty and instability ispresented in Appendix A.

The average age of the firms was 35.67 years. Theiraverage size in terms of income and number ofemployees were US$ 566 million and 2317employees, respectively. The total annual income ofthe participants was US$ 11,901 million. Twelve firmsreported a fundamental restructuring had takenplace in the last three years. The average age andorganization tenure of the respondents (CEOs orvice presidents) were 44.27 and 50 years, respect-ively. All the respondents, except one, held at least agraduate degree.

Phase 1: In-Depth Analysis

A review of the literature was conducted to exploreintangible resources, considered as potential for SCAcreation. The process yielded a list of 22 intangibleresources, presented in Table 2.

One can argue for causal ambiguity in using topmanagement to identify the resource profile of thefirm. Thus, an in-depth analysis of individual caseswas integrated to support the findings of the study.This in-depth analysis was conducted to explore thecore intangible resources possessed by the examinedfirms. The information was collected from severalsources such as annual financial reports, analysis ofannouncements made by the company, and analysisreports on the company. It is worth noting that


resource heterogeneity can be identified across thefirms. For example, one firm, that competes in thereal estate industry, gains above-normal performancewhich can be attributed to resources such as planningcapability, ability to raise funds, relationships withlocal and central government, and organizationalreputation. Another example is a firm that competesin the software industry. Its success is attributed tocore resources such as intellectual property, know-how, marketing and selling, and product/servicesreputation.

Phase 2: A Strategic Analysis Technique (SAT)

This study is drawn, in part, on the typology of Hall(1992, 1993) and extends, using different terminology,the categorization suggested by Coyne (1986) regard-ing four types of capability differentials. In Hallstypology, intangible resources are classified into twomain categories: people-dependent and people-inde-pendent, and on the system approach (Katz andKahn, 1978) which was formerly used by Lado andWilson (1994). This approach classified resources intothree categories: input-based, conversion-based, andoutput-based. The proposed typology, which consistsof 22 resources, is presented in Table 2. Theseresources are broad-based and were chosen basedfrom a broad literature, which suggested that theymay have potential for SCA creation (Aaker, 1989;Hall, 1992; Teece, 2000) The Core IntangibleResources (CIRs) will be discussed later in theResults section.

Barney (1991) suggested four tests for consideringresources as a source of SCA. These four steps weredeveloped to identify the CIRs that each firm pos-sesses, and groups of firms were created accordingto the degree to which their task environment(industry) was uncertain and unstable. A fifth stepaimed at re-evaluating the CIRs that a firm possessesaccording to the four conditions of SCA creation incombination. Before turning to a detailed discussionof the four steps, we asked participants to look care-fully at a list of 22 intangible resources depicted inTable 2.

Step 1. The Value of the Resources

Participants were told that firms may possess valu-able resources, which are the source of their superior-ity. Participants were asked to choose up to sevenvaluable intangible resources their firms possessed,and distribute up to 105 points among them, accord-ing to the value of each resource with respect to itscontribution to the firms success. An example wasgiven to clarify this point. Participants were asked toavoid giving all resources the same score, and toscore each resource they chose once they electeda resource, it had to have a certain value, but notzero. Participants were asked to write the name or


Table 2 Typology of Intangible Resources

Resources differentiation

Input-based resources Conversion-based resources Output-based resources

People- Know-how; Ability to learn;dependent Managerial competence; Human

capital.People- Planning capability; Databases. Internal Control; Ability to raise funds; Organizational reputation;independent Environmental fit; Industrial relation; Product/Service reputation;

Ability to manage changes; R&D; Intellectual property.Relationship with the community;Relationship with local and centralgovernment; Marketing and selling;Business development and planning;Organizing; Organizationalcommunication; Organizationalculture.

Table 3 The Five Most Valuable, Rare, Inimitable, and Non-Substitutable Intangible Resources ofSuccessful and Less-Successful Firms Competing in an Industry of a Low Level of Uncertainty andInstabilitya

Fast-growing firms Slow-growing firmsValue Rare Inimitable Non- Value Rare Inimitable Non-

substitute substitute1. Planning capability 133 117 99 1172. Internal control3. Ability to raise funds 126 95 100 97 1004. Environmental fit5. Know-how 109 116 106 1626. Industrial relations 917. Ability to learn 968. Ability to manage changes 999. Managerial competence 108 121 101 111 97 94 99

10. Organizational reputation 107 133 11111. Product/Service reputation 101 126 162 16212. R&D13. Databases14. Human capital 99 96 10115. Intellectual property16. Relationship with the community17. Relationship with local and central

government18. Marketing and selling 126 99 10419. Business development and planning 9920. Organizing21. Organizational communication22. Organizational culture 91 104 99

aSee note 2 for a separate explanation of the scoring values calculation for Tables 3 and 4.

the number of the resources they had selected, andto score them according to the instructions.

Step 2. The Rareness of the Resources

The fact that firms may also possess rare resourceswas explained to participants, and they were asked to


refer to the seven (or fewer) valuable resources selec-ted in step one, and again to distribute 105 new pointsamong the seven resources, according to their rarenessA resource may have received a high or low score forits value; but may also have received a high or lowscore for the extent of its rarity, or even zero as it wasnot rare at all. Again, the participants were asked toavoid giving the resources selected the same scores.


Table 4 The Five Most Valuable, Rare, Inimitable, and Non-Substitutable Intangible Resources ofSuccessful And Less-Successful Firms Competing in an Industry of High Levels of Uncertainty andInstability

Fast-growing firms Slow-growing firms

Value Rare Inimitable Non- Value Rare Inimitable Non-substitute substitute

1. Planning capability 114 942. Internal control3. Ability to raise funds 111 97 97 98 94 101 105 1054. Environmental fit5. Know-how 104 99 98 996. Industrial relations7. Ability to learn8. Ability to manage changes 98 107 111 94 949. Managerial competence 106 162 130 162

10. Organizational reputation 90 9311. Product/Service reputation 96 96 9412. R&D 9513. Databases14. Human capital 110 162 162 114 114 101 9015. Intellectual property 109 99 9416. Relationship with the community17. Relationship with local and central

government18. Marketing and selling 126 99 104 10119. Business development and planning20. Organizing21. Organizational communication22. Organizational culture 91 104 99

Step 3. The Difficulty of Imitating Resources

Participants were told that firms may also possessresources that are difficult for competitors to imitate.Participants were asked to refer to the seven (orfewer) valuable resources they selected in step one,and to again distribute 105 new points among theseven resources, according to how difficult they areto imitate. A resource may have received a high orlow score for its value; may also have received a highor low score according to how difficult it is to imitate,or even a score of zero if no limit for imitation exists.Again, the participants were asked to avoid givingthe selected resources the same scores.

Step 4. The Non-Substitutability of the Resources

The importance of core resources also depends onhow easily and immediately a substitute can beestablished by competitors. The more easily andimmediately a substitute can be found, the less theresource contributes to SCA. The participants wereasked to refer to the seven valuable resources theyselected in step one, and to again divide 105 newpoints among the seven resources, according to thesubstitute test mentioned above. A resource mayhave received a high or low score for its value; mayalso have received a high or low score for the extentof its rareness, or even zero if it is not rare at all. It


may have received a high or low score according tothe degree of inimitability, or zero score if no limitfor imitation exists. The resource might have receiveda high or low score according to how easily andimmediately it can be replaced by another substitute,or even a score of zero if no substitute exists. Again,the participants were asked to avoid giving the selec-ted resources the same scores.

Step 5. The Core Resources in Retrospect

In the fifth step, participants were asked to look overthe list of the 22 resources in the beginning of thequestionnaire, and to think in retrospect about theresources they selected and scored. Next, they wereasked to select up to seven resources and distributeup to 105 points among them, with the condition thatthey consider and weigh the four tests together forSCA. In other words, they were asked to select upto seven resources that are the most valuable, rare,difficult to imitate, and non-substitutable. Again,participants were asked to avoid giving the selectedresources the same scores.

The Contribution of the Strategic AnalysisTechnique

The Strategic Analysis Technique (SAT) wasdeveloped and proposed in order to create a more


solid infrastructure for empirical examination of theinsights of the RBV. More specifically, its purpose isto provide a framework for strategy scholars andpractitioners to follow while striving for an under-standing of the firms core resources.

There are at least five benefits provided by the pro-posed framework. First, identification of the mostvaluable core resources, and determination of mostcritical resource for value creation for a firm (Collisand Montgomery, 1995). Second, according to RBV,resources should meet several criteria in order toaccount for a strategic role (Barney, 1991). Thus, it isimportant to subject the resource to four tests. Thesuperior core resource will be the one that achievesthe highest score in the four tests examined here.Third, SAT is a more appropriate procedure than thestandard original rating, as it suggests estimation ofthe interval between resources. Let us take, forinstance, a list of three intangible resources(reputation, culture and know-how). Under standardrating procedure, these resources would be rated asnumber one, two and three. In SAT, however, we willscore resources by intervals; let us assume a total of30 scores in a basket, and the requirement is to dis-tribute them among those three resources. The onewhich is considered the most valuable resourcewould get, say, a score of 18, while the others receiveless (7 and 5). This variability needs remedy, namelyusing normalized data as explained in the Resultssection.

Fourth, firms that identify their core intangibleresources could concentrate efforts on understandingtheir strengths and weaknesses. For example, aresource may be considered highly valuable, but itmay also suffer from a weakness, since competitorscan easily imitate it. In this case, the firm should notjust protect the resource, but also, even moreimportantly, cultivate it by making the resource moredifficult to imitate by competitors. Finally, this pro-cess enables a firm to develop a more profoundunderstanding about the resources needed to bedeveloped in order to compete successfully in adefinite industry.

Results

This section illustrates the framework developed. Asample of 12 growing and 10 slow-growing publicfirms serves as an illustration of the proposed Stra-tegic Analysis Technique (SAT).

Key Valuable, Rare, Inimitable, and Non-substitute Intangible Resources

As explained above, firms were grouped by their per-formance (above and below 15 per cent annualgrowth, and degree of perceived industry uncer-


tainty and instability). This process produces fourgroups as follows: (1) Growing firms in an uncertainand unstable environment, (2) Growing firms in acertain and stable environment, (3) Slow-growingfirms in an uncertain and unstable environment, and(4) Slow-growing firms in a certain and stableenvironment.

Scores of the four groups of firms were totalledaccording to the four tests of SCA creation: value,rareness, inimitability, and non-substitutability. Fromeach test, only the five most important, those withthe highest scores, are reported and discussed on thepresumption that however successful a firm may be,it possesses only a narrow bundle of core resources.The results are presented in Tables 3 and 4. Note thatmore than five resources are presented in the Tables3 and 4, because of differences among the four tests.Namely, a resource might be highly scored for itsvalue but was not scored for any other tests. The con-tribution of the resources to SCA creation is illus-trated in Tables 58.

The procedure of distributing up to 105 points amongseven resources for each one of the conditions forSCA creation may produce a great variance in theresponses. In order to adjust this variation, nor-malized scores were used. The percentile rank wastransformed and is presented as standardized scoreswith a mean of 100 and a standard deviation of 20(cf. Ghiselli et al., 1981) in Tables 3, 4 and 9.

Fast-growing Firms that Compete at Low Level ofIndustry Uncertainty and Instability

Fast-growing firms that compete at a low degree ofindustry uncertainty and instability perceive plan-ning capability as a core resource that may produceSAC and lead to superiority as it withstood all of thefour tests for SCA creation. Both managerial com-petence and marketing and selling were perceived asones that account for competitive advantage andabove-normal return. Industrial relations, humancapital and organizational culture account for com-petitive parity and normal return.

Slow-growing Firms that Compete at Low Levelof Industry Uncertainty and Instability

Slow-growing firms that compete at low degree ofindustry uncertainty and instability perceive fourresources as a source of SCA creation. These areability to raise funds, know-how, managerial com-petence, and product/service reputation. Interest-ingly, only managerial competence was perceived ascritical for both high- and slow-growing firms thatcompete at low level of industry uncertainty andinstability. It indicates different perceptions as towhich resource profile (and what specific resources)


Table 5 Core Resources with Respect to Sustainable Competitive Advantage Creation and Performance:Fast-growing Firms that Perceive their Industry as one of Low Level of Uncertainty and Instability

Value Rareness Inimitable Non-substitutable Advantage Firmsposition performance

Planning capability Yes Yes Yes Yes Sustainable Superiorcompetitiveadvantage

Industrial relations Yes No No No Competitive parity Normal return(short-term)

Managerial competence Yes Yes No Yes Competitive Above normaladvantage return

Human capital Yes No No No Competitive parity Normal return(short-term)

Marketing and selling Yes Yes Yes No Competitive Above normaladvantage return

Organizational culture Yes No No No Competitive parity Normal return(short-term)

Table 6 Core Resources with Respect to Sustainable Competitive Advantage Creation and Performance:Slow-growing Successful Firms that Perceive their Industry as one of Low Level of Uncertainty andInstability


Ability to raise funds Yes Yes Yes Yes Sustainable Superiorcompetitiveadvantage

Know-how Yes Yes Yes Yes Sustainable Superiorcompetitiveadvantage

Managerial competence Yes Yes Yes Yes Sustainable Superiorcompetitiveadvantage

Product/Service Yes Yes Yes Yes Sustainable Superiorreputation competitive

advantageBusiness development Yes No No No Competitive parity Normal returnand planning (short-term)

Table 7 Core Resources with Respect to Sustainable Competitive Advantage Creation and Performance:Fast-growing Firms that Perceive their Industry as one of High Level of Uncertainty and Instability


Planning capability Yes No No No Competitive parity Normal return(short-term)


Managerial competence Yes Yes Yes Yes Sustainable Superiorcompetitiveadvantage

Human capital Yes Yes Yes Yes Sustainable Superiorcompetitiveadvantage

Business development Yes No No No Competitive parity Normal returnand planning (short-term)



Table 8 Core Resources with Respect to Sustainable Competitive Advantage Creation and Performance:Slow-growing Successful Firms that Perceive their Industry as one of High Level of Uncertainty andInstability


Planning capability Yes No No No Competitive parity Normal return(short-term)


Ability to manage Yes Yes No No Competitive Above-normalchanges advantage returnProduct/Service Yes No Yes Yes Competitive Above-normalreputation advantage returnHuman capital Yes Yes No Yes Competitive Above-normal

advantage returnMarketing and selling Yes No No No Competitive parity Normal return

(short-term)

Table 9 The Five Core Intangible Resources in Retrospect According to the Degree of Perceived IndustryUncertainty and Instabilitya

Growing firms Slow-growing firms

Low level of industry High level of industry Low level of industry High level of industryuncertainty and uncertainty and uncertainty and uncertainty andinstability instability instability instability

Planning capability 103 116Internal controlAbility to raise funds 104Environmental fitKnow-how 116 101 100 93Industrial relationsAbility to learnAbility to manage changes 98 101Managerial competence 104 96 106 162Organizational reputation 104Product/Service reputation 117R&DData basesHuman capital 108 127Intellectual property 96Relationship with the communityRelationship with local andcentral governmentMarketing and selling 110Business development andplanningOrganizingOrganizational communicationOrganizational culture 103

aSee note 3 for a separate explanation of how the score values are calculated.

has the potential for being a source of SCA. Oneresource business development was perceived asvaluable, but did not follow other conditions, and,thus, accounts only for competitive parity and nor-mal return.


Fast-growing Firms that Compete at High Level ofIndustry Uncertainty and Instability

Fast-growing firms that compete at a high level ofindustry uncertainty and instability perceive three


core resources for they withstood all of the four con-ditions for SCA creation. These are ability to raisefunds, managerial competence, and human capital.Two others planning capability and businessdevelopment - are valuable, but they did not complywith the conditions of rarity, inimitability and non-substitutability. Hence, they account for a competi-tive parity and normal return.

Slow-growing Firms that Compete at High Levelof Industry Uncertainty and Instability

Slow-growing firms that compete at a high level ofindustry uncertainty and instability perceive onlyone core resource ability to raise funds as itwithstood the four tests for SCA creation. Interest-ingly, the latter was perceived as a source for SCAcreation by both fast and slow-growing firms thatperceive their industry as highly uncertain andunstable, as well as by slow-growing firms that per-ceive their industry as relatively certain and stable.

Slow-growing firms that compete at a high level ofindustry uncertainty and instability perceive bothplanning capability and marketing and selling asvaluable resources, but not the kind that may onlyproduce competitive parity and normal return.Ability to manage changes, product/service repu-tation, and human capital account for competitiveadvantage and above-normal return in the shortterm.

Core Intangible Resources in Retrospect

In order to conclude the resources that populationsof firms perceived as most important with respect toSCA creation, participants were asked to start theprocess again. They were asked to look at the list of22 resources in the beginning of the questionnaire,and to select up to seven and distribute up to 105scores among them, with the condition that they con-sider all the four tests for SCA together. That is, scoreresources when considering their value, rareness,inimitability, and non-substitutability together.Again, only the five most important resources arereported.

In order to simplify the discussion, the results foreach group, which are presented in Table 9, revealan interesting finding. Although some similaritiescould be identified, we can identify resource hetero-geneity across populations of firms. In addition,though all four populations of firms consider know-how and managerial competence as sources of SCAcreation, it is important to indicate the weight differ-ences that each group attributed. For example, grow-ing and slow-growing firms that compete at rela-tively certain and stable task environment granted116 and 100 scores to know-how.


Furthermore, looking into the results of each firmleads to a conclusion that each firm has its own pro-file of core intangible resources.1 This argument holdsas well for populations of firms as they emphasizedifferent combinations of resources required for SCAcreation. It supports one of the most important prem-ises of RBV, regarding resource heterogeneity acrossfirms as well as across populations of firms.

Discussion

The assessment of core resources, which account forSCA creation, is one of the most difficult challengesof resource-based view strategists. This study is anattempt to cope with this challenge by developing aframework by which researchers and managers mayanalyse the core resources of a firm as well as popu-lations of firms. Data collected from 12 growing and10 slow-growing public firms in Israel served to illus-trate the framework.

Contributions, Limitations and Suggestion forFuture Research

The study has made three major contributions. Thefirst major contribution is a framework for analysingand identifying core resources of a firm and popu-lations of firms, and their real roles with respect tothe creation of SCA and the generation of superiorperformance. The Strategic Analysis Techniques(SAT) enable an understanding of the real state ofresources with respect to the four tests for SCA cre-ation, and can be a useful framework for researchersand managers to follow. In other words, the frame-work enables us to identify the resources profile of afirm as well as the resource profile of firms acrossrelated industries which have similar characteristics.In identifying differences among resources withrespect to their contribution to SCA, the frameworkallows us to better confront the information problemof multicollinearity, while analysing a strategicresource profile.

The second major contribution of this study is thatthe framework allows us to overcome the complexityof exploring a firms resource profile or populationsof firms with common characteristics. It allows us tobetter understand the relative importance ofresources with respect to SCA creation by using aninterval rating method. Instead of using ordinal rat-ing methods such as Likert-type or simple ranking,that may not tell us much about the relative impor-tance of the resources (and therefore make it very dif-ficult to explore the core resources possessed by thefirm), we suggest using an interval rating methodthat enhances the accuracy of measuring coreresources and provides a better understanding of therole that resources play in SCA creation.


This study also indicates the importance of usingboth qualitative and quantitative approaches.Though the focus of this study was on developinga quantitative framework of analysing a firms coreresources, it should be stated that qualitative andquantitative approaches are complimentary andstrengthen one another. For example, a first step maybe identifying resources in a definite industry orrelated industries that may have a potential of SCAcreation followed by a quantitative method that mea-sures the core resources possessed or should bedeveloped by the firm.

Firms all around the world are aware of the impor-tance of core resources in attaining SCA, but are stilllooking for ways to understand where the competi-tive position originates and what should be done tocreate and capture value. The resource-based viewis an approach that is concerned explicitly with thecreation of competitive advantage. Yet, it is still notclear how to identify the drivers of competitiveadvantage. The framework proposed makes it clearerto researchers and managers that the process ofidentifying the sources of value creation is complexin nature. This study involved only a Chairperson orCEO, but this may be extended to other levels ofmanagement. For example, another direction mayinvolve stakeholders.

Several limitations of this research should be men-tioned. First, as the ground of this study is somewhatnew, the data must be interpreted cautiously. Causalinference is constrained by the relatively small data.Second, the empirical method proposed here needsfurther investigation, and should be considered a

Appendix A

A Description of Firms that Participated in the Study

Growing firms in an uncertain and unstable environment Growing firms in a certain and stable environment

Firm Industry Firm Industry

1 Holdings and investment 1 Software2 Investments 2 Chemicals3 Holdings and investment 3 Real estate4 Software 4 Banking5 Electronics 5 Textile6 Pharmaceuticals 6 Energy

Slow-growing firms in an uncertain and unstable environment Slow-growing firms in a certain and stable environment

Firm Industry Firm Industry1 Telecommunication 1 Communication2 Defense 2 Retail3 Software 3 Diversified holding4 Electricity 4 Power equipment5 Chemicals 5 Medical equipment

The classification was made according to CEO perceptions of environmental uncertainty and instability.


preliminary framework only. Third, the studyincludes a list of 22 intangible resources, which parti-cipants were asked to select and rank. Firms couldhave had other resources, which were not on the list.Furthermore, the study focuses on intangibleresources only. Finally, though the study consideredtwo aspects of industry effects (industry uncertaintyand instability), it did not consider the importance ofother important industry effects (see Porter, 1987).

The study has several implications for futureresearch. The premises of the resource-based viewneed a more empirical platform with respect to theresources heterogeneity of high, average and low-performing firms. This argument calls for researchsuch as conducted by Aaker (1989) in order to pro-duce solid empirical foundations of the core insightsof RBV. Research effort that has been devoted toexploring the evolution of core elements (Helfat andLieberman, 2002; Siggelkow, 2002) may benefit fromthis framework. Future research local and inter-national using similar methods may lead us to abetter understanding of the nature of SCA and com-petitive strategy. Fifth, exploring the relationshipbetween core resources and strategic decisions in spe-cific markets is a very challenging task. Finally, a gen-eral linear model may serve as a method for analys-ing large datasets.

Acknowledgements

I wish to thank the editor and an anonymous reviewer of thisjournal. I am grateful to Jeffrey H. Greenhaus, Frank Linne-han, V.K. Naranayan, John M. Schaubroeck and Asher Tishler


who provided me with many helpful comments and sugges-tions.

Notes

1. The results for each firm are not presented in order to sim-plify the presentation of the data.

2. The values were received from steps 14 and represent therelative importance of core intangible resources of fast vsslow-growing firms. The ranking procedure asked therespondents to follow four steps as follows: (1) to chooseup to seven valuable intangible resources their firms pos-sess, and to distribute up to 105 points among them accord-ing to their value; (2) to again distribute 105 new pointsamong the seven or less resources, according to their rarity;(3) to again distribute 105 new points among the seven orless resources, according to their inimitability; and (4) toagain distribute 105 new points among the seven or lessresources, according to their sustainability. For a fulldescription see section headed A Strategic Analysis Tech-nique (SAT).

3. The values were received through Stage 5 and representthe core intangible resources of firms that compete in a lowvs high level of industry uncertainty and instability. In thisstage, the participants were asked to start the ranking pro-cess again. Specifically, the respondents were asked to lookat the list of 22 resources at the beginning of the question-naire, and to select up to seven resources and distribute upto 105 points among them, with the condition that theyconsider all the four tests for SCA together. That is, scoreresources when considering their value, rarity, inimita-bility, and non-sustainability together.

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ABRAHAMCARMELI, GraduateSchool of BusinessAdministration, Bar-IlanUniversity, Ramat-Gan,52900, Israel. E-mail:[email protected]

Abraham Carmeli is afaculty member of theGraduate School of Busi-ness Administration and

the Department of Political Science (jointappointment) at Bar-Ilan University. His currentresearch interests include the effect of intangibleelements on performance, managerial skills, prestige,organizational failures and aspects of individualbehaviour at work.


Assessing Core Intangible ResourcesIntroductionResources, Sustainable Competitive Advantage, and PerformanceA Framework for Identifying a Firms Profile of Core ResourcesParticipantsPhase 1: In-Depth AnalysisPhase 2: A Strategic Analysis Technique (SAT)Step 1. The Value of the ResourcesStep 2. The Rareness of the ResourcesStep 3. The Difficulty of Imitating ResourcesStep 4. The Non-Substitutability of the ResourcesStep 5. The Core Resources in RetrospectThe Contribution of the Strategic Analysis Technique

ResultsKey Valuable, Rare, Inimitable, and Non-substitute Intangible ResourcesFast-growing Firms that Compete at Low Level of Industry Uncertainty and InstabilitySlow-growing Firms that Compete at Low Level of Industry Uncertainty and InstabilityFast-growing Firms that Compete at High Level of Industry Uncertainty and InstabilitySlow-growing Firms that Compete at High Level of Industry Uncertainty and InstabilityCore Intangible Resources in Retrospect

DiscussionContributions, Limitations and Suggestion for Future Research

Acknowledgements

References

2004 assessing core intangible resources

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