Resources and Capabilities 37A. Produce (or acquire) resources and skills cheaply.
B. Transform (the resource or skills) into a product or service.
C. Deploy and implement (the strategy).
D. Sell dearly (for more than was paid).This formula can be broken down into a two-phase process. The first phase is value cre-
ation: The entrepreneur creates “use value,” the value that is perceived by the buyer or
customer. Points A and B above describe this phase. The second phase of the process
is value capture. Entrepreneurs must sell or exchange the value that they create for a cus-
tomer. Price received is a function of the relative bargaining power between the produc-
er and the buyer.^13 Points C and D above refer to value capture. We will cover bargain-
ing power and the other elements of industry analysis in Chapter 3.
It is possible to create value only if cheap or undervalued resources and skills exist or
can be developed at the time of the firm’s start-up. Their availability depends on market
imperfections and differences of opinion about prices and events. These opinion differ-
ences are not limitations, because perfect agreement seldom exists, and the key to an
entrepreneur’s vision is insight into the future.
Our resource-based theory holds that sustainable competitive advantage (SCA) is cre-
ated when firms possess and employ resources and capabilities that are:
- valuable because they exploit some environmental opportunity.
- rare in that there are not enough for all competitors.
- imperfectly imitable(most of the time we will refer to this as hard to copy) so that
competitors cannot merely duplicate them. - nonsubstitutable with other resources.
These four items are known as the VRINcharacteristics or indicators of sustained
competitive advantage.^14 It is also important to distinguish between competitive advan-
tage and sustained competitive advantage. Competitive advantage occurs when the
entrepreneur “is implementing a value-creating strategy not simultaneously being imple-
mented by any current or potential competitors.”^15 “Value creating” refers to above
normal gain or growth. Sustained competitive advantage is competitive advantage with
a very important addition: Current and potential firms are unable to duplicate the bene-
fits of the strategy. Although SCA cannot be competed away by duplication, it also can-
not last forever. Changes in the environment or industry structure can make what once
was SCA obsolete. Important strategic factors in one setting may be barriers to change
in another, or simply irrelevant.
Why are these four characteristics so important?^16 When a firm possesses and con-
trols resources with these four characteristics, it can withstand competitive pressures. If
the new enterprise can protect these resources and maintain these four qualities, it will
have competitive advantage over the long term. New ventures that form with some of
these characteristics but not others have short-term or minor advantages. Firms with all
these qualities, but not in full measure and without a plan to protect the resources, will
have a competitive advantage until other firms are able to copy and imitate them. If the
entrepreneur’s goal is to achieve SCA for the new venture, then he or she must create a
venture that is forgiving, rewarding, and enduring.^17 If the entrepreneur fails to build