Photo by Gary Ussery
There’s a wide breadth of information out there in academic literature about running a company. That’s why we wanted to provide academic answers to real life business questions so we turned to Shontarius D. Aikens, Ph.D., Assistant Professor of Management at Offutt School of Business at Concordia College, to give us some academic insight.
Have you ever went to a store to buy an item only to come back home to the realization that you didn’t need to buy it after all? Or perhaps the reverse has happened to you. It wasn’t on your shopping list, but when you get back home, you realize that it should have been? I can’t tell you how many times I have experienced both scenarios. And both scenarios are equally frustrating!
And there are some times when we might be sure of the quantity of items in our possession without having a really good understanding of the quality of the item. Occasionally I will read a news story about an individual in possession of an item that to them seemed ordinary, but when evaluated by others, the item turned out to be extremely valuable. Recently, I was talking with one of my colleagues about some data I had collected. During our conversation, my mentor shared with me the very promising possibilities of that data, one of them being an article that could be published in a high quality management journal. While I knew what I had in my possession (the raw data), I guess I didn’t really know what I had (a true understanding of the potential that the raw data represented).
As part of my summer reading and in preparation for the upcoming fall semester classes, I’ve been reading Bruce Tulgan’s (2014) book The 27 Challenges Managers Face. In chapter 7 of this book, there is a section on managing under resource constraints which I found to be very applicable during these times with COVID-19. It suggests the idea of having ongoing conversations on existing resources in the organization and to do a resource-needs inventory. Barney’s (1991) operational definition of a resource is as follows:
“…include[s] all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enables the firm to conceive of and implement strategies that improve its efficiency and effectiveness” (p. 101).
Yes, I realize it is a long definition! But I felt it was important to include it in its entirety to emphasize that a resource can be essentially anything within your organization. In addition, you can also classify resources into four categories:
- Physical resources: (e.g., buildings, vehicles, machinery, equipment, computers)
- Financial resources: (e.g., cash, lines of credit, stock option pools for hiring)
- Human resources: (e.g., employee know-how, management skill, talents)
- Intellectual resources: (e.g., copyrights, brands, patents, proprietary knowledge) ,, ,
In consideration of Tulgan’s (2014) recommendation for a resource-needs inventory and Barney’s (1991) resource categories, let me pose the following question to you as it relates to the organization you own or manage: Do you really know what you have? To find out, here are four steps you and your organization can take to revisit your Key Resources:
- Step 1: Generate a comprehensive list of anything that could be a resource in your organization. During a planning day or retreat, have each person to write the top 10 items that come to their mind. Have each person to share the items on their individual list with the group. As you are compiling the group list, eliminate any redundant items. The goal is to have a compilation of unique items generated by the group.
- Step 2: Classify each item into one of the four resource categories (Physical, Financial, Human, Intellectual). By counting up the items in each resource category, this will give you an indication whether firm resources are predominantly in one category or equally represented across multiple categories.
- Step 3: Apply the VRIO framework. VRIO (an acronym for the words Value, Rarity, Inimitability, and Organization) is a business analysis tool used to determine if an organization’s resources or capabilities could lead to a sustainable competitive advantage. It involves asking the following questions in order about each organizational resource. The more yes’s that are applicable for the resource, the better:
V: Is the resource Valuable?
R: Is the resource Rare?
I: Is the resource Inimitable, or not easily duplicated?
O: Is the firm Organized (legal, administrative, operating structure) to capture profits that the resource creates?
An ideal way to illustrate the results of a VRIO analysis would be in table/spreadsheet format, so that the individual resources are listed in the Rows, and the VRIO questions are listed in the column headings (1 question per column). Answers, comments, and notes can be placed in the corresponding cells of the table/spreadsheet.
- Step 4: Prioritize resources. Whittaker and Company (www.whittakercpas.com) has an excellent guide and procedure for organizations to follow.
Following these steps will enable an organization to really understand its Key Resources, to identify any areas of slack or unused resource capacity, and to envision ways to use existing resources to develop new dynamic capabilities.