A 6-step approach to explaining extraordinary resources

To carry out day-to-day business functions, companies use many different resources, but how many of these resources help the company to distinguish itself from other similar companies/competitors? It is argued that in order to create organisational value, a company must have at least one ‘extraordinary resource’. So what is an extraordinary resource? Extraordinary resources can be both intangible and tangible items that are available to be used by the company, and only that company. In this respect, an extraordinary resource may be likened to the ‘unique selling point’ or USP for short, of a product. Some extraordinary resources may be considered long-term, for example a patent lasting for 50 years, and some may be short-term term, for example in the technology market, new innovations don’t stay unique for very long.

There are six main classifications under the acronym ‘TRRACK’ into which an extraordinary resource may be categorised:

1. Tangible

As stated above, resources may be tangible e.g. property, materials, production facilities, patents etc., and these may be stated in the company’s statement of financial position. However, in order to be truly valuable, there must be some sort of relatively strong barrier to prevent other firms from getting access to the same or very similar resource. A major example of this comes again from the technology industry. Companies such as Samsung, Apple, Microsoft etc. operate in an increasingly competitive and rapidly developing market, and as such need to continuously innovate products. In order to achieve these ‘USPs’ they use in-house developed technology, hence minimising external inputs and limitations, and enabling them to develop new technologies, albeit similar in nature, but with different features.

2. Relationships

Relationships can be established either side of the business flow i.e. a company can make relationships with both supplier and customers. Strong business relationships often take time to build up, and are based on trust between the two parties. Relationships are often a very good extraordinary resource, as they are very difficult to imitate and duplicate by other businesses. It should therefore be said that the employment process implemented by a company should be rigorous and thorough in finding suitable employees – particularly management, that have the desired qualities to help to continue these good relations. Taking a management accounting view, relationships are an essential resource for companies adopting a supply chain management and production process. In this respect, good relationships with particular suppliers and customers may act as an extraordinary resource over companies not following a supply chain approach.

3. Reputation

Similar to relationships, a company’s reputation is often established over a long period of time, eventually becoming a household brand in many cases. Although, it should be noted that brand recognition in todays market has grown exponentially due to increased marketing, competitiveness, product accessibility, and other factors such as recessions influencing customer choice. However, once a brand is established, it can often bring in large returns. For example, Apple Inc. was wounded in 1976 but remained relatively unknown until around 10-15 years ago with the release of the iPod. Since then, Apple has become one of the largest grossing companies in the world, and has become a household name, known predominantly for its phones, ,mp3 players, tablets and computers (inc. laptops).

One of the benefits to establishing a good reputation is that as a general rule, customers will be willing to pay a little extra for a branded product rather than, for example, a supermarket’s own brand. Similarly, to use the supermarket example, once individuals trust a particular brand, they can in fact form a loyal customer base, which in turn is likely to bring in greater profits.

4. Attitude

When we discuss attitude, we refer to the attitude of the business i.e. how the business views itself with regards to its position in the economy and community, and generally relates to the world. Literature has shown that a company expressing a positive attitude, both externally (i.e. presenting itself positively to the world) and internally (i.e. promoting positivity amongst employees), tends to prove to profitable. To adapt the phrase ‘happy wife, happy life‘, I personally like to think of this extraordinary resource as ‘happy employee means more money‘. The waterfall effect that can be seen from setting a positive attitude at management level is known in business terms as ‘tone at the top’. Under this idea, managers that promote a culture of positivity and encouragement should see this attitude cascade down the lower levels, to lower level managers and employees, and ultimately the customer (employees should give better customer service). Similarly, an encouraging culture may mean that employees can propose ideas, which are valued and may in fact be innovative and provide the company with a new competitive edge i.e. an extraordinary resource.

5. Capabilities

It is important when talking about this extraordinary resource, that capabilities does not mean individual skills, but rather refers to the combination of skills enabling the company to undertake a set of tasks. It is more than a simple collective of individual parts and skills, and the coordination of capability may be an extraordinary resource.

6. Knowledge

Knowledge is the awareness of information, and its interpretation, organisation, synthesis and prioritisation to provide insights and understanding. Knowledge should go beyond the basic knowledge of a company’s business area to be considered extraordinary. Knowledge can be built up in specific areas, and this detailed knowledge of particular segments may provide a competitive advantage. For example, in the accounting profession, many firms cover a number of areas stretching from auditing to tax, and also have clients from a range of industries. It is common, therefore, that some accounting firms will have specialist knowledge in specific industries or on specific accounting areas (often tax), and this may act as an extraordinary resource – as mentioned in ‘Reputation’, clients are usually more willing to pay slightly more if the quality is expected to be better.

 

For further reading on the TRRACK system, read Glen Arnold, ‘Corporate Financial Management‘ [2013], Chapter 14, page 629

Featured image courtesy of https://www.gsb.stanford.edu/sites/gsb/files/resources/wilkinson-entrepreneur-0415.gif

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