Resource-Based Theory: Business Analysis

Resource based theory

A subsequent distinction, made by Amit & Schoemaker (1993), is that the encompassing construct previously called "resources" can be divided into resources and capabilities.[4]In this respect, resources are tradable and non-specific to the firm, while capabilities are firm-specific and are used to engage the resources within the firm, such as implicit processes to transfer knowledge within the firm (Makadok, 2001, p388-389; Hoopes, Madsen and Walker, 2003, p890). This distinction has been widely adopted throughout the resource-based view literature (Conner and Prahalad, 1996, p477; Makadok, 2001, p338; Barney, Wright and Ketchen, 2001, p630-31).

Definition of "capability

Makadok (2001) emphasizes the distinction between

Their writings explain that in order to sustain the competitive advantage, it is crucial to develop resources that will strengthen the firm's ability to continue the superior performance. Any industry or market reflects high uncertainty and, in order to survive and stay ahead of competition, new resources become highly necessary. agrees, stating that the need to update resources is a major management task since all business environments reflect highly unpredictable market and environmental conditions. The existing winning edge needed to be developed since various market dynamics may make existing value-creating resources obsolete. The working capital target is an important part of an acquisition where millions of dollars are at stake, is poorly understand by many, and is typically left until later stages of the deal. Very often, sellers leave significant amounts of money on the table as a result of not understanding and addressing the working capital issue earlier in the acquisition process. In fact, sellers would be best suited to understand the impact of working capital well before they begin the process of selling their company. Below

In simple terms, working capital is the cash available for the day-to-day running of the business, used to settle regular bills such as wages and supplies, and also covering unplanned costs and unexpected expenses.

Such an improvement in cash and working capital requires a systematic approach to establishing cash flow visibility and developing sustainable working capital improvements. This approach can be drilled down into five key areas:

• Providing the business with an accurate picture of its current and near-term cash position

• Developing and implementing cash-generating initiatives

• Freeing up cash from operations through close management of the key working capital drivers

• Establishing a strong cash culture in the organization

• Having treasury systems and processes that support measurement and reward management against cash-based targets

• Managing capital; maximizing profits

• Good capital management ensures that the cash available to a business always exceeds its current liabilities, otherwise the business can risk running into problems associated with having a working capital deficit. In the short term this can damage the profitability of the business, and affect its operations. In the long term, poor working capital management can compromise a company’s eligibility for business loans, and damage its ability to attract potential