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but widely held resource only leads to competitive parity for a firm if they also
possess the capabilities to exploit the resource. Likewise, a firm that possesses a
valuable and rare resource will not gain a competitive advantage unless it can actually
put that resource to effective use.

Many firms have valuable and rare resources that they fail to exploit (the
question of imitation is not relevant until the firm exploits valuable and rare
resources). For instance, for many years Novell had a significant competitive
advantage in computer networking based on its core NetWare product. In high-
technology industries, remaining at the top requires continuous innovation. Novell’s
decline during the mid- to late 1990s led many to speculate that Novell was unable to
innovate in the face of changing markets and technology. However, shortly after new
CEO Eric Schmidt arrived from Sun Microsystems to attempt to turnaround the firm,
he arrived at a different conclusion. Schmidt commented: “I walk down Novell
hallways and marvel at the incredible potential of innovation here. But, Novell has
had a difficult time in the past turning innovation into products in the
marketplace.” [29] He later commented to a few key executives that it appeared the
company was suffering from “organizational constipation.” [30] Novell appeared to
still have innovative resources and capabilities, but they lacked the organizational
capability (e.g., product development and marketing) to get those new products to
market in a timely manner.
Likewise, Xerox proved unable to exploit its innovative resources. Xerox
created a successful research team housed in a dedicated facility in Palo Alto,
California, known as Xerox PARC. Scientists in this group invented an impressive
list of innovative products, including laser printers, Ethernet, graphical interface
software, computers, and the computer mouse. History has demonstrated that these
technologies were commercially successful. Unfortunately, for Xerox shareholders,
these commercially successful innovations were exploited by other firms. Xerox’s
organization was not structured in a way that information about these innovations
flowed to the right people in a timely fashion. Bureaucracy was also suffocating ideas
once they were disseminated. Compensation policies did not reward managers for
adopting these new innovations but rather rewarded current profits over long-term
success. Thus, Xerox was never able exploit the innovative resources and capabilities
embodied in their off-site Xerox PARC research center. [31]
SWOT and VRIO
As you already know, many scholars refer to core competencies. A core
competency is simply a resource, capability, or bundle of resources and capabilities
that is VRIO. While VRIO resources are the best, they are quite rare, and it is not
uncommon for successful firms to simply be combinations of a large number of VR _
O or even V _ _ O resources and capabilities. Recall that even a V _ _ O resource can
be considered a strength under a traditional SWOT analysis.
KEY TAKEAWAY
Internal analysis begins with the identification of resources and capabilities.
Resources can be tangible and intangible; capabilities may have such characteristics
as well. VRIO analysis is a way to distinguish resources and capabilities from core

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