Internal Audit in Marketing. Resources: Assets vs Capabilities vs Dynamic Capabilities

The goal of the Marketing Strategy is to create a Competitive Advantage based “on the firm’s distinctive resources” (Hamel and Prahalad, 1994. Cited in Hooley et al, 2020, p146) or, in other words, using the strongest company’s resources. “Strategies that are not built on resource strength are unlikely to be sustainable in the longer term … To succeed in a particular market, the firm will need specific resources – the key factors for success in that market. If it does not have these, or cannot acquire them, the strategy is likely to fail at the implementation stage”. (Hooley et al, 2020, p141).

Strong resources are those Valued by Customers, Superior to Competitors, and Hard for Competitors to Copy. To understand which resources are strong and which are not, we need to perform a Strategic Audit that consists of Internal Audit or Resources Analysis, Competitor Analysis, Customer Analysis, and Macro Environment Audit. The goal of a Strategic Audit is to describe key Internal Resource Issues or Key Strategic Challenges in the face of External Opportunities and External Threats. The key Internal Resource Issues are issues regarding their strengths and exploitability.

Resources with High Importance in Creating Value for Customers

Non-substitutable or easily replaced.

To identify and list the resources with high importance in creating value for customers we need to conduct a “Customer analysis”, the substep of the “Strategic Audit”.

Resources Superior to Competitors

Rare or unique.

To identify and list the resources superior to competitors we need to conduct a “Competitor analysis”, the substep of the “Strategic Audit”.

Resources Hard for Competitors to Copy

Inimitable or difficult/expensive for other firms to imitate or acquire.

To identify and list the resources hard for competitors to copy we need to conduct a “Resource analysis”, the substep of the “Strategic Audit”.

Frameworks for Resources Analysis

The Chartered Institute of Marketing suggests using Hooley’s framework and/or Thompson’s framework for resources analysis.

Hooley’s framework for resources analysis

Hooley lists the following levels of resources in a marketing context (Wang and Ahmed, 2007; Ambrosini, Bowman and Collier, 2009. Cited in Hooley et al, 2020, p148): Marketing assets, Marketing capabilities, and Dynamic marketing capabilities.

• “We use the terms ‘resources’, ‘assets’, ‘competencies’ and ‘capabilities’ interchangeably. Conceptually, however, resources could be considered the generic term, while assets and capabilities are different types of resource.” (Hooley et al, 2020, p143).
• “A resource becomes an asset when actively used to improve the organisational performance in the marketplace (Hooley et al, 2020, p155).
• “The processes and practices that deploy marketing assets are marketing capabilities” (Hooley et al, 2020, p158).
• “Dynamic capabilities are … the capabilities that create new assets and/or new capabilities in response to, or indeed to lead, change in the marketplace” (Ambrosini, Bowman and Collier, 2009. Cited in Hooley et al, 2020, p149).

• “under-utilized resources represent potential wastage. “The attractiveness of opportunities open to a firm depends on the resources available to exploit them. Organisational resources include both tangible and intangible assets, capabilities and competences. This is the base from which organisations build their competitive position, and any marketing strategy needs to be firmly grounded in these resources. “. (Hooley et al, 2020, p141).
• “What is important is to identify those resources that can help create a competitive advantage, and ideally an advantage that can be sustained into the foreseeable future – a sustainable competitive advantage… First, they enable the provision of competitively superior value to customers. Second, they are resistant to duplication by competitors. Third, their value can be appropriated by the organisation…. Many marketing resources… are intangible in nature and hence more difficult for competitors to understand and replicate.” (Hooley et al, 2020, p142).
• “Under the resource-based view of the firm (RBV), organisations are seen as collections of resources… These can then be viewed as a portfolio that is available for deployment. When developing strategy, the two key questions are: how can we exploit our capabilities more fully and what new capabilities will we need to build to enable us to compete in the future?” (Hooley et al, 2020, p161). “The roots of successful market offerings essentially lie in created and acquired competencies, and the key to future strategy is to further develop, extend and deepen them so that they are available for configuration and deployment in new and innovative ways.” (Hooley et al, 2020, p162).
• “Increasingly, firms will define themselves more as portfolios of competencies than as portfolios of products or strategic business units” (Hamel and Prahalad, 1994. Cited in Hooley et al, 2020, p161)
• “The emphasis in the resource-based strategy literature is now on the creation and exploitation of dynamic capabilities” (see Bruni and Verona, 2009. Cited in Hooley et al, 2020, p169).
• “Organisation should be aware of its exploitable marketing assets. The resource-based marketing approach encourages organisations to examine systematically their current and potential assets in the marketplace and to select for emphasis those where they have a defensible uniqueness“. (Hooley et al, 2020, p164).

Marketing assets

Marketing assets are the resource endowments the organization has built over time or acquired.

Groups of marketing assets

• Customer-based;
• Supply chain;
• Internal or marketing support;
• Alliance-based.

Customer-based marketing assets

Customer-based marketing assets exist in the mind of the customer and they are essentially intangible in nature. They may, however, be one of the most critical issues in building a defensible competitive position in the marketplace.

• company name, reputation or image supplying a particular set of customer benefits (reliability, durability, prestige, overall quality) in the markets in which they operate. Image and reputation can also be a liability and may negatively impact on how customers view products and services marketed by such companies. Also important is how firms deal with bad publicity.
• brands can be particularly powerful marketing assets for a number of reasons: they can’t be built overnight; loyal customers continue to purchase regardless of the much cheaper alternatives; preferences may be based just on brand image. With successful brands, 30% of the sales increase attributable to new advertising came from new customers, but 70% came from existing customers. Weak branding and low brand awareness may be key strategic challenges. Companies that invest in building and maintaining their brands, especially in an economic downturn, outperform those that do not.
• country of origin may also have a significant impact on customer perceptions of offerings. For companies operating in international markets, the identity of the home country can contribute either as an asset or a liability. The value of image of home country, company or brand should not be underestimated. Image often takes a long time to build up, but can be destroyed very quickly by mistakes or mishaps. Conversely, it is often more difficult, though not impossible, for competitors to destroy a company’s image-based assets than, say, copy its technology or imitate its products.

Marketing capabilities

Dynamic capabilities

Dynamic capabilities are the processes to create new assets and/or new capabilities in response to changes in the marketplace or to lead the changes.

General notes

• Marketing assets can form the basis of a competitive advantage if exhibit VRIN characteristics. Most assets, however, depreciate over time unless they are constantly renewed and refreshed.
• Marketing capabilities can form the basis of a “Competitive Advantage” if they are used to undertaking strategically important tasks.

Goals of Internal Audit or Resources analysis independent from other substeps of the “Strategic Audit”

• To list the Strongest “Marketing Assets” and “Marketing Capabilities” as “Internal Strengths“ (for the “SWOT section of the SWOT/TOWS matrix“);
• To list the Weakest “Marketing Assets” and “Marketing Capabilities” as “Internal Weaknesses” (for the “SWOT section of the SWOT/TOWS matrix“).

Goals of Internal Audit which depend on the results of other substeps of the “Strategic Audit” (“PESTLE audit”, “Customer Analysis” and Competitor Analysis)

• To drew the “Key Strategic Challenges” and corresponding “Marketing Objectives“ by crossing the “Internal Strengths” and “Internal weaknesses” with “External Opportunities” and “External Threats“.
• To list the “Strategic Initiatives“ (for the “TOWS section of the SWOT/TOWS matrix“): “Strengths-Opportunities Initiatives“, “Strengths-Threats Initiatives“, “Weaknesses-Threats Initiatives“, “Weaknesses-Opportunities Strategic Initiatives“. “Strategic Initiatives” are the answers to “Key Strategic Challenges” to address the “Marketing Objectives“.

Reference List

• Hooley, G. et all (2020) Marketing Strategy and Competitive Positioning. 7th edition. Pearson Education Limited [online]. https://read.kortext.com/reader/pdf/615466 (Accessed 31 Oct 2021)