Competing With Ordinary Resources

In July 2007, TomTom, a European personal navigation device manufacturer based in Amsterdam, launched a takeover bid for Tele Atlas, a Dutch provider of cartographic data. The initial offering was 21.25 euros per share, which represented a premium over the stock price at the time, and the supervisory and management boards of Tele Atlas announced their support of the offer.1 But in autumn of that year, Nokia, which at that point was a leading cellphone manufacturer, announced an agreement to acquire Chicago-based Navteq, Tele Atlas’ main competitor, for an astounding price of approximately $8.1 billion — a move that indicated that smartphones would include navigation services in the future. The control of cartographic databases suddenly became a strategic imperative in the GPS industry. In reaction, TomTom’s main competitor, Garmin, tried to secure its access to what was now considered as a strategic resource by announcing an offer for Tele Atlas in October 2007 at a higher price of 24.50 euros per share. TomTom raised the stakes to 30 euros per share and eventually acquired Tele Atlas for 2.9 billion euros.

However, the Tele Atlas acquisition proved to be an example of the “winner’s curse” — the idea that winners in auctions tend to overpay. TomTom had to borrow 1.6 billion euros to complete the acquisition of Tele Atlas and subsequently had to write down the value of the acquisition.2 Moreover, TomTom’s sales declined as the company faced increasing competition from GPS-enabled smartphones; during the period from fiscal 2008 through fiscal 2013, TomTom’s revenues fell more than 40%.

Meanwhile, the Israeli startup Waze launched its community-driven navigation smartphone application. Waze’s business model was quite different from TomTom’s: Waze’s cartographic data was directly collected from the users, at little cost, and Google acquired Waze in 2013 for a price in the neighborhood of $1 billion. Seven years after the takeover of Tele Atlas, it is clear that TomTom paid too much for a resource that seemed strategic and rare at the time.

The Trouble With Strategic Resources

During the last three decades, research on resources has concluded that a sound strategy should rely on the exclusive control of valuable and rare resources — such as a distinctive brand name, an unparalleled set of talents or an incomparable technology. Extraordinary assets, the theory goes, are needed to reach extraordinary goals. In this view, the essential pillars of strategic success are nonsubstitutable resources and inimitable capabilities, and competitive advantage stems from unique and scarce resources.3

However, TomTom’s example suggests that competing on unique, rare and inimitable resources can be risky, because acquiring and protecting such resources can be costly; after all, most companies in an industry are seeking to obtain them. While strategic resources can yield superior competitive advantage, their cost can sometimes outweigh their benefits. In this article, we contend that ordinary resources may play an overlooked but important role in successful strategies — and competing with ordinary resources can be a valuable complement to competing with strategic resources. (See “About the Research.”)

In particular, the emergence of new business models4 that leverage a vast array of ordinary resources — particularly multisided platform business models5 — raises questions about the relevance of the traditional strategic focus on scarcity-based approaches and unique resources.6

For example, Airbnb connects an abundant number of people who want to source out their empty rooms to hirers who are looking for a space for a couple of nights. Airbnb’s user-friendly website, plain and simple business model and 24/7 customer care service allow people to make use of empty rooms in their homes, a resource once considered as relatively useless or trivial. Airbnb is expanding its global reach, with a presence in 34,000 cities and more than 190 countries. Its growth rate is astounding: In 2012 alone, the number of listings on the site grew by about 250%.7 Hotel chains are now lobbying governmental authorities to force Airbnb to comply with hospitality regulations, which suggests they consider it a credible rival. Airbnb’s rapid growth indicates that the hospitality industry — an archetypal capital-intensive business — can be disrupted with a totally different approach, one involving leveraging underutilized ordinary assets. Given the growth of Internet-enabled platform business models such as Airbnb’s, it seems time to highlight the strategic value of ordinary resources.

The theory behind competing on strategic resources argues that performance differentials between competitors are a direct consequence of their resources. Businesses that hold higher-value resources (people, technologies, reputation, partnerships and so on) should benefit from a competitive advantage if they can manage their resources portfolio properly. As a consequence, in order to keep their strategic value, resources must be neither perfectly imitable nor substitutable, and businesses must carefully defend them. This approach explains many successful strategies, and its theoretical significance is unquestionable.8 However, under certain conditions, relying too heavily on strategic resources may lead to several risks — such as the bidding war TomTom experienced. Considering the potential of ordinary resources is a way to mitigate these limitations.

An ordinary resource is a common resource on the market, generally perceived as neutral in terms of performance. Such a resource is considered, at best, as ensuring competitive parity. While ordinary resources are not, in and of themselves, a source of competitive advantage and greater performance, they are generally required for the business to function properly. Examples of ordinary resources include compliance with ISO standards in the automobile industry; stores and salespeople in retailing; and websites and logistics competencies in e-commerce.

There is a strategic trade-off between the high-risk/high-gain combination of strategic resources and the low-risk/low-gain pattern associated with ordinary resources. When designing their strategies, executives should not neglect this trade-off. In particular, there are five notable drawbacks to strategic resources. (See “The Argument for Ordinary Resources.”)

1. Strategic resources can capture their own value. In some circumstances, the value of a strategic resource can be captured by the resource itself, at the expense of the company using it: For example, highly talented “stars” can use their bargaining power to demand higher compensation. This is notably the case in global industries where the value generated by top talent is readily visible and a profusion of online rankings keeps raising the bar; examples include entertainment, professional sports leagues and CEOs of large, publicly traded global companies. Talented individuals, once they realize they are strategic resources, may capture a significant part of the value they are producing. This phenomenon was already noticeable some years ago,9 but the broad diffusion of professional databases and the ubiquitous use of social networks exacerbate its competitive impact.

For instance, consider the compensation of top British professional soccer players. Between 1990 and 2010, the average pay for a soccer player in the English Premier League rose from 1,500 pounds to 33,868 pounds per week, whereas the average weekly wage in the U.K. scarcely doubled during that period (from 295 pounds to 656 pounds).10 However, in the meantime, many of the top clubs in the English Premier League experienced financial losses and/or debt. More than 10 years ago, Gary Lineker, the former captain of England’s national soccer team, was already observing, “Of course, players are taking too much money out of the game, but they don’t dictate market forces.”11

Cases of value capture by rare or unique resources can be found in other settings as well. For instance, a French film producer recently brought to the fore the idea that French actors were paid too much compared to the revenues generated by movies, even in the case of blockbusters.12 Indeed, given the pay earned by top French actors, only a few, if any, French movies turn a profit. This situation results from the organization of the heavily subsidized French film industry. It also stems from the fact that actors — and their agents — know their value and eventually consider that they are worth more than the expected revenues of the movies they star in.

In contrast, ordinary talents are by definition easily substitutable. As a consequence, they do not boast enough bargaining power to capture value at the expense of their employers. Many management techniques, from Frederick Taylor’s scientific management13 to modern knowledge management approaches, specifically aim at codifying know-how in order to avoid the pitfall of excessive dependence on the specialized knowledge and skills of particular employees. Management scholars Sumantra Ghoshal and Christopher Bartlett once wrote that “the key function of management is to help ordinary people produce extraordinary results.”14 Creating extraordinary results with unique talents may be great, but it is not the general rule in management.

2. Competing on rare resources is costly. The TomTom case demonstrates that once a resource is collectively considered as strategic in an industry, access to it becomes a vital challenge, and rivals compete to obtain it. If you view a resource as strategic, you may raise its cost up to the point that the cost outweighs the resource’s value. Companies whose business models are built around strategic resources are prone to allocate a significant part of their efforts to controlling and securing higher-value assets, as exemplified by numerous patent wars in the electronics or the pharmaceutical industries. So-called “patent trolls” thrive on this dynamic.

In contrast, ordinary resources are inexpensive, and since most businesses overlook their strategic influence, their cost usually has no reason to rise. They can be acquired and secured at a comparatively low price, and even if they do not provide competitive advantage on their own, they may contribute to it.

If you are convinced your company possesses unique resources and core competencies, you will very probably try to defend and leverage them — and hesitate to implement any disruptive innovation that could jeopardize your strategic commitment.

3. Day-to-day business performance does not rely on uniqueness. If all competitors in an industry attempt to be unique and to possess nonsubstitutable resources and inimitable competencies, most of them will fail in that attempt. In truth, very few businesses possess unique resources and distinctive competencies that fit the environment’s threats and opportunities. Focusing exclusively on strategic resources does not explain the everyday performance of the vast majority of businesses, which remain profitable and competitive, even if they only possess relatively ordinary assets.

Gathering a group of executives in order to help them identify the core competencies of their own business — even with the assistance of a series of practical tools such as an activity mapping or a benchmarking process — can be a disappointing exercise. If some companies do possess valuable brands, highly talented people, deep pockets or patented technologies, it does not necessarily provide them with a true competitive advantage, for some of their rivals often boast a similar resource portfolio. For instance, in the pharmaceutical industry, dominant players such as Pfizer, Sanofi or Roche possess comparable assets: Little is truly unique in their R&D capacity or in their marketing approach. However, this does not prevent those companies from reaching excellent levels of profitability.

4. Excessive persistence in exploiting rare resources can restrain innovation. If the possession of specific resources is the ultimate explanation for success, innovation poses a problem: Breakthrough ideas and groundbreaking processes can threaten years of patient accumulation of talents and assets. As a consequence, a by-the-book implementation of a strategic resource-based approach can lead to inertia. If you are convinced your company possesses unique resources and core competencies, you will very probably try to defend and leverage them — and hesitate to implement any disruptive innovation that could jeopardize your strategic commitment. By protecting carefully accumulated rare resources, businesses may repel innovation and change. In a continuously evolving digital environment, such inertia can rapidly prove lethal.

Kodak, Sony and Nokia each fell into this resource trap. In 1985, Leo J. Thomas, senior vice president and Kodak’s director of research, famously told The Wall Street Journal: “It is very hard to find anything [with profit margins] like color photography that is legal.”15 Of course, in order to protect those profits, Kodak preferred not to switch to digital cameras. As regards Sony, why is it not an absolute winner in the MP3 industry? Sony literally invented portable music devices and pioneered digital music. However, in order to protect its unique resources provision, it also vertically integrated by acquiring what became Sony Music Entertainment, a global leader in the music industry. This bold strategic move had a drawback: Once it owned a large music company, Sony became very reluctant to enter the MP3 business in the early 2000s, for this industry — a least at that time — was heavily relying on peer-to-peer piracy. Nokia made a similar mistake: By preserving its unique competencies in design and logistics, it refused to admit that with the launch of the iPhone, Apple had changed the game from a battle between devices to a war between ecosystems.

On the other hand, there is growing interest in “frugal innovations”16 such as the low-cost ChotuKool fridge, a tiny refrigerator using thermoelectric cooling. Such “frugal innovation” demonstrates that it is possible to design and develop convincing solutions by leveraging low-cost technologies and largely available assets. Moreover, leveraging ordinary resources is consistent with the implementation of simple rules that facilitate the execution of strategies, even in rapidly changing circumstances.17

5. Fascination with “crown jewels” can lead to competitive mimicry. The belief in the superiority of key resources may lead competitors to focus too much on a small part of the spectrum of available resources, which may restrain their differentiation capability. Harvard Business School professor Cynthia A. Montgomery already observed this phenomenon of fascination with resources considered “crown jewels” and called for the inclusion of the complete range of resources — including the good, the bad and the boring.18 To be useful, the typology of resources cannot be limited to a binary opposition: strategic resources (in other words, rare and very valuable ones) on the one hand, and all the negligible rest on the other.

Ordinary resources can play an important role in creating a competitive advantage in at least two situations:

1. Unless ordinary resources are leveraged, strategic resources cannot always deliver their full-fledged competitive potential.
2. The mobilization of massive amounts of ordinary resources through platform business models19 can outweigh the value of a few unique strategic assets: ‘Crowd jewels’ can be a valuable substitute for “crown jewels.”

We will now explore these two scenarios.

Ordinary Resources as Strategic Enablers

Strategic resources offer limited benefits if you cannot gain value from them. Business models focusing on strategic resources usually underestimate the necessity of ordinary assets, day-to-day activities and common talents you must leverage in order to achieve the full-fledged potential of the few strategic resources you master. Moreover, companies are usually unable to develop or gather strategic resources in every domain of their business. In many respects, it would be pointlessly costly in terms of search costs or internal development to seek unique resources for every task involved in an entire value chain. Ordinary resources are a cheap and necessary way to leverage unique assets — and thus allow replication and scalability.

In particular, the use of ordinary resources enables the duplication of a business model in many business units and/or in many countries. If such replication is a key success factor, as it is in industries such as retailing,20 extending a business model through the acquisition of ordinary resources is much easier — and much cheaper — than implementing a business model relying on unique assets. By definition, strategic resources are rare, expensive and difficult to replicate.

For instance McDonald’s Corporation is the world’s largest chain of fast-food restaurants, with more than 36,000 restaurants in more than 100 countries. It has achieved this impressive growth in only 60 years. While a top brand, efficient processes and premium locations for restaurants are often seen as the main strategic resources of the company, the replication of McDonald’s business model is only possible because the model leverages relatively ordinary resources, in the form of more than 1.8 million employees worldwide. Millions of young adults worldwide got their first entry-level job with the company, helping to keep wage bills down. Far from being the talented human resources described in human resource management books, most entry-level McDonald’s employees are not highly qualified, are part-time workers and can be easily replaced. However, the McDonald’s brand can only be leveraged thanks to these ordinary resources. While scalability (the ability of a business to grow and develop without major organizational barriers) may be related to cultural and cognitive dimensions,21 it also depends on the type of resources on which the business builds. When they are used to leverage strategic resources, ordinary resources allow scalability.

Leveraging the Ordinary

Ordinary resources — not just unique ones — can yield strategic benefits and eventually become the basis of competitive advantage.22 They can play a central role in the emergence of new business models. (See “Two Approaches to Business Models.”) This evolution may give rise to drastic changes in the competitive landscape in a given industry and eventually lead to the emergence of new markets. For instance, the creation of the low-cost business model in the airline industry by Southwest Airlines in the early 1970s is sometimes explained by a unique blend of operational constraints and entrepreneurial ingenuity. However, it also derived from the fact that Southwest Airlines was endowed with relatively ordinary resources (access to small regional airports, old airplanes and a comparatively inexperienced workforce) while it was lacking what were perceived at that time as strategic assets (hub airports, connections, diversified fleet of airplanes, etc.).23 As the example of Southwest illustrates, it is possible to develop extraordinary performance and to gain competitive advantage by combining and leveraging ordinary resources in new ways.

Crowdsourcing and crowdfunding strategies are two new types of business models based on the development of a mass of ordinary resources. The ability to leverage massive amounts of comparatively ordinary talents and trivial assets through a platform and its ecosystem is not only a game changer, it questions the very principles of by-the-book strategies.24 For example, the sharing of small units of available resources by the crowd is a successful business model for the crowdfunding company Kickstarter. The concept of Kickstarter, where potential investors can invest as little as $1 to finance innovative projects, has created an industry of its own, and many competitors are jumping on the bandwagon. In this model, it is a crowd of people, their abundant little pennies and an ample number of competing projects that yield success — not unique assets, high fixed costs and unparalleled talents.

Similarly, the use of the collective intelligence of a mass of ordinary people is at the heart of New York City-based Quirky. This collaborative platform has developed a unique value proposition: to transform good ideas into ready-to-market products. Anyone can submit ideas for new products on Quirky’s website. Then Quirky staff members and the Quirky online community evaluate the ideas. If Quirky brings a product to market, the inventor of the idea and the community members who contributed to its development — called influencers — receive royalties based on product sales. Quirky’s best-selling product is the Pivot Power, a flexible power strip invented by Jake Zien with the help of 708 influencers.25 Quirky receives thousands of ideas a week, and, since the creation of the website, members of the community have enabled the development of hundreds of products.

Examples like Kickstarter and Quirky indicate that strategic success can derive from a platform that draws on an abundance of ordinary resources. This suggests that, instead of only focusing on unique resources, executives should also focus on leveraging a vast supply of more mundane talents. (See “Can You Leverage Ordinary Resources?”) As physicist and Nobel laureate Philip Anderson wrote in 1972, “More is different”: Beyond a certain size, a system is endowed with new capabilities that significantly differ from what its various constituents can offer.26 In business, the traditional strategic paradigm, based on the tight ownership of competitive-advantage generating assets, loses its significance when the wisdom of millions of people are involved, when ordinary resources are combined to achieve extraordinary performance. Here are the critical points of the “more is different” pattern in business:

1. Platform business models harness the hidden value of ordinary resources. Traditionally, executives overlook and underemphasize ordinary resources. As a consequence, ordinary resources often stay under the radar of strategic plans. In their benchmarking processes, companies focus on new capabilities and new resources, but they do not investigate the potential value creation from ordinary resources, existing knowledge and ordinary talents. However, our examples show that innovative entrepreneurs can develop new services from a mass of ordinary resources.

2. The strategic resource is the platform, not the assets it leverages. The main challenge consists in developing and growing an attractive platform — which in that case is a true strategic resource — in order to capture scattered ordinary assets and talents. Indeed, while strategic resources are concentrated, ordinary resources can be highly distributed among different companies and individuals. However, without the ordinary resources to fuel it, the platform has limited strategic value. It is the combination of the platform and the mass of ordinary resources that create sustained competitive advantage.

3. Make sure the cost of the platform does not outweigh its value. The Internet has significantly reduced the cost of harnessing collective and distributed ordinary resources. However, as a strategic resource, the platform bears all the risks we highlight: Exploiting a vast amount of data, people or initiatives can be costly; rare talents can capture value; protecting the platform can hinder innovation; and a focus on the platform as an asset can limit executives’ perspectives. As a consequence, the platform must remain open, frugal and scalable.

Implications for Strategy

According to author Chris Anderson’s famous “long tail” concept, it is time companies stop focusing so much of their marketing efforts on flagship products to the detriment of more ordinary ones.27 We make a similar observation about the resources portfolio: Businesses should consider the “long tail of resources” and stop analyzing their resources portfolio primarily through the prism of uniqueness and scarcity. Many executives dedicate a disproportionate amount of attention to strategic resources and neglect the rest of the resources spectrum. When properly exploited, overlooked ordinary resources unveil untapped profit pools. What’s more, taking into account the implications of ordinary resources opens new business perspectives.

Our key message is that a strategic value proposition does not necessarily derive from unique resources and core competencies. Acquiring and mastering unique resources undoubtedly yields competitive advantage, but it can be extremely costly, and building barriers to imitation can erode your future competitive advantage. Focusing on unique strengths implies specialization, and if you try to become a one-trick pony, sooner or later the trick will be matched by competitors. Innovations can undermine the market value of a portfolio of superior assets. By focusing on securing unique resources, executives may jeopardize the agility of their business and their ability to sustain a competitive advantage. For instance, consider how the Wikipedia anonymous crowd, with its improvised bricolage, outperformed Microsoft Encarta and its deliberately crafted strategy.

By eroding established barriers to imitation, ordinary resource-based business models may disrupt the business landscape. In a whole array of industries (retail, manufacturing, banking, automobile, hospitality, higher education, etc.), enabling the power of strategic resources requires mundane assets, and leveraging massive amounts of ordinary resources through platforms and ecosystems could be as profitable as securing unique possessions and talents. Instead of promoting secrecy and defending industrial property rights at all costs, powerful incumbents should reconsider the advantages their distinctive assets provide and contest the taken-for-granted assumptions that underlie their success. Overconfidence and inertia lurk in the blind spot of some resource-based strategies, whereas frugal innovation and crowdsourcing-based approaches are gaining increasing attention. Ordinary resources were once overlooked and considered as negligible strategic assets. Rapidly expanding platform business models raise questions about this bias, and it is time executives start exploiting the “long tail” of resources.