Core Capabilities

From the portfolio table to a capability question

Take out your Week 6 portfolio table and look at the row called "shared resource". In the practice scenario, the same words appear in more than one column: Mina's cross-border coordination. It is what lets the 12-week test of Option A · Expansion (expand cheerleading and sports-entertainment talent management) run next to the company's content and food-service work. In the Week 6 worked example, sharing Mina saved about 3 hours in the week before a game. But every arrangement in that example assumed that Mina was there to do the work.

That assumption hides a harder question. When Judy's staff say "we can coordinate cross-border appearances", who is "we"? Suppose the ability belongs to the company. Then it has written routines, a second person who can step in and clear limits on who decides. In that case, the test could grow into a real business.

Now suppose the ability lives in Mina's memory and on her phone. Then growth would multiply the load on one person, and a single sick day could stop the work.

This chapter continues the practice scenario from earlier weeks, which is invented for learning. This week's question is: is "cross-border coordination" a capability of Judy's company, or is it Mina, and what evidence would tell us? The chapter answers with two tools. The first is VRIO, a set of four questions about a resource. The second is a failure test, which asks what happens when the key person is suddenly unavailable.

Where this week fits

Week 6 produced a portfolio table that names what the company's lines share. This week tests the most important shared resource and records the result in a capability inventory. Week 8 then designs roles, backups and decision limits, so that the capabilities you find can be carried by more than one person.

Resources and capabilities

A resource is something a company can draw on, such as a person, a relationship or a right to use something. A capability is the company's organized ability to combine resources to produce an outcome again and again, under conditions it understands.

The difference is like owning good ingredients versus being able to serve a reliable meal to the same customers every day. The ingredients matter. But the meal also depends on the cook's skill, shared standards and a way to recover when something goes wrong.

In the practice scenario, the resources include Mina's two languages, her contacts at the home team and the translator. The capability the company hopes to have is different. It is delivering a well-organized game-day appearance every time, including the times when something changes at the last minute.

A company has a competitive advantage when it can create more value for its customers than rivals can, or create the same value at lower cost. Barney (1991) argued that resources can support an advantage that lasts when they are valuable, rare and hard to imitate. The key word is "for". A resource is valuable for a particular opportunity and a particular customer, compared with the other ways that customer could get what it needs.

Describe a capability as work

Words such as "flexible", "international" or "good with people" describe an impression. They do not say what work gets done. A manager has to turn the label into activities that someone could watch and check. "Mina is great at cross-border coordination" becomes a list like this:

• She keeps one current schedule. She confirms times with the home team and, in Korean, with the performer. Both sides see the same version.
• She collects photo approvals. Before any photo is published, she gets the performer's written approval, as the Week 5 red line requires.
• She knows the local details. She knows which staff member at the home team can approve a change and who holds the performer's pass on game day.
• She catches translation problems. She notices when a translated message has lost a date or a condition, and she asks the translator to check it.

Written this way, the capability can be examined. Some of these activities could be learned by another person from a written guide. Others depend on experience and relationships that take time to build. The capability question is not whether Mina is special. It is which parts of her work can become a routine without losing the quality that made them useful.

VRIO: four questions in order

VRIO is a set of four questions that test whether a resource can support a competitive advantage. Barney's 1991 article used "non-substitutable" as the fourth idea; later versions use "Organization", which we use here. Ask the questions in order, because each one builds on the one before.

• Value. Does the resource help the company use an opportunity or reduce a threat, for a named customer? A bilingual coordinator is valuable for a cross-border appearance only if the home team and the performer actually need coordination.
• Rarity. Do only a few competitors have it? Rarity depends on the market and the time. A skill that is rare in one city may be common in another, and a new tool can make a rare skill ordinary within months.
• Inimitability. Would it be hard or costly for a rival to copy it? A rival might hire the same kind of person or buy the same software. A rival might also reach the same result in a different way. That different way is called a substitute, and it counts as a form of copying.
• Organization. Is the company set up to use the resource? This means written routines, clear limits on who decides, and backups for the people who do the work.

The answers tell you what kind of position the company is in:

• Not valuable: the resource is a cost, not a strength.
• Valuable but common: the resource is needed to compete, but it gives no advantage.
• Valuable and rare, but easy to copy: the advantage is temporary.
• Valuable, rare and hard to copy: the advantage can last, but only if the company is organized to use it.

The table shows how common resource statements turn into capability questions. The third row connects to a public case fact. The Taipei East page shows that a collaboration involving Taipei East and OM Entertainment existed. It does not show whether the company has a routine for running such collaborations.

Worked example: VRIO for cross-border coordination

This example applies VRIO to the shared resource from the Week 6 portfolio table. First, the resource is defined as work. It is arranging a Korean performer's appearance at a home game of a Taiwan team, with the schedule in two languages and the photo approvals. Today, Mina does most of this work.

Overall verdict. The resource is valuable, possibly rare, easy to copy and not organized. By the VRIO reading, it could give at best a temporary advantage, and the company is not yet set up to use even that. In plain words, cross-border coordination is currently Mina's skill, not a capability of Judy's company.

The verdict does not say that Mina is weak. It says that the company depends on her. The weakest answer is Organization, and it is also the answer the company can change fastest. The Organization question is where a promising resource becomes managed work: a written routine, a second person who can use it and a clear limit on who decides. The next section tests that answer directly.

The failure test: Mina is sick on game day

A capability claim becomes stronger when it survives a small test designed to break it. The most useful test asks what happens when the key person is suddenly unavailable. In test week 3, before game 1, Judy's staff run this test as a walk-through around a table. They imagine that game 1 starts at 18:00 on the Saturday of test week 4 and that at 07:30 Mina sends a message: she has a high fever and cannot work. Then they follow the day step by step and ask what would really happen.

1. Who takes over? Judy would be at a sponsored-video shoot until noon. The translator is free, so she would step in.
2. What does the translator know? She has the performer's phone number and the schedule in Korean. Under the Week 6 partner arrangement, the home team's event staff hold the performer's pass and handle game-day logistics. But they have agreed every detail with Mina. The translator does not know which staff member holds the pass or who can approve a change.
3. What would happen at the venue? The event staff would wait for Mina to collect the pass, while the performer waited at the public entrance. Judy's staff estimate that rehearsal would start about 40 minutes late, after the translator had called Mina at least twice.
4. What would happen with the photos? Suppose that at 14:00 the home team's media staff want to post a rehearsal photo. The red line says no photo without the performer's written approval. Only Mina's messages show whether the performer approved rehearsal photos. The photo would have to wait until the performer confirmed in writing, through the translator.

Now record what the walk-through showed. The game could probably go ahead, and the red line would hold. But the work would depend on calling a sick person, and the photo rule would work only because everyone waited. The partner arrangement moved the logistics work to the home team, but not the knowledge of how to reach the right person there. This is the evidence the Organization answer needed: the ability belongs to Mina, not yet to the company.

A failed test is useful, because it shows exactly where to redesign before any bigger commitment. Judy's staff have three realistic responses, and each has a cost:

• Write it down. A one-page game-day sheet lists the contacts, who holds the pass and every approval given. It costs Mina about two hours to write and a few minutes to update.
• Train a backup. The translator learns the routine and receives a written limit on what she may decide alone. This adds paid hours and must be agreed with her, not simply assigned.
• Give the partner a second contact. The home team's event staff are told that the translator is the second contact, and they receive the game-day sheet. This costs a short briefing and puts some company information in the partner's hands.

Week 8 turns the chosen responses into roles on an organization chart.

Dynamic capabilities: changing how the company works

The capability tested above is an ordinary capability: doing a recurring activity well. A dynamic capability is a company's ability to build, combine and reshape its resources when conditions change. Teece, Pisano and Shuen (1997) made this ability a central question for strategy, because markets change and a company's existing routines can stop fitting. Teece (2007) later divided it into three kinds of activity, shown here with examples from the scenario.

• Sensing is noticing and interpreting a change that matters. Example: Judy notices that a second team has asked about appearances after hearing about the first request.
• Seizing is choosing a response and committing resources to it. Example: the company runs a 12-week test with reserved hours, owners and red lines, instead of saying yes to every team.
• Transforming is changing roles, routines or relationships after learning. Example: after the failure test, the company writes the game-day sheet and trains the translator as a backup.

Managers often call a clever rescue a dynamic capability, but a one-time rescue is better called improvisation. Improvisation can be intelligent and necessary, especially in a small company. It becomes a dynamic capability when the company can repeat the change. That requires that someone noticed the problem, a rule guided the decision and the lesson was written down. If only one person remembers the whole process, the company has personal expertise, not an organizational capability.

Capabilities also change over time. Helfat and Peteraf (2003) described a capability lifecycle: a capability is founded, develops, may reach maturity and can later branch into new forms. Mina's coordination sits near the start. It has been planned and rehearsed, but it is not yet a routine.

Capabilities can also wear down, or erode, when key people leave, rules change or learning stops. Erosion is hard to see, because results can look fine for a while. If Mina covers every gap with extra hours, the output stays good while the capability is being used up.

Trust and transparency

Trust makes cooperation easier. People who trust each other share information sooner, try new arrangements and commit resources with less checking. Zaheer and Venkatraman (1995) studied independent insurance agencies and found that trust played a real part in how their business relationships were governed. Zou and colleagues (2023) reviewed research on cross-border trust between organizations; it links trust to building capabilities and separates trust in a person from trust in an organization.

That difference matters here. The home team's staff trust Mina personally. That trust is a real resource, but it lives in a relationship with one person. A performer who trusts Mina may accept a change without seeing the new terms, which leaves her exposed if something goes wrong. To make the trust belong to the company, turn parts of it into things other people can see and use:

• a written agreement that each side can read in its own language;
• a shared record of schedule changes and photo approvals;
• a named person to contact when Mina is away.

These steps are a form of transparency. Schnackenberg and Tomlinson (2016) described transparency through three qualities of the information an organization shares, namely disclosure, clarity and accuracy, and linked it to trust. Transparency does not mean making every internal decision public. It means that each affected person has the information they need to understand a commitment and correct an error.

What changes when a capability crosses a border

Week 4 showed that cross-border comparisons should look at mechanisms, such as who approves and which language version counts. For capabilities, the same idea has a practical consequence: a routine that works in one setting may not transfer to the next. Mina's photo-approval routine works because she can write to the performer in Korean and the performer can reply in writing. With a performer who reads only Japanese, the same routine would need a new language step and a new person to check it. Even within Taiwan, her knowledge of who approves changes at the home team would not tell her who approves them at another Taiwan team, such as the second team Judy is talking to about fees.

The people who make cross-border work possible also belong in the inventory. The translator, the event staff at the home team and the performer herself all hold knowledge that does not appear in the public story. If the company treats that knowledge as a personal favor, the capability is fragile and the risk falls unfairly on them.

AI tools and capability

Generative AI tools change how fast some tasks can be done. Three studies show what this does and does not mean for capability.

• Noy and Zhang (2023) found in an experiment that professionals with access to ChatGPT finished writing tasks faster and, on average, produced better work.
• Brynjolfsson, Li and Raymond (2025) found that customer-support agents who received an AI assistant resolved about 15 percent more customer chats per hour.
• Böhmer and Schinnenburg (2023) reviewed research on AI in human resource management and found many open questions about job design, transparency and the use of personal data.

A tool can make one task faster, but access to a tool is not a capability. Any rival can buy the same tool, so the tool on its own is rarely rare or hard to copy. What can be rare is a well-managed way of using it. A task-level test makes this concrete. Suppose an AI tool drafts a Korean caption for a game photo.

• Task and data: draft one caption from the photo and the game schedule, with no private details about the performer.
• Reviewer: the translator checks the meaning, and the performer approves the final text in writing.
• Error route: a wrong caption is removed and corrected within one hour, and the performer is told.
• Stop condition: nothing is posted until the performer has approved it.

If the answers depend on one person whose review work nobody counts, the tool has not created a capability. It has shown where the bottleneck is.

The most critical capabilities for each option

Each of the three options needs different capabilities. The other two are Option B · Boutique (a small cross-border talent and advisory service for a few clients) and Option C · Content-centered return (return to content, advertising, food service and personal brand). In Week 1's terms, the table fills in the Capability question for each option. It names the two capabilities each option most depends on. It does not rank the options.

The capability inventory

A capability inventory is a one-page table of the activities a company claims it can do. For each activity, named in the first column, it records five things, shown in the other columns of the table below. It also carries a date and a context, because a capability that works for one team in Taiwan today may not work elsewhere next year. Here is the inventory for the practice scenario after the failure test. It is dated test week 3, before game 1, for Taiwan teams and one Korean performer.

Notice two things. First, the inventory records failures as well as strengths, because a failure tells the company where to invest next. Second, the "next step" column is small and specific. Each step changes the Organization answer, which is the answer the company controls.

Class practice: a capability inventory with VRIO

This practice is done without AI tools. Your teacher will tell you which worksheet to use and how to submit it. Bring your Week 6 portfolio table.

1. Describe one capability as work. Take the shared resource from your portfolio table. Write it as an activity with an outcome, and list its routine in up to three steps.
2. Ask the four VRIO questions. For each letter, write a short answer and one piece of evidence you have or still need.
3. Run a failure test. The main person is unavailable on the most important day. Write who takes over and what information that person is missing.
4. Give a verdict and a next step. Is this a capability of the company, one person's skill, or not yet known? Write one change that would improve the Organization answer.

Then swap with a classmate. Your classmate marks one claim that has no evidence behind it. Keep your inventory for Week 8.

Key points and what you bring to Week 8

• A resource is something the company can draw on. A capability is the organized ability to combine resources to produce an outcome again and again.
• Describe a capability as observable work, not as a personality label. Then ask which parts could become a routine.
• VRIO asks four questions in order: value, rarity, inimitability and organization. In the worked example, cross-border coordination was valuable but easy to copy and not organized, so it belonged to Mina rather than to the company.
• A failure test shows where a capability depends on one person. A failed test is useful information, not a disaster.
• A dynamic capability is a repeatable way of changing: sensing, seizing and transforming. A tool such as AI becomes part of a capability only when people review, correct and own its use.

For Week 8. Bring your capability inventory. Week 8 designs an organization chart for the Option A test. Its roles, backups and decision limits should turn the "next step" column of your inventory into work that more than one person can do.