Discussing EVA for an Entity using Tangible/Intangible Resources
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Step One: RBV is based on the concept of the creation of economic rent though the company's distinctive capabilities. Thus, the first step is to find a way to value a firm's economic rent or Economic Value Added (EVA). A firm's EVA is the amount of capital it generates above and beyond the cost of doing business. Find out how EVA is measured and how you can determine a company's economic rent. According to RBV, a firm's competitive advantage is driven by its ability to manage its unique capabilities and resources to achieve above average returns.
Step Two: Resources are the inputs into a production process. They can be capital, equipment, patents, skill sets of individual employees and/or managers, financial resources, etc. Resources can be tangible or intangible. Individually, they may not necessarily lead to a competitive advantage - it is how they are used and the synergies they create that make them strategically valuable. Research web and library sources that will give you data on a company's unique resources. Find a minimum of 2 different sources for data and information related to each of the following 6 resources, noting that some sources may give you information on more than one factor:
Tangible Resources
1. Physical Resources
2. Financial Resources
3. Human Resources
Intangible Resources
1. Technical Resources
2. Intellectual Resources
3. Goodwill
Step Three: Distinctive capabilities are those competencies possessed by a firm that cannot be copied or can be replicated only with great difficulty or resources. Research web and library sources that will give you data on a company's unique resources. Find a minimum of 2 different sources for data and information related to the following:
1) Architecture,
2) Reputation, and
3) Innovation.
Step Four: List your resources from steps 1-3 above. For each source, provide a brief paragraph explaining what information is available, how it would be useful in an internal analysis, and critiquing the source (for example, what are the limitations of the source? Is one better than the other? Why?)
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Solution Summary
The solution discusses EVA for a entity using tangible and intangible resources.
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Step One
Economic Value Added or EVA or economic rent is computed by multiplying the difference in the company's estimated return on invested capital and its weighted average cost of capital by the amount of capital employed by the organization.
For Step One, I based my answer from the CFA Institute's Corporate Finance book for its Level II candidates' reviewer. All information covering corporate finance can be found in this book. Moreover, the information provided are arranged in an orderly manner that the most elementary student in finance can easily find the information he or she needs; however, the book focuses on formulas, which also makes it useful for internal analysis, rather than the foundations of these formulas that the student can easily recreate the how. With this limitation, this source is not better than the sources for the other two steps.
For Step Two, the following are the resources I managed to get discussing the different tangible and intangible resources listed below.
Tangible Resources
1. Physical Resources
2. Financial Resources
3. Human Resources
The two academic articles below discuss all of the above tangible resources - physical, financial and human.
Ismail, A. I., Rose, R. C. & Abdullah, J. U. (2011). The Relationship between Organizational Resources and Systems: An Empirical Research. Asian Social Science, 7 (5), 72-80.
The authors, professors and researchers at the Universiti Putra Malaysia, hypothesized that "[organizational] resources and systems are able to significantly predict the level of competitive advantage" (Ismail, Rose & Abdullah, 2011, p. 72). The authors used a structured ...
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