Organizational resources, competences and capabilities have been the areas of interest of management scholars and practitioners for the past three decades. Resources are the tangible and intangible assets of a firm which can be drawn upon by the firm when required to achieve its objectives. Competence is the state of sufficiency of firm-specific resources to achieve its objectives. The objective of the organization will determine which resource to consider for the assessment of the organization’s competence to achieve that purpose. Capabilities are the state of ability of the relevant organizational processes to use appropriate competences to achieve the organizational objectives.
The basic building blocks are thus firm-specific resources, which combine to form competences of a firm. Competences, in turn, are acted up on by organizational processes, to give the firm capabilities suited to achieve its desired purpose.
Even though the flow of stages from firm resources to firm objective appears linear, it is not so. Each stage consists of recursive steps that keep adding on and modifying the building blocks to finally achieve the necessary competence or capabilities. We need to differentiate here between first order, second order and third order processes. First order processes are a set of organizational processes that can act on a bundle of resources to develop an organizational competence. The level of sufficiency of each constituent resource of the bundle need not necessarily be measurable, or need not be adequate even if measurable. In fact, there might even be lack of clarity on what level of presence can be regarded as rendering each individual resource sufficient by itself. This is because many individual resources are not useful by themselves. On being acted upon by first order processes, this bundle of resources gets transformed into a more useful resource, the sufficiency of which gives the firm competence in that resource. Carrying the same logic forward, we can understand that a sufficient supply of a single resource or a combination of resources leading to a certain organizational competence may not be very useful in helping the firm attain its purpose. The single competence itself may need to be combined with other competences through suitable processes to make the organization capable of attaining the purpose. Hence we need to distinguish between first order and higher order processes acting on the linkages at various levels.
Second order processes act on single or multiple competences, mesh them together and provide the firm the requisite capability to achieve its objective. Such capabilities that are the resultant of second order organizational processes acting on single or multiple competences can be termed as simple capabilities. Similarly, third order processes act on combinations of the firm’s simple capabilities, interweave them, enable them collectively, and result in the formation of complex capabilities of the firm.
The resources – competences – capabilities linkages in an organization are given in the accompanying figures.
In Figure 1 there is a single firm resource, Resource 1. When this reaches sufficiency it leads to the firm having competence in that resource (Competence 1). A set of second order processes will act on this competence to give the firm simple capability (Simple Capability 1) to achieve its objective (Objective 1).

Figure 2 shows the case where two firm resources (Resource 2 and Resource 3) are acted upon by a set of first order processes to result in a new firm resource (Resource 4).When the firm achieves sufficiency in Resource 4, it will be taken as having competence (Competence 2) pertaining to this resource. A set of second order processes can now act on Competence 2 to provide the firm simple capability (Simple Capability 2) to attain its objective (Objective 2).

Figure 3 is an extension of the second case. Here, two additional firm resources (Resource 5 and Resource 6) are acted upon by a set of first order processes to give Resource 7. When Resource 7 reaches sufficiency it leads to the firm gaining competence (Competence 3) in that resource. Now both the earlier competence (Competence 2) and the newer competence (Competence 3) are jointly acted upon by a set of second order processes to give the firm simple capability (Simple Capability 2), which will help it achieve its objective (Objective 3).

Figure 4 is in turn an extension of Figure 3. Here, two firm resources (Resource 8 and Resource 9) are acted upon by a set of first order processes to give Resource 10. When Resource 10 reaches sufficiency it leads to the firm gaining competence (Competence 4) in that resource. This competence is acted upon by a set of second order processes to give simple capability (Simple Capability 3). Now both the earlier firm simple capability (Simple Capability 2) and the newer simple capability (Simple Capability 3) are jointly acted upon by a set of third order processes to give the firm complex capability (Complex Capability 1). This will help the firm attain its objective (Objective 4).
As can be clearly seen from the given figures a firm-specific resource is the basic building block of a competence of the firm. When it is present in sufficient amounts in the firm, the firm can be regarded as competent for the purpose for which such a resource can be used. But just the presence of competence will not help the firm reach its goal. It needs to have the ability to carry out processes of a certain order to achieve the purpose. These processes, when they act on the competence of the firm, lend to the firm the simple or complex capability to reach its goal.
This can be illustrated through an example. Let us consider the new product development capability, i.e., the ability to research and develop new compounds for the market, of a pharmaceutical firm.
This firm has individual knowledge resources in the form of embedded knowledge, knowledge in its scientific manpower, and huge databases of previous research and development work. A critical mass or sufficiency of such a combined knowledge resource has to be reached through collaboration among its scientists, through incremental research and development work and through analysis and interpretation of existing and newly generated information. This can be reached by a set of first order processes acting on the bundle of the individual knowledge resources. Only when this state of sufficiency is met can we say that the firm has the knowledge competence to produce the new compound. Else, with half baked or hastily worked out knowledge, the firm will not be able to bring out the compound, thus exhibiting its lack of the relevant knowledge competence. But the presence of this knowledge competence alone cannot help the firm to achieve its purpose of say, introducing a new compound every three years. It needs to have various second order processes in place, coupled with the ability through these processes to extract mileage out of its knowledge competences, to help it reach this target. This set of second order processes will have to act on knowledge competence to provide the firm new product development capability, i.e., the capability to research and develop new compounds for the market at the predetermined time periods. This is an example of a simple capability.
We can similarly consider two simple capabilities, say product distribution capability and manufacturing capability, developed through these sequential steps of first and second order processes acting on the relevant resources and competences respectively. To keep the discussion simple, if we take a set of third order processes acting on the new product development, the product distribution and the manufacturing simple capabilities together, we can see emerging a new, complex capability, marketing capability, of the firm. This will help provide the firm the ability to successfully achieve its goal of capturing, for example, a five percent higher market share in the current financial year.
Managers should thus have conceptual clarity on what organizational resources, competences and capabilities really are, and how they are interlinked. This will help them concentrate their efforts on strengthening those capabilities of the organization that will help it achieve its objective.

The author is a member of GMR Research Team