A company is underpinned by a combination of tangible and intangible resources. This article explores the difference between the two,
Tangible resources are the physical things that the firm has. They are visible and can typically be purchased or traded.
Examples of tangible resources
- Machinery: The equipment that is used to manufacture a company’s products.
- Facilities: The physical spaces that a company owns or rents.
- Employees: The employees that the firm has are another important tangible resource, critical to implementing the firm’s strategy. One of the key differences though between employees and other resources is that companies don’t own employees – they can leave the firm if they choose.
Intangible resources are the invisible resources that a company has – often things that are hard or impossible to transfer or purchase.
Examples of intangible resources
- Culture: Culture is one of the most important forms of intangible resources. It is the shared beliefs and values that shape how individuals behave.
- Routines: Routines can be another source of intangible resources. Ways of going about work, particularly if they work well together, can yield a significant benefit to firms and be very difficult for others to copy.
The gray area between tangible and intangible
While most resources clearly fall in either tangible or intangible resources, there are some that fall into a gray area between them – with some characteristics of both.
Patents are a good example of this: they are clearly not physical items in the same way that machinery or equipment is, but they can be bought and sold, unlike most intangible resources. The same holds across other forms of intellectual property including trademarks and copyright – on the one hand, is not a ‘physical thing’ (although could be printed out), but it can be sold. Sometimes you may see intellectual property referred to as a tangible resource, other times an intangible one.
Is the distinction between tangible and intangible resources important?
Being aware of both tangible and intangible resources
Part of the reason to make a distinction between tangible and intangible resources is to make sure that companies are aware of their intangible resources. They are often some of the most important parts of a firm’s operations and are often hard to imitate, but they are also easy to overlook. While tangible resources can be seen, intangible resources can’t, so without specific attention can be missed.
Potentially intangible resources are harder to imitate
Another distinction that can be important is the distinction is that while tangible resources can often be purchased or transferred, intangible resources can’t be traded so easily (if at all). This can make intangible resources harder to imitate – while a company can go out and buy the same machinery as a competitor is using, they can’t buy the same culture or routines.
BUT: Tools for analysis apply across tangible and intangible resources
It is important to recognize though that while it is important to be aware of both tangible and intangible resources when conducting internal analysis (e.g., using the VRIO framework), the distinction largely doesn’t matter. Thus whether or not a contract or a patent is a tangible or intangible resource is less important than the impact it can have on the firm’s underlying ability to compete in a market.