This above diagram connects the two sides of the firm. The above diagram exhibits that resources and capabilities and product(s) and or service(s) would be analyzed in themselves and in relation to each other. One side of the firm is its resources and capabilities while the second side is its product(s) and or service(s).

When resources and capabilities are analyzed they measure the value creating strength of the firm. The value creating strength of the firm would indicate what level of value is constituted in the product(s) and or service(s). If the value creating strength of the firm lies in the yellow zone of the model this would also mean that the value constituted in the product(s) and or service(s) of the firm also lie in the yellow zone. The amount of profitability earned through the sale of the product(s) and or service(s) would also indicate where the firm’s resources and capabilities stand in terms of value creating strength.

Correct analysis should lead to the conciliation of both of the sides. If the resources and capabilities lie in the red zone that should be followed by heavy losses. If the resources and capabilities lie in the green zone that should be supported by profitability. In other words a correct analysis would lead to the conciliation of both ends. Product(s) and service(s) which are produced by the resources and capabilities can be judged by value analysis but value analysis only indicates what is lacking in resources and capabilities and does not explain what lacks in the product. It is value engineering that provides us with the answer as what is lacking in the product(s) and or service(s). Value engineering is the tool which will move the organization from red zone to the green zone.

Value engineering would be discussed later as before we can analyze and engineer value, we need to know what creates value. It is an organization’s resources and capabilities, which creates value. “An organization’s resources and capabilities are valuable if, and only if, they reduce the organization’s net costs or increase its revenues compared to what would have been the case if the organization did not posses those resources.” (Bradley Frank, 2003). Value of an organization’s resources can be analyzed through following this easy-to-follow model as below (the basis of this model is the work of Prahalad and Hamel (1990) and Barney (2002) as discussed by Bradley Frank (2003)):

It is value creating strength of resources and capabilities, which enables an organization in achieving and retaining level of value maximization and also in capturing the value created by the firm. We can analyze the value-creating strength of resources and capabilities through examining each resource or capability on three tests which are as follows:

1. Durability and Imitability Test,

2. Appropriability Test, and

3. Rarity Test.

We may scale each resource or capability from red, yellow to green within these three tests. Red indicating poor value-creating resource or capability, yellow showing perishable value-creating resource or capability and green showing value-maximizing and self-sustaining resource or capability. After each resource or capability is scaled, we can then know what the value creating strength of our business is.

The above value analysis model can be utilized not just for companies but also for industries and countries. Different types of examples would explain the preceding statement.

Value analysis model for companies: (Take the example of Malaysian firms (TIFFANY) and Indonesian firms, Meezan Bank,) (Islamic certifications and knowledge – valuable resource and capability of firms - RHB Islamic stock broking, Halal certification, Halal Patents, Intellectual property, ) (WTO knowledgeable, Valuable strategy knowledgeable and Excellent research skills companies are possessing valuable resource - attainable on struggle) (Brand as a valuable resource)

“Although the consumption and trade of Halal products existed more than 1,000 years ago, it has only been in the last few decades that governments and consumers have shown great interest in this market. In its basic form, Halal is an Islamic value attached to products. Hence, this has a direct impact on how the products should be financed, sourced, produced, processed, distributed, stored, sold and consumed” (The Halal Journal, May 22, 2008).

In Halal markets halal certification has a value added advantage. “Rapid expansion of the halal market has led to many countries recognizing that a Halal-certified product has immediate added value in the global market, Halal Industry Development Corporation (HDC) Chief Executive Officer Datuk Jamil Bidin said Wednesday” (The Halal Journal, Feb 22, 2007). Halal certification of products is a valuable resource and capability of the firm if operating in halal market. This capability would enable a firm to provide the same product for example food with an immensely valuable added value of halal

“As ginning factories fail to upgrade their quality and government campaign to create awareness about cleaner cotton among farmers also faltered, the Pakistani exporters continue to pay penalty worth millions of dollars on defective products produced from contaminated cotton” (Pakistan Textile Journal, Oct. 2008). As we may analyze that, firms making cotton based products are using a common resource available to every one. So in the rarity test, most firms would come under the red zone. But the red zone indicates contaminated cotton as a common resource and not pure cotton which would come under yellow zone. Organizations which have this common resource of contaminated cotton are unable to create value as they do not have the value-creating strength of pure cotton which is attainable on struggle. We will discuss this part later in value-engineering to develop this value-creating strength of pure cotton.

Appropriability test would not apply to most textile firms (apart from some) in Pakistan as most textile firms are unable to create value. Hence no value created and no value captured by the firm in return from customers and/or dissipated to other firms in the business system. “The potential of value-added textiles exports is not being realized in the context of prevailing economic suspense, indecision and the lack of necessary push from official quarters, said Muhammad Naeem, Acting Chairman of the Pakistan Textile Exporters Association (PTEA)” (Pakistan Textile Journal, September, 2008). Even though, textile exporters have the potential to earn $20 billion per annum if regulatory adjustments are made. However, “exporters were unable to finalize their export bargains in the absence of R&D support, in today's international market of fierce competition; the smallest edge over rival exporters is of great importance for survival and competition. Hence, the slight advantage of R&D support would go a long way in buttressing the export of value-added textiles” (Pakistan Textile Journal, September, 2008).

Other value-creating resources utilized by these types of firms are brand loyalty, marketing skills an(d embracing international standards like ISO 9000: 2000(the transition to ISO 9001:2008 is now taking place) and ISO 14001: 2004 due to which they are able to provide assurance about the quality of goods and services in supplier-customer relations. “ISO 9001:2000 and ISO 14001:2004 have become thoroughly integrated with the world economy” (International Organization for Standardization, 2008). “In the present scenario the most efficient units with tight production and fiscal controls and a strong focus on marketing are expected not only to survive but also thrive” (Pakistan Textile Journal, August 2008). “Gul Ahmed Textile Mills Ltd has been awarded the most prestigious marketing excellence award of "Superbrands" of Pakistan” (Gul Ahmed, 1).

In the durability test and imitability test, most textile firms have resources and capabilities that are highly durable and imitable. “Machines smuggled especially from China, India, Taiwan are not better in quality but are selling cheaper” and “the products manufactured locally, when displayed against foreign goods - offer a poor look – primarily because of the unsightly finishing of welding seams, electroplating, painting and other surface treatments” (Pakistan Textile Journal, March, 2004).

Now, it is through value-engineering that what resources and capabilities produce (product or services) can be redeveloped for lower costs and or best performance.

Value engineering according to Heinz Weihrich et al, 1993 “consists of analyzing the operations of the product or service, estimating the value of each operation, and attempting to improve that operation by trying to keep costs low at each step or part.” Heinz Weihrich et al, 1993, further suggested the following specific steps:

1. Divide the product into parts and operations.

2. Identify the costs for each part and operation.

3. Identify each part’s relative contribution value to the final unit or product.

4. Find a new approach for those items, which appear to have a high cost and low value.

Value engineering is explained below in more detail in the model below: