CHAPTER 4

INTERNAL ANALYSIS

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Resource Based View Model of Competitive Advantage and Strategic
Competitiveness

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 OUTLINE

 4.1. Internal Environment Analysis bases on the resources

and competencies

 4.2. Core Competency Analysis

 4.3. Overall Competitiveness Evaluation

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Resources

 Resource: The inputs that firms use to create goods and services
(Porter, 1985; Fred David, 2011)
 Resources are what you have
 Capabilities/competences are what you can do
Resources
 Tangible
 Financial, Organizational, Physical, and Technological
 Assets that can be seen, touched and quantified
 Examples: equipment, facilities, distribution centers, formal reporting structures
 Intangible
 Human, Innovation and Reputational Resources
 Assets rooted deeply in the firm’s history, accumulated over time
 Usually can’t be seen or touched
 Examples: knowledge, trusts, organizational routines, capabilities, innovation, brand
name, reputation

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Competence
Competence/Capability is central to a corporation’s main business operations and allows
it to generate new products and services.

Competences are the skills and abilities by which resources are deployed effectively
through an organization’s activities and processes

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 OUTLINE

 4.1. Internal Environment Analysis bases on the resources and

competencies

 4.2. Core Competency Analysis

 4.3. Overall Competitiveness Evaluation

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4.2.1 Core competence

Ackermann et al. (2007, p. 704) stated that “a core competency is one that is crucial
to the success of the organization... It is core because of its location in the linkages of
competencies to aspirations”

Core competences are the skills and abilities by which resources are deployed
through an organization’s activities and processes such as to achieve competitive
advantage in ways that others cannot imitate or obtain (Gary Hamel and C.K.
Prahalad, 1990)

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Core Competencies
 Essential to the firm’s competitiveness
 Rewarded in market place
 Combination of skills & knowledge, not products or functions
 Flexible, long term platforms
 Embedded in the organization’s systems
 Distinctive competencies are those the firm performs better than rivals
 All core competencies have the potential to become core rigidities
 Resources: Capabilities: Core competence
human, financial, Industry-specific Distinctive and superior
physical, skills, relationships, skills, technology Perceived
technological, + organizational = relationships, customer
legal, informational knowledge knowledge and benefits/value
Intangible reputation of the firm added
Tangible and and invisible Unique, and
visible assets assets difficult to copy

Inputs to Integration of
the firm’s resources into
processes value-adding
activities
Not all capabilities are core Denotes feedback
competences – only those loop
that add greater value than denotes core competence
those of competitors development

Figure1. The relationships between resources, capabilities and core competence

 The VRINE Model
Test Competitive implication Performance implication

Valuable? Does the resource or capability allow the firm If so, it satisfies the value requirement. Valuable resources and capabilities convey the
to meet a market demand or protect the firm Valuable resources are needed just to compete potential to achieve “normal profits” (i.e., profits
from market uncertainties? in the industry, but value by itself does not which cover the cost of all inputs including the
convey an advantage. cost of capital).

Rare? Assuming the resource or capability is valuable, Valuable resources which are also rare convey a A temporary competitive advantage conveys the
is it scarce relative to demand? Or, is it widely competitive advantage, but its relative potential to achieve above normal profits, at
possessed by most competitors? permanence is not assured. least until the competitive advantage is nullified
The advantage is likely only temporary. by other firms.

Inimitable Assuming a valuable and rare resource, how Valuable resources and capabilities which are A sustained competitive advantage conveys the
and non- difficult is it for competitors to either imitate the difficult to imitate or substitute provide the potential to achieve above normal profits for
substitut- resource or capability or substitute for it with potential for sustained competitive advantage. extended periods of time (until competitors
able? other resources and capabilities that accomplish eventually find ways to imitate or substitute or
similar benefits? the environment changes in ways that nullify the
value of the resources).
Exploit- For each step of the preceding steps of the Resources and capabilities that satisfy the other Firms which control unexploited VRINE
able? VRINE test, can the firm actually exploit the VRINE requirements but which the firm is resources and capabilities generally suffer from
resources and capabilities that it owns or unable to exploit actually result in significant lower levels of financial performance and
controls? opportunity costs (other firms would likely pay depressed market valuations relative to what
large sums to purchase the VRINE resources they would otherwise enjoy (though not as
and capabilities). depressed as firms lacking resources and
Alternatively, exploitability unlocks the capabilities which do satisfy VRINE).
potential competitive and performance
implications of the resource or capability.
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Figure 2. The VRIO Decision Tree

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Examples of Core Competencies

 IKEA
Superior in designing modern functional home furnishings at low cost
 Beats Electronics
Superior marketing: perception of coolness
 Facebook
Superior algorithms to offer targeted online ads
 General Electric
Superior expertise in industrial engineering, designing and implementing
efficient management processes, and developing and training leaders

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Figure 3. Links between Competitive Advantage and Superior Firm Performance

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4.2.2 The Resource-Based View
 Competitive advantage is more likely to develop from intangible rather than
tangible resources..
 Tangible and Intangible Resources – Examples:

 Apple

• Tangible Resource Value: $15 Billion

• Intangible Resource Value: $180 Billion

 Google

• Tangible Resource Value: $8 Billion

• Intangible Resource Value: $110 Billion

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Two Critical Assumptions
The two assumptions – that firms may control – are critical in explaining
superior firm performance for the resource-based model:
1. Resource Heterogeneity
• Model assumption that a firm is a bundle of resources and capabilities
differ across firms
2. Resource Immobility
• Model assumption that a firm has resources that tend to be “sticky” and that
do not move easily from firm to firm

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4.2.3 The building blocks of competitive advantage

 Four factors help a company build and sustain a competitive advantage.

1) Superior efficiency
2) Superior quality
3) Innovation
4) Superior customer responsiveness

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FIGURE 3. THE BUILDING BLOCKS OF COMPETITIVE ADVANTAGE

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 Superior Efficiency

 The more efficient a company is, the fewer inputs are required to produce a
particular output.
 The most common measure of efficiency for many companies is employee
efficiency.
 Employee productivity refers to the output produced per employee.
 Employee productivity helps a company attain a competitive advantage through a
lower cost structure.

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 Superior Quality

 A product is said to have superior quality when customers perceive that its
attributes provide them with higher utility than the attributes of products sold by
rivals.
 When customers evaluate the quality of a product, they commonly measure two
attributes.
 Quality as excellence: Product design and styling, aesthetic appeal, features, and so on.
 Quality as reliability: The product consistently performs, its function well, and rarely, if
ever, breaks down.

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 Innovation

 Innovation refers to the act of creating new products or processes. There are
two main types of innovation:
 Product innovation is the development of products that are new to the world or have
superior attribute to existing products (Apple developed the iPod, iPhone, and iPad in
the 2000s).
 Process innovation is the development of a new process for producing products and
delivering them to customers (Toyota’s lean production system helped to boost
employee productivity).

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 Superior Customer Responsiveness

 To achieve superior customer responsiveness, a company must be able to do a

better job at identifying and satisfying its customers’ needs.
 A company needs to customize goods and services to the unique demands of
individual customers or customer groups.
 Customer response time is the time it takes for the goods to be delivered or a
service to be performed.

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 CONTENT

 4.1. Internal Environment Analysis bases on the resources and

competencies

 4.2. Core Competency Analysis

 4.3. Overall Competitiveness Evaluation

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Steps to build IFAS framework
 List key internal factors as identified in the internal-audit process. Use a total of from 10 to 20 internal factors, including
both strengths and weaknesses. List strengths first and then weaknesses. Be as specific as possible, using percentages,
ratios, and comparative numbers. Recall that Edward Deming said, “In God we trust. Everyone else bring data.”
 Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor. The weight assigned to a given
factor indicates the relative importance of the factor to being successful in the firm’s industry. Regardless of whether a
key factor is an internal strength or weakness, factors considered to have the greatest effect on organizational
performance should be assigned the highest weights. The sum of all weights must equal 1.0.
 Assign a 1-to-4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1), a minor
weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4). Note that strengths must receive a 3
or 4 rating and weaknesses must receive a 1 or 2 rating. Ratings are thus company-based, whereas the weights in step 2
are industry-based.
 Multiply each factor’s weight by its rating to determine a weighted score for each variable.
 Sum the weighted scores for each variable to determine the total weighted score for the organization.

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 Do you have any question?

25 Strategic Management Department 3/11/2022