1–1

1–2
1–3
1–4
The Internal
Organization: Resources,
Capabilities, Core
Competencies, and
Competitive Advantages
Competitive Advantage 3–6

• Firms achieve strategic competitiveness

and earn above-average returns when
their core competencies are effectively:
• acquired
• bundled
• leveraged
• Over time, the benefits of any value-
creating strategy can be duplicated by
competitors.
• Sustainability of a 3–7
competitive advantage is a
Competitive
function of the:
Advantage
• rate of core competence
(cont’d)
obsolescence because of
environmental changes.
• availability of substitutes
for the core competence.
• imitability of the core
competence.
Analyzing the External Environment 3–8

Opportunities
and threats

By studying the external environment, firms identify what

they might choose to do.
1. The Context of Internal
Analysis 3–9

• Global Economy
• Traditional sources of advantages can be overcome by competitors’ international strategies
and by the flow of resources throughout the global economy.
• Global Mind-Set
• The ability to study an internal environment in ways that are not dependent on the
assumptions of a single country, culture, or context.
• Analysis Outcome
• Understanding how to leverage the firm’s bundle of heterogeneous resources and capabilities.
 3–10

Components of an Internal
Analysis

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ith a certain product or service or otherwise on a password-protected website for classroom use.
2. Creating Value 3–11

• By exploiting their core competencies or competitive advantages, firms create value

(Walmart).
• Value is measured by:
• product performance characteristics.
• product attributes for which customers will pay.
• Firms create value by innovatively bundling and leveraging their resources and
capabilities.
• Superior value leads to above-average returns.
 Creating Competitive Advantage 3–12

• Core competencies, in combination with product-market positions, are

the firm’s most important sources of competitive advantage.
• Core competencies of a firm, in addition to the analysis of its general,
industry, and competitor environments, should drive its selection of
strategies.
3. The Challenge of Analyzing
the Internal Organization 3–13

• Strategic decisions in terms of the firm’s resources, capabilities, and

core competencies:
• are non-routine.
• have ethical implications.
• significantly influence the firm’s ability to earn above-average returns.
 The Challenge of Analyzing
the Internal Organization (cont’d) 3–14

• When making strategic decisions, managers as strategic leaders must:

• know when a capability is not a competence (Polaroid corporation).
• learn quickly from failures and mistakes.
• have the maturity of judgment to deal effectively with uncertainty, complexity, and intra-
organizational conflicts in an unbiased manner.
• be willing to take intelligent risks.

Executive judgement can become a valuable capability.

Conditions Affecting Managerial Decisions
3–15
Resources, Capabilities, and Core
Competencies 3–16
• Resources:
Competitive • are the source of a firm’s
Advantage capabilities.
• are broad in scope.
• cover a spectrum of individual,
Core social and organizational
Competencies phenomena.
• alone, do not yield a competitive
Capabilities
advantage (Ex: Subway)

Resources
• Tangible
• Intangible
 3–17
• Resources • Types of Resources
Resources
• A firm’s assets, including people and
the value of its brand name, that
• Tangible resources:
• financial
represent inputs into a firm’s • physical
production process: • technological
• capital equipment • organizational
• skills of employees • Intangible resources (Brand for
• brand names Coca cola):
• financial resources • human
• talented managers • innovation
• reputation
 3–18
Tangible Resources
 3–19
Intangible Resources
Resources, Capabilities and Core
Competencies 3–20
Capabilities:
• represent the capacity to deploy resources
Competitive
that have been purposely integrated to
Advantage
achieve a desired end state.
• emerge over time through complex
Core
interactions among tangible and intangible
Competencies resources.

Capabilities

Resources
• Tangible
• Intangible
Resources, Capabilities and Core
Competencies 3–21
Capabilities (cont’d):
Competitive
• often are based on developing, carrying and
Advantage
exchanging information and knowledge
through the firm’s human capital.
• composed of the unique skills and
Core knowledge of a firm’s employees.
Competencies • include functional expertise of employees.
• often developed in specific functional areas
Capabilities or as part of a functional area.

Resources
• Tangible
• Intangible
Example of Firms’ Capabilities 3–22
Resources, Capabilities and Core
Competencies 3–23
Core Competencies
• Resources and capabilities that
Competitive are the sources of a firm’s
Advantage competitive advantage that:
• distinguish a firm
competitively and reflect its
Core personality.
Competencies
• emerge over time through an
organizational process of
Capabilities
accumulating and learning
how to deploy different
Resources resources and capabilities.
• Tangible
• Intangible
 Resources, Capabilities and Core
Competencies 3–24
Core Competencies (cont’d):
Competitive
• activities that a firm performs especially
Advantage
well compared to competitors.
• activities through which the firm adds
unique value to its goods or services over a
Core long period of time.
Competencies

Capabilities

Resources
• Tangible
• Intangible

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed w
ith a certain product or service or otherwise on a password-protected website for classroom use.
 1–25
Example:

• Resources: Tangible (financial resources & research labs), Intangible

(Scientists, Engineers and org routines)
• Capability: R&D Activities
• Core competence: Innovation

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed w
ith a certain product or service or otherwise on a password-protected website for classroom use.
 3–26
The four criteria of sustainable competitive
advantages:
Building Core Competencies Sustainable
Competitive • valuable capabilities
Advantage • rare capabilities
• costly to imitate
Four Criteria of • non-substitutable
Sustainable
Advantages

• Valuable
• Rare
• Costly to imitate
• Nonsubstitutable

© 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed w
ith a certain product or service or otherwise on a password-protected website for classroom use.
The Four Criteria of Sustainable
Advantage 3–27
Building Sustainable Competitive
Advantage 3–28
• Valuable capabilities:
Sustainable • help a firm neutralize threats or exploit
Competitive opportunities.
Advantage • Rare capabilities
• are not possessed by many others.
Four Criteria of
Sustainable
Advantages

• Valuable
• Rare
• Costly to imitate
• Non-substitutable
Building Sustainable Competitive
Advantage 3–29
• Costly-to-Imitate Capabilities
Sustainable • Historical
Competitive • A unique and a valuable organizational
Advantage culture or brand name
• Ambiguous cause
• The causes and uses of a competence are
Four Criteria of unclear
Sustainable • Social complexity
Advantages • Interpersonal relationships, trust, and
friendship among managers, suppliers, and
customers
• Valuable
• Rare
• Costly to imitate
• Non-substitutable
Building Sustainable Competitive
Advantage 3–30
• Non-substitutable Capabilities
Sustainable • No strategic equivalent
Competitive • firm-specific knowledge
Advantage • organizational culture
• superior execution of the chosen
Four Criteria of
business model
Sustainable
Advantages

• Valuable
• Rare
• Costly to imitate
• Non-substitutable
1–31
Outcomes from Combinations
of the Four Criteria 3–32

?
te

le
ita

ab
Im

ut
ti t
?

to
e

bs
bl
Competitive Performance

tl y

su
e?
ua

os
ar

on
l
Consequences Implications
Va

C
R

N
No No No No Competitive Below Average
Disadvantage Returns

Yes No No Yes/ Competitive Average Returns

No Parity

Yes Yes No Yes/ Temporary Com- Above Average to

No petitive Advantage Average Returns

Yes Yes Yes Yes Sustainable Com- Above Average

petitive Advantage Returns
 3–33

Criteria for Sustainable

Advantage
Value Chain Analysis 3–34

• Value Chain Analysis:

• allows a firm to understand the parts of its operations that create value and those
that do not.
• is a template that firms use to:
• understand their cost position.
• identify multiple means that might be used to facilitate implementation of a chosen
business-level strategy.
 Value Chain Analysis (cont’d) 3–35

• Primary Activities:
• are involved with:
• a product’s physical creation.
• a product’s sale and distribution to buyers.
• the product’s service after the sale.

• Support Activities:
• provide the assistance necessary for the primary activities to take place.
Value Chain Analysis (cont’d) 3–36

• Value Chain shows how a product moves from the raw-material stage to
the final customer.
• To be a source of competitive advantage, a resource or capability must
allow the firm to perform:
• an activity in a manner that is superior to the way competitors perform it, or
• a value-creating activity that competitors cannot perform.
 3–37

A Model of the Value Chain

Creating Value through Value Chain
Activities 3–38
 Creating Value through Support
Functions 3–39
The Value-Creating Potential
of Primary Activities 3–40

• Inbound Logistics
• Activities used to receive, store, and disseminate inputs to a product.
• Operations
• Activities necessary to convert the inputs provided by inbound logistics into final
product form.
• Outbound Logistics
• Activities involved with collecting, storing, and physically distributing the product to
customers.
 The Value-Creating Potential
of Primary Activities (cont’d) 3–41

• Marketing and Sales

• Activities completed to provide the means through which customers can
purchase products and to induce them to do so.
• Service
• Activities designed to enhance or maintain a product’s value.
• Each activity should be examined relative to competitor’s abilities and
rated as superior, equivalent or inferior.
 The Value-Creating Potential
of Primary Activities: Support 3–42

• Technological Development
• Activities completed to improve a firm’s product and the processes used to
manufacture it.
• Human Resource Management
• Activities involved with recruiting, hiring, training, developing, and
compensating all personnel.
 The Value-Creating Potential of
Primary Activities: Support (cont’d) 3–43

• Firm Infrastructure
• Activities that support the work of the entire value chain (general management,
planning, finance, accounting, legal, government relations, etc.).
• Effectively and consistently identify external opportunities and threats
• Identify resources and capabilities
• Support core competencies
• Each activity should be examined relative to competitor’s abilities and
rated as superior, equivalent or inferior.
 Outsourcing 3–44

• Outsourcing is the purchase of a value-creating activity from an

external supplier.
• Few organizations possess the resources and capabilities required to
achieve competitive superiority in all primary and support activities.
• By performing fewer capabilities:
• a firm can concentrate on those areas in which it can create value.
• specialty suppliers can perform outsourced capabilities more efficiently.
Outsourcing Decisions 3–45
A firm may outsource
only part of one or more M
primary and/or support gi n ar
g
ar in
M
activities.

Technological Development
Human Resource Mgmt.
Service

Support Activities

Firm Infrastructure
Marketing and Sales

Procurement
Outbound Logistics

Operations

Inbound Logistics

Primary Activities
Strategic Rationales for
Outsourcing 3–46

• Improving business focus helps a firm focus on broader business issues

by having outside experts handle various operational details.
• Provides access to world-class capabilities
• Makes world-class capabilities available to firms in a wide range of
applications
 Strategic Rationales for Outsourcing
(cont’d) 3–47

• Accelerating re-engineering benefits

• achieves re-engineering benefits more quickly by having outsiders - who have already
achieved world-class standards - take over processes.
• Sharing risks
• reduces investment requirements and makes firm more flexible, dynamic and better able to
adapt to changing opportunities.
• Freeing resources for other purposes
• redirects efforts from non-core activities toward those that serve customers more effectively.
 Outsourcing Issues 3–48

• Seeking greatest value

• Outsource only to firms possessing a core competence in terms of performing the primary
or supporting the outsourced activity.
• Evaluating resources and capabilities
• Do not outsource activities in which the firm itself can create and capture value.
• Environmental threats and ongoing tasks
• Do not outsource primary and support activities that are used to neutralize
environmental threats or to complete necessary ongoing organizational tasks.
Outsourcing Issues (cont’d) 3–49

• Nonstrategic team resources

• Do not outsource capabilities critical to the firm’s success, even though the
capabilities are not actual sources of competitive advantage.
• Firm’s knowledge base
• Do not outsource activities that stimulate the development of new capabilities
and competencies.
Competencies, Strengths, Weaknesses,
and Strategic Decisions 3–50

• Cautions and Reminders

• Never take for granted that core competencies will continue to provide a source of
competitive advantage.
• All core competencies have the potential to become core rigidities – former core
competencies that now generate inertia and stifle innovation.
• Determining what the firm can do through continuous and effective analyses of its
internal environment will increase the likelihood of long-term competitive
success.
 51
2/1/20XX

Thank
you

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