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Internal environment = each firms can impact their own internal environment

Chapter 3

The Internal organization:

Resources, Capabilities, Core
Competencies, and Competitive
Advantages

PART 1 STRATEGIC MANAGEMENT INPUTS

Presentation design
by Charlie Cook

Learning Objectives
1. Explain why firms need to study and understand their internal
organization.
2. Define value and discuss its importance.
3. Describe the differences between tangible and intangible resources.
4. Define capabilities and discuss their development.
5. Describe four criteria used to determine whether resources and
capabilities are core competencies.
6. Explain how firms analyze their value chain for the purpose of
determining where they are able to create value when using their
resources, capabilities, and core competencies.
7. Define outsourcing and discuss reasons for its use.
8. Discuss the importance of identifying internal strengths and
weaknesses.
9. Discuss the importance of avoiding core rigidities... 3–2

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The Internal Organization analysis

What to analyze?
• Resources,
• Capabilities,
• Core Competencies, and
• Competitive Advantages..

3–3

The Internal Organization analysis

Internal analysis- some considerations

3–4

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The Internal Organization analysis

Internal analysis- some considerations

The Context of Internal Analysis

• 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
3–5
and capabilities...
5

The Internal Organization analysis

Internal analysis- some considerations

Internal issues in analyzing
• Creating Value
• Core competencies
• Creating Competitive Advantage...

3–6

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The Internal Organization analysis

Internal analysis- some considerations

• Creating Value: By exploiting their core competencies or

competitive advantages, firms create value via Product
performance characteristics; Product attributes for which
customers will pay and Above-average returns...
• Core competencies, Resources and capabilities that
distinguish a firm competitively and reflect its personality
(and or in combination with product-market positions),
are the firm’s most important sources of competitive
advantage.
• Competitive advantages: Advantages based on firm’s core
competencies
3–7

The Internal Organization analysis

Resources, Capabilities and Core Competencies

Competitive
Advantage

Core Internal analysis...

Competencies

Capabilities

Resources
•Tangible
•Intangible

© 2015 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 with a certain 3–8
product or service or otherwise on a password-protected
website for classroom use.

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The Internal Organization analysis

Resources, Capabilities and Core Competencies

Competitive • Resources
Advantage • Are the source of a firm’s
capabilities.
• Are broad in scope.
Core
Competencies
• Cover a spectrum of
individual, social and
Capabilities
organizational phenomena.
• Alone, do not yield a
competitive advantage..
Resources
•Tangible
•Intangible 5M resources = ????
(Money, man power,...)
© 2015 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 with a certain 3–9
product or service or otherwise on a password-protected
website for classroom use.

The Internal Organization analysis

Resources, Capabilities and Core Competencies

Two types of resources

• Tangible Resources
• Intangible Resources..

© 2015 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 with a certain 3–10
product or service or otherwise on a password-protected
website for classroom use.

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The Internal Organization analysis

Resources, Capabilities and Core Competencies
Tangible Resources
Financial • The firm’s borrowing capacity reflect amount of asset, ability to payback
Resources • The firm’s ability to generate internal funds

Organizational • The firm’s formal reporting structure (organizational

Resources structure)

Physical • The sophistication and location of a firm’s plant and

Resources equipment and the attractiveness of its location
• Distribution facilities
• Product inventory

Technological • Availability of technology-related resources such as

Resources copyrights, patents, trademarks, and trade secrets
© 2015 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 with a certain 3–11
product or service or otherwise on a password-protected
website for classroom use.

11

The Internal Organization analysis

Resources, Capabilities and Core Competencies
Intangible Resources
Human • Knowledge
Resources • Trust
• Skills
• Abilities to collaborate with others

Innovation • Ideas (new ideas)

Resources • Scientific capabilities
• Capacity to innovate

Reputational • Brand name

Resources • Perceptions of product quality, durability, and
reliability
• Positive reputation with stakeholders such as
© 2015 Cengage Learning. All rights reserved. May not be
copied, scanned, or duplicated, in whole or in part, except for
suppliers and customers
use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected
3–12

website for classroom use.

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the way of using resource reflect management style

The Internal Organization analysis

Resources, Capabilities and Core Competencies
• Capabilities
Competitive • Represent the capacity to deploy resources
Advantage that have been purposely integrated to
achieve a desired end state
• Emerge over time through complex
Core interactions among tangible and intangible
Competencies resources
• Often are based on developing, carrying and
Capabilities exchanging information and knowledge
through the firm’s human capital.

Resources • Often are expressed in business functions...

•Tangible
•Intangible

3–13

13

Activities and Resources: Example

Resources Activities
• Stock • Buying stock
• Plant and machinery • Checking in passengers
• IT system • Taking customer order
• Factory • Training staff
• Skills • Procuring IT system
• Expertise • R&D
• Routines • Raising finance
• Knowledge • ….
• …

Activities use resources and resources are deployed in activities.

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The Internal Organization analysis

Resources, Capabilities and Core Competencies
Examples of Firms’ Capabilities

© 2015 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 with a certain 3–15
product or service or otherwise on a password-protected
website for classroom use.

15

The Internal Organization analysis

Resources, Capabilities and Core Competencies

Competitive • Capabilities
Advantage
• Resources deployed
• Ways or methods of integration
Core • Are developed in specific
Competencies functional areas or a part
• Strategic capabilities
Capabilities
• Important and sustainable
capabilities..
Resources
•Tangible
•Intangible
© 2015 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 with a certain 3–16
product or service or otherwise on a password-protected
website for classroom use.

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Core competencies - nng lc ct lõi

The Internal Organization analysis

Resources, Capabilities and Core Competencies
• Core Competencies
Competitive • Resources and capabilities that are
Advantage the sources of a firm’s competitive
advantage:
Core • Distinguish a firm competitively
Competencies and reflect its personality.
• Emerge over time through an
Capabilities organizational process of
accumulating and learning how to
Resources
deploy different resources and
•Tangible capabilities...
•Intangible
© 2015 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 with a certain 3–17
product or service or otherwise on a password-protected
website for classroom use.

17

The Internal Organization analysis

Resources, Capabilities and Core Competencies
Core Competencies
Competitive
Advantage • Activities that a firm performs
especially well compared to
competitors.
Core
Competencies • Activities through which the
firm adds unique value to its
Capabilities goods or services over a long
period of time...
Resources
•Tangible
•Intangible
© 2015 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 with a certain 3–18
product or service or otherwise on a password-protected
website for classroom use.

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The Internal Organization analysis

Sustainable competitive Advantage
• Competitive Advantage
Competitive • Sustainable competitive
Advantage
Advantage...

Core
Competencies

Capabilities

Resources
•Tangible
•Intangible
© 2015 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 with a certain 3–19
product or service or otherwise on a password-protected
website for classroom use.

19

The Internal Organization analysis

Sustainable competitive Advantage

•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...

© 2015 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 with a certain 3–20
product or service or otherwise on a password-protected
website for classroom use.

20

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The Internal Organization analysis

Sustainable competitive Advantage
Outcomes from Combinations of the Four Criteria for Sustainable Advantage

© 2015 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 with a certain 3–21
product or service or otherwise on a password-protected
website for classroom use.

21

Value Chain Analysis

3–22

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Value Chain Analysis

• Allows a firm to understand the parts of its

operations that create value and those that
do not.
• 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..

3–23

23

Value Chain Analysis (cont’d)

•Primary and support activities

•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..
3–24

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Value Chain Analysis (cont’d)

•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
✓To perform a value-creating activity that competitors
cannot complete..
3–25

25

Value Chain Analysis (cont’d)

Figure 3.3 A Model of the Value Chain

3–26

26

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Value Chain Analysis (cont’d)

Technological Development
Human Resource Mgmt.
Service
Support Activities

Firm Infrastructure Marketing and Sales

Procurement
Outbound Logistics

Operations

Inbound Logistics

Primary Activities
3–27
A Model of the Value Chain (the detail one)

27

Value Chain Analysis (cont’d)

The Value-Creating Potential of Primary Activities

•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.. 3–28

28

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Value Chain Analysis (cont’d)

The Value-Creating Potential of Primary Activities

• 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..
3–29

29

Value Chain Analysis (cont’d)

The Value-Creating Potential of Support Activities:

• Procurement
✓Activities completed to purchase the
inputs needed to produce a
firm’s products.
• 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..
3–30

30

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Value Chain Analysis (cont’d)

The Value-Creating Potential of Support Activities:

•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.. 3–31

31

The Internal Organization analysis

Strengths and Weaknesses

3–32

32

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