3-The Internal Environment
3-The Internal Environment
Creating Value:
Value is measured by a product’s performance characteristics
and by its attributes for which customers are willing to pay.
Strategic Competitiveness
Competitive
Advantage
Discovering
Core
Competencies
Core
Competencies
Capabilities
Four Criteria Value Chain
of Sustainable
Resources
Advantages
Analysis
• Tangible
• Intangible
• Valuable
• • Outsource
Rare
• Costly to Imitate
• Nonsubstitutable
Conditions Affecting Managerial Decisions about Resources,
Capabilities, and Core Competencies
Uncertainity
Regarding characteristics of the general and the
Condition industry environments, competitiors’ actions, and
customers’ preferences
Complexity
Condition Regarding the interrelated causes shaping a firm’s environments
and perceptions of the environments
Intraorganizational Conflicts
Condition Among people making managerial decisions and those affected
by them
Resources, Capabilities, and Core Competences
Resources:
Tangible resources are assets that can be ob
served and quantified
Intangible resources include assets that are r
ooted deeply in the firm’s history, accumulat
e over time, and are relatively difficult for co
mpetitors to analyze and imitate.
Tangible Resouces
Financial Resources • The firm’s borrowing capacity
• The firm’s ability to generate
internal funds
Capabilities:
Capabilities exist when resources have
been purposely integrated to achieve
a specific task or set of tasks
Examples of Firms’ Capabilities
Core Competences
Core competences are capabilities that serve a sourc
e of competitive advantage for a firm over its rivals.
Core competences distinguish a company competitiv
ely and reflect its personality. Core competences em
erge over time through an organizational process of
accumulating and learning how to deploy different r
esources and capabilities.
Building Core Competences
Four criteria of sustainable competitive advantage
The Four Criteria of Sustainable Competitive Advantage
Valuable:
Valuable capabilities allow the firm to exploit opportunities or n
eutralize threats in its external environment.
Rare:
Rare capabilities are capabilities that few, if any, competitors po
ssess.
Costly-to-imitate:
Costly-to-imitate capabilities are capabilities that other firms ca
nnot easily develop.
Nonsubstitutable:
Nonsubstitutable capabilities are capabilities that do not have s
trategic equivalents.
The Four Criteria of Sustainable
Competitive Advantage
Is the Is the
Is the
Is the Resource or Resource or Resource or Competitive
Capability Resource or Capability Capability Consequenc Performance
Capability Implications
Valuable? Rare? Costly to Nonsubstitut es
Imitate? able?
Competitive Below-
No No No No disadvantage average
returns
Competitive Average
Yes No No Yes/No parity returns
Temporaty Average
competitive returns to
Yes Yes No Yes/No advantage above-
average
returns
Sustainable Above-
Yes Yes Yes Yes/No competitive average
advantage returns
Value Cain Analysis
Margin
Technological Development Service
Firm Infrastructure
Human Resource
Support Activities
Procurement
Outbound Logistics
Operations
Inbound Logistics
Primary Activities
Examining the Value-
Creating Potential of
Primary Activities
Inbound Logistics
Activities, such as materials handling, warehouse, and inventory control, uset to receive, store
and disseminate inputs to a product.
Operations
Activities necessary to convert the inputs provided by inbound logistics into final product form.
Machining, packaging, assembly, and equipment maintenance are examples of operations
Outbound Logistics
Activities involved with collecting, storing, and physically distributing the final product to
customers. Examples of these activities include finished-goods warehousing, materials
handling, and order processing.
Marketing and Sales
Activities completed to provide means through which customer can purchase products and to
induce them to do so. To effectively market and sell products, firm develop advertising and
promotional campaigns, select appropriate distribution channels, and select, develop, and
support their sales force.
Service
Activities designed to enhance or maintain a product’s value. Firms engage in a range of
service-related activities, including installation, repair, training, and adjustment.
Each activity should be examined relative to competitors’ abilities. Accordingly, firms rate each
activity as superior, equivalent, or inferior.
Examining the Value-
Creating Potential of
Support Activities
Procurement
Activities completed to purchase the inputs needed to produce a firm’s products. Purchased
input include items fully consumed during the manufacture of products (e.g., raw materials
and supplies, as well as fixed assets – machinery, laboratory equipment, office equipment, and
buildings).
Technological Development
Activities completed to improve a firm’s product and the processes used to manufacture it.
Technological development takes many forms, such as process equipment, basic research and
product design, and servicing procedures.
Human Resource Management
Activities involved with recruiting, hiring, training, developing, and compensating all personnel.
Firm Infrastructure
Firm infrastructure includes activities such as general management, planning, finance,
accounting, legal support, and governmental relations that are required to support the work of
the entire value chain. Through its infrastructure, the firm strives to effectively and
consistently identify external opportunities and threats, identify resources and capabilities,
and support core competencies.
Each activity should be examined relative to competitors’ abilities. Accordingly, firms rate each
activity as superior, equivalent, or inferior.
Competences, Strengths, Weaknesses, and Strategic Decisions