Universitas Muhammadiyah Jakarta

The Internal Environment: Resources,

Capabilities, Competences, and
Competitive Advantage

Dr. DJONIERI, SE, Ak, MBA, CA

Analyzing the Internal Organization

The Context of Internal Analysis:

 A global mind-set is the ability to analyze, understand and m
anage an internal organization in ways that are not dependen
t on the assumptions of a single country, culture, or context.

Creating Value:
 Value is measured by a product’s performance characteristics
and by its attributes for which customers are willing to pay.

The Challenge of Analyzing the Internal Organization:

 The challenge and difficulty of making effective decisions are i
mplied by preliminary evidence suggesting that one-half of or
ganizational decisions fail.
 Components of Internal
Analysis Leading to Strategic
Competitive Advantage and Competitiveness

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

Organizational Resources • The firm’s formal reporting

structure and its formal
planning, controlling, and
coordinating systems

Physical Resources • Sophistication and location of a

firm’s plant and equipment
• Access to raw materials

Technological Resources • Stock of technology, such as

patents, trademarks, copyrights,
and trade secrets.
 Intangible Resouces
Human Resources • Knowledge
• Trust
• Managerial Capabilities
• Organizational routines
Innovation Resources • Ideas
• Scientific capabilities
• Capacity to innovate
Reputational Resources • Reputation with customers
• Brand name
• Perceptions of Product quality,
durability, and reliability
• Reputation with suppliers
• For efficient, effective,
supportive, and mutually
beneficial interactions and
relationships
Resources, Capabilities, and Core Competences

Capabilities:
Capabilities exist when resources have
been purposely integrated to achieve
a specific task or set of tasks
 Examples of Firms’ Capabilities

Functional Areas Capabilities Examples of Firms

Distribution Effective use of logistics management technique Wal-Mart
Human Resources Movitating, empowering, and retaining employees Microsoft
Management Effective and efficient control of inventories through Wal-Mart
Information Systems point-of-purchase data collection methods
Marketing • Effective promotion of brand-name products • Procter & Gamble
• Effective customer service • Polo Ralph Lauren Corp.
• Innovative merchandising • McKinsey & Co.
• Nordstorm Inc.
• Norrell Corporation
• Crate & Barrel
Management • Ability to envision the future clothing • Hugo Boss
• Effective organizational structure • PepsiCo
Manufacturing • Design and procution skills yielding reliable • Komatsu
products • Witt Gas Technology
• Product and design quality • Sony
• Miniaturization of components and products
Research & • Innovative technology • Caterpillar
Development • Development of sophisticated elevator control • Otis Elevator Co.
solution • Chaparral Steel
• Rapid transformation of technology into new • Thomson Consumer
products and processes Electronics
• Digital technology
Resources, Capabilities, and Core Competences

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

Valuable Capabilities • Help a firm neutralize threats or

exploit opportunities
Rare Capabilities • Are not possessed by many others

Costly-to-Imitate Capabilities • Historical: A unique and a valuable

organizational culture or brand
name
• Ambiguous cause: The causes and
uses of a competence are unclear
• Social complexity: Interpersonal
relationships, trust, and friendships
among managers, suppliers, and
customers
Nonsubstitutable Capabilities • No strategic equivalent
 Outcomes form Combination of the Criteria for
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

 Primary activities are involved with a product’s physic

al creation, its sale and distribution to buyers, and its
service after sale.
 Support activities provide the assistance necessary for
the primary activities to take place.
 The Basic Value Chain

Margin
Technological Development Service
Firm Infrastructure
Human Resource
Support Activities

Marketing & Sales

Management

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

 Firms must identify their strengths and w

eaknesses in resources, capabilities, and
core competences.
 If they have weak capabilities or do not
have core competences in areas required
to achieve a competitive