Lecture 3: Strategic Management

The Internal Organization

Resources, Capabilities, Core Competencies
and Competitive Advantages
The Strategic Management Process

2
 The Internal Organization:
In this lecture we will discuss …..

1. Importance of internal organization.

2. Value: Definition and importance.
3. Resources: Tangible and Intangible resources.
4. Capabilities: Definition and development.
5. Core Competencies: Determining core competencies
using the four Criteria.
6. Value Chain and Value Chain Analysis.
7. Outsourcing: Definition and “why?”.
8. Identifying Internal Strengths and Weaknesses.
3
 Story 1: Innovation vs. Efficiency: 3M

• One of the few firms with more than 100 years of existence
• Historically committed to innovation
– Slogan: The Spirit of Innovation. That’s 3M.
– Relied on skills of scientists and engineers.
– 15% Rule
– 30-plus core technologies basis for > 55,000 products
– Post it Notes, Scotch tape …
– Historically 1/3 annual sales from products introduced into marketplace in most
recent 5 yrs.
– CEO McNerney (formerly of GE) implemented Six-Sigma, to decrease product
defects and increase efficiency
– Six Sigma doesn’t lend itself to creativity / innovation, something imperative in the
R&D arena
– Changing times: by mid-2007 only 25% sales earned from products introduced over
previous 5 yrs – why?
– New CEO Buckley changed the strategy to correct this
4
– In 2012, 3M ranked 3rd on Booz & company’s list of most innovative firms behind
 The Internal Organization:
In this lecture we will discuss …..

1. Importance of internal organization.

2. Value: Definition and importance.
3. Resources: Tangible and Intangible resources.
4. Capabilities: Definition and development.
5. Core Competencies: Determining core competencies
using the four Criteria.
6. Value Chain and Value Chain Analysis.
7. Outsourcing: Definition and “why?”.
8. Identifying Internal Strengths and Weaknesses.
5
 Importance of Internal Organization
• Firms achieve strategic competitive advantage by acquiring, bundling
and leveraging their resources (to create capabilities, core
competencies and Competitive advantage) to take advantage of
opportunities in the external environment in ways that create value
for customers
• People are critical resource and harnessing innovative power of
employees is the means for rekindling growth.
• Competitors will eventually imitate a successful strategy and hence
competitive advantages have limited life.
• To sustain a competitive advantage, firms must manage current core
competencies while simultaneously developing new competencies.
• Linking what a firm ‘can do’ (internal environment analysis) with what
a firm ‘might do’ (external environment analysis) give the firm
necessary inputs for a successful strategy. 6
 Analyzing Internal Organization
• Global economy
– In Global economy conditions like labor costs,
access to financial resources, raw materials,
regulated markets remains sources of CA , but to a
lesser degree than before.
Components of Internal Analysis Leading to
Competitive Advantage

3–8
Resources, Capabilities and Core Competencies
• Competitive Advantage (CA) foundation includes

– Resources
• Are used to create organizational capabilities
• Also called factors of Production
• 5 Ms and I
• Tangible and intangible (As seen in Figure 3.1)
– Capabilities
• Bundles of resources
• Purposely integrated to achieve a specific task/set of tasks
• Source of a firm’s core competencies and basis for CA
– Core Competencies
• Capabilities that serve as a source of CA for a firm over its rivals
• Distinguish a company from its competitors – the personality9
 The Internal Organization:
In this lecture we will discuss …..

1. Importance of internal organization.

2. Value: Definition and importance.
3. Resources: Tangible and Intangible resources.
4. Capabilities: Definition and development.
5. Core Competencies: Determining core competencies
using the four Criteria.
6. Value Chain and Value Chain Analysis.
7. Outsourcing: Definition and “why?”.
8. Identifying Internal Strengths and Weaknesses.
10
 Value: Definition and Importance
• Firms use their resources to produce goods and services that
create value for customers.
• Value: measured by a product's performance characteristics
and by its attributes for which customers are willing to pay.
• Value can be created by a product’s low cost or
differentiated features.
– Big Bus creates value through low cost.
– Mattress manufacturer E.S. Kluft & Company sells mattresses
priced at $ 55,000. Each mattress is made by hand. Human
capital is the core competency.
• Creating value for customers results in above average
returns for the firm.
• Firms with a competitive advantage offer customers superior
value than competitors (Or Firms offering superior value will have
competitive advantage).
 Challenges of Analyzing Internal
Organization
• Strategic decisions in terms of the firm’s resources, capabilities, and
core competencies are:
– non-routine, have ethical implications and
– significantly influence the firm’s ability to earn above-average returns.
• Polaroid
– Used to be one of the top multi-billion dollar firms.
– Mangers believed that the capabilities of building instant photo film
cameras were highly relevant, when competitors were trying to develop
capabilities in digital cameras, leading to the failure of the firm.
• Hence, when making strategic decisions, managers as strategic
leaders must:
– Know when a capability is not a competence.
– 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.
 Learning from Mistakes: Hyundai
• Initially known as a producer of cheap, entry level cars with many defects
• Reversed its strategy and in 2007 study, it displayed leadership role in
quality in 5 categories.
• Made some people comment’ ‘ When you want quality, think of Korea’
• But improvements in quality are not translating into quality. In Europe
sales declined 5.6 % in 2006
• In US unsold inventory was increasing in 2007.
• Original target was to sell one million cars in US by 2010.
• But it has been revised to sell 700,000 and a desire to sell 900,000 by
2012.
• Could sell only 735,127 cars.
• Learnt many lessons and used the knowledge to improve sales.
• Surpassed the revised target set for 2012, in 2011 by selling 1, 131,183
cars
• Sold 1,260, 606 in 2012 and 1,255, 962 in 2013.
• Now, Hyundai is one of the top selling brands in US.
 The Internal Organization:
In this lecture we will discuss …..

1. Importance of internal organization.

2. Value: Definition and importance.
3. Resources: Tangible and Intangible resources.
4. Capabilities: Definition and development.
5. Core Competencies: Determining core competencies
using the four Criteria.
6. Value Chain and Value Chain Analysis.
7. Outsourcing: Definition and “why?”.
8. Identifying Internal Strengths and Weaknesses.
14
 Resources
• Resources
– Are used to create (sources of) organizational
capabilities.
– Also called ‘Factors of Production’.
– 5 Ms and I ( Money, Machines, Methods, Material, Men
( HR) and Information.)
• Typically, resources alone do not yield a
competitive advantage
– Competitive advantage is created through the unique
bundling of several resources.
– Dell combines technological and human resources
– Amazon. COM combines service with efficient distribution
• Resources can be ‘Tangible’ or ‘Intangible’ 15
 Tangible Resources
• Tangible
– Assets that can be seen, touched and quantified.
– Examples include equipment, facilities, distribution centers, formal reporting
structures.
• Four specific types
– Financial
• Ability to generate revenue (funds) from internal operations.
• borrowing capacity
– Organisational
• Formal reporting structures
– Physical
• Plant and location,
• Equipment
• Inventory
• Distribution Facilities
– Technological ( Technologically related resources)
• Patents
• Trade marks
• Copy rights 16
 Tangible Resources
• It is hard to leverage tangible resources.
– You can not use same airplane on 5 different routes at the
same time.
• Example: Kinder Morgan
– 3rd largest energy firm in US with operations in Canada too.
– Vast physical resources.
• 75,000 miles of pipe
• 180 storage terminals with 2.5 million barrel capacity
• Publicly traded entities with $100 billion value.
• Operations in Canada transporting gas liquids needed for diluting
tar sands.
• Acquired El Paso another pipeline company to liquify and
transport Natural gas to Japan and Korea( $ 12 per cft compared
$ 4 in US)
 Intangible Resources
• Intangible
– Assets rooted deeply in the firm’s history, accumulated over time.
– In comparison to ‘tangible’ resources, usually can’t be seen or
touched .
– Difficult for competitors to observe or analyze.
– Superior source of capabilities.
– Examples include knowledge, trusts, organizational routines,
capabilities, innovation, brand name, reputation
• Three specific types
– Human Resources
– Innovation Resources
– Reputational Resources
18
 Intangible Resources
• Human resources
– Knowledge,
– Skills,
– Trust
– Abilities to Collaborate with others
• Innovation
– Ideas
– Scientific capabilities
– Innovative capabilities
• Reputation
– Brand name
– Perceptions about product quality, reliability and
durability.
– Positive reputation (relations) with suppliers and
customers
 Importance of Intangible Resources
• In a global economy, the success of a firm lies more
in its intellectual and system capabilities than in its
physical assets.
• Importance of Intangible Resources
– Less visible and more difficult for competitors to
understand, purchase, or imitate.
– More unobservable a resource is, more sustainable will be
the competitive advantage
– Intangible resources can be leveraged.
• Example : Sharing knowledge and creating new knowledge
increases the knowledge in organization

20
 Importance of Intangible Resources
• Reputation (Brand name is an application of
reputation)
– Is an important sources of sustainable competitive
advantage
– Earned through actions and words of the firm
– Is a product of years of superior market place
competence as perceived by stake holders
– Achieved through innovation aggressive advertising
– Brand name could be exploited
• Harley Davidson motor cloths alone generate US $100
million
• Used with Barbie doll, Hard rock café.
• Sells Sunglasses, jewellery, belts, and hats.
21
 Importance of Intangible Resources – Case
of Pepsi
• Pepsi in India – Tarnished brand name
• In 2003,Center for science and Environment found pesticide in
Pepsi 11 to 70 times higher than in Europe
• Sales declined by 40%
• Government agency conducted tests and found pesticide levels
lower’.
• Pepsi says drinking a cup of tea with water available to many
Indians has as much pesticide as 394 bottles of soda
• Pepsi is accused of using excessive amount of ground water
• Faced with such Pepsi is taking actions like digging bore wells fo
citizens, harvesting rain water, teaching better techniques in
farming rice , potatoes – to improve reputation
22
 The Internal Organization:
In this lecture we will discuss …..

1. Importance of internal organization.

2. Value: Definition and importance.
3. Resources: Tangible and Intangible resources.
4. Capabilities: Definition and development.
5. Core Competencies: Determining core competencies
using the four Criteria.
6. Value Chain and Value Chain Analysis.
7. Outsourcing: Definition and “why?”.
8. Identifying Internal Strengths and Weaknesses.
23
 Resources, Capabilities and Core
Competencies
• Competitive Advantage (CA) foundation includes

– Resources
• Are used to create organizational capabilities
• Also called factors of Production
• 5 Ms and I
• Tangible and intangible (As seen in Figure 3.1)
– Capabilities
• Bundles of resources
• Purposely integrated to achieve a specific task/set of tasks
• Source of a firm’s core competencies and basis for CA
– Core Competencies
• Capabilities that serve as a source of CA for a firm over its rivals
• Distinguish a company from its competitors – the personality 24
Capabilities • Firms combine individual tangible
and intangible resources to create
capabilities.
Competitive • Emerge over time through complex
Advantage interactions among tangible and
intangible resources
• Capabilities exist when resources
Core have been purposely integrated to
Competencies
achieve a specific set of tasks
• Human capital is the most
Capabilities :
Teams of Resources important organizational
capabilities
Resources • Capabilities are often developed in
• Tangible
• Intangible functional areas.
 Examples of firm’s capabilities
Functional Area Capabilities Company
• Examples
Distribution Effective Logistics Wal-Mart
Management
HR Motivation, Microsoft, Google
Empowerment &
Retention
MIS Inventory control Wal-Mart
through data from
point of sale
Marketing Branding P&G
Customer Service
Manufacturing Design & Toyota, Komatsu
Production
R&D Innovation Caterpillar, Apple
 Capabilities – Samsung
• Samsung group contributes 17% to the Korean GDP.
• Employs 370,000 people in 80 countries.
• Largent business is Samsung Electronics with $141 billion in sales in 2012.
• Overtook Apple in smart phone market (29% Vs 22% of Apple)
• Electronics started small by making components for others.
• Semiconductor fabrication plant costs anything up to $ 2 billion to set up.
Once you get going you can sell products to other companies ( provides access
to their customer’s products).
• Samsung produced components for iPhone and over a period built a better a
phone, copying Apple’s technology. ( Court case)
• Imitation strategy. (Motorola sold its cellphone company to google, Nokia is
no more ‘No 1’ in cell phone, Sony-Ericsson partnership dissolved. Palm
merged with HP. Black Berry failed).
• How Samsung succeeded?
– Developed capabilities in building TV and computer screens over time.
– Capabilities in producing incremental products.
– Capability in using knowledge gained from others.
• However some other Chinese company can displace them in future. Their CEO
DJ Lee is aware of that.
 Capabilities – Proctor & Gamble
• Two business units
– Beauty and Grooming
– Household care
• 250 branded products – Crest, CoverGirl, Ivory, Bold and Bounce etc.
• 127,000 employees in 80 countries.
• Every person in world spends $12 on P&G products.
• Objectives
– Target for 2015 is to make it $14.
– Target to grow sales from $ 80 billion to $ 100 billion.
– Increase customer base from 4.2 billion to 5 billion.
• How to achieve these targets
– Wants to use its capabilities and competencies to achieve targets and grow
organically.
– Not through acquisitions.
• Capabilities
– Technology, Supply Chain Management (SCM) , marketing, broad product
portfolio, R&D
• 5 core competencies
 The Internal Organization:
In this lecture we will discuss …..

1. Importance of internal organization.

2. Value: Definition and importance.
3. Resources: Tangible and Intangible resources.
4. Capabilities: Definition and development.
5. Core Competencies: Determining core competencies
using the four Criteria.
6. Value Chain and Value Chain Analysis.
7. Outsourcing: Definition and “why?”.
8. Identifying Internal Strengths and Weaknesses.
29
Resources, Capabilities and Core Competencies
• Competitive Advantage (CA) foundation includes

– Resources
• Are used to create organizational capabilities
• Also called factors of Production
• 5 Ms and I
• Tangible and intangible (As seen in Figure 3.1)
– Capabilities
• Bundles of resources
• Purposely integrated to achieve a specific task/set of tasks
• Source of a firm’s core competencies and basis for CA
– Core Competencies
• Capabilities that serve as a source of CA for a firm over its rivals
• Distinguish a company from its competitors – the personality 30
 Discovering Core Competencies

Discovering
Core
Core
Competencies
Competencies
Sources of
Competitive
Advantage

Capabilities
Teams of
Resources

Resources
* Tangible
* Intangible
Capabilities • Core competencies are resources and
capabilities that serve as the sources
of a firm’s competitive advantage
Competitive
Advantage • Distinguish a firm competitively and
reflect its personality.
• Emerge over time through an
Core organizational process of accumulating
Competencies and learning how to deploy different
resources and capabilities.
Capabilities : • Example: Apple developed two core
Teams of Resources competencies
– Innovation ( by combining tangible, financial
Resources and research labs with intangible Resources ,
• Tangible scientists, engineers and organizational
• Intangible
processes) and
– Customer Service (store design(tangible) and
knowledge and skilled employees)
 Building core competencies
• Two Tools (Methods) are used by firms to identify (or
build) which all capabilities are core competencies:
– First: Four criteria that determine which resource or
capability is core competency in a firm
– Second: Value chain analysis to select the value creating
competencies that should be maintained, upgraded or
developed and those to be out sourced.
• How many core competencies a firm must have?
– 3 to 4 – According to McKinsey & Co
– Supporting more will result in loss of focus
 Brand as Core Competency
• A source of competitive advantage
• Brand can be defined as ‘ A set of Intangible features that link
a good or service to its customers’
• Early 1990s Coke’s brand value was $100 bn
• Even if all the physical assets are destroyed Coke could borrow
$100bn only on Brand value. Mid 1999 the value came down
to 69 bn due to some quality issues raised in Europe.
• Still its brand value is worth $69 bn, the highest (63% of its
market capitalization)
• Microsoft has the second highest brand value $64 bn(21% of
its market capitalization)
Core Competencies
The Four Criteria of Sustainable
Competitive Advantage

Valuable • Valuable capabilities

• Rare capabilities
• Costly to imitate
• Nonsubstituable
Rare

Costly to Imitate

Non-substitutable
 Table 3.4 The Four Criteria of Sustainable
Advantage
Valuable • Help a firm neutralize threats or exploit opportunities
Capabilities

Rare • Are not possessed by many others

Capabilities

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

Capabilities culture or brand name
• Ambiguous cause: The causes and uses of a
competence are unclear
• Social complexity: Interpersonal relationships, trust,
and friendship among managers, suppliers, and
customers

Nonsubstitutable • No strategic equivalent

Capabilities

,
 Valuable

• Capabilities that either help a firm to exploit

opportunities to create value for firm or to
neutralise threats in the environment
– Sony – miniature electronic technology (Eight
millimetre video cameras)
– Wall mart – brand named goods at lowest price.
– Groupon created ‘daily deal’ marketing space and
reached $ 1 billion sales faster than any other
company in history.
– It is certainly valuable, but many others started
offering similar service.
 Rare

• Capabilities that are possessed by few, if any,

current or potential competitors
– Example: Dells direct Model
• Valuable but common resources and
capabilities only provide competitive parity.
• Walmart has started green initiative from
2005 and succeeded in many areas in reducing
carbon foot print by more than 10%.
• However other competitors can imitate it.
 Costly to Imitate
• Capabilities that other firms cannot develop easily, usually
due to unique
– 1. Historical conditions,
– 2. Causal ambiguity
– 3. Social complexity
• Occur due to the following factors or combination
– Unique organizational culture, historical conditions or
brand name –
• Ritz Hotel
• UPS has been the prototype in many areas of parcel
delivery business.
 Costly to Imitate
• Causally ambiguous: Link between firms capabilities and competitive
advantage is causally ambiguous
– Occurs when competitors are unable to detect how a firm uses its
competencies as a foundation for competitive advantage
– Low cost strategy of Southwest Airlines. Firms tried to copy their
strategy but not successful.
• Social complexity
– Occurs when the firm’s capabilities are the result of complex social
phenomena, such as interpersonal relationships, trust and
friendships among managers or a firm’s reputation with suppliers
and customers
– Hiring people that fit with firm’s culture
– Southwest Airlines – Carefully hiring people to fit its culture. Complex
interrelationships like cooperation between pilots and gate staff, jokes by
flight attendants, can not me imitated by others. 40
 Non Substitutable

• Capabilities that do not have strategic equivalents

• More invisible the firms capabilities are more
difficult to find substitutes
• Nonsubstitutable Capabilities
– Firm-specific knowledge
– Organizational culture
– Superior execution of the chosen business model

• Southwest Airlines.
 Outcomes from Combinations of the
Criteria for Sustainable Competitive
Valuable Rare
Imitate
Advantage
Costly to Non-sub-
stitutable
Competitive Performance
Consequences Implications
Below
Competitive
NO NO NO NO Average
Disadvantage
Returns

Competitive Average
YES NO NO YES/NO
Parity Returns

Temporary Aver./Above
YES YES NO YES/NO Competitive Average
Advantage Returns
Sustainable Above
YES YES YES YES Competitive Average
Advantage Returns
 The Internal Organization:
In this lecture we will discuss …..

1. Importance of internal organization.

2. Value: Definition and importance.
3. Resources: Tangible and Intangible resources.
4. Capabilities: Definition and development.
5. Core Competencies: Determining core competencies
using the four Criteria.
6. Value Chain and Value Chain Analysis.
7. Outsourcing: Definition and “why?”.
8. Identifying Internal Strengths and Weaknesses.
43
 Discovering Core Competencies

Discovering
Core
Core
Competencies
Competencies
Sources of
Competitive
Advantage

Capabilities
Value
Criteria of Chain
Teams of Sustainable Analysis
Resources Advantages
Resources
* Valuable
* Tangible
* Intangible * Rare
* Costly to Imitate •Outsourcing
* Non-substitutable
 Value Chain Analysis
• Allows a firm to understand the parts of its operations
that create value and those that do not.

• It is a template used to understand firm’s:

– Value-creating potential of each activity a firm undertakes
– How to add as much value as possible as cheaply as possible and
realize it
– Identify cost position and means to reduce the cost
– It facilitates the implementation of firm’s business-level strategy
– A firm’s value chain is segmented into primary and support
activities
 Building Core Competencies:
Criteria and Value Chain Analysis
• Value Chain Analysis
– Primary activities
• Involved with product’s physical creation, sales and distribution
to buyers, and service after the sale
– Service, marketing/sales, outbound/inbound logistics and operations
– Support activities
• Provide assistance necessary for the primary activities to take
place
• Includes firm infrastructure, HRM, technological development
and procurement
– Each of these activities should be examined relative to
competitors’ abilities and rated as superior, equivalent or
inferior 46
The Basic Value Chain

47
Figure 3.3 A Model of the Value Chain

© 2015 Cengage Learning. All rights 3–48

reserved. May not be copied, scanned,
Examining the value-creating potential of
primary activities
• Notes:
• 1. All items in value chain must be evaluated relative to
competitors.
• Inbound logistics: Activities, such as materials handling,
warehousing and inventory control.
– 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.
– Machining, packaging, assembly and equipment maintenance

• Outbound logistics: Activities involved with collecting, storing

and physically distributing the final product to customers.
Table 3.9a
Examining the value-creating potential of primary activities

• Marketing and sales: Activities that facilitate customers to

purchase products and to induce them to do so.
– Example: advertising and promotional campaigns,
distribution channels, and 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

50
 Examining the value-creating potential of
support activities
• Procurement: Activities involving purchase of inputs needed to produce a
firm’s products. example, raw materials and supplies, as well as fixed assets:
machinery, laboratory equipment, office equipment and buildings.
• Technological development: Activities to improve a firm’s product and the
processes used to manufacture it. development, 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

. Table 3.10a
 The Internal Organization:
In this lecture we will discuss …..

1. Importance of internal organization.

2. Value: Definition and importance.
3. Resources: Tangible and Intangible resources.
4. Capabilities: Definition and development.
5. Core Competencies: Determining core competencies
using the four Criteria.
6. Value Chain and Value Chain Analysis.
7. Outsourcing: Definition and “why?”.
8. Identifying Internal Strengths and Weaknesses.
52
 Outsourcing
• What should a firm do about primary and secondary activities
that are not source of competitive advantage?
– One Solution – Out sourcing
• Definition: Purchase of a value-creating activity from an external
supplier
– Effective execution includes an increase in flexibility, risk mitigation and
capital investment reduction
– Trend continues at a rapid pace
– Firms must outsource activities where they cannot create value or are at a
substantial disadvantage compared to competitors
• By forming and emphasizing fewer capabilities
– A firm can concentrate on those areas in which it can create value
– Specialty suppliers can perform outsourced capabilities more efficiently
• Can cause concerns
– Usually revolves around innovative ability and loss of jobs

53
 Outsourcing Decisions
A firm may outsource
all or only part of one M
or more primary rgin ar
gin
a
M
and/or support
activities.

Technological Development
Human Resource Mgmt.
Service
Support Activities

Firm Infrastructure
Marketing and Sales

Procurement
Outbound Logistics

Operations

Inbound Logistics

Primary Activities
© 2015 Cengage Learning. All rights 3–54
reserved. May not be copied, scanned,
 Strategic Rationales for Outsourcing
• Improving business focus
– Helps a firm focus on broader business issues by having outside experts handle
various operational details.
• Providing access to world-class capabilities
– The specialized resources of outsourcing providers makes world-class capabilities
available to firms in a wide range of applications.
• Accelerating re-engineering benefits
– Achieves re-engineering benefits more quickly by having outsiders—who have
already achieved world-class standards—take over process.
• 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
• 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.
• 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
 The Internal Organization:
In this lecture we will discuss …..

1. Importance of internal organization.

2. Value: Definition and importance.
3. Resources: Tangible and Intangible resources.
4. Capabilities: Definition and development.
5. Core Competencies: Determining core competencies
using the four Criteria.
6. Value Chain and Value Chain Analysis.
7. Outsourcing: Definition and “why?”.
8. Identifying Internal Strengths and Weaknesses.
57
 SWOT Analysis

• By analysis of external environment firms

identify the opportunities and threats.
• By analysis of infernal environment firms
understand their own strengths and
weaknesses.
 In this lecture we discussed …..

1. Importance of internal organization.

2. Value: Definition and importance.
3. Resources: Tangible and Intangible resources.
4. Capabilities: Definition and development.
5. Core Competencies: Determining core competencies
using the four Criteria.
6. Value Chain and Value Chain Analysis.
7. Outsourcing: Definition and “why?”.
8. Identifying Internal Strengths and Weaknesses.
59