The Internal Environment

Resources, Capabilities, Core

Competencies
 Chapter 3
External The Strategic
Strategic
.
Environment
Inputs
Strat. Intent
Chapter 4 Strat. Mission
Management .

Internal
Environment
Process
Strategy Formulation Strategy Implementation
Strategic Actions

Chapter 5 Chapter 6 Chapter 7 Chapter 11 Chapter 12

Bus. - Level Competitive Corp. - Level Corporate Structure
Strategy Dynamics Strategy Governance & Control

Chapter 8 Chapter 9 Chapter 10 Chapter 13 Chapter 14

Acquisitions & International Cooperative Strategic Entrepreneurship
Restructuring Strategy Strategies Leadership & Innovation
Outcomes
Strategic

Chapter 2 Chapter 1 Feedback

Above Average Strategic
Returns Competitiveness
 The Resource-Based model of Above Average Returns

The resource based view suggests that a firm’s unique

resources and capabilities provide the basis for a strategy.

• Capabilities evolve and must be managed dynamically in

pursuit of above-average returns.
• Firms acquire different resources and develop unique
capabilities. These resources may not be mobile across
firms and that the differences in resources are the basis of
competitive advantage.
The Resource-Based Model of Superior
Returns Action required:
Identify firm resources.
Study strengths &
Resources weaknesses relative to
rivals.
Inputs to a firm’s
production
process.

*
an
The Resource-Based Model of
Superior Returns Action required:
Determine what firm
capabilities allow it to
Resources do better than rivals.
Capability
Inputs to a firm’s
Capacity
production for integrated
process.
set of resources to
integratively perform a
task or activity.

*
an
The Resource-Based Model of
Superior Returns Action required:
Determine how firm’s
resources & capabilities
Resources may create competitive
Capability advantage.
Inputs to a firm’s Competitive
Capacity
production Advantage
for
process. an
integrated set of
resources Ability
to of a firm to
integratively perform its rivals
outperform
a task or activity.

*
an
The Resource-Based Model of
Superior Returns Action required:
Locate an attractive
industry.
Resources
Capability
Competitive
Inputs to a firm’s
Capacity
production Advantage
for
process. an An Attractive
integrated set of Industry
resources toAbility of a firm to
outperform
integratively perform its rivals
Location of an industry
a task or activity. with opportunities that
can be exploited by
firm’s resources &
capabilities

*
an
The Resource-Based Model of
Superior Returns Action required:
Select strategy that best
exploits res.& capabilities
Resources relative to opportunities
Capability in environments.
Competitive
Inputs to a firm’s
Capacity
production Advantage
for
process. an An Attractive
integrated set of Industry Strategy
resourcesAbility
to of a firm to
outperformLocation Formulation
of an ind. and
integratively perform aits rivals
task or activity. Implementation
with opportunities
that can be exploited
by firm’sStrategic
resourcesactions taken
to earn above-average
& capabilities
returns

*
an
The Resource-Based Model of Superior
Returns Action required:
Maintain selected strat.
in order to outperform
Resources industry rivals.
Capability
Competitive
Inputs to a firm’s
Capacity
production Advantage
for
process. an An Attractive
integrated set of Industry Strategy
resourcesAbility
to of a firm to
Formulation and
outperformLocation
integratively perform a its of
rivals an ind. Superior
task or activity. Implementation
with opportunities Returns
that can be exploited
Earningtaken
of above-
by firm’sStrategic
resourcesactions
average returns
to earn above-average
& capabilities
returns

*
an
 Discovering Core Competitive
Advantage
Competencies Gained through
Core Competencies

Strategic
Core Competitiveness
Competencies
Discovering
Core Above-Average
Sources of Returns
Competitive Competencies
Advantage
Criteria of Value
Capabilities
Sustainable Chain
Teams of Advantages Analysis
Resources

Resources * Valuable * Rare * Outsource

* Costly to Imitate
* Tangible
* Intangible * Organized to be exploited
 Value
Value is measured by a product’s performance
characteristics and it’s attributes for which clients
are willing to pay.

Core competencies in combination with product-

market positions are the firms most important
sources of competitive advantage and should drive
it’s selection of strategies.
Resources, Capabilities & Core Competencies
Resources, Capabilities & Core Competencies
 Discovering Core
Competencies

Capabilities
Teams of
Resources

Resources
* Tangible
* Intangible
 Discovering Core
Competencies

Core
Competencies
Discovering
Sources of Core
Competitive Competencies
Advantage

Capabilities
Teams of
Resources

Resources
* Tangible
* Intangible
Resources, Capabilities & Core Competencies
Resources, Capabilities & Core Competencies
 Discovering Core
Competencies

Core
Competencies
Discovering
Sources of Core
Competitive Competencies
Advantage

Capabilities Criteria of
Sustainable
Teams of
Resources Advantages

Resources * Valuable * Rare * Outsource

* Tangible * Costly to Imitate
* Intangible * Organized to be exploited
Core Competencies For a strategic
capability to be a Core Competency, it must be:
Valuable Allow a firm to neutralize threats or exploit
opportunities in its external environment.

Rare Possessed by few, if any, current and

potential competitors.
Costly to When other firms either cannot obtain them
Imitate $ or must obtain them at a much higher cost.

Organized The firm must be organized appropriately to

to obtain full benefits of the resources in order to
be realize a competitive advantage.

Exploited
 Core Competencies
Resources Core Competence
• Inputs to a firm’s • A strategic capability
production process
Does the capability
satisfy the criteria of
sustainable competitive YES
Capability advantage?
The source of
• Integration of a
team of resources
NO

Capability
• A non-strategic team
of resources
 The VRIO Framework
Costly to Org. to be Competitive Performance
Valuable
Valuable Rare
Imitate Exploited Consequences Implications
Below
Competitive Average
NO NO NO NO Disadvantage Returns
Competitive Average
YES NO NO YES Parity Returns
Temporary Avg./Above
YES YES NO YES Competitive Average
Advantage Returns

Sustainable Above
YES YES YES YES Competitive Average
Advantage Returns
 Discovering Core
Competencies

Core
Competencies
Discovering
Sources of Core
Competitive Competencies
Advantage

Capabilities Criteria of Value

Sustainable Chain
Teams of
Resources Advantages Analysis

Resources * Valuable * Rare * Outsource

* Tangible * Costly to Imitate
* Intangible * Organized to be exploited
 Value Chain Analysis
Firm Infrastructure
Human Resource Management M
A
Support R
G
Activities Technological Development IN
Procurement

Service
Operations

Marketing
Outbound
Logistics

Logistics
Inbound

& Sales
IN
R G
A
M

Primary Activities
 Outsourcing Strategic choice to purchase some
activities from outside suppliers
Firm Infrastructure
Human Resource Management MA
Support R
G
Activities Technological Development IN
Procurement

Service
Operations

Marketing
Outbound
Logistics

Logistics
Inbound

& Sales
IN
A RG
M

Firms often buy a portion of their

Primary value-creating activities from specialty
Activities
external suppliers who can perform these functions more efficiently.
 Outsourcing Strategic choice to purchase some
activities from outside suppliers
Firm Infrastructure
Human Resource Management
Human Resource Management M
A
Support
Technological R
Development G
Activities Technological Development IN
Procurement
Procurement

Service
Operations

Marketing
Outbound
Logistics

Logistics
Inbound

Service

& Sales
IN
Outbound
Marketing A RG
Inbound Operations Logistics
Logistics & Sales M

Firms often buy a portion of their value-creating activities from specialty

external suppliers who can perform these functions more efficiently.
 Outsourcing Strategic choice to purchase some
activities from outside suppliers
Firm Infrastructure
Human Resource Management
Human Resource Management M
A
Support
Technological R
Development G
Activities Technological Development IN
Procurement
Procurement

Service
Operations

Marketing
Outbound
Logistics

Logistics
Inbound

Service

& Sales
IN
Outbound
Marketing A RG
Inbound Operations Logistics
Logistics & Sales M

Firms often buy a portion of their value-creating activities from specialty

external suppliers who can perform these functions more efficiently.
 Core Competencies--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.
Core Rigidities
They are former core competencies that sow
the seeds of organizational inertia.
Prevent the firm from responding appropriately to
changes in the external environment.
 Discovering Core
Competencies

Strategic
Core Competitiveness
Competencies
Discovering
Core Above-Average
Sources of Returns
Competitive Competencies
Advantage

Capabilities Criteria of Value

Sustainable Chain
Teams of
Resources Advantages Analysis

Resources * Valuable * Rare * Outsource

* Tangible * Costly to Imitate
* Intangible * Organized to be exploited
 The Internal Environment: Resources,
Capabilities and Core Competencies

Knowledge Objectives:
1. Explain the need for firms to study & understand
their internal environment.
2. Define value & discuss its importance.
3. Describe the differences between tangible &
intangible resources.
4. Define capabilities & discuss how they are
developed.
 The Internal Environment: Resources,
Capabilities and Core Competencies
Knowledge objectives – continued…
5. Describe four criteria used to determine whether
resources & capabilities are core competencies.
6. Explain how value chain analysis is used to identify
and evaluate resources and capabilities.
7. Define outsourcing & discuss the reasons for its use.
8. Discuss the importance of preventing core
competencies from becoming core rigidities.