10/12/2021

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

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 and capabilities.
3–4

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The Internal Organization analysis

Internal analysis-some considerations

• Creating Value
• Core competencies
• Creating Competitive Advantage

3–5

The Internal Organization analysis

Internal analysis-some considerations

Creating Value
• By exploiting their core competencies or competitive
advantages, firms create value.
• Value is measured by:
– Product performance characteristics
– Product attributes for which customers will pay

• Firms create value by innovatively bundling and

leveraging their resources and capabilities.
• Superior value  Above-average returns 3–6

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The Internal Organization analysis

Internal analysis-some considerations

Creating Competitive Advantage

• Core competencies, in combination with
product-market positions, are the firm’s most
important sources of competitive advantage.
• Core competencies of a firm, in addition to its
analysis of its general, industry, and competitor
environments, should drive its selection of
strategies..

3–7

The Internal Organization analysis

Resources, Capabilities and Core Competencies

• Resources
Competitive
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.
Resources – Alone, do not yield a
•Tangible competitive advantage..
•Intangible

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–8

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The Internal Organization analysis

Resources, Capabilities and Core Competencies
Tangible Resources
Financial • The firm’s borrowing capacity
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 product or service or otherwise on a password-protected website for classroom use. 3–9

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
suppliers and customers
© 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 product or service or otherwise on a password-protected website for classroom use. 3–10

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The Internal Organization analysis

Resources, Capabilities and Core Competencies
• Capabilities
Competitive – Represent the capacity to deploy
Advantage resources that have been purposely
integrated to achieve a desired end
state
Core
– Emerge over time through complex
Competencies
interactions among tangible and
intangible resources
Capabilities
– Often are based on developing,
carrying and exchanging information
Resources and knowledge through the firm’s
•Tangible
•Intangible human capital.
– Often are expressed in business
functions... 3–11

The Internal Organization analysis

Resources, Capabilities and Core Competencies
Examples of Firms’ Capabilities

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–12

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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 product or service or otherwise on a password-protected website for classroom use. 3–13

The Internal Organization analysis

Resources, Capabilities and Core Competencies

• Core Competencies
Competitive
– Resources and capabilities that
Advantage
are the sources of a firm’s
competitive advantage:
Core • Distinguish a firm competitively
Competencies
and reflect its personality.
Capabilities • Emerge over time through an
organizational process of
Resources
accumulating and learning how
•Tangible to deploy different resources
•Intangible
and 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 product or service or otherwise on a password-protected website for classroom use. 3–14

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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 goods
Capabilities
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 product or service or otherwise on a password-protected website for classroom use. 3–15

The Internal Organization analysis

Sustainable competitive Advantage

• Competitive Advantage
Competitive
Advantage • Sustainable competitive
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 product or service or otherwise on a password-protected website for classroom use. 3–16

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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 product or service or otherwise on a password-protected website for classroom use. 3–17

Internal
The Internal analysisanalysis
Organization
Sustainable ompetitiveAdvantage
Sustainable ccompetitive Advantage
The Four Criteria of Sustainable Competitive Advantage

Valuable • Help a firm neutralize threats or exploit

Capabilities opportunities

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

Non-substitutable • No strategic equivalent

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 product or service or otherwise on a password-protected website for classroom use. 3–18

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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 product or service or otherwise on a password-protected website for classroom use. 3–19

Value Chain Analysis

3–20

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

Value Chain Analysis (cont’d)

• 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..

© 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 product or service or otherwise on a password-protected website for classroom use. 3–22

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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..
3–23

Value Chain Analysis (cont’d)

Figure 3.3 A Model of the Value Chain

3–24

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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
© 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 product or service or otherwise on a password-protected website for classroom use. 3–25

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..
3–26

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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..
3–27

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..
3–28

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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.. 3–29

The Internal Organization analysis

• Strengths

• Weaknesses:

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The Internal Organization analysis

• 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—former core competencies that now
generate inertia and stifle innovation.
– Determining what the firm can do through continuous
and effective analyses of its internal environment will
increase the likelihood of long-term competitive
success...

3–31

The Internal Organization analysis

Components of an Internal Analysis- a frame work

3–32

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The Internal Organization analysis

Questions ?

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