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Evaluating A Firm's Internal Capabilities
Evaluating A Firm's Internal Capabilities
Evaluating A Firm's Internal Capabilities
Evaluating a
Firm’s
Internal
Capabilities
Evaluating a Firm’s Internal Capabilities
Machinery ?
Recruiting Skill ?
Mineral Deposits ?
• Resource Heterogeneity
» different firms may have different resources
• Resource Immobility
Resource Heterogeneity
• Rarity
• Imitability
• Organization
Competitive Advantage
Valuable and Rare
(at least temporarily)
Patents
• patents may be a two-edged sword
• offer a period of protection if the firm is
able to defend its patent rights
• required disclosure may actually decrease
the cost of imitation, and the timing
Copyright © 2006 Pearson Prentice Hall. All rights reserved.
23
Evaluating a Firm’s Internal Capabilities
Sustained
Valuable, Rare, and
Competitive Advantage
Costly to Imitate
(if Organized appropriately)
No No Disadvantage
Yes No Parity
Temporary
Yes Yes No Advantage
Sustained
Yes Yes Yes Yes
Advantage
No No Disadvantage Below
Normal
Temporary Above
Yes Yes No Advantage Normal
Sustained Above
Yes Yes Yes Yes
Advantage Normal
Critical Caveat:
Competitive Dynamics:
• the strategic decisions and actions of firms in
response to the strategic decisions and actions
of other firms
Firm B’s Possible Responses
Firm A No Response
(strategy decisions
Change Tactics
lead to competitive
advantage) Change Strategy
Competitive Dynamics
“No Action” Response (Rolex Casio)
A firm may decide to take no action because:
• the other firm is serving a different market
• a response may hurt its own competitive
advantage
• it does not have the resources and capabilities
to mount an effective response
• it wants to reduce or manage rivalry in the
market through tacit collusion
No Response
• Tacit cooperation
– Small number of competing firms
– Homogeneous products and costs
– Market Share Leader
– High Barriers to Entry
• Tacit collusion
Competitive Dynamics
“Change” Responses
Tactics (Tide) Strategy (Monsanto)
• specific actions • a fundamental change
» tweaking product in a firm’s theory
characteristics • may be necessary if
• usually imitated so current strategy
quickly that there is becomes obsolete
no advantage • a mimetic change may
• a ‘leap frog’ move achieve parity, but not
may create advantage advantage
Copyright © 2006 Pearson Prentice Hall. All rights reserved.
35
Evaluating a Firm’s Internal Capabilities
Competitive Dynamics
Customer
Needs
Quality
Copyright © 2006 Pearson Prentice Hall. All rights reserved.
36
Evaluating a Firm’s Internal Capabilities
Competitive Dynamics
Internal Analysis
Assumes:
Internal Analysis
Tells us:
• what the firm should do, given the relative
strengths and weaknesses of resources and
capabilities
Managers’ Job:
Managerial Implications
• Competitive advantage is every
employee’s responsibility.
• Imitation cannot lead to a competitive
advantage.
• Socially complex resources can be a
source of competitive advantage.
• International business activities enable a
firm to exploit current resources and to
develop new resources and capabilities.