COMPETITIVE ADVANTAGE

{Resources, Capabilities and

Core Competencies}
External Environment
What the Firm Might Do

Sustainable
Competitive
Advantage

Internal Environment
What the Firm Can Do
 Competitive
Discovering Core Advantage
Gained through
Competencies Core Competencies
Strategic
Competitiveness
Discovering Above-Average
Core Returns

Core
Competencies
Competencies
Sources of
Competitive
Advantage

Capabilities Criteria of Value

Teams of Sustainable Chain
Resources Advantages Analysis
Resources
* Tangible
* Valuable * Outsource
* Intangible * Rare
* Costly to Imitate
* Nonsubstitutable
Conditions Affecting Managerial Decisions About
Resources, Capabilities and Core Competencies

Uncertainty
regarding characteristics of the general and the
industry environments, competitor’s actions, and
customer’s preferences.

Complexity
regarding the interrelated causes shaping a firm’s
environments and perceptions of the environments

Intraorganizational Conflicts
among people making managerial decisions and
those affected by them
Discovering Core
Competencies

Resources
* Tangible
* Intangible
Resources What a firm Has...

What a firm has to work with:

its assets, including its people and
the value of its brand name
Resources What a firm Has...
What a firm has to work with:
its assets, including its people
and the value of its brand name

Resources represent inputs into a

firm’s production process...
such as capital equipment, skills of
employees, brand names, finances
and talented managers
Resources What a firm Has...
What a firm has to work with:
its assets, including its people
and the value of its brand name

Resources represent inputs into a

firm’s production process...
such as capital equipment, skills
of employees, brand names,
finances and talented managers

“Some genius invented the Oreo. We’re just

living off the inheritance.” F. Ross Johnson,
Former President & CEO,
RJR Nabisco
Resources What a firm Has...
What a firm has to work with:
its assets, including its people
Tangible Resources
and the value of its brand name
* Financial
* Physical Resources represent inputs into a
* Human Resources firm’s production process...
* Organizational
such as capital equipment, skills
of employees, brand names,
finances and talented managers
Intangible Resources
* Technological
“Some genius invented the Oreo.
* Innovation We’re just living off the inheritance.”
* Reputation F. Ross Johnson,
Former President & CEO, RJR Nabisco
Discovering Core
Competencies

Capabilities
Teams of
Resources

Resources
* Tangible
* Intangible
Capabilities What a firm Does...

Capabilities represent:
the firm’s capacity or ability to integrate
individual firm resources to achieve a desired
objective.
Capabilities What a firm Does...
Capabilities represent:
the firm’s capacity or ability to integrate individual
firm resources to achieve a desired objective.

Capabilities develop over time as a result of complex

interactions that take advantage of the interrelationships
between a firm’s tangible and intangible resources that
are based on the development, transmission and
exchange or sharing of information and knowledge as
carried out by the firm's employees.
Capabilities What a firm Does...
Capabilities represent:
the firm’s capacity or ability to integrate individual
firm resources to achieve a desired objective.
Capabilities develop over time as a result of complex
interactions that take advantage of the interrelationships
between a firm’s tangible and intangible resources that are
based on the development, transmission and exchange or
sharing of information and knowledge as carried out by the
firm's employees.
Capabilities become important when they are combined
in unique combinations which create core competencies
which have strategic value and can lead to competitive
advantage.
Discovering Core
Competencies

Discovering
Core
Core
Competencies
Competencies
Sources of
Competitive
Advantage

Capabilities
Teams of
Resources

Resources
* Tangible
* Intangible
Core Competencies What a firm Does...
that is Strategically
Valuable

“…are the essence of what makes an organization

unique in its ability to provide value to
customers.”
Leonard-Barton, Bowen, Clark, Holloway & Wheelwright

McKinsey & Co. recommends identifying three to four

competencies to use in framing strategic actions.
Discovering Core
Competencies

Discovering
Core
Core
Competencies
Competencies
Sources of
Competitive
Advantage

Capabilities Criteria of
Teams of Sustainable
Resources Advantages
Resources
* Valuable
* Tangible
* Intangible * Rare
* Costly to Imitate
* Nonsubstitutable * Outsource
Core Competencies What a firm Does...
that is Strategically
For a strategic capability to be a
Valuable
Core Competency, it must be:

Valuable

Rare

Costly to Imitate

Nonsubstitutable
Core Competencies What a firm Does...
that is Strategically
Valuable

Valuable
Capabilities that help a firm neutralize threats or exploit
opportunities

Rare
Capabilities that are not possessed by many others

Costly to Imitate
Capabilities that other firms cannot develop easily,
usually due to unique historical conditions, causal
ambiguity or social complexity
 What Criteria Make Core
Competencies Costly to Imitate?
Unique Historical Conditions
An unusual evolutionary pattern of growth may contribute to the
development of competencies in a manner that is unique to those
particular circumstances
Example: Disney created Mickey Mouse at a time when
animated motion pictures were new

Causal Ambiguity
This occurs when competitors are unable to detect how a firm uses
its competencies as a foundation for competitive advantage

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
Core Competencies What a firm Does...
Core Competencies must be: that is Strategically
Valuable
Valuable
Capabilities that either help a firm to exploit opportunities to
create value for customers or to neutralize threats in the
environment
Rare
Capabilities that are possessed by few, if any, current or potential
competitors

Costly to Imitate
Capabilities that other firms cannot develop easily, usually due to
unique historical conditions, causal ambiguity or social complexity

Nonsubstitutable
Capabilities that do not have strategic equivalents, such as firm-
specific knowledge or trust-based relationships
 Core Competencies

Resources
• Inputs to a firm’s Core Competence
• A strategic capability
production process

Does the capability satisfy

the criteria of sustainable YES
The source of Capability competitive advantage?
• Integration of a
team of resources NO

Capability
• A nonstrategic team
of resources
 Outcomes from Combinations of the Criteria for
Sustainable Competitive Advantage
Costly to Nonsub- Competitive Performance
Valuable Rare
Imitate stitutable 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