The Internal Environment:
Resources, Capabilities and Core Competencies
Chapter 2
External Environment
What the Firm Might Do
Sustainable Competitive Advantage
Chapter 3
Internal Environment
What the Firm Can Do
Strengths Weaknesses Opportunities Threats
It is an easy-to-use tool for developing an overview of a companys strategic situation
It forms a basis for matching your companys strategy to its situation
A STRENGTH is something a company is good at doing or a characteristic that gives it an important capability. Possible Strengths:
Name recognition Proprietary technology Cost advantages Skilled employees Loyal Customers
A WEAKNESS is something a company lacks or does poorly (in comparison to others) or a condition that places it at a disadvantage Possible Weaknesses:
Poor market image Obsolete facilities Internal operating problems Poor marketing skills
By examining strengths, you can discover untapped potential or identify distinct competencies that helped you succeed in the past. By examining weaknesses, you can identify gaps in performance, vulnerabilities, and erroneous assumptions about existing strategies.
Discovering Core Competencies
Discovering Core Competencies
Competitive Advantage
Gained through Core Competencies
Strategic Competitiveness
Above-Average Returns
Core Competencies
Sources of Competitive Advantage
Capabilities
Teams of Resources
Criteria of Sustainable Advantages * * * * Valuable Rare Costly to Imitate Nonsubstitutable
Value Chain Analysis
* Outsource
Resources
* Tangible * Intangible
Key Questions for Managers in Internal Analysis
How do we assemble bundles of Resources, Capabilities and Core Competencies to create VALUE for customers? And... Will environmental changes make our core competencies obsolete? Are substitutes available for our core competencies? Are our core competencies easily imitated?
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 firms 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 firms production process...
such as capital equipment, skills of employees, brand names, finances and talented managers
Some genius invented the Oreo. Were just living off the inheritance. F. Ross Johnson,
Former President & CEO, RJR Nabisco
Resources
Tangible Resources
* * * * Financial Physical Human Resources Organizational
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 firms production process...
such as capital equipment, skills of employees, brand names, finances and talented managers Some genius invented the Oreo. Were just living off the inheritance. F. Ross Johnson,
Former President & CEO, RJR Nabisco
Intangible Resources
* Technological * Innovation
* Reputation
Discovering Core Competencies
Capabilities
Teams of Resources
Resources
* Tangible * Intangible
Capabilities
What a firm Does...
Capabilities represent: the firms capacity or ability to integrate individual firm resources to achieve a desired objective.
Capabilities
What a firm Does...
Capabilities represent: the firms 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 firms 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 firms 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 firms 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 Competencies
Core 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 Competencies
Core Competencies
Sources of Competitive Advantage
Capabilities
Teams of Resources
Criteria of Sustainable Advantages
* * * * Valuable Rare Costly to Imitate Nonsubstitutable
Resources
* Tangible * Intangible
* Outsource
Core Competencies
For a strategic capability to be a Core Competency, it must be:
What a firm Does... that is Strategically Valuable
Valuable
Rare Costly to Imitate Nonsubstitutable
Core Competencies
Core Competencies must be:
Valuable
What a firm Does... that is Strategically Valuable
Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment
Capabilities that are possessed by few, if any, current or potential competitors
Rare
Costly to Imitate
Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity
Capabilities that do not have strategic equivalents, such as firmspecific knowledge or trust-based relationships
Nonsubstitutable
Discovering Core Competencies
Discovering Core Competencies
Core Competencies
Sources of Competitive Advantage
Capabilities
Teams of Resources
Criteria of Sustainable Advantages
* * * * Valuable Rare Costly to Imitate Nonsubstitutable
Value Chain Analysis
Resources
* Tangible * Intangible
* Outsource
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Support Activities
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Support Activities
Inbound Logistics
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Support Activities
Primary Activities
Operations
Inbound Logistics
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Support Activities
Operations
Primary Activities
Outbound Logistics
Inbound Logistics
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Support Activities
Operations
Outbound Logistics
Primary Activities
Marketing & Sales
Inbound Logistics
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Support Activities
Operations
Outbound Logistics
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Support Activities
Procurement
Operations Outbound Logistics Marketing & Sales Inbound Logistics Service
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Support Activities
Technological Development
Procurement
Operations Outbound Logistics Marketing & Sales Inbound Logistics Service
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Support Activities
Human Resource Management
Technological Development
Procurement
Operations Outbound Logistics Marketing & Sales Inbound Logistics Service
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Firm Infrastructure
Support Activities
Human Resource Management
Technological Development
Procurement
Operations Outbound Logistics Marketing & Sales Inbound Logistics Service
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Firm Infrastructure
Support Activities
Human Resource Management
Technological Development
Procurement
Operations Outbound Logistics Marketing & Sales Inbound Logistics Service
Primary Activities
Outsourcing
Strategic Choice to Purchase Some Activities From Outside Suppliers
Firm Infrastructure
Support Activities
Human Resource Management
Technological Development
Procurement
Operations Outbound Logistics Marketing & Sales Inbound Logistics Service
Primary Activities
Outsourcing
Strategic Choice to Purchase Some Activities From Outside Suppliers
Firm Infrastructure
Human Resource Management
Support Activities
Human Resource Management purchase a portion Firms often
Technological Development Procurement
Technological
Procurement
Operations Inbound Logistics
of their value-creating activities from Development specialty external suppliers who can perform these functions more efficiently
Outbound Logistics
Marketing & Sales
Service
Service
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Primary Activities
Strategic Rationales for Outsourcing
Improve Business Focus
Lets company focus on broader business issues by having outside experts handle various operational details
Provide Access to World-Class Capabilities
The specialized resources of outsourcing providers makes worldclass capabilities available to firms in a wide range of applications
Accelerate Business Re-Engineering Benefits
Achieves re-engineering benefits more quickly by having outsiders-who have already achieved world-class standards--take over process
Share Risks
Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities
Free Resources for Other Purposes
Permits firm to redirect efforts from non-core activities toward those that serve customers more effectively
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 are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment
Strategic myopia and inflexibility can strangle the firms ability to grow and adapt to environmental change or competitive threats
Discovering Core Competencies
Discovering Core Competencies
Competitive Advantage
Gained through Core Competencies
Strategic Competitiveness
Above-Average Returns
Core Competencies
Sources of Competitive Advantage
Capabilities
Teams of Resources
Criteria of Sustainable Advantages
* * * * Valuable Rare Costly to Imitate Nonsubstitutable
Value Chain Analysis
Resources
* Tangible * Intangible
* Outsource