1 chapter 3: the internal organization: resources, capabilities, core competencies and competitive...
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Chapter 3: The Internal Organization: Resources, Capabilities, Core Competencies and Competitive Advantages
Overview: Importance of understanding internal organization Value: Definition and importance Tangible vs. intangible resources Capabilities: Definition and development Core competencies: Four criteria of sustainable
competitive advantage Value Chain Analysis Outsourcing: Definition and “why?” Importance of internal organization assessment
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Analyzing the Internal Organization
Context of Internal Analysis Analyze firm’s portfolio of resources and the bundles of
heterogeneous resources and capabilities managers have created
Understand how to leverage these bundles An organization's core competencies creates and sustains
its competitive advantage
Creating Value Exploit core competencies or competitive advantage Value: measured by a product's performance
characteristics and by its attributes for which customers are willing to pay
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Analyzing the Internal Organization (IO)
Challenge of Internal Analysis Strategic decisions are non-routine, have ethical
implications and influence the organization’s above-average returns
Involves identifying, developing, deploying and protecting firms’ resources, capabilities and core competencies
Requires strategic thinking, making judgments, and taking intelligent risks
Managers face uncertainty, complexity, and interorganizational conflict when making decisions about resources, capabilities, and core competencies
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Analyzing the Internal Organization (IO)
Resource and Capability Analysis A tool used for sizing up the company’s competitive
assets and determining whether they can provide the foundation necessary for competitive success in the marketplace
2 Step Process Identify company’s resources and capabilities Closely examine resources and capabilities to determine
which are the most competitively important and whether they can support a sustainable competitive advantage over rivals
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Figure 3.1 Components of Internal Analysis
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Resources, Capabilities and Core Competencies
Competitive Advantage (CA) foundation includes Resources
Are bundled to create organizational capabilities Tangible and intangible (Tables 3.1 and 3.2)
Tangible Assets that can be seen, touched and quantified Four specific types: financial, organizational, physical, and
technological
Intangible Assets rooted deeply in the firm’s history, accumulated over
time Usually can’t be seen or touched Three specific types: human, innovation, and reputational
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Resources, Capabilities and Core Competencies
Competitive Advantage (CA) foundation includes Capabilities (Table 3.3 - Examples)
Resources purposely integrated to achieve a specific task or set of tasks
Source of a firm’s core competencies and basis for CA Often developed in specific functional areas
Core Competencies Capabilities that serve as a source of CA for a firm over its
rivals Distinguish a company from its competitors 2 tools can help firms identify and build their core
competencies 4 Criteria of Sustainable CA Value Chain Analysis
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Examples of Firms’ Capabilities
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Building Core Competencies: Four Criteria of Sustainable Competitive Advantage
Four Criteria of Sustainable CA (Table 3.4) Valuable Capabilities – help exploit opportunities or neutralize
threats in external environment Rare Capabilities – few competitors possess them Costly-to-imitate Capabilities – other firms cannot easily develop Nonsubstitutable Capabilities – there are no strategic equivalents
Competitive consequences include (Table 3.5) Disadvantage, parity, temporary advantage and sustainable
advantage
Performance implications include returns Below-average, average, above-average
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TABLE 3.5 Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage
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Building Core Competencies: Value Chain Analysis
Value Chain Analysis Primary activities
Involved with product’s physical creation, sales and distribution to buyers, and service after the sale
Service, marketing/sales, outbound/inbound logistics and operations Support activities
Provide assistance necessary for the primary activities to take place Includes firm infrastructure, HRM, technologies development and
procurement Helps firm to understand the parts of its operations that create value
and those that do not Can be used to identify competitive advantages and disadvantages
based on costs Can help with outsourcing decisions
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Figure 3.3 The Basic Value Chain
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The Basic Value Chain
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Outsourcing
Outsourcing: The purchase of a value-creating activity from an external supplier Effective execution includes an increase in flexibility, risk
mitigation and capital investment reduction Trend continues at a rapid pace
Can be used in areas where a firm cannot create value or is at a substantial disadvantage compared to competitors
Should also consider outsourcing non strategically critical activities
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Competencies, Strengths, Weaknesses and Strategic Decisions
Firms must identify their strengths and weaknesses Appropriate resources and capabilities needed to
develop desired strategy and create value for customers/other stakeholders
Tools (i.e., outsourcing) can help a firm focus on core competencies as the source for CA
Core competencies have potential to become core rigidities Competencies emphasized when no longer competitively
relevant can become a weakness Should keep updating and improving competencies
External environmental conditions and events impact a firm’s core competencies