Chapter 4
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The document discusses a firm's internal environment, focusing on resources, capabilities, and core competencies. It defines these terms and explains how firms can identify their core competencies using criteria like being valuable, rare, costly to imitate, and efficiently exploited. Firms then use tools like value chain analysis to evaluate their internal strengths and weaknesses and determine potential areas for outsourcing or developing new capabilities. Maintaining core competencies while avoiding that they become rigid is important for sustained competitive advantage.
Chapter 4
- 1. The Internal Environment: 0 Resources, Capabilities, and Core Competencies Chapter Four © 2006 by Nelson, a division of Thomson Canada Limited. 4-1
- 2. Chapter 3 External The Strategic Strategic . Inputs Environment Strat. Intent Chapter 4 Strat. Mission Management . Internal Environment Process Strategy Formulation Strategy Implementation Strategic Actions Chapter 5 Chapter 6 Chapter 7 Chapter 11 Chapter 12 Bus. - Level Competitive Corp. - Level Corporate Structure Strategy Dynamics Strategy Governance & Control Chapter 8 Chapter 9 Chapter 10 Chapter 13 Chapter 14 Acquisitions & International Cooperative Strategic Entrepreneurship Restructuring Strategy Strategies Leadership & Innovation Outcomes Strategic Chapter 2 Chapter 1 Feedback Above Average Strategic Returns Competitiveness © 2006 by Nelson, a division of Thomson Canada Limited. 4-2
- 3. The Internal Environment: Resources, Capabilities and Core Competencies Knowledge Objectives: 2. Explain the need for firms to study & understand their internal environment. 3. Define value & discuss its importance. 4. Describe the differences between tangible & intangible resources. 5. Define capabilities & discuss how they are developed. © 2006 by Nelson, a division of Thomson Canada Limited. 4-3
- 4. The Internal Environment: Resources, Capabilities and Core Competencies Knowledge objectives – continued… 5. Describe four criteria used to determine whether resources & capabilities are core competencies. 3. Explain how value chain analysis is used to identify and evaluate resources and capabilities. 4. Define outsourcing & discuss the reasons for its use. 5. Discuss the importance of preventing core competencies from becoming core rigidities. © 2006 by Nelson, a division of Thomson Canada Limited. 4-4
- 5. Canada’s most admired companies © 2006 by Nelson, a division of Thomson Canada Limited. 4-5
- 6. The Resource-Based model of Above Average Returns • Capabilities evolve and must be managed dynamically in pursuit of above-average returns. • Firms acquire different resources and develop unique capabilities. These resources may not be mobile across firms and that the differences in resources are the basis of competitive advantage. © 2006 by Nelson, a division of Thomson Canada Limited. 4-6
- 7. The Resource-Based model of Above Average Returns The resource based view suggests that a firm’s unique resources and capabilities provide the basis for a strategy. © 2006 by Nelson, a division of Thomson Canada Limited. 4-7
- 8. The Resource-Based Model of Superior Returns Action required: Identify firm resources. Study strengths & Resources weaknesses relative to rivals. Inputs to a firm’s production process. © 2006 by Nelson, a division of Thomson Canada Limited. 4-8 * an
- 9. The Resource-Based Model of Superior Returns Action required: Determine what firm capabilities allow it to Resources do better than rivals. Capability Inputs to a firm’s production process. integrated Capacity for set of resources to integratively perform a task or activity. © 2006 by Nelson, a division of Thomson Canada Limited. 4-9 * an
- 10. The Resource-Based Model of Superior Returns Action required: Determine how firm’s resources & capabilities Resources may create Capability competitive advantage. Inputs to a firm’s Competitive Advantage Capacity for an production process. integrated set of resources Ability of a firm to to integratively perform its rivals outperform a task or activity. © 2006 by Nelson, a division of Thomson Canada Limited. 4-10 * an
- 11. The Resource-Based Model of Superior Returns Action required: Locate an attractive industry. Resources Capability Competitive Inputs to a firm’s Advantage Attractive Capacity for an production process. An integrated set of Industry resources to Ability of a firm to integratively perform its rivals an industry Location of outperform a task or activity. with opportunities that can be exploited by firm’s resources & capabilities © 2006 by Nelson, a division of Thomson Canada Limited. 4-11 *an
- 12. The Resource-Based Model of Superior Returns Action required: Select strategy that best exploits res.& capabilities Resources relative to opportunities Capability in environments. Competitive Inputs to a firm’s Advantage Attractive Capacity for an production process. An integrated set of Industry Strategy resourcesAbility of a firm to Formulation and to Location of an ind. integratively perform a rivals outperform its task or activity. Implementation with opportunities that can be exploited by firm’sStrategic actions taken resources & capabilities above-average to earn returns © 2006 by Nelson, a division of Thomson Canada Limited. 4-12 * an
- 13. The Resource-Based Model of Superior Returns Action required: Maintain selected strat. in order to outperform Resources industry rivals. Capability Competitive Inputs to a firm’s Advantage Attractive Capacity for an production process. An integrated set of Industry Strategy resourcesAbility of a firm to Formulation and to Location of an ind. Superior integratively perform a rivals outperform its Implementation with opportunities Returns task or activity. that can be exploited Earning of above- Strategic actions taken by firm’s resources average returns to earn above-average & capabilities returns © 2006 by Nelson, a division of Thomson Canada Limited. 4-13 * an
- 14. Discovering Core Competitive Advantage Competencies Gained through Core Competencies Strategic Core Competitiveness Competencies Discovering Core Above-Average Sources of Returns Competitive Competencies Advantage Criteria of Value Capabilities Sustainable Chain Teams of Advantages Analysis Resources Resources * Valuable * Rare * Outsource * Costly to Imitate * Tangible * Intangible * Organized to be exploited © 2006 by Nelson, a division of Thomson Canada Limited. 4-14
- 15. The Components of Internal Analysis © 2006 by Nelson, a division of Thomson Canada Limited. 4-15
- 16. Value Value is measured by a product’s performance characteristics and it’s attributes for which clients are willing to pay. Core competencies in combination with product- market positions are the firms most important sources of competitive advantage and should drive it’s selection of strategies. © 2006 by Nelson, a division of Thomson Canada Limited. 4-16
- 17. Resources, Capabilities & Core Competencies © 2006 by Nelson, a division of Thomson Canada Limited. 4-17
- 18. Resources, Capabilities & Core Competencies © 2006 by Nelson, a division of Thomson Canada Limited. 4-18
- 19. Discovering Core Competencies Capabilities Teams of Resources Resources * Tangible * Intangible © 2006 by Nelson, a division of Thomson Canada Limited. 4-19
- 20. Discovering Core Competencies Core Competencies Discovering Sources of Core Competitive Competencies Advantage Capabilities Teams of Resources Resources * Tangible * Intangible © 2006 by Nelson, a division of Thomson Canada Limited. 4-20
- 21. Resources, Capabilities & Core Competencies © 2006 by Nelson, a division of Thomson Canada Limited. 4-21
- 22. 0 Resources, Capabilities & Core Competencies © 2006 by Nelson, a division of Thomson Canada Limited. 4-22
- 23. 0 Discovering Core Competencies Core Competencies Discovering Sources of Core Competitive Competencies Advantage Capabilities Criteria of Sustainable Teams of Resources Advantages Resources * Valuable * Rare * Outsource * Tangible * Costly to Imitate * Intangible * Organized to be exploited © 2006 by Nelson, a division of Thomson Canada Limited. 4-23
- 24. Core Competencies For a strategic capability to be a Core Competency, it must be: Valuable Allow a firm to neutralize threats or exploit opportunities in its external environment. Rare Possessed by few, if any, current and potential competitors. Costly to When other firms either cannot obtain Imitate $ them or must obtain them at a much higher cost. Organized The firm must be organized appropriately to to be obtain full benefits of the resources in order to realize a competitive advantage. Exploited © 2006 by Nelson, a division of Thomson Canada Limited. 4-24 *
- 25. Core Competencies Resources Core Competence • Inputs to a firm’s • A strategic capability production process Does the capability satisfy the criteria of sustainable competitive YES Capability advantage? The source of • Integration of a team of resources NO Capability • A non-strategic team of resources © 2006 by Nelson, a division of Thomson Canada Limited. 4-25
- 26. The VRIO Framework Costly to Org. to be Competitive Performance Valuable Rare Valuable Imitate Exploited Consequences Implications Below Competitive Average NO NO NO NO Disadvantage Returns Competitive Average YES NO NO YES Parity Returns Temporary Avg./Above YES YES NO YES Competitive Average Advantage Returns Sustainable Above YES YES YES YES Competitive Average Advantage Returns © 2006 by Nelson, a division of Thomson Canada Limited. 4-26
- 27. Discovering Core Competencies Core Competencies Discovering Sources of Core Competitive Competencies Advantage Capabilities Criteria of Value Sustainable Chain Teams of Resources Advantages Analysis Resources * Valuable * Rare * Outsource * Tangible * Costly to Imitate * Intangible * Organized to be exploited © 2006 by Nelson, a division of Thomson Canada Limited. 4-27
- 28. Value Chain Analysis Firm Infrastructure Human Resource Management M A R Support G Activities Technological Development IN Procurement Service Operations Logistics Outbound Marketing Logistics Inbound & Sales IN ARG M Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 4-28
- 29. Outsourcing Strategic choice to purchase some activities from outside suppliers Firm Infrastructure Human Resource Management M A Support R G Activities Technological Development IN Procurement Service Operations Outbound Marketing Logistics Logistics Inbound & Sales IN ARG M Firms often buy a portion of their value-creating activities from specialty Primary Activities external suppliers who can perform these functions more efficiently. © 2006 by Nelson, a division of Thomson Canada Limited. 4-29
- 30. Outsourcing Strategic choice to purchase some activities from outside suppliers Firm Infrastructure Human Resource Management Human Resource Management MA Technological R Support Development G Activities Technological Development IN Procurement Procurement Service Operations Outbound Marketing Logistics Logistics Inbound Service & Sales IN G AR Outbound Inbound Operations Logistics Marketing Logistics & Sales M Firms often buy a portion of their value-creating activities from specialty external suppliers who can perform these functions more efficiently. © 2006 by Nelson, a division of Thomson Canada Limited. 4-30
- 31. Outsourcing Strategic choice to purchase some activities from outside suppliers Firm Infrastructure Human Resource Management Human Resource Management MA Technological R Support Development G Activities Technological Development IN Procurement Procurement Service Operations Outbound Marketing Logistics Logistics Inbound Service & Sales IN G AR Outbound Inbound Operations Logistics Marketing Logistics & Sales M Firms often buy a portion of their value-creating activities from specialty external suppliers who can perform these functions more efficiently. © 2006 by Nelson, a division of Thomson Canada Limited. 4-31
- 32. 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 They are former core competencies that sow the seeds of organizational inertia. Prevent the firm from responding appropriately to changes in the external environment. © 2006 by Nelson, a division of Thomson Canada Limited. 4-32
- 33. Discovering Core Competencies Strategic Core Competitiveness Competencies Discovering Core Above-Average Sources of Returns Competitive Competencies Advantage Capabilities Criteria of Value Sustainable Chain Teams of Resources Advantages Analysis Resources * Valuable * Rare * Outsource * Tangible * Costly to Imitate * Intangible * Organized to be exploited © 2006 by Nelson, a division of Thomson Canada Limited. 4-33