ITSDI - Lecture 14 - Appendix - Internal Analysis Concepts.pptx
- 1. THE INTERNAL ENVIRONMENT: RESOURCES, CAPABILITIES, & CORE COMPETENCIES
- 2. EXTERNAL ANALYSES’ OUTCOMES Opportunities and Threats By studying the external environment, firms identify what they MIGHT CHOOSE TO DO
- 4. What a firm can do: Function of resources, capabilities, and core competencies INTERNAL ORGANIZATION What a firm might do: Function of opportunities in the firm’s external environment EXTERNAL ENVIRONMENT MATCHES STRATEGIC COMPETITIVENESS AND ABOVE- AVERAGE RETURNS RESULT WHEN:
- 5. Internal
- 6. INTERNAL ANALYSES’ OUTCOMES Unique Resources, Capabilities, and Competencies (required for sustainable competitive advantage) By studying the internal environment, firms identify what they CAN DO
- 7. COMPETITIVE ADVANTAGE KEY POINTS ■ NO COMPETITIVE ADVANTAGE LASTS FOREVER OVER TIME, RIVALS USE THEIR OWN ■ UNIQUE RESOURCES, CAPABILITIES, AND CORE COMPETENCIES TO DUPLICATE THE FOCAL FIRM’S ABILITY TO CREATE VALUE FOR CUSTOMERS WITH GLOBALIZATION, SUSTAINABLE ■ COMPETITIVE ADVANTAGE IS ESPECIALLY CHALLENGING
- 8. COMPETITIVE ADVANTAGE KEY POINTS ■ Firms must exploit their current advantages while simultaneously using their resources and capabilities to form new advantages that can lead to future competitive success ■ INNOVATION and PEOPLE are critical resources for organizations in their quest for competitive advantage
- 9. COMPETITIVE ADVANTAGE SUSTAINABILITY Sustainability of a competitive advantage is a function of: • The rate of core competence obsolescence due to environmental changes • The availability of substitutes for the core competence • The imitability of the core competence
- 10. ANALYZING THE INTERNAL ORGANIZATION The Context of Internal Analysis Global Economy Traditional sources of advantages can be overcome by competitors’ international strategies and by the flow of resources throughout the global economy Global Mindset The ability to study an internal environment in ways that are not dependent on the assumptions of a single country, culture, or context Analysis Outcome Understanding how to leverage the firm’s bundle of heterogeneous resources and capabilities
- 11. COMPETITIVE ADVANTAGE Components of Internal Analysis Leading to Competitive Advantage and Strategic Competitiveness
- 12. ANALYZING THE INTERNAL ORGANIZATION Creating Value By innovatively bundling and leveraging their resources and capabilities; by exploiting their core competencies or competitive advantages, firms create value. Value is measured by: • Product performance characteristics • Product attributes for which customers are willing to pay Superior value Above-average returns
- 13. ANALYZING THE INTERNAL ORGANIZATION The Challenge of Analyzing the Internal Organization Strategic decisions ● Are non-routine ● Have ethical implications ● Significantly influence the firm’s ability to earn above-average returns Strategic leaders make effective decisions regarding the firm’s resources, capabilities, and core competencies and decide on their use
- 14. ANALYZING THE INTERNAL ORGANIZATION The Challenge of Analyzing the Internal Organization Managers face uncertainty on many fronts ● Proprietary technologies ● Changes in economic and political trends, societal values and shifts in customer demands ● Environment – increasing complexity Intraorganizational conflict ● Results from decisions about core competencies and how to develop them
- 15. ANALYZING THE INTERNAL ORGANIZATION Conditions Affecting Managerial Decisions About Resources, Capabilities, and Core Competences
- 16. ANALYZING THE INTERNAL ORGANIZATION The Challenge of Analyzing the Internal Organization Learning ● Generated by making and correcting mistakes; can be important in creating new capabilities and core competencies Judgment is required under these conditions ● Decision makers often take intelligent risks ● With good judgment, successful strategic leaders achieve strategic competitiveness
- 17. RESOURCES, CAPABILITIES, AND CORE COMPETENCIES Core Competencies Capabilities Resources •Tangible •Intangible Resources and superior capabilities that are sources of competitive advantage over a firm’s rivals An integrated and coordinated set of actions taken to exploit core competencies and gain competitive advantage Providing value to customers and gaining competitive advantage by exploiting core competencies in individual product markets
- 18. RESOURCES, CAPABILITIES, AND CORE COMPETENCIES RESOURCES • Are the source of a firm’s capabilities • Are broad in scope • Cover a spectrum of individual, social, and organizational phenomena • Represent inputs into a firm’s production process • Alone, do not yield a competitive advantage, i.e., by themselves do not allow firms to create value that results in above-average returns Core Competencies Capabilities Resources •Tangible •Intangibl e
- 19. RESOURCES, CAPABILITIES, AND CORE COMPETENCIES TYPES OF RESOURCES Tangible Resources • Assets that can be seen, touched, and quantified Intangible Resources • Assets rooted deeply in the firm’s history, accumulated over time • In comparison to ‘tangible’ resources, usually can’t be seen or touched Compared to tangible resources, intangible resources are a superior source of core competencies
- 20. RESOURCES, CAPABILITIES AND, CORE COMPETENCIES TYPES OF RESOURCES Tangible Resources • FINANCIAL RESOURCES- the firm’s capacity to borrow and generate internal funds • ORGANIZATIONAL RESOURCES- formal reporting structures • PHYSICAL RESOURCES- sophistication and location of a firm’s plant and equipment; distribution facilities; product inventory • TECHNOLOGICAL RESOURCES- stock of technology, such as patents, trademarks, copyrights, and trade secrets
- 21. RESOURCES, CAPABILITIES AND, CORE COMPETENCIES TYPES OF RESOURCES Intangible Resources • HUMAN RESOURCES- knowledge; trust; skills; collaborative abilities • INNOVATION RESOURCES- scientific capabilities; capacity to innovate • REPUTATIONAL RESOURCES- brand name; perceptions of product quality, durability, and reliability; positive reputation with stakeholders, e.g., suppliers/customers
- 22. RESOURCES, CAPABILITIES, AND CORE COMPETENCIES CAPABILITIES ■ Emerge over time through complex interactions among tangible and intangible resources ■ Stem from employees • Unique skills and knowledge • Functional expertise ■ Are activities that a firm performs exceptionally well relative to rivals ■ Are activities through which the firm adds unique value to its goods or services over an extended period of time Core Competencies Capabilities Resources •Tangible •Intangibl e
- 23. RESOURCES, CAPABILITIES, AND CORE COMPETENCIES CAPABILITIES (cont’d) ■ Exist when resources have been purposely integrated to achieve a specific task or set of tasks ■ Are often developed in specific functional areas • Distribution • Human resources • Management information systems • Marketing • Management • Manufacturing • Research & Development Core Competencies Capabilities Resources •Tangible •Intangibl e
- 24. RESOURCES, CAPABILITIES AND, CORE COMPETENCIES Examples of Firms’ Capabilities
- 25. BUILDING CORE COMPETENCIES TWO TOOLS FIRMS USE TO IDENTIFY AND BUILD CORE COMPETENCIES: • Four Specific Criteria of Sustainable Competitive Advantage that can be used to determine which capabilities are core competencies • Value Chain Analysis - this tool helps select the value-creating competencies that should be maintained, upgraded, or developed and those that should be outsourced Core Competencies Capabilities Resources •Tangible •Intangibl e
- 26. BUILDING CORE COMPETENCIES The Four Criteria of Sustainable Competitive Advantage Capabilities must fulfill four specific criteria in order to be CORE COMPETENCIES 1. Valuable 2. Rare 3. Costly-to-imitate 4. Non-substitutable capabilities
- 27. BUILDING CORE COMPETENCIES The Four Criteria of Sustainable Competitive Advantage VALUABLE CAPABILITIES • Help a firm neutralize threats or exploit opportunities RARE CAPABILITIES • Are not possessed by many others The Four Criteria of Sustainable Competitive Advantage
- 28. BUILDING CORE COMPETENCIES The Four Criteria of Sustainable Competitive Advantage COSTLY-TO-IMITATE CAPABILITIES • Historical: A unique and a valuable organizational culture or brand name • Ambiguous cause: The causes and uses of a competence are unclear • Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, and customers TABLE 3.4 The Four Criteria of Sustainable Competitive Advantage
- 29. BUILDING CORE COMPETENCIES The Four Criteria of Sustainable Competitive Advantage NONSUBSTITUTABLE CAPABILITIES • No strategic equivalent • Firm-specific knowledge • Organizational culture • Superior execution of the chosen business model The Four Criteria of Sustainable Competitive Advantage
- 30. BUILDING CORE COMPETENCIES The Four Criteria of Sustainable Competitive Advantage SUSTAINABLE COMPETITIVE ADVANTAGE 1. Exists only when competitors cannot duplicate a firm’s strategy or when they lack the resources to attempt imitation 2. Exists until competitors can successfully imitate a good, service, or process 3. Lasts for a relatively long period of time if all four of the criteria discussed are satisfied
- 31. BUILDING CORE COMPETENCIES The Four Criteria of Sustainable Competitive Advantage COMPETITIVE CONSEQUENCES Focus on capabilities that yield competitive parity and either temporary or sustainable competitive advantage PERFORMANCE IMPLICATIONS Parity = average returns Temporary advantage = average to above average returns Sustainable advantage = above average returns using valuable, rare, costly-to-imitate, and non-substitutable capabilities
- 32. BUILDING CORE COMPETENCIES TABLE 3.5 Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage
- 33. BUILDING CORE COMPETENCIES VALUE CHAIN ANALYSIS • • Allows the firm to understand the parts of its operations that create value and those that do not • A template that firms use to: • Understand their cost position • Facilitate the implementation of a chosen business-level strategy
- 34. BUILDING CORE COMPETENCIES VALUE CHAIN ANALYSIS • • Both value chain (primary) and support activities should be analyzed • Competitive landscape demands that value chains and supply chains be examined in a global context • Each activity should be examined relative to competitor’s abilities and rated as superior, equivalent, or inferior
- 35. BUILDING CORE COMPETENCIES VALUE CHAIN ANALYSIS • To become a core competence and a source of competitive advantage, a capability must allow the firm: 1. to perform an activity in a manner that provides superior value relative to competitors, or 2. to perform a value-creating activity that competitors cannot perform
- 36. BUILDING CORE COMPETENCIES VALUE CHAIN ANALYSIS • VALUE CHAIN ACTIVITIES: activities the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customers SUPPORT FUNCTIONS: activities the firm completes in order to support the work being done to produce, sell, distribute, and service the products the firm is producing
- 37. BUILDING CORE COMPETENCIES • FIGURE 3.3 A Model of the Value Chain
- 38. BUILDING CORE COMPETENCIES VALUE CHAIN ANALYSIS • Creating Value through Value Chain Activities
- 39. BUILDING CORE COMPETENCIES • Creating Value through Support Functions
- 40. BUILDING CORE COMPETENCIES VALUE CHAIN ANALYSIS • • SOCIAL CAPITAL - when firms have strong positive alliances with suppliers and customers • TRUST - is required to build social capital whereby resources such as knowledge are transferred across organizations • JUDGMENT - pivotal in evaluating a firm’s capability to execute its value chain activities and support functions
- 41. OUTSOURCING • • Definition: purchase of a value-creating activity or support function from an external supplier • Effective execution includes an increase in flexibility and risk mitigation, and a reduction in capital investment • Global industries trend continues at a rapid pace • Firms must outsource activities where they cannot create value or are at a substantial disadvantage compared to competitors
- 42. OUTSOURCING • STRATEGIC RATIONALES ■ Few organizations are competitively superior in all value chain activities and support functions ■ By outsourcing activities where it lacks competence, the firm can fully concentrate on those areas in which it can create value ■ Freeing resources for other purposes redirects efforts from non-core activities toward those that serve customers more effectively .
- 43. OUTSOURCING • STRATEGIC RATIONALES ■ Specialty suppliers can perform outsourced capabilities more efficiently. ■ Sharing risks- reduces investment requirements and makes firm more flexible, dynamic, and better able to adapt to changing opportunities ■ Providing access to world-class standards – the specialized resources of outsourcing providers makes world-class capabilities available to firms
- 44. OUTSOURCING • ■ Outsource those value chain activities and support functions that are NOT a source of core competence ■ Concerns: innovation, technological uncertainty, and job loss; usually revolves around firm’s innovative ability and loss of jobs to external supplier ■ Offshoring- foreign supply source
- 45. COMPETENCIES, STRENGTHS, WEAKNESSES, AND STRATEGIC DECISIONS • • Firms must identify their strengths and weaknesses • Appropriate resources and capabilities are needed to develop desired strategy and create value for customers and other stakeholders
- 46. COMPETENCIES, STRENGTHS, WEAKNESSES, AND STRATEGIC DECISIONS • • The “right” resources (as opposed to “many” resources) are those with the potential to be formed into core competencies as the foundation for competitive advantage • Tools (e.g., outsourcing) can help a firm focus on core competencies as the source for competitive advantage
- 47. COMPETENCIES, STRENGTHS, WEAKNESSES, AND STRATEGIC DECISIONS • • Core competencies have potential to become CORE RIGIDITIES • Former core competencies that now generate inertia and stifle innovation • External environmental conditions and events impact a firm’s core competencies
- 48. What a firm can do: Function of resources, capabilities, and core competencies INTERNAL ORGANIZATION What a firm might do: Function of opportunities in the firm’s external environment EXTERNAL ENVIRONMENT STRATEGY COMPETENCIES, STRENGTHS, WEAKNESSES, AND STRATEGIC DECISIONS