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4-1© 2006 by Nelson, a division of Thomson Canada Limited.
The Internal Environment: Resources, Capabilities, and
Core Competencies
Chapter Four
4-2© 2006 by Nelson, a division of Thomson Canada Limited.
Chapter 5Bus. - Level
Strategy
Chapter 6Competitive
Dynamics
Chapter 7Corp. - Level
Strategy
Chapter 9International
Strategy
Chapter 10CooperativeStrategies
Chapter 8Acquisitions &Restructuring
Chapter 11
CorporateGovernance
Chapter 12Structure& Control
Chapter 13Strategic
Leadership
Chapter 14Entrepreneurship & Innovation
Str
ateg
icIn
pu
ts
Str
ateg
icA
ctio
ns
Str
ateg
ic O
utc
om
esChapter 4Internal
Environment
Chapter 3External
Environment Strat. Intent
Strat. Mission
The Strategic .
Management .
Process
Strategy Formulation Strategy Implementation
Strategic Competitiveness
Chapter 1 FeedbackFeedback
Above Average Returns
Chapter 2Above Average
Returns
Chapter 2
Chapter 3External
Environment
Chapter 4Internal
Environment
4-3© 2006 by Nelson, a division of Thomson Canada Limited.
The Internal Environment: Resources, Capabilities and Core Competencies
Knowledge Objectives:
1. Explain the need for firms to study & understand their internal environment.
2. Define value & discuss its importance.
3. Describe the differences between tangible & intangible resources.
4. Define capabilities & discuss how they are developed.
4-4© 2006 by Nelson, a division of Thomson Canada Limited.
The Internal Environment: Resources, Capabilities and Core Competencies
Knowledge objectives – continued…
5. Describe four criteria used to determine whether resources & capabilities are core competencies.
6. Explain how value chain analysis is used to identify and evaluate resources and capabilities.
7. Define outsourcing & discuss the reasons for its use.
8. Discuss the importance of preventing core competencies from becoming core rigidities.
4-5© 2006 by Nelson, a division of Thomson Canada Limited.
Canada’s most admired companies
4-6© 2006 by Nelson, a division of Thomson Canada Limited.
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.
4-7© 2006 by Nelson, a division of Thomson Canada Limited.
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.
4-8© 2006 by Nelson, a division of Thomson Canada Limited.
The Resource-Based Model of Superior Returns
Action required:Action required:Identify firm resources. Study strengths & weaknesses relative to rivals.
Resources
Inputs to a firm’s production process.
an *
4-9© 2006 by Nelson, a division of Thomson Canada Limited.
The Resource-Based Model of Superior Returns
Action required:Action required:Determine what firm capabilities allow it to do better than rivals.Resources
Inputs to a firm’s production process.
Capability
Capacity for integrated set of resources to integratively perform a task or activity.
an *
4-10© 2006 by Nelson, a division of Thomson Canada Limited.
The Resource-Based Model of Superior Returns
Action required:Action required:Determine how firm’s resources & capabilities may create competitive advantage.
Resources
Inputs to a firm’s production process.
Capability
Capacity for an integrated set of resources to integratively perform a task or activity.
Competitive Advantage
Ability of a firm to outperform its rivals
an *
4-11© 2006 by Nelson, a division of Thomson Canada Limited.
The Resource-Based Model of Superior Returns
Action required:Action required:Locate an attractive industry.
Resources
Inputs to a firm’s production process.
Capability
Capacity for an integrated set of resources to integratively perform a task or activity.
Competitive Advantage
Ability of a firm to outperform its rivals
An AttractiveIndustryLocation of an industry with opportunities that can be exploited by firm’s resources & capabilities
an *
4-12© 2006 by Nelson, a division of Thomson Canada Limited.
The Resource-Based Model of Superior Returns
Action required:Action required:Select strategy that best exploits res.& capabilities relative to opportunities in environments.
Resources
Inputs to a firm’s production process.
Capability
Capacity for an integrated set of resources to integratively perform a task or activity.
Competitive Advantage
Ability of a firm to outperform its rivals
An AttractiveIndustryLocation of an ind. with opportunities that can be exploited by firm’s resources & capabilities
Strategy Formulation and Implementation
Strategic actions taken to earn above-average returns
an *
4-13© 2006 by Nelson, a division of Thomson Canada Limited.
The Resource-Based Model of Superior Returns
Resources
Inputs to a firm’s production process.
Capability
Capacity for an integrated set of resources to integratively perform a task or activity.
Competitive Advantage
Ability of a firm to outperform its rivals
An AttractiveIndustryLocation of an ind. with opportunities that can be exploited by firm’s resources & capabilities
Action required:Action required:Maintain selected strat. in order to outperform industry rivals.
Strategy Formulation and Implementation
Strategic actions taken to earn above-average returns
Superior ReturnsEarning of above-average returns
an *
4-14© 2006 by Nelson, a division of Thomson Canada Limited.
ResourcesResources** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilitiesTeams of ResourcesTeams of Resources
CompetitiveCompetitiveAdvantageAdvantage
Gained throughGained throughCore CompetenciesCore Competencies
Criteria ofSustainableAdvantages
ValueChain
Analysis
Valuable RareCostly to Imitate
Organized to be exploited
* **
*
Outsource*
Discovering Core Competencies
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
StrategicStrategicCompetitivenessCompetitiveness
Above-AverageAbove-AverageReturnsReturns
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
4-15© 2006 by Nelson, a division of Thomson Canada Limited.
The Components of Internal Analysis
4-16© 2006 by Nelson, a division of Thomson Canada Limited.
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.
4-17© 2006 by Nelson, a division of Thomson Canada Limited.
Resources, Capabilities & Core Competencies
4-18© 2006 by Nelson, a division of Thomson Canada Limited.
Resources, Capabilities & Core Competencies
4-19© 2006 by Nelson, a division of Thomson Canada Limited.
Discovering Core Competencies
ResourcesResources** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilitiesTeams of ResourcesTeams of Resources
4-20© 2006 by Nelson, a division of Thomson Canada Limited.
Discovering Core Competencies
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
ResourcesResources** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilitiesTeams of ResourcesTeams of Resources
4-21© 2006 by Nelson, a division of Thomson Canada Limited.
Resources, Capabilities & Core Competencies
4-22© 2006 by Nelson, a division of Thomson Canada Limited.
Resources, Capabilities & Core Competencies
4-23© 2006 by Nelson, a division of Thomson Canada Limited.
Discovering Core Competencies
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
ResourcesResources** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilitiesTeams of ResourcesTeams of Resources
Criteria ofSustainableAdvantages
Valuable RareCostly to Imitate
Organized to be exploited
* **
*
Outsource*
4-24© 2006 by Nelson, a division of Thomson Canada Limited.
Core Competencies For a strategic capability to be a Core Competency, it must be:
OOrganizedrganized toto be be
ExploitedExploited
The firm must be organized appropriately to obtain full benefits of the resources in order to realize a competitive advantage.
RRareare Possessed by few, if any, current and potential competitors.
VValuablealuable Allow a firm to neutralize threats or exploit opportunities in its external environment.
Costly toCostly to
IImitatemitateWhen other firms either cannot obtain them or must obtain them at a much higher cost.
$$
*
4-25© 2006 by Nelson, a division of Thomson Canada Limited.
Core Competencies
Resources• Inputs to a firm’s
production process
Core Competence• A strategic capability
The source of
Does the capability satisfy the criteria of sustainable competitive advantage?
YES
NO
Capability• A non-strategic team
of resources
Capability• Integration of a
team of resources
4-26© 2006 by Nelson, a division of Thomson Canada Limited.
YES NO YESYESTemporary
CompetitiveAdvantage
Avg./Above AverageReturns
YES NO NO YESCompetitive
ParityAverageReturns
NO NO NO NOBelow
AverageReturns
CompetitiveDisadvantage
AboveAverageReturns
YES YESYESSustainableCompetitiveAdvantage
YES
Valuable RareCostly to Imitate
Org. to be Exploited
Competitive Consequences
Performance Implications
Valuable
The VRIO Framework
4-27© 2006 by Nelson, a division of Thomson Canada Limited.
ValueChain
Analysis
Discovering Core Competencies
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
ResourcesResources** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilitiesTeams of ResourcesTeams of Resources
Criteria ofSustainableAdvantages
Valuable RareCostly to Imitate
Organized to be exploited
* **
*
Outsource*
4-28© 2006 by Nelson, a division of Thomson Canada Limited.
SupportActivities
Primary Activities
Inb
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nd
L
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Op
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ion
s
Ou
tbo
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dL
og
isti
cs
Mar
keti
ng
&
Sal
es
Procurement
Technological Development
Human Resource Management
Firm Infrastructure
Ser
vice
MARGIN
MARGIN
Value Chain Analysis
4-29© 2006 by Nelson, a division of Thomson Canada Limited.
Primary Activities
Outsourcing Strategic choice to purchase some activities from outside suppliers
SupportActivities
Inb
ou
nd
In
bo
un
d
Lo
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tics
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& S
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& S
ales
ProcurementProcurement
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
Ser
vice
Ser
vice
MARGIN
MARGIN
MARGIN
MARGIN
Firms often buy a portion of their value-creating activities from specialty external suppliers who can perform these functions more efficiently.
4-30© 2006 by Nelson, a division of Thomson Canada Limited.
Outsourcing Strategic choice to purchase some activities from outside suppliers
SupportActivities
Inb
ou
nd
In
bo
un
d
Lo
gis
tics
Lo
gis
tics
Op
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ion
sO
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Lo
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Mar
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& S
ales
& S
ales
ProcurementProcurement
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
Ser
vice
Ser
vice
MARGIN
MARGIN
MARGIN
MARGIN
Inbound Logistics
OperationsOutboundLogistics
Service
Marketing & Sales
Technological Development
Human Resource Management
Procurement
Firms often buy a portion of their value-creating activities from specialty external suppliers who can perform these functions more efficiently.
4-31© 2006 by Nelson, a division of Thomson Canada Limited.
Outsourcing Strategic choice to purchase some activities from outside suppliers
SupportActivities
Inb
ou
nd
In
bo
un
d
Lo
gis
tics
Lo
gis
tics
Op
erat
ion
sO
per
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ns
Ou
tbo
un
dO
utb
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nd
Lo
gis
tics
Lo
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tics
Mar
keti
ng
M
arke
tin
g
& S
ales
& S
ales
ProcurementProcurement
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
Ser
vice
Ser
vice
MARGIN
MARGIN
MARGIN
MARGIN
Inbound Logistics
OperationsOutboundLogistics
Service
Marketing & Sales
Technological Development
Human Resource Management
Procurement
Firms often buy a portion of their value-creating activities from specialty external suppliers who can perform these functions more efficiently.
4-32© 2006 by Nelson, a division of Thomson Canada Limited.
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.
Core Competencies--Cautions and Reminders
4-33© 2006 by Nelson, a division of Thomson Canada Limited.
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
StrategicStrategicCompetitivenessCompetitiveness
Above-AverageAbove-AverageReturnsReturns
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
ResourcesResources** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilitiesTeams of ResourcesTeams of Resources
Criteria ofSustainableAdvantages
ValueChain
Analysis
Valuable RareCostly to Imitate
Organized to be exploited
* **
*
Outsource*
Discovering Core Competencies
