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Ch3-1
Chapter 3Chapter 3
The Internal Environment: The Internal Environment: Resources, Capabilities and Resources, Capabilities and
Core CompetenciesCore Competencies
Michael A. HittMichael A. HittR. Duane IrelandR. Duane Ireland
Robert E. HoskissonRobert E. Hoskisson
Michael A. HittMichael A. HittR. Duane IrelandR. Duane Ireland
Robert E. HoskissonRobert E. Hoskisson
©2000 South-Western College Publishing©2000 South-Western College Publishing
Ch3-2
Chapter 2Chapter 2External EnvironmentExternal EnvironmentWhat the Firm Might DoWhat the Firm Might Do
Chapter 3Chapter 3Internal EnvironmentInternal EnvironmentWhat the Firm Can DoWhat the Firm Can Do
SustainableSustainableCompetitiveCompetitiveAdvantageAdvantage
Ch3-4
The purpose of SWOT Analysis
• It is an easy-to-use tool for developing an overview of a company’s strategic situation– It forms a basis for matching your
company’s strategy to its situation
Ch3-5
Strengths
• 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
Ch3-6
Weaknesses
• 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
Ch3-7
Strengths and Weakness form a basis for INTERNAL analysis• 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.
Ch3-8
ResourcesResources
** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilities
Teams of ResourcesTeams of Resources
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
StrategicStrategicCompetitivenessCompetitiveness
Above-AverageAbove-AverageReturnsReturns
CompetitiveCompetitiveAdvantageAdvantage
Gained throughGained throughCore CompetenciesCore Competencies
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
Discovering Core CompetenciesDiscovering Core Competencies
Criteria ofSustainableAdvantages
ValueChain
Analysis
ValuableRareCostly to ImitateNonsubstitutable
****
* Outsource
Ch3-9
How do we assemble How do we assemble bundlesbundles of Resources, of Resources, Capabilities and Core Competencies to create Capabilities and Core Competencies to create
VALUEVALUE for customers? for customers?
Will environmental changes make our core Will environmental changes make our core competencies obsolete?competencies obsolete?
And...And...
Are substitutes available for our core Are substitutes available for our core competencies?competencies?
Are our core competencies easily imitated?Are our core competencies easily imitated?
Key Questions for Managersin Internal Analysis
Key Questions for Managersin Internal Analysis
Ch3-10
ResourcesResources
** TangibleTangible** IntangibleIntangible
Discovering Core CompetenciesDiscovering Core Competencies
Ch3-11
What a firm has to work with:What a firm has to work with:
its its assetsassets, including its , including its peoplepeople and and the value of its the value of its brand namebrand name
What a firm What a firm HasHas......ResourcesResources
Ch3-12
Resources represent Resources represent inputs into a inputs into a firm’s production processfirm’s production process......
such as capital equipment, skills of such as capital equipment, skills of employees, brand names, finances employees, brand names, finances and talented managersand talented managers
What a firm What a firm HasHas......
What a firm has to work with:What a firm has to work with:
its assets, including its people its assets, including its people and the value of its brand nameand the value of its brand name
ResourcesResources
Ch3-13
What a firm has to work with:What a firm has to work with:
its assets, including its people its assets, including its people and the value of its brand nameand the value of its brand name
Resources represent inputs into a Resources represent inputs into a firm’s production process...firm’s production process...
such as capital equipment, skills such as capital equipment, skills of employees, brand names, of employees, brand names, finances and talented managersfinances and talented managers
““Some genius invented the Oreo. We’re just Some genius invented the Oreo. We’re just living off the inheritance.”living off the inheritance.”
F. Ross Johnson,F. Ross Johnson,Former President & CEO, Former President & CEO,
RJR NabiscoRJR Nabisco
What a firm What a firm HasHas......ResourcesResources
Ch3-14
Tangible ResourcesTangible ResourcesFinancialFinancial**
PhysicalPhysical**
Human ResourcesHuman Resources**
OrganizationalOrganizational**
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 firm’s production process...
such as capital equipment, skills of employees, brand names, finances and talented managers
Intangible ResourcesIntangible Resources
TechnologicalTechnological**
InnovationInnovation**
ReputationReputation**
“Some genius invented the Oreo. We’re just living off the inheritance.”
F. Ross Johnson,Former President & CEO, RJR Nabisco
ResourcesResources
Ch3-15
ResourcesResources
** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilities
Teams of ResourcesTeams of Resources
Discovering Core CompetenciesDiscovering Core Competencies
Ch3-16
What a firm Does...
Capabilities represent:Capabilities represent:
the firm’s capacity or ability to the firm’s capacity or ability to integrate integrate individual firm resources individual firm resources to achieve a desired to achieve a desired objective.objective.
CapabilitiesCapabilities
Ch3-17
What a firm Does...
Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s 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 develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s 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 represent:the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.
CapabilitiesCapabilities
Ch3-18
What a firm Does...
Capabilities represent:the firm’s 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 firm’s 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 Capabilities become important when they are combined in in unique combinations unique combinations which create core competencies which create core competencies which havewhich have strategic value strategic value and can lead toand can lead to competitive competitive advantageadvantage..
CapabilitiesCapabilities
Ch3-19
ResourcesResources
** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilities
Teams of ResourcesTeams of Resources
Discovering Core CompetenciesDiscovering Core Competencies
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
Ch3-20
What a firm Does...that is Strategically
Valuable
“…“…are the essence of what makes an organization are the essence of what makes an organization unique in its ability to provide value to unique in its ability to provide value to customers.”customers.”
Leonard-Barton, Bowen, Clark, Holloway & WheelwrightLeonard-Barton, Bowen, Clark, Holloway & Wheelwright
McKinsey & Co. recommends identifying three to four McKinsey & Co. recommends identifying three to four competencies to use in framing strategic actions.competencies to use in framing strategic actions.
Core CompetenciesCore Competencies
Ch3-21
ResourcesResources
** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilities
Teams of ResourcesTeams of Resources
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
Criteria ofSustainableAdvantages
ValuableRareCostly to ImitateNonsubstitutable
****
Discovering Core CompetenciesDiscovering Core Competencies
* Outsource
Ch3-22
For a strategic capability to be a For a strategic capability to be a Core Competency, it must be:Core Competency, it must be:
Core CompetenciesCore Competencies
ValuableValuable
RareRare
Costly to ImitateCostly to Imitate
NonsubstitutableNonsubstitutable
What a firm Does...that is Strategically
Valuable
Ch3-23
Core Competencies must be:
NonsubstitutableNonsubstitutableCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationshipsCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships
What a firm Does...that is Strategically
Valuable
Core CompetenciesCore Competencies
ValuableValuable
RareRare
Costly to ImitateCostly to ImitateCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexityCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity
Capabilities that are possessed by few, if any, current or potential competitorsCapabilities that are possessed by few, if any, current or potential competitors
Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment
Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment
Ch3-24
ResourcesResources
** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilities
Teams of ResourcesTeams of Resources
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
ValueChain
Analysis
* Outsource
ValuableRareCostly to ImitateNonsubstitutable
****
Criteria ofSustainableAdvantages
Discovering Core CompetenciesDiscovering Core Competencies
Ch3-25
SupportActivities
Primary Activities
Value Chain AnalysisValue Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
Ch3-26
SupportActivities
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Value Chain AnalysisValue Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
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Value Chain AnalysisValue Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
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ProcurementProcurement
Value Chain AnalysisValue Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
Ch3-32
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ProcurementProcurement
Technological DevelopmentTechnological Development
Value Chain AnalysisValue Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
Ch3-33
SupportActivities
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Technological DevelopmentTechnological Development
ProcurementProcurement
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Human Resource ManagementHuman Resource Management
Value Chain AnalysisValue Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
Ch3-34
SupportActivities
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Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
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SupportActivities
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Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
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MARG
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Value Chain AnalysisValue Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
Ch3-36
SupportActivities
Primary Activities
OutsourcingOutsourcing
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
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Strategic Choice to Purchase Some Activities From Outside Suppliers
Ch3-37
SupportActivities
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Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
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Inbound Inbound LogisticsLogistics
OperationsOperationsOutboundOutboundLogisticsLogistics
ServiceService
Marketing Marketing & Sales& Sales
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
ProcurementProcurement
MARGIN
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Firms often purchase a portionportion of their value-creating activities from specialty external suppliers who can perform these functions more efficientlymore efficiently
OutsourcingOutsourcingStrategic Choice to Purchase Some Activities From Outside Suppliers
Ch3-38
Lets company focus on broader business issues by having outside experts handle various operational detailsLets company focus on broader business issues by having outside experts handle various operational details
Strategic Rationales for OutsourcingStrategic Rationales for Outsourcing
Improve Business FocusImprove Business Focus
Permits firm to redirect efforts from non-core activities toward those that serve customers more effectivelyPermits firm to redirect efforts from non-core activities toward those that serve customers more effectively
Free Resources for Other PurposesFree Resources for Other Purposes
Provide Access to World-Class CapabilitiesProvide Access to World-Class Capabilities
Accelerate Business Re-Engineering BenefitsAccelerate Business Re-Engineering Benefits
Share RisksShare Risks
The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications The specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications
Achieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over processAchieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over process
Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities Reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities
Ch3-39
Core Competencies--Cautions and RemindersCore Competencies--Cautions and Reminders
Never take for granted that core competencies will continue to provide a source of competitive advantageNever take for granted that core competencies will continue to provide a source of competitive advantage
All core competencies have the potential to become Core RigiditiesAll 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
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 firm’s ability to grow and adapt to environmental change or competitive threats
Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats
Ch3-40
ResourcesResources
** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilities
Teams of ResourcesTeams of Resources
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
StrategicStrategicCompetitivenessCompetitiveness
Above-AverageAbove-AverageReturnsReturns
CompetitiveCompetitiveAdvantageAdvantage
Gained throughGained throughCore CompetenciesCore Competencies
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
ValueChain
Analysis
ValuableRareCostly to ImitateNonsubstitutable
****
* Outsource
Criteria ofSustainableAdvantages
Discovering Core CompetenciesDiscovering Core Competencies