PART II

STRATEGIC ANALYSIS

Chapter 4
The Internal Organization:
Resources, Capabilities, and Core
Competencies
1
 Firms rely on a unique bundle of resources to
create a sustainable competitive advantage.

 Factors that Determine Sustainability

 Rate of core competence obsolescence

 Availability of substitutes

 Imitability of core competence

 Neglecting international considerations
 Pursuing only short-term earnings goals
 Failing to recognize core competencies
 Emphasizing resources and capabilities
that do not form a competitive advantage
 Key Terms
 Global mind-set
Ability to study an internal environment
in ways that do not depend on the
assumptions of a single country, culture,
or context
 Global interconnectedness
 Pace of environmental change
 Economic volatility
“The perspective that a firm is a
bundle of heterogeneous resources,
capabilities, and core competencies
that can be used to create a unique
market position is a critical
characteristic of effective resource
analysis.”
 Resources are the source of a firm's
capabilities.

 Capabilities, in turn, are the source of a

firm's core competencies.

 A firm's core competencies are the basis

for its competitive advantages in the
marketplace.
 Key Terms
 Value
Measured by a product's performance
characteristics and by its attributes for
which customers are willing to pay
 Key Terms
 Tangible resources
Assets that can be observed and quantified
 Intangible resources
Assets that typically are rooted deeply in the
firm's history and have accumulated over time
 Organizational routines
Complex patterns of social interactions that
allow firms to accomplish much of what they do
 Key Terms
 Social capital
Relationships with other organizations that
contribute to the creation of value
 Strategic value of resources
Degree to which resources can contribute to the
development of capabilities, core competencies,
and ultimately, competitive advantage
 Key Terms
 Capabilities
Firm's capacity to deploy resources that
have been purposely integrated to achieve
a desired end state
 Key Terms
 Core competencies
Resources and capabilities that serve as a
source of competitive advantage for a firm
over its rivals
Supporting and nurturing more
than four core competencies may
prevent a firm from developing the
focus needed to fully exploit its
competencies in the marketplace.
 Four Criteria of Sustainable
Competitive Advantage
 Value Chain Analysis
 Valuable Capabilities
 Rare Capabilities
 Costly-to-Imitate Capabilities
 Nonsubstitutable Capabilities
 Key Terms
 Valuable capabilities
Allow the firm to exploit opportunities or neutralize threats
in its external environment
 Rare capabilities
Possessed by few, if any, current or potential competitors
 Costly-to-imitate capabilities
Cost for other firms to develop is prohibitive, cannot easily
be developed by other firms
 Nonsubstitutable capabilities
Do not have strategic equivalents
 Unique historical conditions
 Causal ambiguity
 Socially complexity
 Key Terms
 Value chain activities
Activities or tasks involved with the production of a
firm’s product, the sale and distribution of products
to buyers, and after-sales services in ways that create
value for the customer
 Support functions
Activities or tasks which support the firm’s work
required to make, sell, distribute, and service its
products
 The resource or capability must allow
the firm to perform a value chain
activity or a support function in a
manner superior to the way competitors
perform it.
 The resource or capability must allow
the firm to perform a value-creating
value chain activity or a support
function that competitors cannot
perform.
 Key Terms
 Outsourcing
The purchase of a value-creating activity from
an external supplier
 Increased flexibility
 Risk mitigation
 Reduced capital investments
 When a firm does not have the capabilities in
the areas needed to succeed
 When a firm lacks a resource or possesses
inadequate skills essential to successfully
implement a strategy
 When few organizations possess the resources
and capabilities required to achieve competitive
superiority in all value chain activities and
support functions
 When extensive internal capabilities exist to
effectively coordinate external sourcing and
internal core competencies
 Strategic thinking
 Deal making
 Partnership governance
 Managing change
 Never take for granted that core
competencies will continue to provide a
permanent source of competitive advantage.
 All core competencies have the potential to
become core rigidities – core rigidities are
former core competencies that now generate
inertia and stifle innovation.
 Manager inflexibility stemming from the
strength of shared beliefs (strategic myopia)
is the primary reason core rigidities develop.
 Key Terms
 Economic power
Comes from the ability to withhold economic support
from the firm
 Political power
Results from the ability to influence others to withhold
economic support or to change the rules of the game
 Formal power
Involves laws or regulations that specify the legal
relationship existing between a firm and a particular
stakeholder group
 High economic returns – firm has the
capability and flexibility to satisfy
multiple stakeholders simultaneously
 Average economic returns – firm is
unable to maximize the interests of all
stakeholders
 Below-average returns – firm does not
have the capacity to satisfy all
stakeholders
 Capital market performance
 Product market performance
 Organizational stakeholder
performance
 Key Terms
 Risk
Investor uncertainty about the economic
gains or losses that will result from a
particular investment
 Key Terms
 Sustainable development
Business growth that does not deplete the
natural environment or damage society
 Could efforts to develop sustainable
competitive advantages result in employees
using unethical practices? If so, what
unethical practices might be used to compare
a firm’s core competencies with those held by
rivals?
 Do ethical practices affect a firm’s ability to
develop a brand name as a source of
competitive advantage? If so, how does this
happen? Identify some brands that are a source
of competitive advantage in part because of the
firm’s ethical practices.
 What is the difference between exploiting a
firm’s human capital and using that capital
as a source of competitive advantage? Are
there situations in which the exploitation of
human capital can be a source of advantage?
If so, can you name such a situation? If the
exploitation of human capital can be a source
of competitive advantage, is this a
sustainable advantage? Why or why not?
 Are there any ethical dilemmas associated
with outsourcing? If so, what are they? How
would you deal with those dilemmas?
 What ethical responsibilities do managers
have if they determine that a set of
employees has skills that are valuable only to
a core competence that is becoming a core
rigidity for the firm?
 Through postings to the Internet, firms
sometimes make a vast array of data,
information, and knowledge available to
competitors as well as to customers and
suppliers. What ethical issues, if any, are
involved when the firm finds competitively
relevant information on a competitor’s
Website?
 To what extent does a firm have a moral
obligation to distribute value back to
stakeholders based on their relative
contributions to its creation? Does a firm have
any legal obligations to do so?