Transparency 3-1 Chapter 3 The Internal Environment: Resources, Capabilities and Core Competencies...

Transparency 3-1Transparency 3-1

Chapter 3Chapter 3

The Internal Environment: Resources, Capabilities and

Core Competencies

The Internal Environment: Resources, Capabilities and

Core 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

What the Firm Might Do

What the Firm Can Do

Chapter 2Chapter 2

External EnvironmentExternal Environment

Five Forces AnalysisFive Forces Analysis

Chapter 3Chapter 3

Internal EnvironmentInternal EnvironmentResources, Capabilities and Core CompetenciesResources, Capabilities and Core Competencies

What the Firm Might Do

What the Firm Can Do

Chapter 2Chapter 2

External EnvironmentExternal Environment

Five Forces AnalysisFive Forces Analysis

Chapter 3Chapter 3

Internal EnvironmentInternal EnvironmentResources, Capabilities and Core CompetenciesResources, Capabilities and Core Competencies

SustainableSustainableCompetitiveCompetitiveAdvantageAdvantage

ResourcesResources

** TangibleTangible** IntangibleIntangible

CapabilitiesCapabilities

Teams of ResourcesTeams of Resources

Sources ofSources of

CoreCoreCompetenciesCompetencies

CompetitiveCompetitiveAdvantageAdvantage

StrategicStrategicCompetitivenessCompetitiveness

Above-AverageAbove-AverageReturnsReturns

Gained throughGained throughCore CompetenciesCore Competencies

DiscoveringDiscoveringCoreCore

CompetenciesCompetencies

Discovering Core CompetenciesDiscovering Core Competencies

Resources represent inputs into a firm’s production process...

such as capital equipment, skills of employees, brand names, finances and talented managers

What a firm Has...ResourcesResourcesResourcesResources

ResourcesResources

Gained throughGained throughCore CompetenciesCore Competencies

Criteria ofSustainableAdvantages

ValueChain

Analysis

ValuableRareCostly to ImitateNonsubstitutable

Outsource*

CapabilitiesCapabilities What a firm Does...

Capabilities represent...the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.

Core CompetenciesCore CompetenciesWhat a firm Does...that is Strategically

ValuableCore Competencies must be:ValuableValuableCapabilities 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

Core CompetenciesCore Competencies

Core Competencies must be:ValuableValuable

RareRareCapabilities that are possessed by few, if any, current or potential competitorsCapabilities that are possessed by few, if any, current or potential competitors

What a firm Does...that is Strategically

Valuable

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

Valuable

RareRare

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

Capabilities 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

Valuable

Costly to ImitateCostly to Imitate

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain AnalysisTo identify which resources and capabilities can add value

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysis

helps to identify which resources and capabilities can add value

SupportActivities

Primary Activities

SupportActivities

Primary Activities

SupportActivities

Primary Activities

SupportActivities

Primary Activities

SupportActivities

Primary Activities

Procurement

SupportActivities

Primary Activities

ProcurementProcurement

Technological Development

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysishelps to identify which resources and capabilities can add value

Technological DevelopmentTechnological Development

Human Resource Management

SupportActivities

Primary Activities

Human Resource ManagementHuman Resource Management

Firm Infrastructure

SupportActivities

Primary Activities

Firm InfrastructureFirm Infrastructure

MARGIN

SupportActivities

Primary Activities

Inbound Inbound LogisticsLogistics

OperationsOperationsOutboundOutboundLogisticsLogistics

ServiceService

Marketing Marketing & Sales& Sales

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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

OutsourcingOutsourcing- strategic choice to purchase some activities from outside suppliers

To capitalize on the usefulness of the Value Chain concept...

it is important to recognize that...

Value Chains are part of a Total Value SystemValue Chains are part of a Total Value System

Supplier Value Chain Firm Value ChainFirm Value Chain Channel Value Chain Buyer Value Chain

Firm Value Chain Channel Value Chain Buyer Value Chain

Supplier Value ChainSupplier Value Chain

Upstream ValueUpstream Value

Perform valuable activities that complement the firm’s activities

Supplier Value Chain Firm Value Chain Buyer Value Chain

Downstream Value

Channel Value ChainChannel Value Chain

Each firm must eventually find a way to become a part of some buyer’s value chain

Supplier Value Chain Firm Value Chain Channel Value Chain

Buyer Value ChainBuyer Value Chain

Ultimate basis for differentiation is the ability to play a role in a buyer’s value chain

This creates VALUE!!

ResourcesResources

ValueChain

Analysis

Outsource*ValuableRareCostly to ImitateNonsubstitutable

Criteria ofSustainableAdvantages

Comparative Market Share (%)by Installed Units

1988 1989 1990 1991

Compaq

Industry Growth(in $billions)

1982 1986 1990 1994

Desktops

Portables

Servers

Cost of Processing (MIPS)

$75,000

$10,000

$2,000

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

1980 1985 1991

Cost of Processing

Comparative Profitability

1991 ROS (%)

Compaq

Microsoft

5-Forces Model of Computer Industry

Suppliers• O/S • Processors• Application Software• Memory Devices

Buyers• Price Sensitive• Mass Merchandisers• Mail Order

Substitutes• Workstations• Palm-tops/ PDA’s

Potential Entrants• Low Entry Barriers

Rivalry

• New Products• More Marketing• Price Cutting• Outsourcing• Windows

Strategic Group Map Pre-Windows

Premium

Strategic Focus - Differentiation

Broad Narrow

Clones

Compaq

Strategic Group Map Post-Windows

Premium

Strategic Focus - Differentiation

Broad Narrow

Clones

Compaq

Weakness

SupportActivities

Primary Activities

How to Create Value in the PC Industry?

MARGIN

Transparency 3-1 Chapter 3 The Internal Environment: Resources, Capabilities and Core Competencies...

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Transcript of Transparency 3-1 Chapter 3 The Internal Environment: Resources, Capabilities and Core Competencies...

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