The Internal Environment: Resources, Capabilities and Core Competencies The Internal Environment:...
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Transcript of The Internal Environment: Resources, Capabilities and Core Competencies The Internal Environment:...
The Internal Environment: Resources, Capabilities and
Core Competencies
The Internal Environment: Resources, Capabilities and
Core Competencies
Dr. S. PerotDr. S. PerotDr. S. PerotDr. S. Perot
What the Firm Might Do
What the Firm Can Do
External EnvironmentExternal Environment
Five Forces AnalysisFive Forces Analysis
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
CompetitiveCompetitiveAdvantageAdvantage
Gained throughGained throughCore CompetenciesCore Competencies
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
Criteria ofSustainableAdvantages
ValueChain
Analysis
Discovering Core CompetenciesDiscovering Core Competencies
ValuableRareCostly to ImitateNonsubstitutable
****
Outsource*
How do we assemble bundles of Resources, Capabilities and Core Competencies to...How do we assemble bundles of Resources, Capabilities and Core Competencies to...
Create VALUE for Customers
Create VALUE for Customers
Will environmental changes make our core competencies obsolete?Will environmental changes make our core competencies obsolete?
And...And...
Are substitutes available for our core competencies?Are substitutes available for our core competencies?
Are our core competencies easily imitated?Are our core competencies easily imitated?
Key Questions for Managers in Internal Analysis include...Key Questions for Managers in Internal Analysis include...
Key Questions for Managers in Internal Analysis include...Key Questions for Managers in Internal Analysis include...
Difficult managerial decisions regarding resources, capabilities and core competencies are characterized by three conditions:
Difficult managerial decisions regarding resources, capabilities and core competencies are characterized by three conditions:
UncertaintyUncertainty
ComplexityComplexity
Intraorganizational ConflictsIntraorganizational Conflicts
ResourcesResources
** TangibleTangible** IntangibleIntangible
Discovering Core CompetenciesDiscovering Core Competencies
Tangible ResourcesTangible ResourcesFinancialFinancial**
PhysicalPhysical**
Human ResourcesHuman Resources**
OrganizationalOrganizational**
ResourcesResources 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
ResourcesResources
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
** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilities
Teams of ResourcesTeams of Resources
Discovering Core CompetenciesDiscovering Core Competencies
CapabilitiesCapabilities 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 in unique combinations which create core competencies which have strategic value and can lead to competitive advantage.
ResourcesResources
** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilities
Teams of ResourcesTeams of Resources
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
Discovering Core CompetenciesDiscovering Core Competencies
Core CompetenciesCore CompetenciesWhat a firm Does...that is Strategically
Valuable
“…“…are the essence of what makes an are the essence of what makes an organization unique in its ability to provide organization unique in its ability to provide value to customers.”value to 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
For a strategic capability to be a Core Competency, it must be:ValuableValuable
Costly to ImitateCostly to Imitate
NonsubstitutableNonsubstitutable
RareRare
Core CompetenciesCore Competencies
Core Competencies must be:ValuableValuable
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
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
What a firm Does...that is Strategically
Valuable
Costly to ImitateCostly to Imitate
Outcomes from Combinations of the Criteria Outcomes from Combinations of the Criteria for Sustainable Competitive Advantagefor Sustainable Competitive Advantage
Outcomes from Combinations of the Criteria Outcomes from Combinations of the Criteria for Sustainable Competitive Advantagefor Sustainable Competitive Advantage
ValuableValuable RareRareCostly to Costly to ImitateImitate
Nonsub-Nonsub-stitutablestitutable
Competitive Competitive ConsequencesConsequences
Performance Performance ImplicationsImplications
AboveAverageReturns
AboveAverageReturns
NONO NONO NONO NONO
YESYES NONO NONO YES/NOYES/NO
YESYES NONO YES/NOYES/NOYESYES
YESYESYESYES YESYESYESYES
CompetitiveCompetitiveDisadvantageDisadvantage
Below Below AverageAverageReturnsReturns
CompetitiveCompetitiveParityParity
AverageAverageReturnsReturns
TemporaryTemporaryCompetitiveCompetitiveAdvantageAdvantage
Aver./Above Aver./Above AverageAverageReturnsReturns
SustainableCompetitiveAdvantage
SustainableCompetitiveAdvantage
ResourcesResources
** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilities
Teams of ResourcesTeams of Resources
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
ValueChain
Analysis
Discovering Core CompetenciesDiscovering Core Competencies
Outsource*ValuableRareCostly to ImitateNonsubstitutable
****
Criteria ofSustainableAdvantages
SupportActivities
Primary Activities
Value Chain AnalysisValue Chain Analysis
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
Inb
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helps to identify which resources and capabilities can add value
MARG
IN
MARG
IN
MARGIN
MARGIN
SupportActivities
Primary Activities
OutsourcingOutsourcing
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
Inb
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Ser
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MARG
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- strategic choice to purchase some activities from outside suppliers
SupportActivities
Primary Activities
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
Inb
oun
d
Inb
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Log
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MARG
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MARG
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Inbound Inbound LogisticsLogistics
OperationsOperationsOutboundOutboundLogisticsLogistics
ServiceService
Marketing Marketing & Sales& Sales
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
ProcurementProcurement
MARGIN
MARGIN
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
OutsourcingOutsourcing- strategic choice to purchase some activities from outside suppliers
What are the Strategic Rationales for Outsourcing?
What are the Strategic Rationales for Outsourcing?
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
What are the Strategic Rationales for Outsourcing?What are the Strategic 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
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
Value Chains are part of a Total Value SystemValue Chains are part of a Total Value System
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
Value Chains are part of a Total Value SystemValue Chains are part of a Total Value System
Supplier Value Chain Firm Value Chain Buyer Value Chain
Upstream Value
Perform valuable activities that complement the firm’s activities
Channel Value ChainChannel Value Chain
Each firm must eventually find a way to become a part of some buyer’s value chain
Value Chains are part of a Total Value SystemValue Chains are part of a Total Value System
Supplier Value Chain Firm Value Chain Channel Value Chain
Upstream Value
Perform valuable activities that complement the firm’s activities
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!!
Each firm must eventually find a way to become a part of some buyer’s value chain
Value Chains are part of a Total Value SystemValue Chains are part of a Total Value System
Supplier Value Chain Firm Value Chain Channel Value Chain
Upstream Value
Perform valuable activities that complement the firm’s activities
Buyer Value Chain
Each firm must eventually find a way to become a part of some buyer’s value chain
Ultimate basis for differentiation is the ability to play a role in a buyer’s value chain
This creates VALUE!!
Value chains vary for firms in an industry, reflecting each firm’s unique qualities
HistoryStrategySuccess at Implementation
Core Competencies--Cautions and RemindersCore Competencies--Cautions and Reminders
It should never be taken for granted that core competencies will continue to provide a source of competitive advantageIt should never be taken 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
Chapter 2Chapter 2ExternalExternal
EnvironmentEnvironment
Chapter 3Chapter 3InternalInternal
EnvironmentEnvironment
The StrategicThe StrategicManagementManagement
ProcessProcess
The StrategicThe StrategicManagementManagement
ProcessProcess
Strategic MissionStrategic MissionStrategic MissionStrategic Mission
A statement of the firm’s unique A statement of the firm’s unique purpose and the scope of its purpose and the scope of its operations in product market operations in product market termsterms
A statement of the firm’s unique A statement of the firm’s unique purpose and the scope of its purpose and the scope of its operations in product market operations in product market termsterms
Strategic IntentStrategic Intent
Strategic IntentStrategic Intent
Strategic MissionStrategic Mission
Leveraging of a firm’s resources, capabilities and core competencies to accomplish what may appear to be unattainable goals in the compe- titive environment
Leveraging of a firm’s resources, capabilities and core competencies to accomplish what may appear to be unattainable goals in the compe- titive environment
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
Discovering Core CompetenciesDiscovering Core Competencies
ValuableRareCostly to ImitateNonsubstitutable
****
Outsource*
Criteria ofSustainableAdvantages