Competing For Advantage

Part II – Strategic Analysis

Chapter 4 – The Internal Organization: Resources, Capabilities, and Core Competencies

The Strategic Management Process

Outcomes from Organizational Analyses

Factors that Determine Sustainability of Competitive Advantage

Rate of core competence obsolescence

Availability of substitutes

Imitability of core competence

Conditions Influencing Internal Analysis

Key TermsGlobal 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 Considerations and the Pace of Change

Environmental context beyond national/cultural boundaries

Diversity to prevent inertia, resistance to change, and denial

Experimentation and learning to promote responsiveness

New breed of managers to handle uncertainty, make complex decisions, and hold employees accountable

Strategy defined in terms of a unique and viable competitive position

Conditions Affecting Managerial Decisions about Resources, Capabilities, and Core Competencies.

Creating Value

Key Terms

Value – measured by a product's performance characteristics and by its attributes for which customers are willing to pay

Resources, Capabilities, and Core Competencies

Resources – the source of a firm's capabilities

Capabilities – the source of a firm's core competencies

Core competencies – the basis for a firm’s competitive advantages in the marketplace

Components of Internal Analysis Leading to

Competitive Advantage and Value Creation

Resources

Key Terms

Tangible Resources – assets that can be observed and quantified

Intangible Resources – assets that are typically rooted deeply in the firm's history and have accumulated over time

Resources

Key Terms (cont.)

Reputation – level of awareness a firm has been able to develop among stakeholders

Social Capital – relationships with other organizations that contribute to the creation of value

Resources

Key Terms (cont.)

Strategic Value of Resources – degree to which resources can contribute to the development of capabilities, core competencies, and ultimately, competitive advantage

Tangible Resources

Intangible Resources

Increasing Value of Intangible Resources

Less visibility and less imitable

More sustainability

More leverage within network of users

Capabilities

Key Terms

Capabilities – firm's capacity to deploy resources that have been purposely integrated to achieve a desired end state

Examples of Firm’s Capabilities

Core Competencies

Key Terms

Core Competencies – resources and capabilities that serve as sources of competitive advantage for a firm over its rivals

Core Competencies – Features

Resources that emerge within a firm over time

The capacity of an organization to take action

The activities that a firm performs well relative to its competitors

A representation of a firm's resources and capabilities—including only those with strategic value

Core Competencies – Features (cont.)

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

Tools for Building Core Competencies

Four Criteria of Sustainable Competitive Advantage

Value Chain Analysis

Four Criteria of Sustainable Competitive Advantage

Valuable Capabilities

Rare Capabilities

Costly-to-Imitate Capabilities

Nonsubstitutable Capabilities

Four Criteria of Sustainable Competitive Advantage

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

Four Criteria for Determining Core Competencies

Core Competencies as a Strategic Capability

Costly-to-Imitate Capabilities

Unique historical conditions

Causal ambiguity

Social complexity

Outcomes from Combinations of the Criteria

for Sustainable Competitive Advantage

Value Chain Analysis

Key TermsPrimary Activities – involved with a

product's physical creation, its sale and distribution to buyers, and its service after sale

Support Activities – provide the support needed by the primary activities to be implemented

The Basic Value Chain

The Value-Creating Potential of Support Activities

Source of Competitive Advantage

The resource or capability must allow the firm to perform an activity in a manner superior to the way competitors perform it

The resource or capability must allow the firm to perform a value-creating activity that competitors cannot perform

Outsourcing

Key Terms

Outsourcing – purchase of a value-creating activity from an external supplier

Outsourcing Viability

When a firm does not have the capabilities in the areas needed to succeed

When a firm lacks a resource or possesses inadequate skills needed to implement a strategy

When few organizations possess the resources and capabilities needed for competitive superiority in all primary and support activities necessary to compete

When extensive internal capabilities exist for effectively coordinating external sourcing and internal core competencies

Benefits of Outsourcing

Increased flexibility

Mitigation of risks

Reduced capital investments

Essential Skills for Outsourcing

Strategic thinking

Deal making

Partnership governance

Managing change

Core Competencies – Cautions

Never assume that core competencies will continue to provide a source of competitive advantage

All core competencies have the potential to become core rigidities

Core rigidities – former core competencies that now generate inertia and stifle innovation

Stakeholder Objectives and Power

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 – refers to laws or regulations that specify the legal relationship between a firm and a particular stakeholder group

Returns and Stakeholders

High economic returns – firm can more easily satisfy multiple stakeholders simultaneously

Average economic returns – firm is unable to maximize interests of all stakeholders

Below-average returns – firm must minimize the amount of support withdrawn by stakeholders

Measures of Firm Performance

Capital market performance

Product market performance

Organizational stakeholder performance

Measures of Firm Performance

Key Terms

Risk – investor uncertainty about the economic gains or losses that will result from a particular investment

Firm Performance from a Capital Market

Perspective

Other Measures of Firm Performance

Sustainable Development

Key Terms

Sustainable Development – business growth that does not deplete the natural environment or damage society

Ethical Questions

Can 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 to those held by rivals?

Ethical Questions

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.

Ethical Questions

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, name such a situation, and explain whether it is a sustainable advantage. Why or why not?

Ethical Questions

Are any particular ethical dilemmas associated with outsourcing? If so, what are they? How would you deal with such ethical dilemmas?

Ethical Questions

What ethical responsibilities do managers have if they determine that certain employees have skills that are valuable only to core competencies that are becoming core rigidities?

Ethical Questions

Through 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?

Ethical Questions

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?