internal enviorment analysis

8/6/2019 internal enviorment analysis

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Ch

Chapter 3Chapter 3

The Internal Environment:The Internal Environment:

Resources, Capabilities andResources, Capabilities andCore CompetenciesCore Competencies

Michael A. HittMichael A. Hitt

R. Duane IrelandR. Duane Ireland

Robert E. HoskissonRobert E. Hoskisson

Michael A. HittMichael A. Hitt

R. Duane IrelandR. Duane Ireland

Robert E. HoskissonRobert E. Hoskisson

2000 South-Western College Publishing2000 South-Western College Publishing


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Chapter 3Chapter 3

InternalInternalEnvironmentEnvironment

Chapter 2Chapter 2

ExternalExternal

EnvironmentEnvironmentThe StrategicThe Strategic

ManagementManagement

ProcessProcess

The StrategicThe Strategic


ProcessProcess

Strategic IntentStrategic Intent

Strategic MissionStrategic Mission

StrategicStrategic

CompetitivenessCompetitiveness

Above AverageAbove Average

ReturnsReturns

Feedback

Strategy FormulationStrategy Formulation

Chapter 4Chapter 4Business-LevelBusiness-Level

StrategyStrategy

Chapter 5Chapter 5CompetitiveCompetitive

DynamicsDynamics

Chapter 6Chapter 6Corporate-LevelCorporate-Level

StrategyStrategy

Chapter 8Chapter 8

InternationalInternational

StrategyStrategy

Chapter 9Chapter 9

CooperativeCooperative

StrategiesStrategies

Chapter 7Chapter 7

Acquisitions &Acquisitions &

RestructuringRestructuring

Strategy ImplementationStrategy Implementation

Chapter 10Chapter 10CorporateCorporate

GovernanceGovernance

Chapter 11Chapter 11StructureStructure

& Control& Control

Chapter 12Chapter 12

StrategicStrategic

LeadershipLeadership

Chapter 13Chapter 13Entrepreneurship

& Innovation

Entrepreneurship

& Innovation

Strategic

Inputs

Strategic

Actions

Strategic

Outcomes


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Chapter 2Chapter 2

External EnvironmentExternal EnvironmentWhat the FirmMightDoWhat the FirmMightDo

Chapter 3Chapter 3

Internal EnvironmentInternal Environment

What the Firm Can DoWhat the Firm Can Do

SustainableSustainable

CompetitiveCompetitive

AdvantageAdvantage


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ResourcesResources

** TangibleTangible

** IntangibleIntangible

CapabilitiesCap

abilities

Teams ofResourcesTeams ofResources

Sources ofSources of

CoreCore

CompetenciesComp

etencies

CompetitiveCompetitiveAdvantageAdvantage

StrategicStrategicCompetitivenessComp

etitiveness

Above-AverageAbove-AverageReturnsReturns

CompetitiveCompetitiveAdvantageAdvantag

e

Gained throughGained throughCore CompetenciesCore Competencies

DiscoveringDiscoveringCoreCore

CompetenciesCompetencies

Discovering Core

Competencies

Discovering Core

Competencies

Criteria of

SustainableAdvantages

Value

ChainAnalysis

Valuable

Rare

Costly to ImitateNonsubstitutable

*

*

**

* Outsource


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How do we assembleHow do we assemblebundlesbundles of Resources,of Resources,Capabilities and Core Competencies to createCapabilities and Core Competencies to create

VALUEVALUEfor customers?for customers?

Will environmental changes make our coreWill environmental changes make our corecompetencies obsolete?competencies obsolete?

And...And...

Are substitutes available for our coreAre substitutes available for our corecompetencies?competencies?

Are our core competencies easily imitated?Are our core competencies easily imitated?

Key Questions for Managers

in Internal Analysis

Key Questions for Managers

in Internal Analysis


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Conditions Affecting Managerial Decisions About

Resources, Capabilities and Core Competencies

Conditions Affecting Managerial Decisions About

Resources, Capabilities and Core Competencies

Uncertaintyregarding characteristics of the general and the

industry environments, competitors actions, and

customers preferences.

Uncertaintyregarding characteristics of the general and the

industry environments, competitors actions, and

customers preferences.

Complexityregarding the interrelated causes shaping a firms

environments andperceptions of the environments

Complexityregarding the interrelated causes shaping a firms

environments andperceptions of the environments

Intraorganizational Conflictsamong people making managerial decisions and

those affected by them

Intraorganizational Conflictsamong people making managerial decisions and

those affected by them


7/51Ch

ResourcesResources

** TangibleTangible


Discovering Core

Competencies

Discovering Core

Competencies


8/51Ch

What a firm has to work with:What a firm has to work with:

itsits assetsassets, including its, including its peoplepeople andand

the value of itsthe value of its brand namebrand name

What a firmWhat a firmHasHas......ResourcesResources


9/51Ch

Resources representResources represent inputs into ainputs into afirms production processfirms production process......

such as capital equipment, skills ofsuch as capital equipment, skills of

employees, brand names, financesemployees, brand names, financesand talented managersand talented managers

What a firmWhat a firmHasHas......


its assets, including its peopleits assets, including its people

and the value of its brand nameand the value of its brand name

ResourcesResources


10/51Ch3-


its assets, including its peopleits assets, including its people

and the value of its brand nameand the value of its brand name

Resources represent inputs into aResources represent inputs into a

firms production process...firms production process...such as capital equipment, skillssuch as capital equipment, skills

of employees, brand names,of employees, brand names,

finances and talented managersfinances and talented managers

Some genius invented the Oreo. Were justSome genius invented the Oreo. Were 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 firmWhat a firmHasHas......ResourcesResources


11/51Ch3-

Tangible ResourcesTangible Resources

FinancialFinancial**

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

firms production process...such as capital equipment, skills

of employees, brand names,

finances and talented managersIntangible ResourcesIntangible Resources

TechnologicalTechnological**

InnovationInnovation**

ReputationReputation**

Some genius invented the Oreo.

Were just living off the inheritance.

F. Ross Johnson,Former President & CEO, RJR Nabisco

ResourcesResources


12/51Ch3-

ResourcesResources

** TangibleTangible


CapabilitiesCapabilities


Discovering Core

Competencies

Discovering Core

Competencies


13/51Ch3-

What a firmDoes...

Capabilities represent:Capabilities represent:the firms capacity or ability tothe firms capacity or ability to integrateintegrate

individual firm resourcesindividual firm resources to achieve a desiredto achieve a desired

objective.objective.



14/51Ch3-

What a firmDoes...

Capabilities develop over time as a result of complexinteractions that take advantage of the interrelationships

between a firms tangible and intangible resources that

are based on the development, transmission and

exchange or sharing of information and knowledge ascarried out by the firm's employees.

Capabilities develop over time as a result ofcomplexinteractions that take advantage of the interrelationships

between a firms tangible and intangible resources that

are based on the development, transmission and

exchange or sharing of information and knowledge ascarried out by the firm's employees.

Capabilities represent:the firms capacity or ability to integrate individual

firm resources to achieve a desired objective.



15/51Ch3-

What a firmDoes...

Capabilities represent:the firms 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 firms 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 combinedCapabilities become important when they are combined

inin unique combinationsunique combinations which create core competencieswhich create core competencies

which havewhich have strategic valuestrategic value and can lead toand can lead to competitivecompetitive

advantageadvantage..



16/51Ch3-

ResourcesResources

** TangibleTangible




Discovering Core

Competencies

Discovering Core

Competencies


CoreCore






17/51Ch3-

What a firmDoes...

that is Strategically

Valuable

are the essence of what makes an organizationare the essence of what makes an organization

unique in its ability to provide value tounique 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 fourMcKinsey & Co. recommends identifying three to four

competencies to use in framing strategic actions.competencies to use in framing strategic actions.

Core CompetenciesCore Competencies


18/51Ch3-

ResourcesResources

** TangibleTangible





CoreCore





Criteria of


Valuable

Rare


*

*

**

Discovering Core

Competencies

Discovering Core

Competencies

* Outsource


19/51Ch3-

For a strategic capability to be aFor a strategic capability to be a

Core Competency, it must be:Core Competency, it must be:


ValuableValuable

RareRare

Costly to ImitateCostly to Imitate

NonsubstitutableNonsubstitutable

What a firmDoes...that is Strategically

Valuable


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Wh C i i M k C


21/51Ch3-

What Criteria Make Core

Competencies Costly to Imitate?

What Criteria Make Core

Competencies Costly to Imitate?

Unique Historical ConditionsUnique Historical Conditions

Causal AmbiguityCausal Ambiguity

Social ComplexitySocial Complexity

This occurs when competitors are unable to detect how a firm uses

its competencies as a foundation for competitive advantage

This occurs when competitors are unable to detect how a firm uses

its competencies as a foundation for competitive advantage

Occurs when the firms capabilities are the result of complex socialphenomena, such as interpersonal relationships, trust and friendships

among managers or a firms reputation with suppliers and customers

Occurs when the firms capabilities are the result of complex socialphenomena, such as interpersonal relationships, trust and friendships

among managers or a firms reputation with suppliers and customers

Example:Example: Disney created Mickey Mouse at a time whenDisney created Mickey Mouse at a time when

animated motion pictures were newanimated motion pictures were new

An unusual evolutionary pattern of growth may contribute to the

development of competencies in a manner that is unique to thoseparticular circumstances

An unusual evolutionary pattern of growth may contribute to thedevelopment of competencies in a manner that is unique to those

particular circumstances


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Ch3-


ResourcesResources Inputs to a firmsInputs to a firms

production processproduction process

Core CompetenceCore Competence A strategic capabilityA strategic capability

The source ofThe source of CapabilityCapability Integration of aIntegration of a

team of resourcesteam of resources

Does the capability satisfyDoes the capability satisfythe criteria of sustainablethe criteria of sustainablecompetitive advantage?competitive advantage?

YESYES

NONO

CapabilityCapability A nonstrategic teamA nonstrategic team

of resourcesof resources

O f C bi i f h C i i f


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Ch3-

ValuableValuable RareRareCostly toCostly to

ImitateImitate

Nonsub-Nonsub-

stitutablestitutable


ConsequencesConsequences

PerformancePerformance

ImplicationsImplications

NONO NONO NONO NONOCompetitiveCompetitive

DisadvantageDisadvantage

BelowBelow

AverageAverage

ReturnsReturns

YESYES NONO NONO YES/NOYES/NOCompetitiveCompetitive

ParityParity

AverageAverage

ReturnsReturns

YESYES NONO YES/NOYES/NOYESYES

TemporaryTemporary


Aver./AboveAver./Above

AverageAverageReturnsReturns

AboveAbove

AverageAverage

ReturnsReturns

AboveAbove

AverageAverage

ReturnsReturns

YESYESYESYESYESYESYESYES YESYESYESYESYESYESYESYESSustainableSustainable


AdvantageAdvantage

SustainableSustainable


AdvantageAdvantage

Outcomes from Combinations of the Criteria forOutcomes from Combinations of the Criteria for

Sustainable Competitive AdvantageSustainable Competitive Advantage

Outcomes from Combinations of the Criteria forOutcomes from Combinations of the Criteria for

Sustainable Competitive AdvantageSustainable Competitive Advantage


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Ch3-

ResourcesResources

** TangibleTangible





CoreCoreCompetenciesCompetencies




Value

ChainAnalysis

* Outsource

Valuable

Rare


*

*

**

Criteria of


Discovering Core

Competencies

Discovering Core

Competencies


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Ch3-

Support

Activities

Primary Activities

Value Chain AnalysisValue Chain AnalysisIdentifying Resources and Capabilities That Can Add Value


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Ch3-

Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis t

ics

Logis

tics


V l Ch i A l i


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Ch3-

Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis t

ics

Logis

tics

Oper

ations

Operation

s


C i A iV l Ch i A l i


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Ch3-

Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis t

ics

Logis

tics

Oper

ations

Operation

s

Outb o

und

Outbound

Logist

ics

Logis

tics


V l Ch i A l iV l Ch i A l i


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Ch3-

Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis t

ics

Logis

tics

Oper

ations

Operation

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark

eting

Marketing

&Sales

&Sa

les




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Ch3-

Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis t

ics

Logis

tics

Oper

ations

Operat

ion

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark e

ting

Marketing

&Sales

&Sa

les

Se

rvi c

e

Se

rvice




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Ch3-

Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis

tics

Logis

tics

Oper

ations

Operat

ion

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark e

ting

Marketing

&Sales

&Sa

les

Se

rvice

Se

rvi c

e

ProcurementProcurement




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Ch3-

Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis

tics

Logis

tics

Oper

ations

Operat

ion

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark e

ting

Marketing

&Sales

&Sa

les

Se

rvice

Se

rvi c

e


Technological DevelopmentTechnological Development




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Ch3-

Support

Activities

Primary Activities



Inbou

nd

Inbound

Logis

tics

Logis

tics

Oper

ations

Operat

ion

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark e

ting

Marketing

&Sales

&Sa

les

Se

rvice

Se

rvi c

e

Human Resource ManagementHuman Resource Management




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Ch3-

Support

Activities

Primary Activities


Human Resource ManagementHuman Resource ManagementFirm InfrastructureFirm Infrastructure


Inbou

nd

Inbound

Logis

tics

Logis

tics

Oper

ations

Operat

ion

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark e

ting

Marketing

&Sales

&Sa

les

Se

rvice

Se

rvi c

e




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Ch3-

Support

Activities

Primary Activities




Inbou

nd

Inbound

Logis

tics

Logis

tics

Oper

ations

Operat

ion

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark e

ting

Marketing

&Sales

&Sa

les

Se

rvice

Se

rvi c

e

MARG

IN

MARG

IN

MARGIN

MARGIN


OutsourcingOutsourcing


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Ch3-

Support

Activities

Primary Activities

OutsourcingOutsourcing




Inbou

nd

Inbound

Logis

tics

Logis

tics

Oper

ations

Operat

ion

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark e

ting

Marketing

&Sales

&Sa

les

Se

rvice

Se

rvi c

e

MARG

IN

MARG

IN

MARGIN

MARGIN

Strategic Choice to Purchase Some Activities From Outside Suppliers

O t iO t i


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Ch3-

Support

Activities

Primary Activities




Inbou

nd

Inbound

Logis

tics

Logis

tics

Oper

at

ions

Operat

ion

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark e

ting

Marketing

&Sales

&Sa

les

Se

rvice

Se

rvi c

e

MARG

IN

MARG

IN

InboundInbound

LogisticsLogistics

OperationsOperations

OutboundOutbound

LogisticsLogistics

ServiceService

MarketingMarketing

& Sales& Sales


Human Resource ManagementHuman Resource Management


MARGIN

MARGIN

Firms often purchase a portionportion

of their value-creating activities

from specialty external suppliers

who can perform these functionsmore efficientlymore efficiently

OutsourcingOutsourcingStrategic Choice to Purchase Some Activities From Outside Suppliers

Strategic Rationales for OutsourcingStrategic Rationales for Outsourcing


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Ch3-

Lets company focus on broader business issues by having outside

experts handle various operational details

Lets 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 thosethat serve customers more effectivelyPermits firm to redirect efforts from non-core activities toward thosethat 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 process

Achieves 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


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


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Ch3-

Value Chains are part of aTotal Value SystemValue Chains are part of aTotal Value System

Supplier Value ChainSupplier Value Chain Firm Value ChainFirm Value Chain Channel Value ChainChannel Value Chain Buyer Value ChainBuyer Value Chain



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Ch3-

Firm Value ChainFirm Value Chain Channel Value ChainChannel Value Chain Buyer Value ChainBuyer Value Chain

Supplier Value ChainSupplier Value Chain

Upstream ValueUpstream Value

Perform valuable activities that

complementcomplement the firms activities




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Ch3-

Supplier Value ChainSupplier Value Chain Firm Value ChainFirm Value Chain Buyer Value ChainBuyer Value Chain

Upstream Value


complement the firms activities

Channel Value ChainChannel Value Chain

Each firm must eventually find a way toEach firm must eventually find a way tobecome a part ofbecome a part ofsomesome buyers value chainbuyers value chain




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Ch3-

Supplier Value ChainSupplier Value Chain Firm Value ChainFirm Value Chain Channel Value ChainChannel Value Chain

Upstream Value



Buyer Value ChainBuyer Value Chain

Ultimate basis forUltimate basis for differentiationdifferentiation is the abilityis the abilityto play a role in ato play a role in a buyers value chainbuyers value chain

This createsThis creates VALUE!!VALUE!!

Each firm must eventually

find a way to become a part ofsome buyers value chain




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Ch3-

Supplier Value Chain Firm Value Chain Channel Value Chain

Upstream Value



Buyer Value Chain

Each firm must eventually find a way to

become a part ofsome buyers value chain

Ultimate basis for differentiation is the

ability to play a role in a buyers value chain

This creates VALUE!!

Value chains vary for firms in an industry,reflecting each firms unique qualities:

History Strategy

Success at Implementation


C C t i C ti d R i dCore Competencies Cautions and Reminders


46/51

Ch3-

Core Competencies--Cautions and RemindersCore Competencies--Cautions and Reminders

Never take for granted that core competencies will

continue to provide a source of competitive advantage

Never take for granted that core competencies will

continue to provide a source of competitive advantage

All core competencies have the potential to become

Core Rigidities

All 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 environmentStrategic myopia and inflexibility can strangle the firms

ability to grow and adapt to environmental change or

competitive threats

Strategic myopia and inflexibility can strangle the firms

ability to grow and adapt to environmental change or

competitive threats


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Chapter 2Chapter 2

Th St t iTh St t i


48/51

Ch3-

ExternalExternal

EnvironmentEnvironment

Chapter 3Chapter 3


Strategic IntentStrategic IntentStrategic IntentStrategic Intent




ProcessProcess

Chapter 2Chapter 2

E l

Th St t iThe Strategic


49/51

Ch3-

ExternalExternalEnvironmentEnvironment

Chapter 3Chapter 3







ProcessProcess

Chapter 2Chapter 2

E lE t l The StrategicThe Strategic


50/51

Ch3-

ExternalExternalEnvironmentEnvironment

Chapter 3Chapter 3




ProcessProcess

Strategic MissionStrategic MissionStrategic MissionStrategic MissionA statement of the firms uniqueA statement of the firms uniquepurpose and the scope of itspurpose and the scope of its

operations in product marketoperations in product market

termsterms

A statement of the firms uniqueA statement of the firms uniquepurpose and the scope of itspurpose and the scope of its

operations in product marketoperations in product market

termsterms




Leveraging of a firms resources,Leveraging of a firms resources,

capabilities and core competenciescapabilities and core competencies

to accomplish what may appear toto accomplish what may appear to

be unattainable goals in the compe-be unattainable goals in the compe-titive environmenttitive environment

Leveraging of a firms resources,Leveraging of a firms resources,

capabilities and core competenciescapabilities and core competencies

to accomplish what may appear toto accomplish what may appear to

be unattainable goals in the compe-be unattainable goals in the compe-titive environmenttitive environment

CompetitiveCompetitiveAd tAd t

Discovering CoreDiscovering Core


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ResourcesResources

** TangibleTangible



Teams of

Resources

Teams of

Resources


CoreCoreCompetenciesCompetencies


StrategicStrategic

CompetitivenessCompetitiveness

Above-AverageAbove-AverageReturnsReturns

AdvantageAdvantage

Gained throughGained throughCore CompetenciesCore Competencies



Value

Chain

Analysis

Valuable

Rare

Costly to Imitate

*

*

*

Criteria of


Discovering Core

Competencies

Discovering Core

Competencies

internal enviorment analysis

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