Organizational resources and competitive advantage Chapter 3

The internal environment Internal environment analysis should be seen from a resource-based view of strategy: acquire and manage resources to achieve sustainable competitive advantage Tangible and intangible resources – assets of an organization Capabilities – skills or activities that create or use these resources Core competence – a capability that creates a competitive advantage Core incompetence - a lack of a capability that leads to a competitive disadvantage Distinctive competence – a core competence that a firm performs better than the competition

Examples of human resources and human capabilities Superior CEO characteristics Outstanding board of directors Experienced managers Well-trained, motivated, loyal employees Capabilities: Executive leadership skills Outstanding governance Excellent management development and retention Effective decision making Top-notch training and motivational practices

Examples of physical resources and physical capabilities State-of-the-art machinery, plant Superior locations Excellent access to raw materials Patents, trademarks, secrets Capabilities: Efficient production and service delivery Ability to identify superior locations Excellent logistics and supply chain management practices Strong research and development skills Ability to leverage patents, trademarks and secrets

Examples of financial resources and financial capabilities Strong cash flow Strong balance sheet Capacity to borrow/credit ratings Superior past performance Capabilities: Ability to manage and generate internal funds Asset management Leverage capabilities Ability to control costs and sustain profitability

Examples of knowledge and learning resources and knowledge and learning capabilities State-of-the-art information systems Extensive line-up of products and services New business start-ups Total quality management, six-sigma, ISO certifications Capabilities: Superior technology development Strong research and development practices Management supports internal entrepreneurship Excellent innovation and learning activities

Examples of general organizational resources and general organizational capabilities Excellent reputation Well-known brands Excellent structure and culture Superior management systems Strong relationships with external stakeholders Capabilities: Public relations activities Marketing, pricing, advertising, distribution capabilities Ability to track customer buying habits through customer loyalty programs Corporate social responsibility actions

Michael Porter’s Value Chain Analysis 4–8

To be A CORE COMPETENCE, THE ANSWER SHOULD BE “YES” TO BOTH OF THESE QUESTIONS IS THE CAPABILITY VALUABLE? A capability has value if the can use it to provide a good or service at a low cost or to provide a good or service that is more desirable to the consumer. IS THE CAPABILITY UNIQUE? A capability is unique if only one or a small group of firms possess it. If the capability satisfies both questions, then it has the potential for a competitive advantage.

Strategic strength YES Core Competence Is it valuable? Capability Is it valuable? Is it unique? Strategic Strength YES

Strategic weakness YES Core Competence Lack of Capability Is it valuable? Is it unique? Strategic Weakness YES