1. Chapter 3: The Internal Organization: Resources, Capabilities, Core Competencies and Competitive Advantages
Overview:
Importance of understanding internal organization
Value: Definition and importance
Tangible vs. intangible resources
Capabilities: Definition and development
Core competencies: Four criteria of sustainable competitive advantage
Value Chain Analysis
Outsourcing: Definition and “why?”
Importance of internal organization assessment

2. Analyzing the Internal Organization
Context of Internal Analysis
Analyze firm’s portfolio of resources and the bundles of heterogeneous resources and capabilities managers have created
Understand how to leverage these bundles
An organization's core competencies creates and sustains its competitive advantage
Creating Value
Exploit core competencies or competitive advantage
Value: measured by a product's performance characteristics and by its attributes for which customers are willing to pay

3. Analyzing the Internal Organization (IO)
Challenge of Internal Analysis
Strategic decisions are non-routine, have ethical implications and influence the organization’s above-average returns
Involves identifying, developing, deploying and protecting firms’ resources, capabilities and core competencies
Requires strategic thinking, making judgments, and taking intelligent risks
Managers face uncertainty, complexity, and interorganizational conflict when making decisions about resources, capabilities, and core competencies

4. Analyzing the Internal Organization (IO)
Resource and Capability Analysis
A tool used for sizing up the company’s competitive assets and determining whether they can provide the foundation necessary for competitive success in the marketplace
2 Step Process
Identify company’s resources and capabilities
Closely examine resources and capabilities to determine which are the most competitively important and whether they can support a sustainable competitive advantage over rivals

5. Figure 3.1 Components of Internal Analysis

6. Resources, Capabilities and Core Competencies
Competitive Advantage (CA) foundation includes
Resources
Are bundled to create organizational capabilities
Tangible and intangible (Tables 3.1 and 3.2)
Tangible
Assets that can be seen, touched and quantified
Four specific types: financial, organizational, physical, and technological
Intangible
Assets rooted deeply in the firm’s history, accumulated over time
Usually can’t be seen or touched
Three specific types: human, innovation, and reputational

7. Resources, Capabilities and Core Competencies
Competitive Advantage (CA) foundation includes
Capabilities (Table Examples)
Resources purposely integrated to achieve a specific task or set of tasks
Source of a firm’s core competencies and basis for CA
Often developed in specific functional areas
Core Competencies
Capabilities that serve as a source of CA for a firm over its rivals
Distinguish a company from its competitors
2 tools can help firms identify and build their core competencies
4 Criteria of Sustainable CA
Value Chain Analysis

8. Examples of Firms’ Capabilities

9. Building Core Competencies: Four Criteria of Sustainable Competitive Advantage
Four Criteria of Sustainable CA (Table 3.4)
Valuable Capabilities – help exploit opportunities or neutralize threats in external environment
Rare Capabilities – few competitors possess them
Costly-to-imitate Capabilities – other firms cannot easily develop
Nonsubstitutable Capabilities – there are no strategic equivalents
Competitive consequences include (Table 3.5)
Disadvantage, parity, temporary advantage and sustainable advantage
Performance implications include returns
Below-average, average, above-average

10. TABLE 3.5 Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage

11. Building Core Competencies: Value Chain Analysis
Primary activities
Involved with product’s physical creation, sales and distribution to buyers, and service after the sale
Service, marketing/sales, outbound/inbound logistics and operations
Support activities
Provide assistance necessary for the primary activities to take place
Includes firm infrastructure, HRM, technologies development and procurement
Helps firm to understand the parts of its operations that create value and those that do not
Can be used to identify competitive advantages and disadvantages based on costs
Can help with outsourcing decisions

12. Figure 3.3 The Basic Value Chain

13. The Basic Value Chain

14. Outsourcing
Outsourcing: The purchase of a value-creating activity from an external supplier
Effective execution includes an increase in flexibility, risk mitigation and capital investment reduction
Trend continues at a rapid pace
Can be used in areas where a firm cannot create value or is at a substantial disadvantage compared to competitors
Should also consider outsourcing non strategically critical activities

15. Competencies, Strengths, Weaknesses and Strategic Decisions
Firms must identify their strengths and weaknesses
Appropriate resources and capabilities needed to develop desired strategy and create value for customers/other stakeholders
Tools (i.e., outsourcing) can help a firm focus on core competencies as the source for CA
Core competencies have potential to become core rigidities
Competencies emphasized when no longer competitively relevant can become a weakness
Should keep updating and improving competencies
External environmental conditions and events impact a firm’s core competencies