The Internal Environment:
Resources, Capabilities and
Core Competencies
Ch3-1
External Environment
What the Firm Might Do
Sustainable
Competitive
Advantage
Internal Environment
What the Firm Can Do
Ch3-2
Key Questions for Managers
in Internal Analysis
How do we assemble bundles of Resources,
Capabilities and Core Competencies to create
VALUE for customers?
And...
Will environmental changes make our core
competencies obsolete?
Are substitutes available for our core
competencies?
Are our core competencies easily imitated?
Ch3-3
Conditions Affecting Managerial Decisions About
Resources, Capabilities and Core Competencies
Uncertainty
regarding characteristics of the general and the
industry environments, competitor’s actions, and
customer’s preferences.
Complexity
regarding the interrelated causes shaping a firm’s
environments and perceptions of the environments
Intraorganizational Conflicts
among people making managerial decisions and
those affected by them
Ch3-4
Resources
What a firm Has...
What a firm has to work with:
its assets, including its people and
the value of its brand name
Ch3-5
Resources
Tangible Resources
*
*
*
*
Financial
Physical
Human Resources
Organizational
Intangible Resources
* Technological
* Innovation
* Reputation
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
“Some genius invented the Oreo.
We’re just living off the inheritance.”
F. Ross Johnson,
Former President & CEO, RJR Nabisco
Ch3-6
Capabilities
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.
Ch3-7
Core Competencies
What a firm Does...
that is Strategically
Valuable
“…are the essence of what makes an organization
unique in its ability to provide value to
customers.”
Leonard-Barton, Bowen, Clark, Holloway & Wheelwright
McKinsey & Co. recommends identifying three to four
competencies to use in framing strategic actions.
Ch3-8
Core Competencies
Core Competencies must be:
Valuable
What a firm Does...
that is Strategically
Valuable
Capabilities that either help a firm to exploit opportunities to create
value for customers or to neutralize threats in the environment
Rare
Capabilities that are possessed by few, if any, current or potential
competitors
Costly to Imitate
Capabilities that other firms cannot develop easily, usually due to
unique historical conditions, causal ambiguity or social complexity
Nonsubstitutable
Capabilities that do not have strategic equivalents, such as firmspecific knowledge or trust-based relationships
Ch3-9
Core Competencies
Resources
Core Competence
• Inputs to a firm’s
production process
The source of
• A strategic capability
Capability
Does the capability satisfy
the criteria of sustainable
competitive advantage?
• Integration of a
team of resources
YES
NO
Capability
• A nonstrategic team
of resources
Ch3-10
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Firm Infrastructure
Human Resource Management
Technological Development
Primary Activities
Service
Marketing
& Sales
Outbound
Logistics
Operations
Procurement
Inbound
Logistics
Support
Activities
Ch3-11
Competitive
Advantage
Discovering Core
Competencies
Gained through
Core Competencies
Strategic
Competitiveness
Core
Competencies
Discovering
Core
Competencies
Above-Average
Returns
Sources of
Competitive
Advantage
Capabilities
Criteria of
Sustainable
Advantages
Teams of
Resources
Value
Chain
Analysis
Resources
* Tangible
* Intangible
*
*
*
*
Valuable
Rare
Costly to Imitate
Nonsubstitutable
* Outsource
Ch3-12