MAN4001 –
S T R AT E G I C
MANAGEMENT
Competitiveness & Globalization
University of Technology - Marie Bradford (2021)
1
Learning Objectives
UNIT 3 :
THE INTERNAL
O R G A N I Z AT I O N
1. Explain why firms need to study and understand
their internal organization.
2. Define value and discuss its importance.
3. Describe the differences between tangible and
intangible resources.
4. Define capabilities and discuss their development.
5. Describe four criteria used to determine whether
resources and capabilities are core competencies.
6. Explain how value chain analysis is used to
identify and evaluate resources and capabilities.
7. Define outsourcing and discuss reasons for its
use.
University of Technology - Marie Bradford (2021)
2
Analyzing the Internal Organization
In the global economy, traditional factors such as labor costs, access to financial
resources and raw materials, and protected or regulated markets remain sources of
competitive advantage, but to a lesser degree.
Firms are now using their core competencies as a means of competitive advantage.
Increasingly, those who analyze their firm’s internal organization should use a global
mind-set to do so. A global mind-set is the ability to analyze, understand, and manage
(if in a managerial position) an internal organization in ways that are not dependent on
the assumptions of a single country, culture, or context.
University of Technology - Marie Bradford (2021)
3
Creating Value
Value is measured by a product’s performance characteristics and by its attributes for
which customers are willing to pay.
Firms with a competitive advantage offer value to customers that is superior to the value
competitors provide. Firms create value by innovatively bundling and leveraging their
resources and capabilities.
Firms unable to creatively bundle and leverage their resources and capabilities in ways
that create value for customers suffer performance declines.
Ultimately, creating value for customers is the source of above-average returns for a
firm.
University of Technology - Marie Bradford (2021)
4
Components of Internal Analysis Leading to Competitive
Advantage and Strategic Competitiveness
University of Technology - Marie Bradford (2021)
5
Resources, Capabilities, and Core Competencies
Broad in scope, resources cover a spectrum of individual, social, and organizational
phenomena. Typically, resources alone do not yield a competitive advantage. A
competitive advantage is generally based on the unique bundling of several resources –
tangible and intangible.
University of Technology - Marie Bradford (2021)
6
Tangible Resources
Tangible resources are assets that can be observed and quantified. Production
equipment, manufacturing facilities, distribution centers, and formal reporting structures
are examples of tangible resources.
University of Technology - Marie Bradford (2021)
7
Intangible Resources
Intangible resources are assets that are rooted deeply in the firm’s history and have
accumulated over time. Because they are embedded in unique patterns of routines,
intangible resources are relatively difficult for competitors to analyze and imitate.
University of Technology - Marie Bradford (2021)
8
Capabilities
Capabilities exist when resources have been purposely integrated to achieve a specific
task or set of tasks. These tasks range from human resource selection to product
marketing and research and development activities.
Critical to the building of competitive advantages, capabilities are often based on
developing, carrying, and exchanging information and knowledge through the firm’s
human capital.
Capabilities often evolve and develop over time. The foundation of many capabilities lies
in the unique skills and knowledge of a firm’s employees and, often, their functional
expertise.
University of Technology - Marie Bradford (2021)
9
University of Technology - Marie Bradford (2021)
10
Core Competencies
Core competencies are capabilities that serve as a source of competitive advantage for
a firm over its rivals. Core competencies distinguish a company competitively and reflect
its personality.
A core competency refers to a company's set of skills or experience in some activity,
rather than physical or financial assets. An organizational core competency is an
organization's strategic strength.
Innovation is a core competence of Apple: They combine their tangible (financial and
research labs) and intangible (scientists, engineers) resources to complete
research and development tasks.
University of Technology - Marie Bradford (2021)
11
Capabilities that are valuable, rare, costly to imitate, and non-substitutable are
core competencies.
Capabilities failing to satisfy the four criteria of sustainable competitive
advantage are not core competencies, meaning that although every core
competence is a capability, not every capability is a core competence.
Four Criteria
of Sustainable
Advantages
•
•
•
•
Valuable
Rare
Costly to Imitate
Nonsubstitutable
University of Technology - Marie Bradford (2021)
12
Four Criteria
of Sustainable
Advantages
Four Criteria of Sustainable Competitive Advantage
Valuable: Capabilities that help a firm neutralize threats or exploit
opportunities.
•
•
•
•
Valuable
Rare
Costly to Imitate
Nonsubstitutable
Valuable means that these capabilities must be a source of greater
value, in terms of relative costs and benefits, than similar
resources in competing firms.
For e.g. Being a first-mover (Ability to bring a product or service to
market first)
University of Technology - Marie Bradford (2021)
13
Four Criteria
of Sustainable
Advantages
Four Criteria of Sustainable Competitive Advantage
Rare: Capabilities that are not possessed by many others.
o Rareness implies that the resource must be rare in the sense
that it is scarce relative to demand for its use or what it
produces.
•
•
•
•
Valuable
Rare
Costly to Imitate
Nonsubstitutable
o Not many rivals possess this rare capability.
o Capabilities possessed by many rivals are unlikely to become
core competencies.
University of Technology - Marie Bradford (2021)
14
Four Criteria of Sustainable Competitive Advantage
Costly to imitate capabilities are those that other firms
cannot develop easily, usually due to
•
•
•
•
Four Criteria
of Sustainable
Advantages
Valuable
Rare
Costly to Imitate
Nonsubstitutable
o Unique historical conditions
o Causal ambiguity (hard or even impossible to relate
the consequences or effects of a phenomenon)
o Social complexity
E.g. Factors deeply rooted in the firm such as its
organizational culture.
University of Technology - Marie Bradford (2021)
15
Four Criteria
of Sustainable
Advantages
Four Criteria of Sustainable Competitive Advantage
Non-substitutable capabilities are those that do not have
strategic equivalents. Other different types of resources cannot
be functional substitutes
•
•
•
•
Valuable
Rare
Costly to Imitate
Nonsubstitutable
o Invisible to competitors
o Firm specific knowledge
o Trust-based working relationships between managers and
non-managerial personnel
University of Technology - Marie Bradford (2021)
16
University of Technology - Marie Bradford (2021)
17
Value Chain Analysis
Value chain analysis allows the firm to understand the parts of its
operations that create value and those that do not. Understanding these
issues is important because the firm earns above-average returns only
when the value it creates is greater than the costs incurred to create that
value.
A firm’s value chain is segmented into primary and support activities.
o Primary activities are involved with a product’s physical creation, its
sale and distribution to buyers, and its service after the sale.
o Support activities provide the assistance necessary for the primary
activities to take place.
University of Technology - Marie Bradford (2021)
18
University of Technology - Marie Bradford (2021)
19
University of Technology - Marie Bradford (2021)
20
University of Technology - Marie Bradford (2021)
21
Outsourcing
o Outsourcing is the purchase of a value-creating activity
from an external supplier.
o Not-for-profit agencies as well as for-profit organizations
actively engage in outsourcing.
o Firms engaging in effective outsourcing increase their
flexibility, mitigate risks, and reduce their capital
investments.
o In multiple global industries, the trend toward
outsourcing continues at a rapid pace
University of Technology - Marie Bradford (2021)
22
Competencies, Strengths, Weaknesses, and Strategic
Decisions
o At the conclusion of the internal analysis, firms must identify their strengths and
weaknesses in resources, capabilities, and core competencies. For example, if they
have weak capabilities or do not have core competencies in areas required to achieve a
competitive advantage, they must acquire those resources and build the capabilities and
competencies needed. Alternatively, they could decide to outsource a function or activity
where they are weak in order to improve the value that they provide to customers.
o A core competence is usually a strength because it is a source of competitive
advantage. If emphasized when it is no longer competitively relevant, it can become
a weakness, a seed of organizational inertia.
o Events occurring in the firm’s external environment create conditions through which
core competencies can become core rigidities, generate inertia, and stifle innovation.
University of Technology - Marie Bradford (2021)
23
THE END!
Next class: Unit 4 – Business
Level Strategies
University of Technology - Marie Bradford (2021)
24