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Business Strategy

Chapter 4
The Internal Analysis:
Resources, Capabilities, and
Core competencies

Rapeeporn Rungsithong, PhD

Rapeeporn@cbs.chula.ac.th
Looking inside the firm…

Internal
analysis

External analysis
PESTEL analysis
Five forces analysis
The Resource-Based view
Resources are bundled to
create organizational
capabilities
 What Are Core Competencies?

 Unique strengths

 Embedded deep within a firm

 Enables a firm to differentiate its products and services

from those of its rivals

 Results in:
 Creating higher value for the customer or
 Offering products and services at lower cost
Core Competences
 Core competences are combinations of resources
and capabilities which are unique to a specific
organization and which are responsible for
generating its competitive advantage.
 Four potential sources of Core competences:
 Strategic assets
 Architecture (i.e., internal and external relationship)
 Innovation
 Reputation
Criteria to evaluate Core Competences

 Complexity: How elaborate is the bundle of resources and

capabilities which comprise the core competence?
 Imitability: How difficult is it to imitate?
 Durability: How long does it be replaced by an alternative
competences?
 Superiority: Is it clearly superior to the competences of other
organizations?
 Adaptability: How easily can the competence be leveraged or
adapted?
 Customer orientation: How is the competence perceived by
customers and how far is it linked to their needs?
 Examples: Core Competencies

 Expertise in integrating multiple technologies to create

families of new products
 Know-how in creating operating systems
for cost efficient supply chain management
 Speeding new/next-generation products to market

 Better after-sale service capability

 Skills in manufacturing a high quality product

 System to fill customer orders accurately and swiftly

Super App..

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The relationships between resources, capabilities and core competence
Managing Resources to Develop
Capabilities and Core Competencies
The VRIO Framework

 Valuable – offer a resource that adds value

for customers and be able to exploit an
opportunity or neutralize competition with an
internal capability
 Rare – few competitors possess them
 costly-to-Imitate – other firms cannot easily
develop
 Organized to capture value – the firm
must organize team works or process to
capture the value of the resources 11
Value Proposition

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Market position

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 Airbnb organized teams to capture value

• Creating an open
dialogue at work
• Bringing company
culture to life
• Recruiting and
onboarding at Airbnb
• One Airbnb
• an all-company meetup
as well as annual
regional gatherings
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Linking resources, capabilities, core competencies
and activities to competitive advantage

Tangible Intangible
 Dynamic capabilities

• Resource stocks
– The firm’s current level of intangible resources
• Resource flows
– The firm’s level of investments to maintain or build a
resource

 Dynamic capabilities
 A firm’s ability to create, deploy, modify, reconfigure,
upgrade, and leverage its resources over time
 Helps prevent a core rigidity
 A former core competency that turned into a liability as
the environment changed.
 The Bathtub Metaphor

SOURCE: Figure based on metaphor used in I. Dierickx and K. Cool (1989), “Asset stock accumulation and sustainability of competitive
advantage,” Management Science 35: 1504–1513.
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What is RS’
Core Competencies?

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The Value Chain

 The value chain is the chain of activities

which results in the final value of a
business’s products.
 Value added, or margin is indicated by sales
revenue minus costs.

 Porter divided internal parts of organization

into primary and support activities
The Value Chain
 Strategic Coherence
The Logic of How The Business Fits Together

 Combining activities that complement and reinforce one

another. These activities dovetail (link) together to help
achieve the overall objectives of the firm.

 Such strategies, which may regarded as systems of

activities are often more successful because they are
more difficult to imitation. Thus, they can lead to a
sustainable competitive advantage.

 Strategic coherence may not be a sufficient condition for

attaining a competitive advantage, but it is often a
necessary one.
Strategic Coherence
Strategic Coherence
Characters of Strength & Weakness
Strength
 Capabilities and resources
that enable your company to
perform well
 Things, which are both
tangible (assets like patents or
superior financial standing)
and intangible (innovation
capability or a strong brand)
 “Core competencies”—those
things, which your company is
exceptionally good at and that
your customers value
Weakness
 Disadvantages compared to
competitors
 Something you lack or do
poorly
 Things, which are both
tangible and intangible
 The flip side of strengths,
such as:
 weak leadership abilities
 poor customer service
 lack of technology
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Characters of Opportunities & Threats
Opportunities
 Trends, forces, and events
that your company can
capitalize on..
 Broad-reaching rends (such
as demographic shifts and
removal of international trade
barriers) and more-narrow
forces (such as the
identification of an unmet
customer need or loosening of
a regulation) that affect your
industry or niche market
Threats
 Events or forces outside of
your control that may
negatively affect your
company
 Broad-reaching changes
(such as shifts in
demographics) and more-
narrow events (such as the
entrance of a new competitor)
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 Strategic Implications of
Competing on Resources
 The value of the  Investing in resources,
organisations continually
capability requires  Upgrading resources,
that the competition: creating or acquiring
 Can’t see it easily. new resources, finding
 Can’t imitate it. alternatives resources
 Can’t find a sub for it.  Leveraging resources
 Can’t just buy it.  Rapid redeployment of
resources
Looking Inside Yourself:
What Is My Competitive Advantage?

 Write down your own personal strengths and

weaknesses. What sort of organization will
permit you to really leverage your strengths
and keep you highly engage?
 Are some of your strengths valuable, rare,
and costly to imitate?
 How can you organize your work to help
capture the value of your key strengths (or
mitigate your weaknesses)?

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