Ch03 1

Chapter 3
The Internal Environment:
RESOURCES, CAPABILITIES, CORE COMPETENCIES

AND COMPETITIVE ADVANTAGES
ดร. กุศยา ลีฬหาวงศ์

Dr. Kusaya Leerahawong
Contents
❍ the firm’s internal environment

❍ value and its importance
❍ tangible and intangible resources.
❍ capabilities and core competencies
❍ value chain analysis
❍ outsourcing and the reasons for its use
❍ identifying internal strengths and weaknesses.
❍ the importance of avoiding core rigidities
2 Seminar in Business Policy and Strategy Dr. Kusaya L.

Analyzing the External Environment
© 2020 Cengage Learning. All rights reserved. For classroom use only.
Opportunities
and threats
By studying the external environment, firms identify what

they might choose to do.

Analyzing the Internal Organization
❍ By studying the internal environment, firms identify what they can do
Unique resources,
capabilities, and
competencies
(required for sustainable
competitive advantage)
❍ Matching what a firm can do (a function of its resources, capabilities, and core
competencies in the internal organization) with what it might do (a function of
opportunities and threats in the external environment) yields insights for the firm to
select its strategies.

The Context of Internal Analysis
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❍ In today’s global economy are now less likely to be the source of

competitive advantages
❏ Traditional sources of advantages can be overcome by competitors’
international strategies and by the flow of resources throughout the global
economy.
❍ Firms analyzing their internal organization should use a global

Mind-Set
❏ The ability to study an internal environment in ways that are not dependent
on the assumptions of a single country, culture, or context.
❍ Analysis Outcome requires

❏ Understanding how to leverage the firm’s bundle of heterogeneous
resources and capabilities.

Components of an Internal Analysis
⑧
•
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The Challenge of Analyzing the Internal Organization
❍ When making strategic decisions, managers as strategic

leaders must:
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❏ know when a capability is not a competence.
❏ learn quickly from failures and mistakes.

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❏ have the maturity of judgment to deal effectively with uncertainty,
complexity, and intra-organizational conflicts in an unbiased

manner.
❏ be willing to take intelligent risks. outrun .rÉvs invasion @ nohow

Conditions Affecting Managerial Decisions About Resources,
Capabilities, and Core Competencies
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a. Jurors

Resources, Capabilities and Core Competencies
❍The foundation of competitive advantage are:

❏ Resources
❏ Capabilities
❏ Core competencies
❍Resources are bundled to create organizational

capabilities.
❍In turn, capabilities are the source of a firm’s core
competencies, which are the basis of establishing
competitive advantages.

❍Resources
Competitive
Advantage ❏ Are the source of a firm’s capabilities.
❏ Are broad in scope.

❏ Cover a spectrum of individual, social
Core
Competencies and organizational phenomena.
❏ Alone, do not yield a competitive
Capabilities advantage.
Resources
•Tangible
•Intangible
10 Seminar in Business Policy and Strategy Dr. Kusaya

3–10 L.
Resources
❍ Resources ❍Types of Resources

❏ A firm’s assets, including people ❏ Tangible resources: aiuriooin
and the value of its brand name, ÷ financial

that represent inputs into a ÷ physical
firm’s production process: ÷ technological
÷ capital equipment ÷ organizational
÷ skills of employees ❏ Intangible resources:
÷ brand names ÷ human
÷ financial resources ÷ innovation
÷ talented managers ÷ reputation

Tangible Resources
Financial Resources • The firm’s borrowing capacity
w w.oef-iaorw.ni-lvmiwihrodhsui n
ri • The firm’s ability to generate internal funds
Organizational Resources • The firm’s formal reporting structure
and its formal planning, controlling,
and coordinating systems
Physical Resources • Sophistication and location of a firm’s
plant and equipment
• Access to raw materials
Technological Resources • Availability of technology, such as patents,
trade-marks, copyrights, and trade secrets

Intangible Resources
Human Resources • Knowledge

• Trust
• Managerial capabilities
• Organizational routines
Innovation Resources • Ideas

• Scientific capabilities
• Capacity to innovate
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Reputational Resources • Reputation with customers
• Brand name
• Perceptions of product quality, durability, and reliability
• Reputation with suppliers
• For efficient, effective, supportive, and mutually
beneficial interactions and relationships

❍ Capabilities
Competitive ❏ represent the capacity to deploy resources
Advantage that have been purposely integrated to
achieve a desired end state.
❏ emerge over time through complex
Core interactions among tangible and intangible
Competencies resources.
❏ The foundation of many capabilities lies in:
÷ The unique skills and knowledge of a firm’s
Capabilities employees
÷ The functional expertise of those employees
❏ Capabilities are often developed in specific
Resources functional areas or as part of a functional
•Tangible area
•Intangible

Examples of Firms’ Capabilities

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❍ Core Competencies MAMA
Competitive Konarski rusty
Advantage ❏ Resources and capabilities that
serve as a source of a firm’s
competitive advantage:
Core ❏ Activities that a firm performs
Competencies especially well compared to
competitors
Capabilities ❏ Activities through which the firm
adds unique value to its goods
or services over a long period of
Resources time
•Tangible
•Intangible

Building Core Competencies
Sustainable ❍ Two tools help firms identify their
Competitive core competencies:
Advantage 1. The four criteria of sustainable
competitive advantage
2. Value chain analysis
Four Criteria of ❍ The Four Criteria of Sustainable

Sustainable Advantages Competitive Advantage
❏ Valuable capabilities
❏ Rare capabilities
• Valuable
• Rare ❏ Costly to imitate
• Costly to imitate
• Nonsubstitutable ❏* Non-substituable normalair

The Four Criteria of Sustainable Advantage
Valuable • Help a firm neutralize threats or exploit opportunities
Capabilities
Rare • Are not possessed by many others

Capabilities
Costly-to-Imitate • Historical: A unique and a valuable organizational culture or

Capabilities brand name
• Ambiguous cause: The causes and uses of a competence are
unclear
• Social complexity: Interpersonal relationships, trust, and
friendship among managers, suppliers, and customers
Nonsubstitutable • No strategic equivalent

Capabilities

Resources Leading to Sustainable Competitive Advantage
Organizational
Resources and
Capabilities
VALUABLE?
Financial DIFFICULT APPLIED
OR COSTLY TO MULTIPLE
Physical TO IMITATE? BUSINESSES?
UNIQUE?
Human
Sustainable Core
Organizational Competitive Competitive Competency
Advantage Advantage or Capability
Capabilities failing to satisfy the four criteria are not core competencies, meaning that
although every core competence is a capability, not every capability is a core competence.

Outcomes from Combinations of the Criteria for Sustainable
Competitive Advantage
Value Chain Analysis
❍Value chain allows a firm to understand the parts of

its operations that create value and those that do
not.
❍Value chain is a template that firms use to:

❏ Understand their cost position.
❏ Identify multiple means that might be used to facilitate

implementation of a chosen business-level strategy.
21 Seminar in Business Policy and Strategy Dr.

3–21 Kusaya L.
Value Chain Analysis
❍ Is segmented into value chain activities and support functions

❏ Value chain activities are activities or tasks the firm completes in order to
produce products and then sell, distribute, and service those products in
ways that create value for customers.
❏ Support functions include the activities or tasks the firm completes in
order to support the work being done to produce, sell, distribute, and
service the products the firm is producing.
❍ A firm can develop a capability and/or a core competence in any

of the value chain activities and support functions.
❏ When it does so, it has the ability to create value for customers.

Model of the Value Chain
The Basic Value Chain
Human Resource Management
Technological Development
Service
Marketing and Sales

Firm Infrastructure
Outbound Logistics
Procurement
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Operations
Inbound Logistics
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Creating Value through Value Chain Activities
The Value-Creating through Support Functions
Outsourcing
❍ Outsourcing is the purchase of a value-creating activity from an

external supplier. iaiiiuiiinogn
❍ Outsourcing can be effective because few organizations possess the

resources and capabilities required to achieve competitive
superiority in all primary and support activities.
❍ By performing fewer capabilities:

❏ a firm can concentrate on those areas in which it can create value.
❏ specialty suppliers can perform outsourced capabilities more efficiently.

Outsourcing Decisions
A firm may outsource all

or only part of one or
more primary and/or
support activities.
Human Resource Management
Technological Development
Service
Marketing and Sales

Firm Infrastructure
Outbound Logistics
Procurement
Outsourced activity
Operations
Inbound Logistics

Strategic Rationales for Outsourcing
atrium .IM .
outsource
-
laid resource
❍Improve business focus focus iioisiisuoin INMAN .
❍Provide access to world-class capabilities

❍Accelerate business re-engineering benefits
/
❍Sharing risks
❍Freeing resources for other purposes I tesourceiuofolvmoiv.EU
❍Firms engaging in effective outsourcing:

❏ Increase their flexibility
❏ Mitigate risks a. iooivsulovwo
❏ Reduce their capital investments

Outsourcing Issues
❍ Seeking greatest value ruin's nil intromission Naina's

,
❏ Outsource only to firms possessing a core competence in terms of

performing the primary or supporting the outsourced activity
❍ Evaluating resources and capabilities
❏ Do not outsource activities in which the firm itself can create and capture
value
❍ Environmental threats and ongoing tasks
❏ Do not outsource primary and support activities that are used to neutralize
environmental threats or to complete necessary ongoing organizational
tasks
❍ Nonstrategic team of resources
❏ Do not outsource capabilities that are critical to the firm’s success, even though
the capabilities are not actual sources of competitive advantage
❍ Firm’s knowledge base
❏ Do not outsource activities that stimulate the development of new capabilities
and competencies
offshoring → outsourceHyun .

Internal Organization Assessment 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 Competitive Advantage irritating
❍ Core competencies have potential to become core rigidities
❏ Competencies emphasized when no longer competitively relevant

can become a weakness
❍ External environmental conditions and events impact a firm’s core
competencies

Competencies, Strengths, Weaknesses, and Strategic Decisions
❍Cautions and Reminders:

❏ Never take for granted that core competencies will continue to
provide a source of competitive advantage.
❏ All core competencies have the potential to become core

rigidities—former core competencies that now generate inertia
and stifle innovation.
❏ Determining what the firm can do through continuous and

effective analyses of its internal environment will increase the
likelihood of long-term competitive success.

Ch03 1

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Ch03 1

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Chapter 3

The Internal Environment:

RESOURCES, CAPABILITIES, CORE COMPETENCIES

ดร. กุศยา ลีฬหาวงศ์

❍ the firm’s internal environment

2 Seminar in Business Policy and Strategy Dr. Kusaya L.

By studying the external environment, firms identify what

3 Seminar in Business Policy and Strategy Dr. Kusaya L.

❍ By studying the internal environment, firms identify what they can do

4 Seminar in Business Policy and Strategy Dr. Kusaya L.

❍ In today’s global economy are now less likely to be the source of

❍ Firms analyzing their internal organization should use a global

❍ Analysis Outcome requires

5 Seminar in Business Policy and Strategy Dr. Kusaya L.

6 Seminar in Business Policy and Strategy Dr. Kusaya L.

❍ When making strategic decisions, managers as strategic

❏ learn quickly from failures and mistakes.

❏ have the maturity of judgment to deal effectively with uncertainty,

complexity, and intra-organizational conflicts in an unbiased

❏ be willing to take intelligent risks. outrun .rÉvs invasion @ nohow

7 Seminar in Business Policy and Strategy Dr. Kusaya L.

8 Seminar in Business Policy and Strategy Dr. Kusaya L.

❍The foundation of competitive advantage are:

❍Resources are bundled to create organizational

9 Seminar in Business Policy and Strategy Dr. Kusaya L.

❏ Are broad in scope.

10 Seminar in Business Policy and Strategy Dr. Kusaya

❍ Resources ❍Types of Resources

and the value of its brand name, ÷ financial

11 Seminar in Business Policy and Strategy Dr. Kusaya L.

Financial Resources • The firm’s borrowing capacity

12 Seminar in Business Policy and Strategy Dr. Kusaya L.

Human Resources • Knowledge

Innovation Resources • Ideas

13 Seminar in Business Policy and Strategy Dr. Kusaya L.

14 Seminar in Business Policy and Strategy Dr. Kusaya L.

15 Seminar in Business Policy and Strategy Dr. Kusaya L.

16 Seminar in Business Policy and Strategy Dr. Kusaya L.

Sustainable ❍ Two tools help firms identify their

Four Criteria of ❍ The Four Criteria of Sustainable

17 Seminar in Business Policy and Strategy Dr. Kusaya L.

Valuable • Help a firm neutralize threats or exploit opportunities

Rare • Are not possessed by many others

Costly-to-Imitate • Historical: A unique and a valuable organizational culture or

Nonsubstitutable • No strategic equivalent

18 Seminar in Business Policy and Strategy Dr. Kusaya L.

19 Seminar in Business Policy and Strategy Dr. Kusaya L.

❍Value chain allows a firm to understand the parts of

❍Value chain is a template that firms use to:

❏ Identify multiple means that might be used to facilitate

21 Seminar in Business Policy and Strategy Dr.

❍ Is segmented into value chain activities and support functions

❏ Support functions include the activities or tasks the firm completes in

❍ A firm can develop a capability and/or a core competence in any

22 Seminar in Business Policy and Strategy Dr. Kusaya L.

Marketing and Sales

24 Seminar in Business Policy and Strategy Dr. Kusaya L.

❍ Outsourcing is the purchase of a value-creating activity from an

❍ Outsourcing can be effective because few organizations possess the

❍ By performing fewer capabilities:

❏ specialty suppliers can perform outsourced capabilities more efficiently.

27 Seminar in Business Policy and Strategy Dr. Kusaya L.

A firm may outsource all