CHAPTER III

THE INTERNAL ORGANIZATION

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 LEARNING OBJECTIVES
 Analyzing the internal organization.
 Understand the resources, capabilities and core competencies.
 Define outsourcing.
 Understand the competencies, strengths, weaknesses and strategic decisions.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 3.1 ANALYZING THE INTERNAL
ORGANIZATION

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 CONTEXT OF INTERNAL
ANALYSIS
 In today’s global economy, some resources that were traditionally critical to firms’ efforts to
produce, sell, and distribute goods/services, access to financial resources and raw materials,
and protected/regulated markets are now less likely to be source of competitive advantages.
 Global mind-set: ability to analyze, understand, and manage an internal organization in ways
that are not dependent on assumptions of single country, culture, or context.
 Recognize that firms must possess resources and capabilities that allow understanding of
and appropriate responses to competitive situations that are influenced by country specific
factors and unique cultures.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 CREATING VALUE
 Value: measured by product’s performance characteristics and its attributes for
which customers are willing to pay.
 Firms w/ competitive advantage create more value for customers than
competitors
 Creating value for customers is source of above-average returns for firm. What
firm intends regarding value creation affects its choice of business-level
strategy & organizational structure.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 CHALLENGE OF ANALYZING
INTERNAL ORGANIZATION
 Strategic decisions about internal organization have ethical implications, and
significantly influence firm’s ability to earn above-average returns.
 Making decisions involving firm’s assets-identifying, developing, deploying,
and protecting resources, capabilities, and core competencies-appear easy.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 3.2 RESOURCE, CAPABILITIES,
AND CORE COMPETENCIES

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 RESOURCES
 Some of firm’s resources are tangible, while others are intangible.
 Tangible resources: assets that can be observed and quantified.
 Intangible resources: assets that are rooted deeply in firm’s history, accumulate
over time, and are difficult for competitors to analyze and imitate.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 CAPABILITIES
 Used to complete organizational tasks required to produce, distribute and
service goods or services firm provides to customers for purpose of creating
value for them.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 CORE COMPETENCIES
 Distinguish company competitively and reflect its personality.
 At capacity to take action, core competencies are “crown jewels of company,”
activities company performs compared to competitors and through which firm
adds unique value to goods/services it sells to customers.
 Ex: Apple’s are innovation and excellent customer service.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 3.3 OUTSOURCING

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 OUTSOURCING
 Outsourcing: purchase of value-creating activity or support function activity
from external supplier.
 Firms engaged in outsourcing increase flexibility, reduce risks, and reduce
capital investments.
 It’s an increasing trend in multiple global industries.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 3.4 COMPETENCIES, STRENGTHS,
WEAKNESSES, AND STRATEGIC
DECISIONS

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 COMPETENCIES, STRENGTHS,
WEAKNESSES, AND STRATEGIC DECISIONS
 If firm has weak capabilities or doesn’t have core competencies in areas
required to achieve competitive advantage, it must acquire resources and
build needed capabilities and competencies.
 Firm could decide to outsource function or activity where it is weak to
improve activity to use its remaining resources to create value.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

THANK YOU!   
© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning