Chapter 3

Internal Analysis: Resources,

Capabilities, Competencies, and
Competitive Advantage

Strategic Charles W. L. Hill

Management Gareth R. Jones

PowerPoint Presentation by
An Integrated Approach Charlie Cook
Competitive Advantage: Value Creation,
Low Cost, and Differentiation

Competitive advantage is a firm’s ability to

outperform its competitors (earn higher
profits).
The source of competitive advantage is value
creation for customers.
Sustained competitive advantage comes from
maintaining higher profits than competitors
over long periods of time.
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 Value Creation

FIGURE 4.2

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 Generic Building Blocks of Competitive
Advantage

FIGURE 4.3

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 The Impact of Quality on Profits

FIGURE 4.4

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 The Impact of Efficiency, Quality, Innovation,
and Customer Responsiveness on Unit Costs
and Prices

FIGURE 4.5

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 The Value Chain

FIGURE 4.6

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Distinctive Competencies, Resources, and
Capabilities
The roots of competitive advantage:

FIGURE 4.7

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Strategic Resources and Capabilities

Tangible Intangible
 Land  Brand names
 Buildings  Reputation
 Plant  Patents
 Equipment  Technological or
marketing know-how

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Distinctive Competencies

Skills in effectively coordinating and

managing resources for productive use.
 Unique resources and capabilities, or
 Common resources and
unique capabilities.

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 Strategy and Competitive Advantage
The relationship between strategies and
resources and capabilities:

FIGURE 4.8

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The Durability of Competitive Advantage

Barriers to imitation
 Speed of imitation by competitors in reducing advantage
 Imitation by acquiring similar resources
 Imitation of capabilities (more difficult)

Limits on competitors
 Prior strategic commitments
 Absorptive capacity for change

Industry dynamism
 The rapid innovation
shortens product life cycles.

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Why Do Companies Fail?
What went wrong?
 Inertia
 Prior strategic commitments
 The Icarus paradox
Avoiding failure and
sustaining competitive
advantage:
 Focus on the building
blocks of competitive
advantage.
 Institute continuous
improvement and learning.
 Track best industrial
practice and use
benchmarking.
 Overcome inertia.
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