CHAPTER 3 The Internal Environment: Resources, Capabilities, and Core CompetenciesKNOWLEDGE OBJECTIVESKNOWLEDGE OBJECTIVES (cont’d)Competitive AdvantageCompetitive Advantage (cont’d)External Analyses’ OutcomesInternal Analyses’ OutcomesThe Context of Internal AnalysisFIGURE 3.1 Components of Internal Analysis Leading to Competitive Advantage and Strategic CompetitivenessCreating ValueCreating Competitive AdvantageThe Challenge of Internal AnalysisThe Challenge of Internal Analysis (cont’d)FIGURE 3.2 Conditions Affecting Managerial Decisions about Resources, Capabilities, and Core CompetenciesResources, Capabilities and Core CompetenciesResourcesTABLE 3.1 Tangible ResourcesTABLE 3.2 Intangible ResourcesSlide 19Slide 20TABLE 3.3 Examples of Firms’ CapabilitiesSlide 22Slide 23Slide 24Building Core CompetenciesTABLE 3.4 The Four Criteria of Sustainable Competitive AdvantageBuilding Sustainable Competitive AdvantageSlide 28Slide 29Outcomes from Combinations of the Four CriteriaTable 3.5 Outcomes from Combinations of the Criteria for Sustainable Competitive AdvantageValue Chain AnalysisValue Chain Analysis (cont’d)Slide 34FIGURE 3.3 The Basic Value ChainTable 3.6 Examining the Value-Creating Potential of Primary ActivitiesTable 3.7 Examining the Value-Creating Potential of Support ActivitiesThe Value-Creating Potential of Primary ActivitiesThe Value-Creating Potential of Primary Activities (cont’d)The Value-Creating Potential of Primary Activities: SupportThe Value-Creating Potential of Primary Activities: Support (cont’d)Figure 3.4 Prominent Applications of the Internet in the Value ChainOutsourcingOutsourcing DecisionsStrategic Rationales for OutsourcingStrategic Rationales for Outsourcing (cont’d)Outsourcing IssuesOutsourcing Issues (cont’d)Cautions and Reminders© 2007 Thomson/South-Western.© 2007 Thomson/South-Western.All rights reserved.All rights reserved.PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookThe University of West AlabamaThe University of West AlabamaStrategic Strategic ManagementManagementCompetitiveness and Globalization: Competitiveness and Globalization: Concepts and CasesConcepts and Cases Michael A. Hitt • R. Duane Ireland • Robert E. HoskissonSeventh editionSTRATEGIC MANAGEMENT INPUTSSTRATEGIC MANAGEMENT INPUTSCHAPTER 3CHAPTER 3The Internal The Internal Environment: Environment: Resources, Capabilities, Resources, Capabilities, and Core Competenciesand Core Competencies© 2007 Thomson/South-Western. All rights reserved. 3–2KKNOWLEDGENOWLEDGE O OBJECTIVESBJECTIVES1.1.Explain the need for firms to study and understand their Explain the need for firms to study and understand their internal environment.internal environment.2.2.Define value and discuss its importance.Define value and discuss its importance.3.3.Describe the differences between tangible and Describe the differences between tangible and intangible resources.intangible resources.4.4.Define capabilities and discuss how they are Define capabilities and discuss how they are developed.developed.5.5.Describe four criteria used to determine whether Describe four criteria used to determine whether resources and capabilities are core competencies.resources and capabilities are core competencies.Studying this chapter should provide you with the strategic management knowledge needed to:© 2007 Thomson/South-Western. All rights reserved. 3–3KKNOWLEDGENOWLEDGE O OBJECTIVES BJECTIVES (cont’d)(cont’d)6.6.Explain how value chain analysis is used to identify and Explain how value chain analysis is used to identify and evaluate resources and capabilities.evaluate resources and capabilities.7.7.Define outsourcing and discuss the reasons for its use.Define outsourcing and discuss the reasons for its use.8.8.Discuss the importance of identifying internal strengths Discuss the importance of identifying internal strengths and weaknesses.and weaknesses.Studying this chapter should provide you with the strategic management knowledge needed to:© 2007 Thomson/South-Western. All rights reserved. 3–4Competitive AdvantageCompetitive Advantage•Firms achieve strategic competitiveness and Firms achieve strategic competitiveness and earn above-average returns when their core earn above-average returns when their core competencies are effectively:competencies are effectively:Acquired.Acquired.Bundled.Bundled.Leveraged.Leveraged.•Over time, the benefits of any value-creating Over time, the benefits of any value-creating strategy can be duplicated by competitors.strategy can be duplicated by competitors.© 2007 Thomson/South-Western. All rights reserved. 3–5Competitive Advantage (cont’d)Competitive Advantage (cont’d)•Sustainability of a competitive advantage is a Sustainability of a competitive advantage is a function of:function of:The rate of core competence obsolescence due to The rate of core competence obsolescence due to environmental changes.environmental changes.The availability of substitutes for the core The availability of substitutes for the core competence.competence.The difficulty competitors have in duplicating or The difficulty competitors have in duplicating or imitating the core competence.imitating the core competence.© 2007 Thomson/South-Western. All rights reserved. 3–6External Analyses’ OutcomesExternal Analyses’ OutcomesBy studying the external environment, firms By studying the external environment, firms identify what they identify what they might choose to do.might choose to do.OpportunitieOpportunities and s and threatsthreats© 2007 Thomson/South-Western. All rights reserved. 3–7Internal Analyses’ Outcomes Internal Analyses’ Outcomes By studying the internal environment, By studying the internal environment, firms identify what they firms identify what they can docan doUnique resources, Unique resources, capabilities, and capabilities, and competenciescompetencies((required forrequired for sustainable sustainable competitive competitive advantageadvantage))© 2007 Thomson/South-Western. All rights reserved. 3–8The Context of Internal AnalysisThe Context of Internal Analysis•Global EconomyGlobal EconomyTraditional sources of advantages can be overcome Traditional sources of advantages can be overcome by competitors’ international strategies and by the by competitors’ international strategies and by the flow of resources throughout the global economy.flow of resources throughout the