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Chapter 03

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The Internal Environment: Resources, Capabilities and Core CompetenceSustainability of a Competitive AdvantageExternal and Internal AnalysesSlide 4Three Conditions Affecting Managerial Decisions About Resources, Capabilities, and Core CompetenciesComponents of Internal AnalysisSlide 7Slide 8Slide 9Slide 10Core Competence as a Strategic CapabilitySlide 12OutsourcingCore Competencies: Cautions and Reminders©2003 South-Western Publishing Company1The Internal Environment: The Internal Environment: Resources, Capabilities andResources, Capabilities andCore CompetenceCore CompetenceMichael A. HittR. Duane IrelandRobert E. HoskissonChapter 3Chapter 32Sustainability of a Competitive Sustainability of a Competitive AdvantageAdvantageSustainability of a competitive advantage Sustainability of a competitive advantage is a function of:is a function of:–the rate of core-competence obsolescence due the rate of core-competence obsolescence due to environmental changesto environmental changes–the availability of substitutes for the core the availability of substitutes for the core competencecompetence–the imitability of the core competencethe imitability of the core competence3ExternalExternal and Internal Analyses and Internal AnalysesGeneralGeneralEnvironmentEnvironmentGeneralGeneralEnvironmentEnvironmentGeneralGeneralEnvironmentEnvironmentSocioculturalSocioculturalGlobalGlobalTechnologicalTechnologicalPolitical/LegalPolitical/LegalDemographicDemographicEconomicEconomicIndustryIndustryEnvironmentEnvironmentCompetitorCompetitorEnvironmentEnvironmentBy studying the external By studying the external environment, firms identify environment, firms identify what they what they might choose to domight choose to doOpportunities and threatsOpportunities and threats4ExternalExternal and Internal Analysesand Internal AnalysesBy studying the internal By studying the internal environment, firms identify environment, firms identify what they what they can docan doUnique resources, Unique resources, capabilities, and core capabilities, and core competenciescompetencies(sustainable competitive (sustainable competitive advantage)advantage)External and External and InternalInternal Analyses Analyses5Three Conditions Affecting Managerial Three Conditions Affecting Managerial Decisions About Resources, Capabilities, Decisions About Resources, Capabilities, and Core Competenciesand Core CompetenciesUncertaintyUncertainty regarding characteristics of the regarding characteristics of the general and the industry environments, general and the industry environments, competitors’ actions, and customers’ preferencescompetitors’ actions, and customers’ preferencesComplexityComplexity regarding the interrelated causes regarding the interrelated causes shaping a firm’s environments and perceptions of shaping a firm’s environments and perceptions of the environmentsthe environmentsIntraorganizational ConflictsIntraorganizational Conflicts among among people making managerial decisions and those people making managerial decisions and those affected by themaffected by them6Components ofComponents ofInternal AnalysisInternal AnalysisDiscovering CoreDiscovering CoreCompetenciesCompetenciesResourcesResources•TangibleTangible•IntangibleIntangibleCapabilitiesCapabilitiesCoreCoreCompetenciesCompetenciesCompetitiveCompetitiveAdvantageAdvantageStrategicStrategicCompetitivenessCompetitivenessFour CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages•ValuableValuable•RareRare•Costly to ImitateCostly to Imitate•NonsubstitutableNonsubstitutableValueValueChainChainAnalysisAnalysis•OutsourceOutsource7Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages•ValuableValuable•RareRare•Costly to ImitateCostly to Imitate•NonsubstitutableNonsubstitutableDiscovering CoreDiscovering CoreCompetenciesCompetenciesValuable: Capabilities that help a firm neutralize threats or Valuable: Capabilities that help a firm neutralize threats or exploit opportunitiesexploit opportunities8Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages•ValuableValuable•RareRare•Costly to ImitateCostly to Imitate•NonsubstitutableNonsubstitutableDiscovering CoreDiscovering CoreCompetenciesCompetenciesRare: Capabilities that are not possessed by many othersRare: Capabilities that are not possessed by many others9Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages•ValuableValuable•RareRare•Costly to ImitateCostly to Imitate•NonsubstitutableNonsubstitutableDiscovering CoreDiscovering CoreCompetenciesCompetenciesCostly to imitate: capabilities that other firms cannot Costly to imitate: capabilities that other firms cannot develop easily, usually due todevelop easily, usually due to•Unique historical conditionsUnique historical conditions•Causal ambiguityCausal ambiguity•Social complexitySocial complexity10Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages•ValuableValuable•RareRare•Costly to ImitateCostly to Imitate•NonsubstitutableNonsubstitutableDiscovering CoreDiscovering CoreCompetenciesCompetenciesNonsubstitutable: capabilities that do not have strategic Nonsubstitutable: capabilities that do not have strategic equivalentsequivalents•Invisible to competitorsInvisible to competitors•Firm specific knowledgeFirm specific knowledge•Trust-based working relationships between managers Trust-based working relationships between managers and nonmanagerial personneland nonmanagerial personnel11Core Competence as a Strategic Core Competence as a Strategic CapabilityCapabilityResourcesResources•Inputs to a firm’s Inputs to a firm’s production processproduction processCapabilityCapability•A nonstrategicA nonstrategicteam or resourceteam or resourceCore CompetenceCore Competence•A strategicA strategiccapabilitycapabilityThe source ofThe source ofDoes it satisfy the Does it satisfy the criteria of sustainable criteria of sustainable competitive competitive advantage?advantage?YesYesNoNoCapabilityCapability•An integration of aAn integration of ateam of resourcesteam of resources12ServiceServiceMarketing & SalesMarketing & SalesOutbound LogisticsOutbound LogisticsOperationsOperationsInbound LogisticsInbound LogisticsFirm InfrastructureFirm InfrastructureHuman Resource Mgmt.Human Resource Mgmt.Technological DevelopmentTechnological DevelopmentProcurementProcurementMarginMarginPrimary


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