Chapter 3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages

Vocabulary flashcards covering key terms from Chapter 3.

Internal organization

The firm’s bundle of resources, capabilities, and core competencies used to create value and achieve competitive advantage; analyzing it helps determine what the firm can do (can do) and what it might do (might do).

Value

The product’s performance characteristics and attributes customers are willing to pay for; firms create value by leveraging resources and capabilities to earn above-average returns.

Tangible resources

Assets that can be observed and quantified; categories include financial, organizational, physical, and technological resources.

Intangible resources

Assets rooted in a firm’s history and culture that are difficult to observe or imitate; categories include human, innovation, and reputational resources.

Resources

The foundational assets that, when bundled, build organizational capabilities.

Capabilities

The firm’s ability to perform tasks by combining resources; foundation for core competencies and competitive advantages; often tied to human capital.

Core competencies

Capacities that emerge over time and provide a source of competitive advantage; key activities the firm does exceptionally well and build value for customers.

Sustainable competitive advantage

A competitive advantage that is valuable, rare, costly to imitate, and nonsubstitutable, leading to above-average returns over time.

Valuable

A capability that helps exploit opportunities or neutralize threats in the external environment.

Rare

A capability that few or no competitors possess.

Costly to imitate

A capability that is difficult for competitors to imitate due to unique history, social complexity, or ambiguous causes.

Nonsubstitutable

A capability with no strategic substitutes or equivalents.

Value chain analysis

A process that analyzes the firm’s activities to understand where value is created and where costs occur, guiding strategy and cost positioning.

Value chain activities

Primary activities that produce, market, distribute, and service products, and the value-creating activities within the firm.

Support functions

Activities that support the primary value-creating activities in the value chain.

Outsourcing

The purchase of a value-creating activity or a support function from an external supplier to increase flexibility, reduce capital investments, and mitigate risk.

Reasons for outsourcing

Outsourcing is used when a firm cannot create value in a particular activity; it can increase flexibility, reduce risk, and lower capital investment.

Social capital

Trust-based relationships with stakeholders that facilitate coordination and can contribute to value creation.

Value creation system

A network in which each part depends on others to create value, with social capital and stakeholder relationships supporting value creation.

Strategic human capital

The knowledge, skills, and abilities of a firm’s employees that align with strategic objectives and enable capability development.

Human resources

Knowledge, trust, skills, and abilities to collaborate with others (Table 3.2).

Innovation resources

Ideas, scientific capabilities, and the capacity to innovate.

Reputational resources

Brand name and positive perceptions of product quality, durability, and reliability, plus favorable stakeholder relationships.

Four criteria of sustainable competitive advantage

Valuable, rare, costly to imitate, and nonsubstitutable characteristics that underpin core competencies.

Valuable (criterion)

Capability that helps exploit opportunities or neutralize threats in the external environment.

Rare (criterion)

Capability possessed by few competitors.

Costly to imitate (criterion)

Capability that is difficult for competitors to imitate due to factors like history or social complexity.

Nonsubstitutable (criterion)

Capability without strategic substitutes or equivalents.

Porter’s value chain

A framework for analyzing activities that add value to a product, categorized as primary activities and support functions.