ch 3. - the Internal Environment: Resources, Capabilities, & Core Competencies

SFM

strategic factor market

-where the resources necessary to implement a strategy are required

if SFM are efficient

then the cost of acquiring strategic resources will approx. equal the economic value of those resources once they are implemented

SFM will be ___ competitive when different firms have different ___ about the future ___ of a strategic resource

imperfectly

expectations

value

In imperfect SFM, competitive advantage is gained either when...

-firm already controls the resources needed to implement strategy

-firm controls unique resources when only small number of firms attempt to implement strategy

-a firm has different expectations about the future value of a strategic resource

firms can attempt to develop better expectations about the future ____ of strategic resources by analyzing their competitive environments or by analyzing ___ and ___ they already control

value

skills/resources

capabilities

global mind-set

global mind-set is the ability to analyze, understand, and manage an internal organization in ways that are not dependent on the assumptions of a single country, culture, or context.

global economy

Traditional sources of advantages can be overcome by competitors' international strategies and by the flow of resources throughout the global economy.

the context of internal analysis

...

analysis outcome

understanding how to leverage the firm's bundle of heterogeneous resources and capabilities

components of internal analysis

-Resources: tangible or intangible

-Capabilities

-Core Competencies

-Discovering Core Competencies: four criteria of sustainable advantages & value chain analysis

-Competitive Advantage

-Strategic Competitiveness

internal analysis's end goal is to

create value for customers

resources

-the inputs that firms use to create goods and services (outputs)

-undifferentiated or firm-specific

-intangible or tangible

-easy to acquire or difficult

Tangible resources

are assets that can be observed and quantified.

ex: Production equipment, manufacturing facilities, distribution centers, and formal reporting structures

ex: rural real estate of Walmart and high traffic real-estate of Mcdonalds

capabilities

-a firm's skill in using its resources to create goods and services

-the combination of procedures and expertise the firm relies on to engage in distinct activities in the process of producing goods and services

-combo of intangible and tangible resources

value

Value is measured by a product's performance characteristics and by its attributes for which customers are willing to pay

core competencies

capabilities that serve as a source of competitive advantage for a firm over its rivals

Apple example of resource --> capability --> core competency

Innovation is thought to be a core competence at Apple. As a capability, R&D activi- ties are the source of this core competence. More specifically, the way Apple has combined some of its tangible (e.g., financial resources and research laboratories) and intangible (e.g., scientists and engineers and organizational routines) resources to complete research and development tasks creates a capability in R&D. By emphasizing its R&D capability, Apple is able to innovate in ways that create unique value for customers in the form of the products it sells, suggesting that innovation is a core competence for Apple.

Intangible resources

assets that are rooted deeply in the firm's history and have accumulated over time.

because they are embedded in unique patterns of routines, intangible resources are difficult for competitors to analyze and imitate.

ex: brand of McDonalds and location selection of Walmart

capabilities that are VRIN are

core competencies which lead to competitive advantages

capabilities that fail to satisfy the four criteria of VRIN

are NOT core competencies and therefore not competitive advantages

Examples of Core Competencies

sharp corp - expertise in flat panel display technology

toyota, honda, nissan - low-cost, high-quality manufacturing capability and short design to market cycles

Intel - ability to design and manufacture ever powerful microprocessors for PCs

Motorola - detect free manufacture of cell phones

-all deal with intangible part of capabilities (not tangible)

Core competency of Human Capital

a firm's human capital and its knowledge may be the most significant competitive advantage of all, so a firm must create an environment that allows people to collaborate

some firms can have a competitive advantage, but only till it is ___

imitated

-can be rare and valuable

4 criteria of sustainable competitive advantage

valuable, rare, costly to imitate, non-substitutable

competitive advantages change

-resources, capabilities, and core compentencies change over time

the ___ 's capabilities has reduced the sustainability of many competitive advantages

internet

since competitive advantages are not sustainable...

a firm must exploit their current competitive advantages while also using their resources and capabilities to form new advantages that can lead to future competitive success

Valuable capabilities

help a firm neutralize threats or exploit opportunities

rare capabilities

capabilities that few, if any, competitors possess

costly-to-imitate capabilities

-Historical: A unique and a valuable organizational culture or brand name

-Ambiguous cause: The causes and uses of a competence are unclear

-Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, and customers

nonsustainable capabilities

no strategic equivalent

Value Chain Analysis

Allows the firm to understand the parts of its operations that create value and those that do not

a template firms use to:

-understand their cost position

-identify multiple means that might be used to facilitate implementation of a chosen business level strategy

Primary activities in the value chain

are activities or tasks the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customer

-inbound logistics

-operations

-outbound logistics

-sales and mktg.

-service and support

support activities in the value chain

include the activities or tasks the firm completes in order to support the work being done to produce, sell, distribute, and service the products the firm is producing.

-firm infrastructure

-HR mgmt,

-technology development

-procurement

creating "customer value" through primary activities

-SCMT, MKTG, distribution, operations

creating "customer value" through support activities

-MIS, finance, HR

Creating "value" from value chain

-IKEA --> put assembly and delivery into customers hands

-Dell --> put source and assembly into customer hands

Rules for managing a value chain

1. be the least replaceable player

2. become the guardian of quality

3. follow the customer

4. manage the growth story

the hardest companies to replace in a value chain are the ____

system integrators

Outsourcing resources and capabilities

-improve business focus

-gain access to world-class capabilities

-accelerate re-engineering benefits

-share risks

-free resources for other purposes

-seek greatest value for customers

-evaluate resources and capabilities

dynamic capabilities

a firm can modify its resource base to gain and sustain a competitive advantage

-advantage is gained from re-configuring a firm's resource base

ex: Honda core competency of gas - powered engine design --> could decrease in value if consumer moves toward electric powered cars

dynamic capabilities are considered ____

intangible resources

caution for core competencies

-never assume that core competencies will continue to provide a source of competitive advantage

-all core competencies have the potential to become core rigidities

core rigidities

former core competencies that now generate inertia and stifle innovation

core rigidities - icarus paradox

a company becomes so specialized and inner directed based on past success that it loses sight of market realities

-failure to seek link between core competency and value creation

high change & narrow scope

pioneers ---> inventing ---> escapist

ex: Innovation, Wang Labs

high change & broad scope

builders ---> imperialists

ex: diversification, ITT

little change & broad scope

salesman --> decoupling --> drifters

ex: P&G sell anything

little change & narrow scope

craftsmen --> focusing --> tinkers

ex: TI