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Chapter 4. The Internal Organization: Resources, Capabilities, and Core Competence. Robert E. Hoskisson Michael A. Hitt R. Duane Ireland. The Strategic Management Process. Chapter 1 Introduction to Strategic Management. Chapter 2 Strategic Leadership. Strategic Thinking. Chapter 3

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the internal organization resources capabilities and core competence

Chapter 4

The Internal Organization: Resources, Capabilities, andCore Competence

Robert E. Hoskisson

Michael A. Hitt

R. Duane Ireland

©2004 by South-Western/Thomson Learning

slide2

The Strategic Management Process

Chapter 1

Introduction to

Strategic Management

Chapter 2

Strategic Leadership

Strategic

Thinking

Chapter 3

The External

Environment

Chapter 4

The Internal

Organization

Strategic Intent

Strategic Mission

Strategic

Analysis

Chapter 5

Business-Level

Strategy

Chapter 6

Competitive Rivalry and

Competitive Dynamics

Chapter 7

Corporate-Level Strategy

Creating

Competitive

Advantage

Chapter 8

Acquisition and

Restructuring Strategies

Chapter 9

International Strategy

Chapter 10

Cooperative Strategy

Monitoring

And Creating

Entrepreneurial

Opportunities

Chapter 11

Corporate Governance

Chapter 12

Strategic Entrepreneurship

discussion questions
Discussion Questions
  • What different perspectives are gained from external compared to internal analyses of the firm?
  • What is the difference between tangible and intangible resources? What is the difference between resources and capabilities?
  • What are the criteria to determine core competence? What is sustainable competitive advantage?

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More discussion questions

discussion questions cont
Discussion Questions (cont.)
  • What is the value chain?
  • What is outsourcing and when should it be used?
  • Are there risks to a sustainable competitive advantage?

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discussion question 1
Discussion Question 1

What different perspectives are gained from external compared to internal analyses of the firm?

external and internal analyses

Economic

Sociocultural

Environment

Demographic

General

Industry

Environment

General

Global

Competitor

Environment

Environment

Environment

Political/Legal

General

Technological

External and Internal Analyses

By studying the external environment, firms identify what they might choose to do

Opportunities and threats

external and internal analyses7

The Firm

External and Internal Analyses

Externaland Internal Analyses

By studying the internal environment, firms identify what they can do

Unique resources, capabilities, and core competencies

(sustainable competitive advantage)

components of internal analysis

Discovering Core

Competencies

Value Creation

Value

Chain

Analysis

Four Criteria

of Sustainable

Advantages

Core

Competencies

Competitive

Advantage

Capabilities

  • Valuable
  • Rare
  • Costly to Imitate
  • Nonsubstitutable
  • Resources
  • Tangible
  • Intangible
  • Outsource
Components ofInternal Analysis
challenge of internal analysis
Challenge of Internal Analysis
  • How do we effectively manage current core competencies while simultaneously developing new ones?
  • How do we assemble bundles of resources, capabilities and core competencies to create value for customers?
  • How do we learn to change rapidly?
conditions affecting managerial decisions about resources capabilities and core competencies
Conditions Affecting Managerial Decisions About Resources, Capabilities, and Core Competencies
  • Uncertainty regarding characteristics of the general and the industry environments, competitors’ actions, and customers’ preferences
  • Complexityregarding the interrelated causes shaping a firm’s environments and perceptions of the environments
  • Intraorganizational Conflicts among people making managerial decisions and those affected by them

Return to Discussion Questions

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discussion question 2
Discussion Question 2

What is the difference between tangible and intangible resources? What is the difference between resources and capabilities?

slide12

Discovering Core

Competencies

  • Resources
  • Tangible
  • Intangible

Resources are what a firm has to work with--its assets--including its people and the value of its brand name

Resources represent inputs into a firm’s production process... such as capital equipment, skills of employees, brand names, finances and talented managers

slide13

Discovering Core

Competencies

  • Resources
  • Tangible
  • Intangible
  • Tangible Resources
  • Financial
  • Organizational
  • Physical
  • Technological
  • Intangible Resources
  • Human
  • Innovation
  • Reputation
slide14

Discovering Core

Competencies

Capabilities

Capabilities become important when they are combined in unique combinations which create core competencies which have strategic value and can lead to competitive advantage

slide15

Discovering Core

Competencies

Capabilities

Capabilities are what a firm does, and represent the firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state

Return to Discussion Questions

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discussion question 3
Discussion Question 3

What are the criteria to determine core competence?

What is sustainable competitive advantage?

slide17

Discovering Core

Competencies

Core

Competencies

Core competencies are resources and capabilities that serve as a source of competitive advantage over rivals

Core competencies distinguish a company competitively and make it distinctive

McKinsey and Co. recommends using three to four competencies when framing strategic actions

slide18

Discovering Core

Competencies

Four Criteria

of Sustainable

Advantages

  • Valuable
  • Rare
  • Costly to Imitate
  • Nonsubstitutable

Valuable: Capabilities that help a firm neutralize threats or exploit opportunities

slide19

Discovering Core

Competencies

Four Criteria

of Sustainable

Advantages

  • Valuable
  • Rare
  • Costly to Imitate
  • Nonsubstitutable

Rare: Capabilities that are not possessed by many others

slide20

Discovering Core

Competencies

Four Criteria

of Sustainable

Advantages

  • Valuable
  • Rare
  • Costly to Imitate
  • Nonsubstitutable
  • Costly to imitate: capabilities that other firms cannot develop easily, usually due to
  • Unique historical conditions
  • Causal ambiguity
  • Social complexity
slide21

Discovering Core

Competencies

Four Criteria

of Sustainable

Advantages

  • Valuable
  • Rare
  • Costly to Imitate
  • Nonsubstitutable
  • Nonsubstitutable: capabilities that do not have strategic equivalents
  • Invisible to competitors
  • Firm specific knowledge
  • Trust-based working relationships between managers and nonmanagerial personnel
core competence as a strategic capability

Core Competence

  • A strategic
  • capability
  • Resources
  • Inputs to a firm’s
  • production process
  • Capability
  • An integration of a
  • team of resources
  • Capability
  • A nonstrategic
  • team or resource
Core Competence as a Strategic Capability

Yes

Does it satisfy the criteria of sustainable competitive advantage?

The source of

No

sustainability of a competitive advantage
Sustainability of a Competitive Advantage
  • Sustainability of a competitive advantage is a function of:
    • the rate of core-competence obsolescence due to environmental changes
    • the availability of substitutes for the core competence
    • the imitability of the core competence
performance implications

Return to Discussion Questions

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Performance Implications

Costly to Imitate?

Nonsubstitutable

Valuable?

Competitive

Consequences

Performance

Implications

Rare?

Competitive

Disadvantage

Below Average

Returns

No

No

No

No

Yes/

No

Competitive

Parity

Yes

No

No

Average Returns

Yes/

No

Temporary Com-

petitive Advantage

Above Average to Average Returns

Yes

Yes

No

Sustainable Com-

petitive Advantage

Above Average Returns

Yes

Yes

Yes

Yes

discussion question 4
Discussion Question 4

What is the value chain?

slide26

The Basic

Value Chain

Margin

Margin

Service

Marketing & Sales

Technological Development

Human Resource Mgmt.

Outbound Logistics

Support Activities

Firm Infrastructure

Procurement

Operations

Inbound Logistics

Return to Discussion Questions

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Primary Activities

discussion question 5
Discussion Question 5

What is outsourcing and when should it be used?

outsourcing

Margin

Margin

Service

Technological Development

Marketing & Sales

Human Resource Mgmt.

Support Activities

Outbound Logistics

Firm Infrastructure

Procurement

Operations

Inbound Logistics

Primary Activities

Outsourcing

Outsourcing is the purchase of some or all of a value-creating activity from an external supplier

Usually this is because the specialty supplier can provide these functions more efficiently

strategic rationales for outsourcing
Strategic Rationales for Outsourcing
  • Improve Business Focus
    • lets company focus on broader business issues by having outside experts handle various operational details
  • Provide Access to World-Class Capabilities
    • the specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications
strategic rationales for outsourcing30
Strategic Rationales for Outsourcing
  • Accelerate Business Re-Engineering Benefits
    • achieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over process
  • Share Risks
    • reduces investment requirements and makes firm more flexible, dynamic and better able to adapt to changing opportunities
strategic rationales for outsourcing31
Strategic Rationales for Outsourcing
  • Free Resources for Other Purposes
    • permits firm to redirect efforts from non-core activities toward those that serve customers more effectively

Return to Discussion Questions

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outsourcing issues
Outsourcing Issues
  • Greatest Value
    • outsource only to firms possessing a core competence in terms of performing the primary or support activity being outsourced
  • Evaluating Resources and Capabilities
    • don’t outsource activities in which the firm itself can create and capture value
  • Environmental Threats and Ongoing Tasks
    • do not outsource primary and support activities that are used to neutralize environmental threats or complete necessary ongoing organizational tasks
outsourcing issues33
Outsourcing Issues
  • Nonstrategic Team of Resources
    • do not outsource capabilities that are critical to their success, even though the capabilities are not actual sources of competitive advantage
  • Firm’s Knowledge Base
    • do not outsource activities that stimulate the development of new capabilities and competencies
discussion question 6
Discussion Question 6

Are there risks to a sustainable competitive advantage?

core competencies cautions and reminders
Core Competencies: Cautions and Reminders
  • Never take for granted that core competencies will continue to provide a source of competitive advantage
  • All core competencies have the potential to become core rigidities
  • Core rigidities are former core competencies that now generate inertia and stifle innovation