Competing for Advantage

1. Competing for Advantage Chapter 4 The Internal Organization: Resources, Capabilities, and Core Competencies PART II STRATEGIC ANALYSIS

2. The Strategic Management Process

3. The Internal Organization • Firms rely on a unique bundle of resources to create a sustainable competitive advantage. • Factors that Determine Sustainability • Rate of core competence obsolescence • Availability of substitutes • Imitability of core competence

4. Outcomes from Internal Organizational Analysis

5. Resource Decision Pitfalls • Neglecting international considerations • Pursuing only short-term earnings goals • Failing to recognize core competencies • Emphasizing resources and capabilities that do not form a competitive advantage

6. Conditions That InfluenceInternal Analysis • Key Terms • Global mind-set Ability to study an internal environment in ways that do not depend on the assumptions of a single country, culture, or context

7. Conditions That InfluenceInternal Analysis • Global interconnectedness • Pace of environmental change • Economic volatility

8. Conditions Affecting Managerial Decisions about Resources, Capabilities, and Core Competencies

9. Resource Perspective “The perspective that a firm is a bundle of heterogeneous resources, capabilities, and core competencies that can be used to create a unique market position is a critical characteristic of effective resource analysis.”

10. Resources, Capabilities, and Core Competencies • Resources are the source of a firm's capabilities. • Capabilities, in turn, are the source of a firm's core competencies. • A firm's core competencies are the basis for its competitive advantages in the marketplace.

11. Components of Internal Analysis Leading to Competitive Advantage and Value Creation

12. Creating Value • Key Terms • Value Measured by a product's performance characteristics and by its attributes for which customers are willing to pay

13. Resources • Key Terms • Tangible resources Assets that can be observed and quantified • Intangible resources Assets that typically are rooted deeply in the firm's history and have accumulated over time • Organizational routines Complex patterns of social interactions that allow firms to accomplish much of what they do

14. Tangible Resources

15. Intangible Resources

16. Resources • Key Terms • Social capital Relationships with other organizations that contribute to the creation of value • Strategic value of resources Degree to which resources can contribute to the development of capabilities, core competencies, and ultimately, competitive advantage

17. Capabilities • Key Terms • Capabilities Firm's capacity to deploy resources that have been purposely integrated to achieve a desired end state

18. Examples of Firm’s Capabilities

19. Core Competencies • Key Terms • Core competencies Resources and capabilities that serve as a source of competitive advantage for a firm over its rivals

20. How Many? Supporting and nurturing more than four core competencies may prevent a firm from developing the focus needed to fully exploit its competencies in the marketplace.

21. Tools for Building Core Competencies • Four Criteria of Sustainable Competitive Advantage • Value Chain Analysis

22. Four Criteria of Sustainable Competitive Advantage • Valuable Capabilities • Rare Capabilities • Costly-to-Imitate Capabilities • Nonsubstitutable Capabilities

23. Four Criteria of Sustainable Competitive Advantage • Key Terms • Valuable capabilities Allow the firm to exploit opportunities or neutralize threats in its external environment • Rare capabilities Possessed by few, if any, current or potential competitors • Costly-to-imitate capabilities Cost for other firms to develop is prohibitive, cannot easily be developed by other firms • Nonsubstitutablecapabilities Do not have strategic equivalents

24. Four Criteria for Determining Core Competencies

25. Costly-to-Imitate Capabilities • Unique historical conditions • Causal ambiguity • Socially complexity

26. Core Competencies as a Strategic Capability

27. Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage

28. Value Chain Analysis • Key Terms • Value chain activities Activities or tasks involved with the production of a firm’s product, the sale and distribution of products to buyers, and after-sales services in ways that create value for the customer • Support functions Activities or tasks which support the firm’s work required to make, sell, distribute, and service its products

29. Value Chain Model

30. Creating Value Through Value Chain Activities

31. Creating Value Through Support Functions

32. Sources of Competitive Advantage • The resource or capability must allow the firm to perform a value chain activity or a support function in a manner superior to the way competitors perform it. • The resource or capability must allow the firm to perform a value-creating value chain activity or a support function that competitors cannot perform.

33. Outsourcing • Key Terms • Outsourcing The purchase of a value-creating activity from an external supplier

34. Benefits of Outsourcing • Increased flexibility • Risk mitigation • Reduced capital investments

35. Outsourcing Viability • When a firm does not have the capabilities in the areas needed to succeed • When a firm lacks a resource or possesses inadequate skills essential to successfully implement a strategy • When few organizations possess the resources and capabilities required to achieve competitive superiority in all value chain activities and support functions • When extensive internal capabilities exist to effectively coordinate external sourcing and internal core competencies

36. Essential Skills for Outsourcing • Strategic thinking • Deal making • Partnership governance • Managing change

37. Core Competencies: Cautions • Never take for granted that core competencies will continue to provide a permanent 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. • Manager inflexibility stemming from the strength of shared beliefs (strategic myopia) is the primary reason core rigidities develop.

38. Stakeholder Objectives and Power • Key Terms • Economic power Comes from the ability to withhold economic support from the firm • Political power Results from the ability to influence others to withhold economic support or to change the rules of the game • Formal power Involves laws or regulations that specify the legal relationship existing between a firm and a particular stakeholder group

39. Returns and Stakeholders • High economic returns – firm has the capability and flexibility to satisfy multiple stakeholders simultaneously • Average economic returns – firm is unable to maximize the interests of all stakeholders • Below-average returns – firm does not have the capacity to satisfy all stakeholders

40. Measures of Firm Performance • Capital market performance • Product market performance • Organizational stakeholder performance

41. Firm Performance from a Capital Market Perspective

42. Measures of Firm Performance • Key Terms • Risk Investor uncertainty about the economic gains or losses that will result from a particular investment

43. Other Measures of Firm Performance

44. Sustainable Development • Key Terms • Sustainable development Business growth that does not deplete the natural environment or damage society

45. Ethical Question Could efforts to develop sustainable competitive advantages result in employees using unethical practices? If so, what unethical practices might be used to compare a firm’s core competencies with those held by rivals?

46. Ethical Question Do ethical practices affect a firm’s ability to develop a brand name as a source of competitive advantage? If so, how does this happen? Identify some brands that are a source of competitive advantage in part because of the firm’s ethical practices.

47. Ethical Question What is the difference between exploiting a firm’s human capital and using that capital as a source of competitive advantage? Are there situations in which the exploitation of human capital can be a source of advantage? If so, can you name such a situation? If the exploitation of human capital can be a source of competitive advantage, is this a sustainable advantage? Why or why not?

48. Ethical Question Are there any ethical dilemmas associated with outsourcing? If so, what are they? How would you deal with those dilemmas?

49. Ethical Question What ethical responsibilities do managers have if they determine that a set of employees has skills that are valuable only to a core competence that is becoming a core rigidity for the firm?

50. Ethical Question Through postings to the Internet, firms sometimes make a vast array of data, information, and knowledge available to competitors as well as to customers and suppliers. What ethical issues, if any, are involved when the firm finds competitively relevant information on a competitor’s Website?