Chapter3 Slides (1)

7/31/2019 Chapter3 Slides (1)

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Ch3-1

Chapter 3

The Internal Environment:

Resources, Capabilities andCore Competencies

Michael A. Hitt

R. Duane Ireland

Robert E. Hoskisson

2000 South-Western College Publishing


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Ch3-2

Chapter 2

External Environment

What the FirmMight Do

Chapter 3

Internal EnvironmentWhat the Firm Can Do

Sustainable

Competitive

Advantage


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Ch3-3

SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats


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Ch3-4

The purpose of SWOT Analysis

It is an easy-to-use tool for developing

an overview of a companys strategic

situation It forms a basis for matching your

companys strategy to its situation


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Ch3-5

Strengths

A STRENGTH is something a companyis good at doing or a characteristic thatgives it an important capability.

Possible Strengths:

Name recognition

Proprietary technology

Cost advantages

Skilled employees

Loyal Customers


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Ch3-6

Weaknesses

A WEAKNESS is something a company

lacks or does poorly (in comparison to

others) or a condition that places it at adisadvantage

Possible Weaknesses:

Poor market image Obsolete facilities

Internal operating problems

Poor marketing skills


7/40Ch3-7

Strengths and Weakness form a

basis for INTERNAL analysis By examining strengths, you can

discover untapped potential or identifydistinct competencies that helped you

succeed in the past.

By examining weaknesses, you can

identify gaps in performance,

vulnerabilities, and erroneous

assumptions about existing strategies.


8/40Ch3-8

Resources

* Tangible

* Intangible

Capabilities

Teams ofResources

Sources of

Core

Competencies

CompetitiveAdvantage

StrategicCompetitiveness

Above-AverageReturns


Gained throughCore Competencies

DiscoveringCore

Competencies

Discovering Core

Competencies

Criteria of

SustainableAdvantages

Value

ChainAnalysis

Valuable

Rare

Costly to ImitateNonsubstitutable

*

*

**

* Outsource


9/40Ch3-9

How do we assemble bundles of Resources,Capabilities and Core Competencies to create

VALUE for customers?

Will environmental changes make our corecompetencies obsolete?

And...

Are substitutes available for our corecompetencies?

Are our core competencies easily imitated?

Key Questions for Managers

in Internal Analysis


10/40Ch3-10

Resources

* Tangible

* Intangible

Discovering Core

Competencies


11/40Ch3-11

What a firm has to work with:

its assets, including its people and

the value of its brand name

What a firmHas...Resources


12/40Ch3-12

Resources represent inputs into afirms production process...

such as capital equipment, skills of

employees, brand names, financesand talented managers

What a firmHas...


its assets, including its people

and the value of its brand name

Resources


13/40Ch3-13




Resources represent inputs into a

firms production process...such as capital equipment, skills

of employees, brand names,

finances and talented managers

Some genius invented the Oreo. Were just

living off the inheritance.F. Ross Johnson,

Former President & CEO,

RJR Nabisco

What a firmHas...Resources


14/40Ch3-14

Tangible Resources

Financial*

Physical*

Human Resources*Organizational*

What a firmHas...




Resources represent inputs into a

firms production process...such as capital equipment, skills

of employees, brand names,

finances and talented managersIntangible Resources

Technological*

Innovation*

Reputation*

Some genius invented the Oreo.

Were just living off the inheritance.

F. Ross Johnson,Former President & CEO, RJR Nabisco

Resources


15/40Ch3-15

Resources

* Tangible

* Intangible

Capabilities

Teams ofResources

Discovering Core

Competencies


16/40Ch3-16

What a firmDoes...

Capabilities represent:the firms capacity or ability to integrate

individual firm resources to achieve a desired

objective.

Capabilities


17/40Ch3-17

What a firmDoes...

Capabilities develop over time as a result ofcomplexinteractions that take advantage of the interrelationships

between a firms tangible and intangible resources that

are based on the development, transmission and

exchange or sharing of information and knowledge ascarried out by the firm's employees.

Capabilities represent:the firms capacity or ability to integrate individual

firm resources to achieve a desired objective.

Capabilities


18/40Ch3-18

What a firmDoes...

Capabilities represent:the firms capacity or ability to integrate individual

firm resources to achieve a desired objective.

Capabilities develop over time as a result of complex

interactions that take advantage of the interrelationships

between a firms tangible and intangible resources that are

based on the development, transmission and exchange or

sharing of information and knowledge as carried out by the

firm's employees.

Capabilities become important when they are combinedin unique combinations which create core competencies

which havestrategic value and can lead tocompetitive

advantage.

Capabilities


19/40Ch3-19

Resources

* Tangible

* Intangible

Capabilities

Teams ofResources

Discovering Core

Competencies

Sources of

CoreCompetencies


DiscoveringCore

Competencies


20/40Ch3-20

What a firmDoes...

that is Strategically

Valuable

are the essence of what makes an organization

unique in its ability to provide value to

customers.Leonard-Barton, Bowen, Clark, Holloway & Wheelwright

McKinsey & Co. recommends identifying three to four

competencies to use in framing strategic actions.

Core Competencies


21/40Ch3-21

Resources

* Tangible

* Intangible

Capabilities

Teams ofResources

Sources of

CoreCompetencies


DiscoveringCore

Competencies

Criteria of


Valuable

Rare


*

*

**

Discovering Core

Competencies

* Outsource

h fi D


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Ch3-22

For a strategic capability to be a

Core Competency, it must be:

Core Competencies

Valuable

Rare

Costly to Imitate

Nonsubstitutable

What a firmDoes...that is Strategically

Valuable

Wh fi DC C t i


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Ch3-23

Core Competencies must be:

NonsubstitutableCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships

What a firmDoes...that is Strategically

Valuable

Core Competencies

Valuable

Rare

Costly to Imitate

Capabilities that other firms cannot develop easily, usually due tounique historical conditions, causal ambiguity or social complexity

Capabilities that are possessed by few, if any, current or potentialcompetitors

Capabilities that either help a firm to exploit opportunities to createvalue for customers or to neutralize threats in the environment


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Ch3-24

Resources

* Tangible

* Intangible

Capabilities

Teams ofResources

Sources of

CoreCompetencies


DiscoveringCore

Competencies

Value

ChainAnalysis

* Outsource

Valuable

Rare


*

*

**

Criteria of


Discovering Core

Competencies

C i A i


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Ch3-25

Support

Activities

Primary Activities

Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value

V l Ch i A l i


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Ch3-26

Support

Activities

Primary Activities

Inbound

Logistics


V l Ch i A l i


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Ch3-27

Support

Activities

Primary Activities

Inbound

Logistics

Operations


V l Ch i A l i


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Ch3-28

Support

Activities

Primary Activities

Inbound

Logistics

Operations

Outbound

Logistics


V l Ch i A l i


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Ch3-29

Support

Activities

Primary Activities

Inbound

Logistics

Operations

Outbound

Logistics

Marketing

&Sales


V l Ch i A l i


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Ch3-30

Support

Activities

Primary Activities

Inbound

Logistics

Operat

ions

Outbound

Logistics

Marketing

&Sales

Se

rvice


V l Ch i A l i


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Ch3-31

Support

Activities

Primary Activities

Inbound

Logistics

Operat

ions

Outbound

Logistics

Marketing

&Sales

Se

rvice

Procurement


V l Ch i A l i


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Ch3-32

Support

Activities

Primary Activities

Inbound

Logistics

Operat

ions

Outbound

Logistics

Marketing

&Sales

Se

rvice

Procurement

Technological Development


V l Ch i A l i


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Ch3-33

Support

Activities

Primary Activities


Procurement

Inbound

Logistics

Operat

ions

Outbound

Logistics

Marketing

&Sales

Se

rvice

Human Resource Management


V l Ch i A l i


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Ch3-34

Support

Activities

Primary Activities



Firm Infrastructure

Procurement

Inbound

Logistics

Operat

ions

Outbound

Logistics

Marketing

&Sales

Se

rvice


V l Ch i A l i


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Ch3-35

Support

Activities

Primary Activities



Firm Infrastructure

Procurement

Inbound

Logistics

Operat

ions

Outbound

Logistics

Marketing

&Sales

Se

rvice


Outsourcing


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Ch3-36

Support

Activities

Primary Activities

Outsourcing



Firm Infrastructure

Procurement

Inbound

Logistics

Operat

ions

Outbound

Logistics

Marketing

&Sales

Se

rvice

Strategic Choice to Purchase Some Activities From Outside Suppliers

O tso rcing


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Ch3-37

Support

Activities

Primary Activities



Firm Infrastructure

Procurement

Inbound

Logistics

Operat

ions

Outbound

Logistics

Marketing

&Sales

Se

rvice

Inbound

Logistics

Operations

Outbound

Logistics

Service

Marketing

& Sales



Procurement

Firms often purchase a portion

of their value-creating activities

from specialty external suppliers

who can perform these functions

more efficiently

OutsourcingStrategic Choice to Purchase Some Activities From Outside Suppliers

Strategic Rationales for Outsourcing


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Ch3-38

Lets company focus on broader business issues by having outside

experts handle various operational details

Strategic Rationales for Outsourcing

Improve Business Focus

Permits firm to redirect efforts from non-core activities toward thosethat serve customers more effectively

Free Resources for Other Purposes

Provide Access to World-Class Capabilities

Accelerate Business Re-Engineering Benefits

Share Risks

The specialized resources of outsourcing providers makes world-

class capabilities available to firms in a wide range of applications

Achieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over process

Reduces investment requirements and makes firm more flexible,

dynamic and better able to adapt to changing opportunities

C C t i C ti d R i d


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Ch3-39

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 sow

the seeds of organizational inertia and prevent the firm

from responding appropriately to changes in the

external environmentStrategic myopia and inflexibility can strangle the firms

ability to grow and adapt to environmental change or

competitive threats

Competitive

Discovering Core


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Resources

* Tangible

* Intangible

Capabilities

Teams of

Resources

Sources of

CoreCompetencies


Strategic

Competitiveness

Above-AverageReturns

pAdvantage

Gained throughCore Competencies

DiscoveringCore

Competencies

Value

ChainAnalysis

Valuable

Rare

Costly to Imitate

*

*

** O t

Criteria of


Discovering Core

Competencies

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Chapter3 Slides (1)