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CORE COMPETENCIES &

THE VALUE CHAINDavid Kressler, Ph.D.

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Internal analysisInternal analysis provides a comparative

look at a firms capabilities/competencies.

What are the firms strengths?

What are the firms weaknesses?

How do these strengths & weaknessescompare to competitors (or potentialcompetitors)?

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What can we learn frominternal analysis?

Internal analysis helps a firm:

Determine if its resources and capabilities are

likely sources of competitive advantage

Establish strategies that will exploit any sourcesof competitive advantage

Determine if the firm lacks any resources/capabilities

needed to compete effectively

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What we learn from external and internal

analyses

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Value Chain Analysis

Allows the firm to understand the parts of its

operations that create value and those that

do not

A template that firms use to:

Understand their cost position

Identify multiple means that might be used to

facilitate implementation of a chosen business-

level strategy

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Value Chain Analysis (contd) Value chain

Shows how a product moves from raw-material

stage to the final customer

To be a source of competitive advantage, aresource or capability must allow the firm:

To perform an activity in a manner that is superiorto the way competitors perform it, or

To perform a value-creating activity thatcompetitors cannot complete

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STRATEGIES THAT FIT

Industry and

competitive

environment

Company

resources and

capabilities

Strategy

that

fits

How to create cost- and

differentiation-based competitive

advantages?

How to sustain such advantages in

light of new opportunities and

threats?

How to make commitments whenfaced with high uncertainty?

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Resources, Capabilities and Core Competencies

Resources

-Are the source of a firms

capabilities

-Are broad in scope

-Cover a spectrum of

individual, social and

organizational phenomena

-Alone, do not yield a

competitive advantage

DiscoveringCore

Competencies

CoreCompetencies

Capabilities

Resources-Tangible

-Intangible

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Resources, Capabilities and Core Competencies

DiscoveringCore

Competencies

CoreCompetencies

Capabilities

Resources-Tangible

-Intangible

Capabilities Are the firms capacity to deploy

resources that have been

purposely integrated to achievea desired end state

Emerge over time through

complex interactions among

tangible and intangible

resources Often are based on developing,

carrying and exchanging

information and knowledge

through the firms human capital

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Resources, Capabilities and Core Competencies

DiscoveringCore

Competencies

CoreCompetencies

Capabilities

Resources-Tangible

-Intangible

Core Competencies

Activities that a firm

performs especially wellcompared to

competitors

Activities through which

the firm adds uniquevalue to its goods or

services over a long

period of time

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Building Sustainable Competitive

Advantage

Four Criteria of

SustainableCompetitiveAdvantage

Valuable

Rare

Costly to imitate

Nonsubstitutable

Discovering CoreCompetencies

Four Criteria ofSustainable

Advantages

-Valuable

-Rare

-Costly to imitate

-Nonsubstituable

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The Four Criteria of Sustainable

Competitive Advantage

Valuable Capabilities Help a firm neutralize threats or exploit

opportunities

Rare Capabilities Are not possessed by many others

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: Interpersonalrelationships, trust, and friendship

among managers, suppliers, and

customers

Nonsubstitutable Capabilities No strategic equivalent

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Resource Virtuous Cycle

Resources

Capabilities

Core

Competencies

Competitive

AdvantageFinancial

Success

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Competitive Advantage Over time, the benefits of any value-creating strategy

can be duplicated by competitors

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 difficulty competitors have in duplicating or imitating the

core competence

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Cautions and Reminders Never take for granted that core competencieswill continue to provide a source of competitiveadvantage

All core competencies have the potential tobecome core rigidities (former corecompetencies that now generate inertia andstifle innovation)

Determining what the firm can do throughcontinuous and effective analyses of its internalenvironment increases the likelihood of long-

term competitive success

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Cautions and Reminders Protect your core competencies at all

costs.

Be aware that when you outsourceactivities you potentially shift important

knowledge or capabilities to outsiders.

Dont create new competitors throughoutsourcing