ch04 discussion blue

8/8/2019 Ch04 Discussion Blue

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2004 by South-Western/Thomson Learning 1

The Internal Organization:The Internal Organization:

Resources, Capabilities, andResources, Capabilities, and

Core CompetenceCore Competence

Robert E. Hoskisson

Michael A. Hitt

R. Duane Ireland

Chapter 4Chapter 4


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Chapter 2Chapter 2

Strategic LeadershipStrategic Leadership

Chapter 4Chapter 4

The InternalThe Internal

OrganizationOrganization

Chapter 6Chapter 6

Competitive Rivalry andCompetitive Rivalry and

Competitive DynamicsCompetitive Dynamics

Chapter 9Chapter 9

International StrategyInternational Strategy

Chapter 1Chapter 1

Introduction toIntroduction to

Strategic ManagementStrategic Management

Chapter 3Chapter 3

The ExternalThe External

EnvironmentEnvironment

Chapter 5Chapter 5

Business-LevelBusiness-Level

StrategyStrategy

Chapter 8Chapter 8Acquisition andAcquisition and

Restructuring StrategiesRestructuring Strategies

Chapter 11Chapter 11

Corporate GovernanceCorporate Governance

Chapter 7Chapter 7

Corporate-Level StrategyCorporate-Level Strategy


Cooperative StrategyCooperative Strategy


Strategic EntrepreneurshipStrategic Entrepreneurship

Strategic

Analysis

Strategic

Thinking

Creating

Competitive

Advantage

Monitoring

And Creating

EntrepreneurialOpportunities

The Strategic Management ProcessThe Strategic Management Process

Strategic IntentStrategic Intent

Strategic MissionStrategic Mission


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Discussion QuestionsDiscussion Questions

1. What different perspectives aregained from external compared tointernal analyses of the firm?

2. What is the difference betweentangible and intangible resources?What is the difference betweenresources and capabilities?

3. What are the criteria to determinecore competence? What issustainable competitive advantage?

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Discussion Questions (cont.)Discussion Questions (cont.)

4. What is the value chain?

5. What is outsourcing and when

should it be used?

6. Are there risks to a sustainable

competitive advantage?

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Discussion Question 1Discussion Question 1

What different perspectives are

gained from external compared tointernal analyses of the firm?


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ExternalExternal and Internal Analysesand Internal Analyses

Gen

eral

Gen

eral

Envir

on

ment

Environ

ment

GeneralGeneral


Gen

eral

Gen

eral

Env

ironment

Env

ironment

SocioculturalSociocultural

Glo

bal

Global

TechnologicalTechnologicalP

olitic

al/L

egal

Politic

al/L

egal

Dem

ographic

Dem

ographic

Econom

ic

Econom

ic

IndustryIndustry


CompetitorCompetitor


By studying the externalBy studying the external

environment, firms identifyenvironment, firms identify

what theywhat they might choose to domight choose to do

Opportunities and threatsOpportunities and threats


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ExternalExternal and Internal Analysesand Internal Analyses

By studying the internalBy studying the internal

environment, firms identifyenvironment, firms identify

what theywhat they can docan do

Unique resources,Unique resources,

capabilities, and corecapabilities, and core

competenciescompetencies

(sustainable competitive(sustainable competitive

advantage)advantage)

External and Internal Analyses


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Components ofComponents of

Internal AnalysisInternal AnalysisDiscovering CoreDiscovering Core

CompetenciesCompetencies

ResourcesResources TangibleTangible IntangibleIntangible

CapabilitiesCapabilities

CoreCore


CompetitiveCompetitive

AdvantageAdvantage

Value CreationValue Creation

Four CriteriaFour Criteria

of Sustainableof Sustainable

AdvantagesAdvantages

ValuableValuable RareRare Costly to ImitateCostly to Imitate NonsubstitutableNonsubstitutable

ValueValue

ChainChain

AnalysisAnalysis

OutsourceOutsource


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Challenge of Internal AnalysisChallenge of Internal Analysis

How do we effectively manage current coreHow do we effectively manage current core

competencies while simultaneouslycompetencies while simultaneously

developing new ones?developing new ones?

How do we assemble bundles of resources,How do we assemble bundles of resources,

capabilities and core competencies tocapabilities and core competencies to

create value for customers?create value for customers?

How do we learn to change rapidly?How do we learn to change rapidly?


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Conditions Affecting ManagerialConditions Affecting Managerial

Decisions About Resources, Capabilities,Decisions About Resources, Capabilities,

and Core Competenciesand Core CompetenciesUncertaintyUncertainty regarding characteristics of theregarding characteristics of the

general and the industry environments,general and the industry environments,

competitors actions, and customers preferencescompetitors actions, and customers preferences

ComplexityComplexityregarding the interrelated causesregarding the interrelated causesshaping a firms environments and perceptions ofshaping a firms environments and perceptions of

the environmentsthe environments

Intraorganizational ConflictsIntraorganizational Conflicts amongamongpeople making managerial decisions and thosepeople making managerial decisions and thoseaffected by themaffected by them

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What is the difference between

tangible and intangible resources?What is the difference between

resources and capabilities?


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Discovering CoreDiscovering Core



Resources are what a firm hasResources are what a firm has

to work with--its assets--to work with--its assets--

including its people and theincluding its people and the

value of its brand namevalue of its brand name

Resources represent inputs intoResources represent inputs into

a firms production process...a firms production process...

such as capital equipment, skillssuch as capital equipment, skills

of employees, brand names,of employees, brand names,

finances and talented managersfinances and talented managers


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Tangible ResourcesTangible Resources

FinancialFinancial

OrganizationalOrganizational

PhysicalPhysical

TechnologicalTechnological

Intangible ResourcesIntangible Resources

HumanHuman

InnovationInnovation

ReputationReputation


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Capabilities become important when they are combinedCapabilities become important when they are combined

in unique combinations which create core competenciesin unique combinations which create core competencies

which have strategic value and can lead to competitivewhich have strategic value and can lead to competitive

advantageadvantage


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Capabilities are what a firm does, and represent the firmsCapabilities are what a firm does, and represent the firms

capacity to deploy resources that have been purposelycapacity to deploy resources that have been purposely

integrated to achieve a desired end stateintegrated to achieve a desired end state

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What are the criteria to determine

core competence?What is sustainable competitiveadvantage?


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CoreCoreCompetenciesCompetencies

Core competencies are resources and capabilities that serveCore competencies are resources and capabilities that serve

as a source of competitive advantage over rivalsas a source of competitive advantage over rivals

Core competencies distinguish a company competitivelyCore competencies distinguish a company competitively

and make it distinctiveand make it distinctive

McKinsey and Co. recommends using three to fourMcKinsey and Co. recommends using three to four

competencies when framing strategic actionscompetencies when framing strategic actions


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Four CriteriaFour Criteriaof Sustainableof Sustainable


ValuableValuable

RareRare Costly to ImitateCostly to Imitate NonsubstitutableNonsubstitutable



Valuable: Capabilities that help a firm neutralize threats orValuable: Capabilities that help a firm neutralize threats or

exploit opportunitiesexploit opportunities


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ValuableValuable




Rare: Capabilities that are not possessed by many othersRare: Capabilities that are not possessed by many others


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ValuableValuable




Costly to imitate: capabilities that other firms cannotCostly to imitate: capabilities that other firms cannot

develop easily, usually due todevelop easily, usually due to Unique historical conditionsUnique historical conditions

Causal ambiguityCausal ambiguity

Social complexitySocial complexity


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ValuableValuable




Nonsubstitutable: capabilities that do not have strategicNonsubstitutable: capabilities that do not have strategic

equivalentsequivalents Invisible to competitorsInvisible to competitors

Firm specific knowledgeFirm specific knowledge

Trust-based working relationships between managersTrust-based working relationships between managers

and nonmanagerial personneland nonmanagerial personnel


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Core Competence as a StrategicCore Competence as a Strategic

CapabilityCapability

ResourcesResources Inputs to a firmsInputs to a firms

production processproduction process

CapabilityCapability A nonstrategicA nonstrategic

team or resourceteam or resource

Core CompetenceCore Competence A strategicA strategic

capabilitycapability

The source ofThe source of

Does it satisfy theDoes it satisfy the

criteria of sustainablecriteria of sustainable

competitivecompetitive

advantage?advantage?

YesYes

NoNo

CapabilityCapability An integration of aAn integration of a

team of resourcesteam of resources


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Sustainability of a CompetitiveSustainability of a Competitive

AdvantageAdvantage Sustainability of a competitive advantageSustainability of a competitive advantage

is a function of:is a function of:

the rate of core-competence obsolescence duethe rate of core-competence obsolescence due

to environmental changesto environmental changes

the availability of substitutes for the corethe availability of substitutes for the core

competencecompetence

the imitability of the core competencethe imitability of the core competence


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Performance ImplicationsPerformance Implications

Valu

able?

Valu

able?

Rare?

Rare?

Costlyt

oImita

te?

Costlyt

oImita

te?

Nonsub

stitutable

Nonsub

stitutab

le

CompetitiveCompetitive

ConsequencesConsequences

PerformancePerformance

ImplicationsImplications

NoNo NoNo NoNo NoNoCompetitiveCompetitive

DisadvantageDisadvantageBelow AverageBelow Average

ReturnsReturns

YesYes NoNo NoNoYes/Yes/

NoNoCompetitiveCompetitive

ParityParity Average ReturnsAverage Returns

YesYes YesYes NoNoYes/Yes/NoNo

Temporary Com-Temporary Com-petitive Advantagepetitive Advantage

Above Average toAbove Average toAverage ReturnsAverage Returns

YesYes YesYes YesYes YesYesSustainable Com-Sustainable Com-

petitive Advantagepetitive AdvantageAbove AverageAbove Average

ReturnsReturns

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What is the value chain?


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ServiceService

Marketing & SalesMarketing & Sales

Outbound LogisticsOutbound Logistics

OperationsOperations

Inbound LogisticsInbound LogisticsFirmIn

fras

tructu

re

FirmIn

fras

tructu

re

Huma n

Resourc

eM

gm

t.

Huma n

Resourc

eM

gm

t.

Techno

logi c

alDe v

elopmen

t

Techn

ologicalDe v

elopmen

t

Procureme

nt

Procureme

nt

Margin

M

argin

Primary ActivitiesPrimary Activities

Suppo

rtAct i

vities

Suppo

rtAct i

vities

The BasicThe Basic

Value ChainValue Chain

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Questions


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What is outsourcing and whenshould it be used?


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Margin

Margin Margin

Margin

Primary ActivitiesPrimary Activities

Suppo rt

Activ

ities

Support

Activ

ities

OutsourcingOutsourcing

Outsourcing is theOutsourcing is the

purchase of some orpurchase of some or

all of a value-all of a value-

creating activitycreating activityfrom an externalfrom an external

suppliersupplier

Usually this isUsually this is

because the specialtybecause the specialty

supplier can providesupplier can provide

these functions morethese functions more

efficientlyefficiently

ServiceService

Marketing & SalesMarketing & Sales

Outbound LogisticsOutbound Logistics

OperationsOperations

Inbound LogisticsInbound LogisticsFirm

Infrastructure

Firm

Infrastru

cture

Human

ResourceM

gmt.

Human

Reso

urceMgmt.

Techno

log

ica

lDevelopm

ent

Technologica

lDeve

lopm

ent

Procur e

m

ent

Procurem

ent


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Strategic Rationales for OutsourcingStrategic Rationales for Outsourcing

Improve Business FocusImprove Business Focus

lets company focus on broader businesslets company focus on broader business

issues by having outside experts handleissues by having outside experts handle

various operational detailsvarious operational details Provide Access to World-ClassProvide Access to World-Class


the specialized resources of outsourcingthe specialized resources of outsourcing

providers makes world-class capabilitiesproviders makes world-class capabilities

available to firms in a wide range ofavailable to firms in a wide range of

applicationsapplications


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Accelerate Business Re-EngineeringAccelerate Business Re-Engineering

BenefitsBenefits

achieves re-engineering benefits more quicklyachieves re-engineering benefits more quickly

by having outsiders--who have alreadyby having outsiders--who have alreadyachieved world-class standards--take overachieved world-class standards--take over

processprocess

Share RisksShare Risks

reduces investment requirements and makesreduces investment requirements and makes

firm more flexible, dynamic and better able tofirm more flexible, dynamic and better able to

adapt to changing opportunitiesadapt to changing opportunities


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Free Resources for Other PurposesFree Resources for Other Purposes

permits firm to redirect efforts from non-corepermits firm to redirect efforts from non-core

activities toward those that serve customersactivities toward those that serve customers

more effectivelymore effectively

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Outsourcing IssuesOutsourcing IssuesGreatest ValueGreatest Value

outsource only to firms possessing a core competence inoutsource only to firms possessing a core competence in

terms of performing the primary or support activity beingterms of performing the primary or support activity being

outsourcedoutsourced

Evaluating Resources and CapabilitiesEvaluating Resources and Capabilities dont outsource activities in which the firm itself can createdont outsource activities in which the firm itself can create

and capture valueand capture value

Environmental Threats and Ongoing TasksEnvironmental Threats and Ongoing Tasks

do not outsource primary and support activities that aredo not outsource primary and support activities that are

used to neutralize environmental threats or completeused to neutralize environmental threats or complete

necessary ongoing organizational tasksnecessary ongoing organizational tasks


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Outsourcing IssuesOutsourcing IssuesNonstrategic Team of ResourcesNonstrategic Team of Resources

do not outsource capabilities that are critical todo not outsource capabilities that are critical to

their success, even though the capabilities aretheir success, even though the capabilities are

not actual sources of competitive advantagenot actual sources of competitive advantage Firms Knowledge BaseFirms Knowledge Base

do not outsource activities that stimulate thedo not outsource activities that stimulate the

development of new capabilities anddevelopment of new capabilities and

competenciescompetencies


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Are there risks to a sustainablecompetitive advantage?


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Core Competencies: CautionsCore Competencies: Cautions

and Remindersand RemindersNever take for granted that coreNever take for granted that core

competencies will continue to provide acompetencies will continue to provide a

source of competitive advantagesource of competitive advantage

All core competencies have the potentialAll core competencies have the potential

to becometo become core rigiditiescore rigidities

Core rigidities are former coreCore rigidities are former core

competencies that now generate inertiacompetencies that now generate inertiaand stifle innovationand stifle innovation

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