Internal Analysis: Resources, Capabilities and

Core Competencies

Internal Analysis: Resources, Capabilities and

Core Competencies

Key Questions

• What is a resource?

• What is a capability?

• What’s the difference:– Potential vs. Kinetic energy?

• How do resources and/or capabilities contribute to competitive advantage?

Resources represent inputs into a firm’s production process...

such as capital equipment, skills of employees, brand names, finances and talented managers

What a firm Has...ResourcesResourcesResourcesResources

CapabilitiesCapabilities What a firm Does...

Capabilities represent...the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.

Core CompetenciesCore CompetenciesWhat a firm Does...that is Strategically

ValuableCore Competencies must be:ValuableValuableCapabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment

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

Core CompetenciesCore Competencies

Core Competencies must be:ValuableValuable

RareRareCapabilities that are possessed by few, if any, current or potential competitorsCapabilities that are possessed by few, if any, current or potential competitors

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

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

What a firm Does...that is Strategically

Valuable

Core CompetenciesCore Competencies

Core Competencies must be:ValuableValuable

RareRare

Costly to ImitateCostly to ImitateCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexityCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity

Capabilities that are possessed by few, if any, current or potential competitorsCapabilities that are possessed by few, if any, current or potential competitors

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

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

What a firm Does...that is Strategically

Valuable

Core CompetenciesCore Competencies

Core Competencies must be:ValuableValuable

RareRare

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

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

Capabilities that are possessed by few, if any, current or potential competitorsCapabilities that are possessed by few, if any, current or potential competitors

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

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

What a firm Does...that is Strategically

Valuable

Costly to ImitateCostly to Imitate

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain AnalysisTo identify which resources and capabilities can add value

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysis

Inb

oun

d

Log

isti

cs

helps to identify which resources and capabilities can add value

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysis

Inb

oun

d

Inb

oun

d

Log

isti

csL

ogis

tics

Op

erat

ion

s

helps to identify which resources and capabilities can add value

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysis

Inb

oun

d

Inb

oun

d

Log

isti

csL

ogis

tics

Op

erat

ion

sO

per

atio

ns

Ou

tbou

nd

Log

isti

cs

helps to identify which resources and capabilities can add value

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysis

Inb

oun

d

Inb

oun

d

Log

isti

csL

ogis

tics

Op

erat

ion

sO

per

atio

ns

Ou

tbou

nd

Ou

tbou

nd

Log

isti

csL

ogis

tics

Mar

ket

ing

& S

ales

helps to identify which resources and capabilities can add value

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysis

Inb

oun

d

Inb

oun

d

Log

isti

csL

ogis

tics

Op

erat

ion

sO

per

atio

ns

Ou

tbou

nd

Ou

tbou

nd

Log

isti

csL

ogis

tics

Mar

ket

ing

Mar

ket

ing

& S

ales

& S

ales

Ser

vice

helps to identify which resources and capabilities can add value

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysis

Inb

oun

d

Inb

oun

d

Log

isti

csL

ogis

tics

Op

erat

ion

sO

per

atio

ns

Ou

tbou

nd

Ou

tbou

nd

Log

isti

csL

ogis

tics

Mar

ket

ing

Mar

ket

ing

& S

ales

& S

ales

Ser

vice

Ser

vice

helps to identify which resources and capabilities can add value

Procurement

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysis

Inb

oun

d

Inb

oun

d

Log

isti

csL

ogis

tics

Op

erat

ion

sO

per

atio

ns

Ou

tbou

nd

Ou

tbou

nd

Log

isti

csL

ogis

tics

Mar

ket

ing

Mar

ket

ing

& S

ales

& S

ales

Ser

vice

Ser

vice

helps to identify which resources and capabilities can add value

ProcurementProcurement

Technological Development

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysishelps to identify which resources and capabilities can add value

Technological DevelopmentTechnological Development

ProcurementProcurement

Inb

oun

d

Inb

oun

d

Log

isti

csL

ogis

tics

Op

erat

ion

sO

per

atio

ns

Ou

tbou

nd

Ou

tbou

nd

Log

isti

csL

ogis

tics

Mar

ket

ing

Mar

ket

ing

& S

ales

& S

ales

Ser

vice

Ser

vice

Human Resource Management

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysis

Technological DevelopmentTechnological Development

Human Resource ManagementHuman Resource Management

Firm Infrastructure

ProcurementProcurement

Inb

oun

d

Inb

oun

d

Log

isti

csL

ogis

tics

Op

erat

ion

sO

per

atio

ns

Ou

tbou

nd

Ou

tbou

nd

Log

isti

csL

ogis

tics

Mar

ket

ing

Mar

ket

ing

& S

ales

& S

ales

Ser

vice

Ser

vice

helps to identify which resources and capabilities can add value

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysis

Technological DevelopmentTechnological Development

Human Resource ManagementHuman Resource Management

Firm InfrastructureFirm Infrastructure

ProcurementProcurement

Inb

oun

d

Inb

oun

d

Log

isti

csL

ogis

tics

Op

erat

ion

sO

per

atio

ns

Ou

tbou

nd

Ou

tbou

nd

Log

isti

csL

ogis

tics

Mar

ket

ing

Mar

ket

ing

& S

ales

& S

ales

Ser

vice

Ser

vice

helps to identify which resources and capabilities can add value

MARG

IN

MARG

IN

MARGIN

MARGIN

Examples• What are key sources of competitive

advantage for following companies:• Honda• McDonald’s• ESPN• Dell• Procter & Gamble• Steinway Pianos• Wal-Mart• The Grateful Dead• Toyota