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Internal analysis

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  • 1. The Internal Environment: Resources, Capabilities and Core Competence
  • 2. Defining the Business Who is being satisfied? Break down into specific customer groups What needs are being satisfied? Break down into specific needs for each of the customer groups How do we make sure that the needs are being satisfied? Broken down into: Resources and Capabilities Business Definition Resources Capabilities
  • 3. Defining the business Customer Groups Customer Needs Business Definition Distinctive Competencies Resources Capabilities Competitive Advantage: Low cost and/or differentiation Competitive Adv. Bldg blocks Efficiency Innovation Quality Customer responsiveness Generic Strategy
  • 4. External and Internal Analyses By studying the internal environment, firms identify what they can do Unique resources, capabilities, and core competencies (sustainable competitive advantage) External and Internal Analyses The Firm
  • 5. Challenge of Internal Analysis
    • How do we effectively manage current core competencies while simultaneously developing new ones?
    • How do we assemble bundles of resources, capabilities and core competencies to create value for customers?
    • How do we learn to change rapidly?
  • 6. Components of Internal Analysis Discovering Core Competencies
    • Resources
    • Tangible
    • Intangible
    Capabilities Core Competencies Competitive Advantage Strategic Competitiveness Four Criteria of Sustainable Advantages
    • Valuable
    • Rare
    • Costly to Imitate
    • Nonsubstitutable
    Value Chain Analysis
    • Outsource
  • 7. Resources are what a firm has to work with--its assets--including its people and the value of its brand name Resources represent inputs into a firm’s production process... such as capital equipment, skills of employees, brand names, finances and talented managers Discovering Core Competencies
    • Resources
    • Tangible
    • Intangible
  • 8. RESOURCES
    • Inputs into firm’s production process
    • Tangible Resources are assets can be seen & quantified : Financial resources, Physical resources & Technological resources
    • Intangible resources are rooted deeply in orgn & difficult to imitate: Human Resources , Innovation resources & Reputation Resources ( Customers & Suppliers)
    • Challenge is to understand the strategic value of the firm’s Tangible & Intangible resources
  • 9.
    • Tangible Resources
    • Financial
    • Physical
    • Human resources
    • Organizational
    • Intangible Resources
    • Technological
    • Innovation
    • Reputation
    Discovering Core Competencies
    • Resources
    • Tangible
    • Intangible
  • 10. Capabilities become important when they are combined in unique combinations which create core competencies which have strategic value and can lead to competitive advantage Discovering Core Competencies Capabilities
  • 11. Capabilities are what a firm does, and represent the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective Discovering Core Competencies Capabilities
  • 12. Capabilities
    • Capabilities are firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state
    • Capabilities enable to create & exploit external opportunities & develop sustained advantages
    • The foundation of many capabilities lies in the skills & knowledge of a firm’s employees & their functional expertise , hence value of human factor is very crucial in above
    • A company values derives not from things but from knowledge , know how, intellectual assets & competencies - all of it embedded in people
  • 13. Core competencies are resources and capabilities that serve as a source of competitive advantage over rivals Core competencies distinguish a company competitively and make it distinctive McKinsey and Co. recommends using three to four competencies when framing strategic actions Discovering Core Competencies Core Competencies
  • 14. Core Competencies
    • Core Competencies are resources and capabilities that serve as a source of competitive advantage over its rivals
    • Core competencies emerge over time through an organizational process of accumulating & learning how to deploy different resources and capabilities
    • Core competencies are activities that a firm performs especially well compared to competitors & through which firm adds unique value
  • 15. Core Competencies
    • Assets that have competitive value & the potential source of competitive advantage for a firm
    • Important that a Firm does not deviate from its core competencies when they grow in size
    • Two core concepts for identifying & building core competencies:
      • Criteria for sustainable competitive advantage
      • Value Chain Analysis
  • 16. Valuable: Capabilities that help a firm neutralize threats or exploit opportunities Four Criteria of Sustainable Advantages
    • Valuable
    • Rare
    • Costly to Imitate
    • Nonsubstitutable
    Discovering Core Competencies
  • 17. Rare: Capabilities that are not possessed by many others Four Criteria of Sustainable Advantages
    • Valuable
    • Rare
    • Costly to Imitate
    • Nonsubstitutable
    Discovering Core Competencies
  • 18.
    • Costly to imitate: capabilities that other firms cannot develop easily, usually due to
    • Unique historical conditions
    • Causal ambiguity
    • Social complexity
    Four Criteria of Sustainable Advantages
    • Valuable
    • Rare
    • Costly to Imitate
    • Nonsubstitutable
    Discovering Core Competencies
  • 19.
    • Nonsubstitutable: capabilities that do not have strategic equivalents
    • Invisible to competitors
    • Firm specific knowledge
    • Trust-based working relationships between managers and non managerial personnel
    Four Criteria of Sustainable Advantages
    • Valuable
    • Rare
    • Costly to Imitate
    • Nonsubstitutable
    Discovering Core Competencies
  • 20. Core Competence as a Strategic Capability The source of Does it satisfy the criteria of sustainable competitive advantage? Yes No
    • Resources
    • Inputs to a firm’s
    • production process
    • Capability
    • A nonstrategic
    • team or resource
    • Core Competence
    • A strategic
    • capability
    • Capability
    • An integration of a
    • team of resources
  • 21. The Basic Value Chain
      • Template that a firm uses to understand its cost position and to identify the multiple means that might be used to facilitate the implementation of business level strategy
      • Primary level activities : Involved with product’s physical creation, its sale & distribution to buyers & its services after the sale
      • Support activities: Activities necessary for the primary activities
  • 22. Service Marketing & Sales Outbound Logistics Operations Inbound Logistics Firm Infrastructure Human Resource Mgmt. Technological Development Procurement Margin Margin Primary Activities Support Activities The Basic Value Chain
  • 23. Core Competencies Creation
    • The intent in examining these areas to determine areas where the firm has the potential to create & capture value
    • To perform an activity in a manner that is superior to the way competitors perform
    • To perform a value creating activity that competitors cannot complete
    • OUTSOURCING:
      • The purchase of value creating activity from an external supplier
  • 24. Outsourcing Outsourcing is the purchase of some or all of a value-creating activity from an external supplier Usually this is because the specialty supplier can provide these functions more efficiently Margin Margin Primary Activities Support Activities Service Marketing & Sales Outbound Logistics Operations Inbound Logistics Firm Infrastructure Human Resource Mgmt. Technological Development Procurement
  • 25. Strategic Rationales for Outsourcing
    • Improve Business Focus
      • lets company focus on broader business issues by having outside experts handle various operational details
    • Provide Access to World-Class Capabilities
      • the specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applications
  • 26. Strategic Rationales for Outsourcing
    • Free Resources for Other Purposes
      • permits firm to redirect efforts from non-core activities toward those that serve customers more effectively
  • 27. 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 now generate inertia and stifle innovation