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  • Chapter3 slides

    1. 1. Chapter 3The Internal Environment:Resources, Capabilities and Core Competencies Michael A. Hitt R. Duane Ireland Robert E. Hoskisson ©2000 South-Western College Publishing Ch3
    2. 2. Chapter 2External EnvironmentWhat the Firm Might Do Sustainable Competitive AdvantageChapter 3Internal EnvironmentWhat the Firm Can Do Ch3
    3. 3. SWOT Analysis• Strengths• Weaknesses• Opportunities• Threats Ch3
    4. 4. The purpose of SWOT Analysis• It is an easy-to-use tool for developing an overview of a company’s strategic situation – It forms a basis for matching your company’s strategy to its situation Ch3
    5. 5. Strengths• A STRENGTH is something a company is good at doing or a characteristic that gives it an important capability.• Possible Strengths: – Name recognition – Proprietary technology – Cost advantages – Skilled employees – Loyal Customers Ch3
    6. 6. Weaknesses• A WEAKNESS is something a company lacks or does poorly (in comparison to others) or a condition that places it at a disadvantage• Possible Weaknesses: – Poor market image – Obsolete facilities – Internal operating problems – Poor marketing skills Ch3
    7. 7. Strengths and Weakness form abasis for INTERNAL analysis• By examining strengths, you can discover untapped potential or identify distinct competencies that helped you succeed in the past.• By examining weaknesses, you can identify gaps in performance, vulnerabilities, and erroneous assumptions about existing strategies. Ch3
    8. 8. CompetitiveDiscovering Core Advantage Gained throughCompetencies Core Competencies Strategic Competitiveness Discovering Above-Average Core Returns Core Competencies Competencies Sources of Competitive Advantage Capabilities Criteria of Value Teams of Sustainable Chain Resources Advantages AnalysisResources* Tangible * Valuable * Outsource* Intangible * Rare * Costly to Imitate * Nonsubstitutable Ch3
    9. 9. Key Questions for Managers in Internal Analysis How do we assemble bundles of Resources, Capabilities and Core Competencies to create VALUE for customers?And... Will environmental changes make our core competencies obsolete? Are substitutes available for our core competencies? Are our core competencies easily imitated? Ch3
    10. 10. Discovering CoreCompetenciesResources* Tangible* Intangible Ch3-
    11. 11. Resources What a firm Has... What a firm has to work with: its assets, including its people and the value of its brand name Ch3-
    12. 12. Resources What a firm Has... 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 Ch3-
    13. 13. Resources What a firm Has... 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 “Some genius invented the Oreo. We’re just living off the inheritance.” F. Ross Johnson, Former President & CEO, RJR Nabisco Ch3-
    14. 14. Resources What a firm Has... What a firm has to work with: its assets, including its people Tangible Resources and the value of its brand name * Financial * Physical Resources represent inputs into a * Human Resources firm’s production process... * Organizational such as capital equipment, skills of employees, brand names, finances and talented managers Intangible Resources * Technological “Some genius invented the Oreo. * Innovation We’re just living off the inheritance.” * Reputation F. Ross Johnson, Former President & CEO, RJR Nabisco Ch3-
    15. 15. Discovering CoreCompetencies Capabilities Teams of ResourcesResources* Tangible* Intangible Ch3-
    16. 16. Capabilities What a firm Does... Capabilities represent: the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective. Ch3-
    17. 17. Capabilities What a firm Does... Capabilities represent: the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.Capabilities develop over time as a result of complexinteractions that take advantage of the interrelationshipsbetween a firm’s tangible and intangible resources thatare based on the development, transmission andexchange or sharing of information and knowledge ascarried out by the firms employees. Ch3-
    18. 18. Capabilities What a firm Does... Capabilities represent: the firm’s 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 firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firms employees.Capabilities become important when they are combinedin unique combinations which create core competencieswhich have strategic value and can lead to competitiveadvantage. Ch3-
    19. 19. Discovering CoreCompetencies Discovering Core Core Competencies Competencies Sources of Competitive Advantage Capabilities Teams of ResourcesResources* Tangible* Intangible Ch3-
    20. 20. Core Competencies What a firm Does... 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. Ch3-
    21. 21. Discovering CoreCompetencies Discovering Core Core Competencies Competencies Sources of Competitive Advantage Capabilities Criteria of Teams of Sustainable Resources AdvantagesResources * Valuable* Tangible* Intangible * Rare * Costly to Imitate * Nonsubstitutable * Outsource Ch3-
    22. 22. Core Competencies What a firm Does... that is StrategicallyFor a strategic capability to be a ValuableCore Competency, it must be: Valuable Rare Costly to Imitate Nonsubstitutable Ch3-
    23. 23. Core Competencies What a firm Does...Core Competencies must be: that is Strategically Valuable Valuable Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment Rare Capabilities that are possessed by few, if any, current or potential competitors Costly to Imitate Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity Nonsubstitutable Capabilities that do not have strategic equivalents, such as firm- specific knowledge or trust-based relationships Ch3-
    24. 24. Discovering CoreCompetencies Discovering Core Core Competencies Competencies Sources of Competitive Advantage Capabilities Criteria of Value Teams of Sustainable Chain Resources Advantages AnalysisResources * Valuable* Tangible* Intangible * Rare * Costly to Imitate * Nonsubstitutable * Outsource Ch3-
    25. 25. Value Chain Analysis Identifying Resources and Capabilities That Can Add ValueSupportActivities Primary Activities Ch3-
    26. 26. Value Chain Analysis Identifying Resources and Capabilities That Can Add ValueSupportActivities Logistics Inbound Primary Activities Ch3-
    27. 27. Value Chain Analysis Identifying Resources and Capabilities That Can Add ValueSupportActivities Operations Logistics Inbound Primary Activities Ch3-
    28. 28. Value Chain Analysis Identifying Resources and Capabilities That Can Add ValueSupportActivities Operations Outbound Logistics Logistics Inbound Primary Activities Ch3-
    29. 29. Value Chain Analysis Identifying Resources and Capabilities That Can Add ValueSupportActivities Operations Outbound Marketing Logistics Inbound & Sales Logistics Primary Activities Ch3-
    30. 30. Value Chain Analysis Identifying Resources and Capabilities That Can Add ValueSupportActivities Service Operations Outbound Marketing Logistics Inbound & Sales Logistics Primary Activities Ch3-
    31. 31. Value Chain Analysis Identifying Resources and Capabilities That Can Add ValueSupportActivities Procurement Service Operations Outbound Marketing Logistics Inbound & Sales Logistics Primary Activities Ch3-
    32. 32. Value Chain Analysis Identifying Resources and Capabilities That Can Add ValueSupportActivities Technological Development Procurement Service Operations Outbound Marketing Logistics Inbound & Sales Logistics Primary Activities Ch3-
    33. 33. Value Chain Analysis Identifying Resources and Capabilities That Can Add ValueSupport Human Resource ManagementActivities Technological Development Procurement Service Operations Outbound Marketing Logistics Inbound & Sales Logistics Primary Activities Ch3-
    34. 34. Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Firm InfrastructureSupport Human Resource ManagementActivities Technological Development Procurement Service Operations Outbound Marketing Logistics Inbound & Sales Logistics Primary Activities Ch3-
    35. 35. Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Firm Infrastructure Human Resource Management MSupport A RActivities G Technological Development IN Procurement Service Operations Outbound Marketing Logistics Inbound & Sales Logistics IN RG A M Primary Activities Ch3-
    36. 36. Outsourcing Strategic Choice to Purchase Some Activities From Outside Suppliers Firm Infrastructure Human Resource Management MSupport A RActivities G Technological Development IN Procurement Service Operations Outbound Marketing Logistics Inbound & Sales Logistics IN RG A M Primary Activities Ch3-
    37. 37. Outsourcing Strategic Choice to Purchase Some Activities From Outside Suppliers FirmResource Management Human Infrastructure M Human Resource Management purchase a portionSupport Firms often A Technological Development RActivities G of their value-creating activities IN Technological Development specialty external suppliers from Procurement who can perform these functions Procurement more efficiently Service Operations Outbound Marketing Service Logistics Inbound & Sales Logistics IN RG Outbound Inbound Operations Logistics Marketing A & Sales M Logistics Primary Activities Ch3-
    38. 38. Strategic Rationales for OutsourcingImprove Business FocusLets company focus on broader business issues by having outsideexperts handle various operational detailsProvide Access to World-Class CapabilitiesThe specialized resources of outsourcing providers makes world-class capabilities available to firms in a wide range of applicationsAccelerate Business Re-Engineering BenefitsAchieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over processShare RisksReduces investment requirements and makes firm more flexible,dynamic and better able to adapt to changing opportunitiesFree Resources for Other PurposesPermits firm to redirect efforts from non-core activities toward thosethat serve customers more effectively Ch3-
    39. 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 environment Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats Ch3-
    40. 40. CompetitiveDiscovering Core Advantage Gained throughCompetencies Core Competencies Strategic Competitiveness Discovering Above-Average Core Returns Core Competencies Competencies Sources of Competitive Advantage Capabilities Criteria of Value Teams of Sustainable Chain Resources Advantages AnalysisResources * Valuable* Tangible* Intangible * Rare * Costly to Imitate * Outsource * Nonsubstitutable Ch3-

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