1. The Internal Environment: 0
Resources, Capabilities, and
Core Competencies
Chapter Four
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2. Chapter 3
External The Strategic
Strategic
.
Inputs
Environment Strat. Intent
Chapter 4 Strat. Mission Management .
Internal
Environment Process
Strategy Formulation Strategy Implementation
Strategic Actions
Chapter 5 Chapter 6 Chapter 7 Chapter 11 Chapter 12
Bus. - Level Competitive Corp. - Level Corporate Structure
Strategy Dynamics Strategy Governance & Control
Chapter 8 Chapter 9 Chapter 10 Chapter 13 Chapter 14
Acquisitions & International Cooperative Strategic Entrepreneurship
Restructuring Strategy Strategies Leadership & Innovation
Outcomes
Strategic
Chapter 2 Chapter 1 Feedback
Above Average Strategic
Returns Competitiveness
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3. The Internal Environment: Resources,
Capabilities and Core Competencies
Knowledge Objectives:
2. Explain the need for firms to study &
understand their internal environment.
3. Define value & discuss its importance.
4. Describe the differences between tangible &
intangible resources.
5. Define capabilities & discuss how they are
developed.
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4. The Internal Environment: Resources,
Capabilities and Core Competencies
Knowledge objectives – continued…
5. Describe four criteria used to determine whether
resources & capabilities are core competencies.
3. Explain how value chain analysis is used to
identify and evaluate resources and capabilities.
4. Define outsourcing & discuss the reasons for its
use.
5. Discuss the importance of preventing core
competencies from becoming core rigidities.
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5. Canada’s most admired companies
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6. The Resource-Based model of Above
Average Returns
• Capabilities evolve and must be managed
dynamically in pursuit of above-average returns.
• Firms acquire different resources and develop
unique capabilities. These resources may not be
mobile across firms and that the differences in
resources are the basis of competitive
advantage.
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7. The Resource-Based model of Above
Average Returns
The resource based view suggests that a
firm’s unique resources and capabilities
provide the basis for a strategy.
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8. The Resource-Based Model of
Superior Returns Action required:
Identify firm resources.
Study strengths &
Resources weaknesses relative to
rivals.
Inputs to a firm’s
production
process.
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*
an

9. The Resource-Based Model of
Superior Returns Action required:
Determine what firm
capabilities allow it to
Resources do better than rivals.
Capability
Inputs to a firm’s
production process. integrated
Capacity for
set of resources to
integratively perform
a task or activity.
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an

10. The Resource-Based Model of
Superior Returns Action required:
Determine how firm’s
resources & capabilities
Resources may create
Capability competitive advantage.
Inputs to a firm’s Competitive
Advantage
Capacity for an
production process.
integrated set of
resources Ability of a firm to
to
integratively perform its rivals
outperform
a task or activity.
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an

11. The Resource-Based Model of
Superior Returns Action required:
Locate an attractive
industry.
Resources
Capability
Competitive
Inputs to a firm’s
Advantage Attractive
Capacity for an
production process. An
integrated set of Industry
resources to Ability of a firm to
integratively perform its rivals an industry
Location of
outperform
a task or activity. with opportunities that
can be exploited by
firm’s resources &
capabilities
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12. The Resource-Based Model of
Superior Returns Action required:
Select strategy that best
exploits res.& capabilities
Resources relative to opportunities
Capability in environments.
Competitive
Inputs to a firm’s
Advantage Attractive
Capacity for an
production process. An
integrated set of Industry Strategy
resourcesAbility of a firm to Formulation and
to
Location of an ind.
integratively perform a rivals
outperform its
task or activity.
Implementation
with opportunities
that can be exploited
by firm’sStrategic actions taken
resources
& capabilities above-average
to earn
returns
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13. The Resource-Based Model of
Superior Returns Action required:
Maintain selected strat.
in order to outperform
Resources industry rivals.
Capability
Competitive
Inputs to a firm’s
Advantage Attractive
Capacity for an
production process. An
integrated set of Industry Strategy
resourcesAbility of a firm to Formulation and
to
Location of an ind. Superior
integratively perform a rivals
outperform its
Implementation
with opportunities Returns
task or activity.
that can be exploited
Earning of above-
Strategic actions taken
by firm’s resources
average returns
to earn above-average
& capabilities
returns
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14. Discovering Core Competitive
Advantage
Competencies Gained through
Core Competencies
Strategic
Core Competitiveness
Competencies
Discovering
Core Above-Average
Sources of Returns
Competitive Competencies
Advantage
Criteria of Value
Capabilities
Sustainable Chain
Teams of Advantages Analysis
Resources
Resources * Valuable * Rare * Outsource
* Costly to Imitate
* Tangible
* Intangible * Organized to be exploited
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15. The Components of Internal
Analysis
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16. Value
Value is measured by a product’s performance
characteristics and it’s attributes for which
clients are willing to pay.
Core competencies in combination with product-
market positions are the firms most important
sources of competitive advantage and should
drive it’s selection of strategies.
© 2006 by Nelson, a division of Thomson Canada Limited. 4-16

17. Resources, Capabilities & Core
Competencies
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18. Resources, Capabilities & Core
Competencies
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19. Discovering Core
Competencies
Capabilities
Teams of
Resources
Resources
* Tangible
* Intangible
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20. Discovering Core
Competencies
Core
Competencies
Discovering
Sources of Core
Competitive Competencies
Advantage
Capabilities
Teams of
Resources
Resources
* Tangible
* Intangible
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21. Resources, Capabilities & Core
Competencies
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22. 0
Resources, Capabilities & Core
Competencies
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23. 0
Discovering Core
Competencies
Core
Competencies
Discovering
Sources of Core
Competitive Competencies
Advantage
Capabilities Criteria of
Sustainable
Teams of
Resources Advantages
Resources * Valuable * Rare * Outsource
* Tangible * Costly to Imitate
* Intangible * Organized to be exploited
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24. Core Competencies For a strategic
capability to be a Core Competency, it must be:
Valuable Allow a firm to neutralize threats or exploit
opportunities in its external environment.
Rare Possessed by few, if any, current and
potential competitors.
Costly to When other firms either cannot obtain
Imitate $ them or must obtain them at a much higher
cost.
Organized The firm must be organized appropriately to
to be obtain full benefits of the resources in order to
realize a competitive advantage.
Exploited
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*

25. Core Competencies
Resources Core Competence
• Inputs to a firm’s • A strategic capability
production process
Does the capability
satisfy the criteria of
sustainable competitive YES
Capability advantage?
The source of
• Integration of a
team of resources
NO
Capability
• A non-strategic team
of resources
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26. The VRIO Framework
Costly to Org. to be Competitive Performance
Valuable Rare
Valuable
Imitate Exploited Consequences Implications
Below
Competitive Average
NO NO NO NO Disadvantage Returns
Competitive Average
YES NO NO YES Parity Returns
Temporary Avg./Above
YES YES NO YES Competitive Average
Advantage Returns
Sustainable Above
YES YES YES YES Competitive Average
Advantage Returns
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27. Discovering Core
Competencies
Core
Competencies
Discovering
Sources of Core
Competitive Competencies
Advantage
Capabilities Criteria of Value
Sustainable Chain
Teams of
Resources Advantages Analysis
Resources * Valuable * Rare * Outsource
* Tangible * Costly to Imitate
* Intangible * Organized to be exploited
© 2006 by Nelson, a division of Thomson Canada Limited. 4-27

28. Value Chain Analysis
Firm Infrastructure
Human Resource Management M
A
R
Support G
Activities Technological Development IN
Procurement
Service
Operations
Logistics
Outbound
Marketing
Logistics
Inbound
& Sales
IN
ARG
M
Primary Activities
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29. Outsourcing Strategic choice to purchase some
activities from outside suppliers
Firm Infrastructure
Human Resource Management M
A
Support R
G
Activities Technological Development IN
Procurement
Service
Operations
Outbound
Marketing
Logistics
Logistics
Inbound
& Sales
IN
ARG
M
Firms often buy a portion of their value-creating activities from specialty
Primary Activities
external suppliers who can perform these functions more efficiently.
© 2006 by Nelson, a division of Thomson Canada Limited. 4-29

30. Outsourcing Strategic choice to purchase some
activities from outside suppliers
Firm Infrastructure
Human Resource Management
Human Resource Management MA
Technological R
Support Development G
Activities Technological Development IN
Procurement
Procurement
Service
Operations
Outbound
Marketing
Logistics
Logistics
Inbound
Service
& Sales
IN
G
AR
Outbound
Inbound Operations Logistics Marketing
Logistics & Sales M
Firms often buy a portion of their value-creating activities from specialty
external suppliers who can perform these functions more efficiently.
© 2006 by Nelson, a division of Thomson Canada Limited. 4-30

31. Outsourcing Strategic choice to purchase some
activities from outside suppliers
Firm Infrastructure
Human Resource Management
Human Resource Management MA
Technological R
Support Development G
Activities Technological Development IN
Procurement
Procurement
Service
Operations
Outbound
Marketing
Logistics
Logistics
Inbound
Service
& Sales
IN
G
AR
Outbound
Inbound Operations Logistics Marketing
Logistics & Sales M
Firms often buy a portion of their value-creating activities from specialty
external suppliers who can perform these functions more efficiently.
© 2006 by Nelson, a division of Thomson Canada Limited. 4-31

32. 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
They are former core competencies that sow
the seeds of organizational inertia.
Prevent the firm from responding appropriately to
changes in the external environment.
© 2006 by Nelson, a division of Thomson Canada Limited. 4-32

33. Discovering Core
Competencies
Strategic
Core Competitiveness
Competencies
Discovering
Core Above-Average
Sources of Returns
Competitive Competencies
Advantage
Capabilities Criteria of Value
Sustainable Chain
Teams of
Resources Advantages Analysis
Resources * Valuable * Rare * Outsource
* Tangible * Costly to Imitate
* Intangible * Organized to be exploited
© 2006 by Nelson, a division of Thomson Canada Limited. 4-33