STRATEGIC MANAGEMENT

The Internal Environment:

Resources, Capabilities and
Core Competencies
External Environment
What the Firm Might Do

Sustainable
Competitive
Advantage

Internal Environment
What the Firm Can Do
 Competitive
Discovering Core Advantage
Gained through
Competencies 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 Analysis
Resources
* Tangible
* Valuable * Outsource
* Intangible * Rare
* Costly to Imitate
* Nonsubstitutable
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 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
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
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
* Innovation
* Reputation
Discovering Core
Competencies

Capabilities
Teams of
Resources

Resources
* Tangible
* Intangible
Capabilities What a firm Does...

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

Discovering
Core
Core
Competencies
Competencies
Sources of
Competitive
Advantage

Capabilities
Teams of
Resources

Resources
* Tangible
* Intangible
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.
Discovering Core
Competencies

Discovering
Core
Core
Competencies
Competencies
Sources of
Competitive
Advantage

Capabilities Criteria of
Teams of Sustainable
Resources Advantages
Resources
* Valuable
* Tangible
* Intangible * Rare
* Costly to Imitate
* Nonsubstitutable * Outsource
Core Competencies What a firm Does...
that is Strategically
For a strategic capability to be a
Valuable
Core Competency, it must be:

Valuable

Rare

Costly to Imitate

Nonsubstitutable
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
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities
Logistics
Inbound

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities

Operations
Logistics
Inbound

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities

Operations

Outbound
Logistics

Logistics
Inbound

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities

Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities

Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities
Technological Development
Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Human Resource Management
Activities
Technological Development
Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Firm Infrastructure

Support
Human Resource Management
Activities
Technological Development
Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Firm Infrastructure
Human Resource Management M
Support A
R
Activities G
Technological Development IN
Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

IN
G
R
A
M
Primary Activities
 Outsourcing
Strategic Choice to Purchase Some Activities From Outside Suppliers

Firm Infrastructure
Human Resource Management M
Support A
R
Activities G
Technological Development IN
Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

IN
G
R
A
M
Primary Activities
 Outsourcing
Strategic Choice to Purchase Some Activities From Outside Suppliers

Firm Infrastructure
Human Resource Management

Human Resource Management M

Support A
Firms often purchase a portion
Technological Development R activities
Activities G
of their value-creating
Technological Development IN suppliers
from specialty external
Procurement
who can perform these functions
Procurement more efficiently

Service
Operations

Outbound

Marketing
Service
Logistics
Inbound

& Sales
Logistics

IN
G
Outbound

R
Inbound Operations Logistics Marketing

A
& Sales

M
Logistics

Primary Activities
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