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Ch3-1
Chapter 3
The Internal Environment:
Resources, Capabilities andCore Competencies
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson
2000 South-Western College Publishing
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Ch3-2
Chapter 2
External Environment
What the FirmMight Do
Chapter 3
Internal EnvironmentWhat the Firm Can Do
Sustainable
Competitive
Advantage
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Ch3-3
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
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Ch3-4
The purpose of SWOT Analysis
It is an easy-to-use tool for developing
an overview of a companys strategic
situation It forms a basis for matching your
companys strategy to its situation
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Ch3-5
Strengths
A STRENGTH is something a companyis good at doing or a characteristic thatgives it an important capability.
Possible Strengths:
Name recognition
Proprietary technology
Cost advantages
Skilled employees
Loyal Customers
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Ch3-6
Weaknesses
A WEAKNESS is something a company
lacks or does poorly (in comparison to
others) or a condition that places it at adisadvantage
Possible Weaknesses:
Poor market image Obsolete facilities
Internal operating problems
Poor marketing skills
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Strengths and Weakness form a
basis for INTERNAL analysis By examining strengths, you can
discover untapped potential or identifydistinct competencies that helped you
succeed in the past.
By examining weaknesses, you can
identify gaps in performance,
vulnerabilities, and erroneous
assumptions about existing strategies.
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Resources
* Tangible
* Intangible
Capabilities
Teams ofResources
Sources of
Core
Competencies
CompetitiveAdvantage
StrategicCompetitiveness
Above-AverageReturns
CompetitiveAdvantage
Gained throughCore Competencies
DiscoveringCore
Competencies
Discovering Core
Competencies
Criteria of
SustainableAdvantages
Value
ChainAnalysis
Valuable
Rare
Costly to ImitateNonsubstitutable
*
*
**
* Outsource
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How do we assemble bundles of Resources,Capabilities and Core Competencies to create
VALUE for customers?
Will environmental changes make our corecompetencies obsolete?
And...
Are substitutes available for our corecompetencies?
Are our core competencies easily imitated?
Key Questions for Managers
in Internal Analysis
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Resources
* Tangible
* Intangible
Discovering Core
Competencies
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What a firm has to work with:
its assets, including its people and
the value of its brand name
What a firmHas...Resources
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Resources represent inputs into afirms production process...
such as capital equipment, skills of
employees, brand names, financesand talented managers
What a firmHas...
What a firm has to work with:
its assets, including its people
and the value of its brand name
Resources
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What a firm has to work with:
its assets, including its people
and the value of its brand name
Resources represent inputs into a
firms production process...such as capital equipment, skills
of employees, brand names,
finances and talented managers
Some genius invented the Oreo. Were just
living off the inheritance.F. Ross Johnson,
Former President & CEO,
RJR Nabisco
What a firmHas...Resources
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Tangible Resources
Financial*
Physical*
Human Resources*Organizational*
What a firmHas...
What a firm has to work with:
its assets, including its people
and the value of its brand name
Resources represent inputs into a
firms production process...such as capital equipment, skills
of employees, brand names,
finances and talented managersIntangible Resources
Technological*
Innovation*
Reputation*
Some genius invented the Oreo.
Were just living off the inheritance.
F. Ross Johnson,Former President & CEO, RJR Nabisco
Resources
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Resources
* Tangible
* Intangible
Capabilities
Teams ofResources
Discovering Core
Competencies
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What a firmDoes...
Capabilities represent:the firms capacity or ability to integrate
individual firm resources to achieve a desired
objective.
Capabilities
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What a firmDoes...
Capabilities develop over time as a result ofcomplexinteractions that take advantage of the interrelationships
between a firms tangible and intangible resources that
are based on the development, transmission and
exchange or sharing of information and knowledge ascarried out by the firm's employees.
Capabilities represent:the firms capacity or ability to integrate individual
firm resources to achieve a desired objective.
Capabilities
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What a firmDoes...
Capabilities represent:the firms 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 firms 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 combinedin unique combinations which create core competencies
which havestrategic value and can lead tocompetitive
advantage.
Capabilities
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Resources
* Tangible
* Intangible
Capabilities
Teams ofResources
Discovering Core
Competencies
Sources of
CoreCompetencies
CompetitiveAdvantage
DiscoveringCore
Competencies
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What a firmDoes...
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.
Core Competencies
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Resources
* Tangible
* Intangible
Capabilities
Teams ofResources
Sources of
CoreCompetencies
CompetitiveAdvantage
DiscoveringCore
Competencies
Criteria of
SustainableAdvantages
Valuable
Rare
Costly to ImitateNonsubstitutable
*
*
**
Discovering Core
Competencies
* Outsource
h fi D
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Ch3-22
For a strategic capability to be a
Core Competency, it must be:
Core Competencies
Valuable
Rare
Costly to Imitate
Nonsubstitutable
What a firmDoes...that is Strategically
Valuable
Wh fi DC C t i
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Ch3-23
Core Competencies must be:
NonsubstitutableCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships
What a firmDoes...that is Strategically
Valuable
Core Competencies
Valuable
Rare
Costly to Imitate
Capabilities that other firms cannot develop easily, usually due tounique historical conditions, causal ambiguity or social complexity
Capabilities that are possessed by few, if any, current or potentialcompetitors
Capabilities that either help a firm to exploit opportunities to createvalue for customers or to neutralize threats in the environment
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Ch3-24
Resources
* Tangible
* Intangible
Capabilities
Teams ofResources
Sources of
CoreCompetencies
CompetitiveAdvantage
DiscoveringCore
Competencies
Value
ChainAnalysis
* Outsource
Valuable
Rare
Costly to ImitateNonsubstitutable
*
*
**
Criteria of
SustainableAdvantages
Discovering Core
Competencies
C i A i
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Ch3-25
Support
Activities
Primary Activities
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
V l Ch i A l i
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Ch3-26
Support
Activities
Primary Activities
Inbound
Logistics
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
V l Ch i A l i
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Ch3-27
Support
Activities
Primary Activities
Inbound
Logistics
Operations
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
V l Ch i A l i
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Ch3-28
Support
Activities
Primary Activities
Inbound
Logistics
Operations
Outbound
Logistics
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
V l Ch i A l i
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Ch3-29
Support
Activities
Primary Activities
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
&Sales
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
V l Ch i A l i
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Ch3-30
Support
Activities
Primary Activities
Inbound
Logistics
Operat
ions
Outbound
Logistics
Marketing
&Sales
Se
rvice
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
V l Ch i A l i
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Ch3-31
Support
Activities
Primary Activities
Inbound
Logistics
Operat
ions
Outbound
Logistics
Marketing
&Sales
Se
rvice
Procurement
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
V l Ch i A l i
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Ch3-32
Support
Activities
Primary Activities
Inbound
Logistics
Operat
ions
Outbound
Logistics
Marketing
&Sales
Se
rvice
Procurement
Technological Development
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
V l Ch i A l i
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Ch3-33
Support
Activities
Primary Activities
Technological Development
Procurement
Inbound
Logistics
Operat
ions
Outbound
Logistics
Marketing
&Sales
Se
rvice
Human Resource Management
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
V l Ch i A l i
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Ch3-34
Support
Activities
Primary Activities
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inbound
Logistics
Operat
ions
Outbound
Logistics
Marketing
&Sales
Se
rvice
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
V l Ch i A l i
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Ch3-35
Support
Activities
Primary Activities
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inbound
Logistics
Operat
ions
Outbound
Logistics
Marketing
&Sales
Se
rvice
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
Outsourcing
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Ch3-36
Support
Activities
Primary Activities
Outsourcing
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inbound
Logistics
Operat
ions
Outbound
Logistics
Marketing
&Sales
Se
rvice
Strategic Choice to Purchase Some Activities From Outside Suppliers
O tso rcing
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Ch3-37
Support
Activities
Primary Activities
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inbound
Logistics
Operat
ions
Outbound
Logistics
Marketing
&Sales
Se
rvice
Inbound
Logistics
Operations
Outbound
Logistics
Service
Marketing
& Sales
Technological Development
Human Resource Management
Procurement
Firms often purchase a portion
of their value-creating activities
from specialty external suppliers
who can perform these functions
more efficiently
OutsourcingStrategic Choice to Purchase Some Activities From Outside Suppliers
Strategic Rationales for Outsourcing
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Ch3-38
Lets company focus on broader business issues by having outside
experts handle various operational details
Strategic Rationales for Outsourcing
Improve Business Focus
Permits firm to redirect efforts from non-core activities toward thosethat serve customers more effectively
Free Resources for Other Purposes
Provide Access to World-Class Capabilities
Accelerate Business Re-Engineering Benefits
Share Risks
The specialized resources of outsourcing providers makes world-
class capabilities available to firms in a wide range of applications
Achieves re-engineering benefits more quickly by having outsiders--who have already achieved world-class standards--take over process
Reduces investment requirements and makes firm more flexible,
dynamic and better able to adapt to changing opportunities
C C t i C ti d R i d
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Ch3-39
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 environmentStrategic myopia and inflexibility can strangle the firms
ability to grow and adapt to environmental change or
competitive threats
Competitive
Discovering Core
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Resources
* Tangible
* Intangible
Capabilities
Teams of
Resources
Sources of
CoreCompetencies
CompetitiveAdvantage
Strategic
Competitiveness
Above-AverageReturns
pAdvantage
Gained throughCore Competencies
DiscoveringCore
Competencies
Value
ChainAnalysis
Valuable
Rare
Costly to Imitate
*
*
** O t
Criteria of
SustainableAdvantages
Discovering Core
Competencies
Recommended