Internal analysis

The Internal Environment: The Internal Environment: Resources, Capabilities andResources, Capabilities and

Core CompetenceCore Competence

Defining the BusinessDefining the Business

Who is being satisfied?

Break down into specificcustomer groups

What needs are being satisfied?

Break down into specificneeds 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

Defining the businessDefining the businessCustomerGroups

CustomerNeeds

BusinessDefinition

Distinctive Competencies

Resources Capabilities

Competitive Advantage:Low cost and/or differentiation

Competitive Adv. Bldg blocksEfficiencyInnovation

QualityCustomer responsiveness

Generic Strategy

ExternalExternal and Internal Analysesand Internal Analyses

By studying the internal By studying the internal environment, firms identify environment, firms identify what they what they can docan do

Unique resources, Unique resources, capabilities, and core capabilities, and core competenciescompetencies

(sustainable competitive (sustainable competitive advantage)advantage)

External and External and InternalInternal Analyses Analyses

Challenge of Internal AnalysisChallenge of Internal Analysis How do we effectively manage current core How do we effectively manage current core

competencies while simultaneously competencies while simultaneously developing new ones?developing new ones?

How do we assemble bundles of resources, How do we assemble bundles of resources, capabilities and core competencies to capabilities and core competencies to create value for customers?create value for customers?

How do we learn to change rapidly?How do we learn to change rapidly?

Components ofComponents ofInternal AnalysisInternal Analysis

Discovering CoreDiscovering CoreCompetenciesCompetencies

ResourcesResources• TangibleTangible• IntangibleIntangible

CapabilitiesCapabilities

CoreCoreCompetenciesCompetencies

CompetitiveCompetitiveAdvantageAdvantage

StrategicStrategicCompetitivenessCompetitiveness

Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages

• ValuableValuable• RareRare• Costly to ImitateCostly to Imitate• NonsubstitutableNonsubstitutable

ValueValueChainChain

AnalysisAnalysis

• OutsourceOutsource



Resources are what a firm has Resources are what a firm has to work with--its assets--to work with--its assets--including its people and the including its people and the value of its brand namevalue of its brand name

Resources represent inputs into Resources represent inputs into a firm’s production process... a firm’s production process... such as capital equipment, skills such as capital equipment, skills of employees, brand names, of employees, brand names, finances and talented managersfinances and talented managers

RESOURCESRESOURCES

• 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



Tangible ResourcesTangible Resources• FinancialFinancial• PhysicalPhysical• Human resourcesHuman resources• OrganizationalOrganizational

Intangible ResourcesIntangible Resources• TechnologicalTechnological• InnovationInnovation• ReputationReputation



Capabilities become important when they are combined Capabilities become important when they are combined in unique combinations which create core competencies in unique combinations which create core competencies which have strategic value and can lead to competitive which have strategic value and can lead to competitive advantageadvantage



Capabilities are what a firm does, and represent the firm’s Capabilities are what a firm does, and represent the firm’s capacity or ability to integrate individual firm resources to capacity or ability to integrate individual firm resources to achieve a desired objectiveachieve a desired objective


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


CoreCoreCompetenciesCompetencies

Core competencies are resources and capabilities that serve Core competencies are resources and capabilities that serve as a source of competitive advantage over rivalsas a source of competitive advantage over rivals

Core competencies distinguish a company competitively Core competencies distinguish a company competitively and make it distinctiveand make it distinctive

McKinsey and Co. recommends using three to four McKinsey and Co. recommends using three to four competencies when framing strategic actionscompetencies when framing strategic actions

Core CompetenciesCore 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

Core CompetenciesCore 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




Valuable: Capabilities that help a firm neutralize threats or Valuable: Capabilities that help a firm neutralize threats or exploit opportunitiesexploit opportunities




Rare: Capabilities that are not possessed by many othersRare: Capabilities that are not possessed by many others




Costly to imitate: capabilities that other firms cannot Costly to imitate: capabilities that other firms cannot develop easily, usually due todevelop easily, usually due to

• Unique historical conditionsUnique historical conditions• Causal ambiguityCausal ambiguity• Social complexitySocial complexity




Nonsubstitutable: capabilities that do not have strategic Nonsubstitutable: capabilities that do not have strategic equivalentsequivalents

• Invisible to competitorsInvisible to competitors• Firm specific knowledgeFirm specific knowledge• Trust-based working relationships between managers Trust-based working relationships between managers

and non managerial personneland non managerial personnel

Core Competence as a Strategic Core Competence as a Strategic CapabilityCapability

ResourcesResources• Inputs to a firm’s Inputs to a firm’s

production processproduction process

CapabilityCapability• A nonstrategicA nonstrategic

team or resourceteam or resource

Core CompetenceCore Competence• A strategicA strategic

capabilitycapability

The source ofThe source of

Does it satisfy the Does it satisfy the criteria of sustainable criteria of sustainable competitive competitive advantage?advantage?

YesYes

NoNo

CapabilityCapability• An integration of aAn integration of a

team of resourcesteam of resources

The BasicThe BasicValue ChainValue 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

ServiceService

Marketing & SalesMarketing & Sales

Outbound LogisticsOutbound Logistics

OperationsOperations

Inbound LogisticsInbound LogisticsFirm

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Firm

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Hum

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Margin Margin

Primary ActivitiesPrimary Activities

Sup

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Sup

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The BasicThe BasicValue ChainValue Chain

Core Competencies CreationCore 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

Margin

Margin Margin

Margin

Primary ActivitiesPrimary Activities

Su

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OutsourcingOutsourcing

Outsourcing is the Outsourcing is the purchase of some or purchase of some or all of a value-all of a value-creating activity creating activity from an external from an external suppliersupplier

Usually this is Usually this is because the specialty because the specialty supplier can provide supplier can provide these functions more these functions more efficientlyefficiently

ServiceService

Marketing & SalesMarketing & Sales

Outbound LogisticsOutbound Logistics

OperationsOperations

Inbound LogisticsInbound LogisticsFir

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Infr

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Strategic Rationales for OutsourcingStrategic Rationales for Outsourcing Improve Business FocusImprove Business Focus

– lets company focus on broader business lets company focus on broader business issues by having outside experts handle issues by having outside experts handle various operational detailsvarious operational details

Provide Access to World-Class Provide Access to World-Class CapabilitiesCapabilities– the specialized resources of outsourcing the specialized resources of outsourcing

providers makes world-class capabilities providers makes world-class capabilities available to firms in a wide range of available to firms in a wide range of applicationsapplications

Strategic Rationales for OutsourcingStrategic Rationales for Outsourcing Free Resources for Other PurposesFree Resources for Other Purposes

– permits firm to redirect efforts from non-core permits firm to redirect efforts from non-core activities toward those that serve customers activities toward those that serve customers more effectivelymore effectively

Core Competencies: Cautions Core Competencies: Cautions and Remindersand Reminders Never take for granted that core Never take for granted that core

competencies will continue to provide a competencies will continue to provide a source of competitive advantagesource of competitive advantage

All core competencies have the potential All core competencies have the potential to become to become core rigiditiescore rigidities

Core rigidities are former core Core rigidities are former core competencies that now generate inertia competencies that now generate inertia and stifle innovationand stifle innovation

Documents

Internal analysis