The Internal Organization:

Resources, Capabilities, Core Competencies

and Competitive Advantages
Resources, Capabilities and Core
Competencies

• Competitive Advantage (CA) foundation includes

– Resources
• Bundled to create organizational capabilities
• Tangible and intangible (As seen in Figure )
– Capabilities
• Source of a firm’s core competencies and basis for CA
• Purposely integrated to achieve a specific task/set of tasks
– Core Competencies
• Capabilities that serve as a source of CA for a firm over its
rivals
• Distinguish a company from its competitors – the personality
• Xerox with 230 innovation awards with service expertise,
employee talent, innovation, and technological skills are the
core competences of Xerox
 Components of Internal Analysis Leading to Competitive
Advantage and Strategic Competitiveness

Strategic

Competitivene
ss
Competitive
Advantage

Discovering
Core Competencies

Core
Competencies

Capabilities

Resources
• Tangible Four Criteria Value
• Intangible Of Sustainable Chain
Advantages Analysis

• Valuable • Outsource
• Rare
• Costly to Imitate
• Non substitutable
Resources, Capabilities and Core
Competencies
• Resources are inputs in production process, and their unique
bundling is the source of CA. Amazon.com combined service and
distribution resources to create CA works online job for Border and
other businesses to ship million products to millions across globe
• Tangible Resources
– Assets that can be seen, touched and quantified
– Examples include equipment, facilities, distribution centers,
formal reporting structures. They are hard to leverage eg. Air
craft and crew members
– Four specific types
Tangible Resources

Financial Resources •The firm’s borrowing capacity

•Ability to generate internal funds
Organizational •Formal reporting structure and its formal
Resources planning, controlling and coordination
systems
Physical Resources •Sophistication and location of plant and
equipment
•Access to raw materials
Technological •Stock of technology, patents, trade marks,
Resources copyrights and trade secrets
• Intangible Resources
– Assets rooted deeply in the firm’s history, accumulated over time
– In comparison to ‘tangible’ resources, usually can’t be seen or
touched
– Examples include knowledge, trusts, organizational routines,
capabilities, innovation, brand name, reputation. They are easy
to leverage and are superior source of core competence and
sustainable CA because they can not be imitated e.g sharing
knowledge with employees increases the knowledge
– Three specific types
Intangible Resources

Human Resources •Knowledge

•Trust
•Managerial capabilities
•Organizational routines
Innovation Resources •Ideas
•Scientific capabilities
•Capacity to innovate
Reputational Resources •Reputation with customers
•Brand name
•Perception of product quality, durability and
reliability
•Reputation with suppliers
•For efficient, effective, supportive, and
mutually beneficial interactions and
relationship with stakeholders
Example of Firm’s capabilities
Functional Area Capabilities Example of Firms
Distribution Effective use of logistics management Wal-Mart
and techniques
Human Resources Motivating, empowering and retaining Microsoft
employees Google
Management Effective and efficient control of Wal-Mart,
Information inventories through point-of-purchase Amazon.com
systems data collection methods
Marketing Effective promotion of brand-name P&G, McKinsey &CO.,
products Nordstrom Inc. Norrell
Effective customer service Corporation, Crate and
Innovative merchandising Barrel

Management Ability to envision the future of clothing Hugo Boss

Effective organizational structure PepsiCo, GE
Manufacturing Design and production skills yielding Kamatsu
reliable products
Product and design quality Witt Gas Technology
Miniaturization Sony

Research and Innovative technology Caterpillar

Development Rapid use of technology in products Chaparral Steel
Digital Technology Thomson Electronics
Building Core Competencies:
Criteria and Value Chain Analysis

• Two tools firms use to identify and build on their

core competencies
– Four specific criteria of Sustainable CA
– Value Chain Analysis
Building Core Competencies:
Criteria (VRIO)and Value Chain Analysis
• Four specific criteria of sustainable competitive
advantage – capabilities that are:
– Valuable
– Rare
– Costly-to-imitate
– Organized to exploit (uniquely)
• Competitive consequences:
– Focus on capabilities that yield competitive parity and
either temporary or sustainable competitive advantage
• Performance implications include:
– Parity = average returns
– Temporary advantage = avg. to above avg. returns
– Sustainable advantage = above average returns
 Four Criteria for Sustainable CA
Criteria function Example
Valuable Help a firm neutralize threat or GE Ecomanagment
capabilities exploit opportunities Wal-Mart
sustainability
Rare capabilities Are not possessed by many firms Sony
Miniaturization
Costly-to- •Historical: a unique and valuable South-west airline
imitate culture or brand name culture
•Ambiguous cause: The causes Marlboro brand
and uses of competence are not
clear
•Social complexity: Interpersonal
relationships, trust and friendship
among managers, suppliers and
customers

Organized to No strategic equivalent Abbott drugs

exploit
Outcomes from combination of criteria of SCA

Is the Is it Is it costly Is it exploited Competitive Performance

capability rare? to imitate? by consequence implications
valuable? organization

No - - No Competitive Below AR
disadvantage

Yes No - Competitive AR
parity

Yes Yes No Temporary CA AR TO AAR

Yes Yes Yes Yes SCA AAR

Building Core Competencies:
Criteria and Value Chain Analysis

• Value Chain Analysis

– Primary activities
• Involved with product’s physical creation, sales and
distribution to buyers, and service after the sale
– Service, marketing/sales, outbound/inbound logistics and operations
– Support activities
• Provide assistance necessary for the primary activities to take
place
• Includes firm infrastructure, HRM, technologies development
and procurement
 M
IN A
R
G
The Basic Value Chain

R G
A IN
M
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Primary
Activities
Merck’s value chain
 SWOT Analysis

POSITIVE NEGATIVE

INTERNAL
STRENGTHS WEAKNESSES

EXTERNAL OPPORTUNITIES THREATS

Framework for appraising resources & capabilities
Relative Strength (Firm)

Superfluous Strengths Key Strengths

Zone of irrelevance Key Weaknesses

High
Low

Strategic importance (IKSF)

Low High
 Assessing
Assessing aa Company’s
Company’s Resources
Resources and
and
Capabilities:
Capabilities: The
The Case
Case of
of VW
VW
RESOURCES Importance VW’s relative CAPABILITIES Importance VW’s Relative
strenght Strenght
R1. Finance 6 6 C1. Product 9 4
Development
R2. Technology 7 5 C2. Purchasing 7 5
C3. Engineering 7 9
R3. Plant and 8 8
equipment C4. Manufacturing 8 4
R4. Location 4 4 C5. Financial 6 4
Management
R5. Distribution 8 5 C6. R&D 5 4

R6. Brands 6 5 C7. Marketing and 9 4

Sales
C8. Government 4 8
Relations
Both scales range from 1 to 10
C9. Strategic 7 4
(1= very low, 10= very high)
Management
Appraising
Appraising VW’s
VW’s Resources
Resources and
and Capabilities
Capabilities

(Hypothetical only)

10 Key Strengths
Superfluous Strengths
C3

C8 R3
Relative Strength

R1

R6 R2 C2 R5
5
R4 C6 C5 C9 C4 C1 C7

Zone of Irrelevance Key Weaknesses

1
1 5 10
Strategic Importance