Ch3-1 Chapter 3 Chapter 3 The Internal Environment: The Internal Environment: Resources, Capabilities and Resources, Capabilities and Core Competencies Core Competencies Michael A. Hitt Michael A. Hitt R. Duane Ireland R. Duane Ireland Robert E. Hoskisson Robert E. Hoskisson ©2000 South-Western College Publishing Ch3-2 Chapter 3 Internal Environment Chapter 2 External Environment The Strategic The Strategic Management Management Process Process The Strategic The Strategic Management Management Process Process Strategic Intent Strategic Mission Strategic Competitiveness Above Average Returns Feedback Strategy Formulation Chapter 4 Business-Level Strategy Chapter 5 Competitive Dynamics Chapter 6 Corporate-Level Strategy Chapter 8 International Strategy Chapter 9 Cooperative Strategies Chapter 7 Acquisitions & Restructuring Strategy Implementation Chapter 10 Corporate Governance Chapter 11 Structure & Control Chapter 12 Strategic Leadership Chapter 13 Entrepreneurship & Innovation Strategic Inputs Strategic Actions Strategic Outcomes Ch3-3 Chapter 2 External Environment What the Firm Might Do Chapter 3 Internal Environment What the Firm Can Do Sustainable Sustainable Competitive Competitive Advantage Advantage Ch3-4 Resources * Tangible * Intangible Capabilities Teams of Resources Sources of Core Competencies Competitive Advantage Strategic Competitiveness Above-Average Returns Competitive Advantage Gained through Core Competencies Discovering Core Competencies Discovering Core Competencies Criteria of Sustainable Advantages Value Chain Analysis Valuable Rare Costly to Imitate Nonsubstitutable * * * * * Outsource Ch3-5 How do we assemble How do we assemble bundles bundles of Resources, of Resources, Capabilities and Core Competencies to create Capabilities and Core Competencies to create VALUE VALUE for customers? for customers? Will environmental changes make our core Will environmental changes make our core competencies obsolete? competencies obsolete? And And Are substitutes available for our core Are substitutes available for our core competencies? competencies? Are our core competencies easily imitated? Are our core competencies easily imitated? Key Questions for Managers in Internal Analysis Ch3-6 Conditions Affecting Managerial Decisions About Resources, Capabilities and Core Competencies Uncertainty regarding characteristics of the general and the industry environments, competitor’s actions, and customer’s preferences. Complexity regarding the interrelated causes shaping a firm’s environments and perceptions of the environments Intraorganizational Conflicts among people making managerial decisions and those affected by them Ch3-7 Resources * Tangible * Intangible Discovering Core Competencies Ch3-8 What a firm has to work with: What a firm has to work with: its its assets assets , including its , including its people people and and the value of its the value of its brand name brand name What a firm What a firm Has Has Resources Ch3-9 Resources represent Resources represent inputs into a inputs into a firm’s production process firm’s production process such as capital equipment, skills of such as capital equipment, skills of employees, brand names, finances employees, brand names, finances and talented managers and talented managers What a firm What a firm Has Has What a firm has to work with: What a firm has to work with: its assets, including its people its assets, including its people and the value of its brand name and the value of its brand name Resources Ch3-10 What a firm has to work with: What a firm has to work with: its assets, including its people its assets, including its people and the value of its brand name and the value of its brand name Resources represent inputs into a Resources represent inputs into a firm’s production process 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 managers finances and talented managers “ “ Some genius invented the Oreo. We’re just Some genius invented the Oreo. We’re just living off the inheritance.” living off the inheritance.” F. Ross Johnson, F. Ross Johnson, Former President & CEO, Former President & CEO, RJR Nabisco RJR Nabisco What a firm What a firm Has Has Resources [...]... 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 Ch3- Capabilities What a firm Does Capabilities represent: the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective Capabilities. .. 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... 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 “Some genius invented the Oreo We’re just living off the inheritance.” F Ross Johnson, Former President & CEO, RJR Nabisco Ch3- Discovering Core Competencies Capabilities Teams of Resources... Resources Resources * Tangible * Intangible Ch3- Capabilities What a firm Does Capabilities represent: the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective Ch3- 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... interpersonal relationships, trust and friendships among managers or a firm’s reputation with suppliers and customers Ch3- Core Competencies Core Competencies must be: Valuable What a firm Does that is Strategically 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... Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Operations Inbound Logistics Support Activities Primary Activities Ch3- Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Outbound Logistics Operations Inbound Logistics Support Activities Primary Activities Ch3- Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Primary... Competitive Advantage Capabilities Criteria of Sustainable Advantages Teams of Resources Resources * Tangible * Intangible * * * * Valuable Rare Costly to Imitate Nonsubstitutable Value Chain Analysis * Outsource Ch3- Value Chain Analysis Identifying Resources and Capabilities That Can Add Value Support Activities Primary Activities Ch3- Value Chain Analysis Identifying Resources and Capabilities That... Rare Costly to Imitate Nonsubstitutable Ch3- Core Competencies What a firm Does that is Strategically Valuable Valuable Capabilities that help a firm neutralize threats or exploit opportunities Rare Capabilities that are not possessed by many others Costly to Imitate Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity... contribute to the development of competencies in a manner that is unique to those particular circumstances Example: Disney created Mickey Mouse at a time when animated motion pictures were new Causal Ambiguity This occurs when competitors are unable to detect how a firm uses its competencies as a foundation for competitive advantage Social Complexity Occurs when the firm’s capabilities are the result... 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 firmspecific knowledge or trust-based relationships Ch3- Core Competencies Resources Core Competence • Inputs to a firm’s production process The source of • A strategic . Ch3-1 Chapter 3 Chapter 3 The Internal Environment: The Internal Environment: Resources, Capabilities and Resources, Capabilities and Core Competencies Core Competencies Michael. Internal Analysis Ch3-6 Conditions Affecting Managerial Decisions About Resources, Capabilities and Core Competencies Uncertainty regarding characteristics of the general and the industry environments,. bundles bundles of Resources, of Resources, Capabilities and Core Competencies to create Capabilities and Core Competencies to create VALUE VALUE for customers? for customers? Will environmental