Transparency 3-1 Chapter 3 The Internal Environment: Resources, Capabilities and Core Competencies...

Transparency 3-1Transparency 3-1

Chapter 3Chapter 3

The Internal Environment: Resources, Capabilities and

Core Competencies

The Internal Environment: Resources, Capabilities and

Core Competencies

Michael A. HittMichael A. HittR. Duane IrelandR. Duane Ireland

Robert E. HoskissonRobert E. Hoskisson

Michael A. HittMichael A. HittR. Duane IrelandR. Duane Ireland

Robert E. HoskissonRobert E. Hoskisson

©1999 South-Western College Publishing©1999 South-Western College Publishing


What the Firm Might Do

What the Firm Can Do

Chapter 2Chapter 2

External EnvironmentExternal Environment

Five Forces AnalysisFive Forces Analysis

Chapter 3Chapter 3

Internal EnvironmentInternal EnvironmentResources, Capabilities and Core CompetenciesResources, Capabilities and Core Competencies


What the Firm Might Do

What the Firm Can Do

Chapter 2Chapter 2

External EnvironmentExternal Environment

Five Forces AnalysisFive Forces Analysis

Chapter 3Chapter 3

Internal EnvironmentInternal EnvironmentResources, Capabilities and Core CompetenciesResources, Capabilities and Core Competencies

SustainableSustainableCompetitiveCompetitiveAdvantageAdvantage


ResourcesResources

** TangibleTangible** IntangibleIntangible

CapabilitiesCapabilities

Teams of ResourcesTeams of Resources

Sources ofSources of

CoreCoreCompetenciesCompetencies

CompetitiveCompetitiveAdvantageAdvantage

StrategicStrategicCompetitivenessCompetitiveness

Above-AverageAbove-AverageReturnsReturns


Gained throughGained throughCore CompetenciesCore Competencies

DiscoveringDiscoveringCoreCore

CompetenciesCompetencies

Discovering Core CompetenciesDiscovering Core Competencies


Resources represent inputs into a firm’s production process...

such as capital equipment, skills of employees, brand names, finances and talented managers

What a firm Has...ResourcesResourcesResourcesResources


ResourcesResources










Gained throughGained throughCore CompetenciesCore Competencies



Criteria ofSustainableAdvantages

ValueChain

Analysis


ValuableRareCostly to ImitateNonsubstitutable

****

Outsource*


CapabilitiesCapabilities What a firm Does...

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


Core CompetenciesCore CompetenciesWhat a firm Does...that is Strategically

ValuableCore Competencies must be:ValuableValuableCapabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment

Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment


Core CompetenciesCore Competencies

Core Competencies must be:ValuableValuable

RareRareCapabilities that are possessed by few, if any, current or potential competitorsCapabilities that are possessed by few, if any, current or potential competitors



What a firm Does...that is Strategically

Valuable




RareRare

Costly to ImitateCostly to ImitateCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexityCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity

Capabilities that are possessed by few, if any, current or potential competitorsCapabilities that are possessed by few, if any, current or potential competitors




Valuable




RareRare

NonsubstitutableNonsubstitutableCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationshipsCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships

Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexityCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity

Capabilities that are possessed by few, if any, current or potential competitorsCapabilities that are possessed by few, if any, current or potential competitors




Valuable

Costly to ImitateCostly to Imitate


SupportActivities

Primary Activities

Value Chain AnalysisValue Chain AnalysisTo identify which resources and capabilities can add value


SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysis

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helps to identify which resources and capabilities can add value


SupportActivities

Primary Activities


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Procurement


SupportActivities

Primary Activities


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ProcurementProcurement

Technological Development


SupportActivities

Primary Activities

Value Chain AnalysisValue Chain Analysishelps to identify which resources and capabilities can add value

Technological DevelopmentTechnological Development


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Human Resource Management


SupportActivities

Primary Activities



Human Resource ManagementHuman Resource Management

Firm Infrastructure


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Firm InfrastructureFirm Infrastructure


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SupportActivities

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Inbound Inbound LogisticsLogistics

OperationsOperationsOutboundOutboundLogisticsLogistics

ServiceService

Marketing Marketing & Sales& Sales




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Firms often purchase a portionportion of their value-creating activities from specialty external suppliers who can perform these functions more efficientlymore efficiently

OutsourcingOutsourcing- strategic choice to purchase some activities from outside suppliers

OutsourcingOutsourcing- strategic choice to purchase some activities from outside suppliers


To capitalize on the usefulness of the Value Chain concept...

it is important to recognize that...


Value Chains are part of a Total Value SystemValue Chains are part of a Total Value System

Supplier Value Chain Firm Value ChainFirm Value Chain Channel Value Chain Buyer Value Chain



Firm Value Chain Channel Value Chain Buyer Value Chain

Supplier Value ChainSupplier Value Chain

Upstream ValueUpstream Value

Perform valuable activities that complement the firm’s activities



Supplier Value Chain Firm Value Chain Buyer Value Chain

Downstream Value

Channel Value ChainChannel Value Chain

Each firm must eventually find a way to become a part of some buyer’s value chain



Supplier Value Chain Firm Value Chain Channel Value Chain

Buyer Value ChainBuyer Value Chain

Ultimate basis for differentiation is the ability to play a role in a buyer’s value chain

This creates VALUE!!


ResourcesResources











ValueChain

Analysis


Outsource*ValuableRareCostly to ImitateNonsubstitutable

****

Criteria ofSustainableAdvantages


Comparative Market Share (%)by Installed Units

0

2

4

6

8

10

12

14

16

1988 1989 1990 1991

IBM

Apple

NEC

Compaq


Industry Growth(in $billions)

0

5

10

15

20

25

30

35

40

45

1982 1986 1990 1994

Desktops

Portables

Servers

TOTAL


Cost of Processing (MIPS)

$75,000

$10,000

$2,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

1980 1985 1991

Cost of Processing


Comparative Profitability

-5

0

5

10

15

20

25

1991 ROS (%)

Apple

IBM

Compaq

Dell

Intel

Microsoft


5-Forces Model of Computer Industry

Suppliers• O/S • Processors• Application Software• Memory Devices

Buyers• Price Sensitive• Mass Merchandisers• Mail Order

Substitutes• Workstations• Palm-tops/ PDA’s

Potential Entrants• Low Entry Barriers

Rivalry

• New Products• More Marketing• Price Cutting• Outsourcing• Windows


Strategic Group Map Pre-Windows

Price

Premium

Low

Strategic Focus - Differentiation

Broad Narrow

Apple

IBM

Sun

Clones

Compaq


Strategic Group Map Post-Windows

Price

Premium

Low

Strategic Focus - Differentiation

Broad Narrow

Apple

IBM

Sun

Clones

Compaq

Weakness


SupportActivities

Primary Activities






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How to Create Value in the PC Industry?

MARG

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Transparency 3-1 Chapter 3 The Internal Environment: Resources, Capabilities and Core Competencies...

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