Chapter 3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages

Value

measured by a product's performance characteristics and by its attributes for which customers are willing to pay

Global Mind-set

the ability to analyze, understand, and manage an internal organization in ways that are not dependent on the assumptions of a single country, culture, or context

Outsourcing

the purchase of a value-creating activity or a support function activity from an external supplier

Rare Capabilities

are capabilities that few, if any, competitors possess

Costly-to-imitate Capabilities

are capabilities that other firms cannot easily develop

Support Functions

include the activities or tasks the firm completes in order to support the work being done to produce, sell, distribute, and service the products the firm is producing

Why is it important for a firm to study and understand its internal organization?

By studying the internal environment, firms identify what they can do: unique resources, capabilities, and competencies (required for a sustainable competitive advantage)

What are core rigidities? What does it mean to say that each core competence could become a core rigidity?

Core Rigidity is a core competency that is generally too strong or heavy within a company and when the balance shifts in the external environment it cannot shift with it. The key for most companies is to not let any resource sit for too long doing any one particular task. It should be able to multitask or at least serve more than one purpose within the business role. All core competencies have the potential to become core rigidities - former core competencies that now generate inertia and stifle innovation

How do firms identify internal strengths and weaknesses? Why is it vital that managers have a clear understanding of their firm's strengths and weaknesses?

Firms identify their internal strengths and weaknesses by analyzing their internal business environment. Managers should have a clear understanding of their internal strengths and weaknesses because of the following reasons: To be make sure they have the "right" resources and not just lots of resources If a resource is considered to be right then it can be molded into a core competency Managers need to fully understand their strengths and weaknesses so they can create capabilities that create value.

What is value? Why is it critical for the firm to create value? How does it do so?

Measured by product performance characteristics and product attributes for which customers will pay. By exploiting their core competencies or competitive advantages, firms create value. Firms also create value by innovatively bundling and leveraging their resources and capabilities. Superior Value = Above-avg returns

What are capabilities? How do firms create capabilities?

Represent the capacity to deploy resources that have been purposely integrated to achieve a desired end state, emerge over time through complex interactions among tangible and intangible resources, often are based on developing, carrying and exchanging information and knowledge through the firm's human capital. The foundation of many capabilities lies in the unique skills and knowledge of a firm's employees and the functional expertise of those employees. Capabilities are often developed in specific functional area or as a part of a functional area.

What are the differences between tangible and intangible resources? Why is it important for decision makers to understand these differences? Are tangible resources more valuable for creating capabilities than are intangible resources, or its the reverse true? Why?

Tangible resources are observed and quantified. Intangible resources are rooted deeply in firm's history, accumulate over time, are difficult for competitors to analyze and imitate. Intangible resources often plays a more significant role than tangible resources: more valuable because you can leverage them more.

What is outsourcing? Why do firms outsource?

The purchase of value-creating activity from an external supplier. When a firm cannot create value in either a value chain activity or support function, outsourcing is considered. By performing fewer capabilities a firm can concentrate on those areas in which it can create value. Specialty suppliers can perform outsourced capabilities more efficiently

Tangible Resources

are assets that can be observed and quantified (Financial, Organizational, Physical, Technological)

What is value chain analysis? What does the firm gain by successfully using this tool?

Value chain analysis is used to identify and evaluate the competitive potential of resources and capabilities. By studying their skills relative to those associated with value chain activities and support functions, firms can understand their cost structure and identify the activities through which they are able to create value

What four criteria must capabilities satisfy for them to become core competencies? Why is it important for firms to use these criteria to evaluate their capabilities' value creating potential?

Value, Rarity, Costly-to-imitate, and Nonsubstitutability. Capabilities failing to satisfy the four criteria are not core competencies, meaning that although every core competency is a capability, not every capability is a core competency.

Valuable Capabilities

allow the firm to exploit opportunities or neutralize threats in its external environment

Value Chain Activities

are activities or tasks the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customers

Intangible Resources

are assets that are rooted deeply in the firm's history, accumulate over time, and are relatively difficult for competitors to analyze and imitate (HR, Innovation Resources, Reputational Resources)

Nonsubstitutable Capabilities

are capabilities that do not have strategic equivalents