PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookThe University of West AlabamaThe University of West Alabama
Strategic Strategic ManagementManagementCompetitiveness and Globalization: Competitiveness and Globalization: Concepts and CasesConcepts and Cases Michael A. Hitt • R. Duane Ireland • Robert E. Hoskisson
Seventh edition
STRATEGIC
MANAGEMENT
INPUTS
STRATEGIC
MANAGEMENT
INPUTS
CHAPTER 3CHAPTER 3
The Internal The Internal Environment: Environment: Resources, Capabilities, Resources, Capabilities, and Core Competenciesand Core Competencies
BUSINESS PLAN COMPETITIONBUSINESS PLAN COMPETITION
• February 4, 2008February 4, 2008Business Plan Writing Workshop Set for Feb. 13 Business Plan Writing Workshop Set for Feb. 13 • The Rhode Island Business Plan Competition will host a The Rhode Island Business Plan Competition will host a freefree workshop--"How to workshop--"How to
Write a Business Plan"--Wednesday, Feb. 13, that will provide insights and tips Write a Business Plan"--Wednesday, Feb. 13, that will provide insights and tips on how to write a business plan that will attract attention from investors. on how to write a business plan that will attract attention from investors.
• The workshop is the second of three offered in advance of the April 7 deadline The workshop is the second of three offered in advance of the April 7 deadline to apply to this year's competition, which will award $165,000 in prizes. to apply to this year's competition, which will award $165,000 in prizes.
• Sixcia Devine, a highly regarded, Rhode Island-based consultant and business Sixcia Devine, a highly regarded, Rhode Island-based consultant and business coach to entrepreneurs, will lead this fast-paced, hands-on workshop. coach to entrepreneurs, will lead this fast-paced, hands-on workshop.
• Named one of 40 Under 40 Young Professionals of the Year by the Providence Named one of 40 Under 40 Young Professionals of the Year by the Providence Business News in 2007, Devine works with business resources partners Business News in 2007, Devine works with business resources partners throughout Rhode Island. She also is the founder of SpeakNow! Spanish and throughout Rhode Island. She also is the founder of SpeakNow! Spanish and counsels women entrepreneurs from a variety of cultural and economic counsels women entrepreneurs from a variety of cultural and economic backgrounds. backgrounds.
• Pre-registration Is RequiredPre-registration Is Required• The event, which is free to the public, will be held 5 - 7 p.m. at the Culinary Archives The event, which is free to the public, will be held 5 - 7 p.m. at the Culinary Archives
and Museum at the Harborside Campus of Johnson & Wales University. and Museum at the Harborside Campus of Johnson & Wales University. • Pre-registration is required, and may be completed online by Pre-registration is required, and may be completed online by clicking hereclicking here. . • The campus, about a six-minute drive from downtown Providence, has plenty of free The campus, about a six-minute drive from downtown Providence, has plenty of free
parking. For directions, parking. For directions, click hereclick here. .
• Final Workshop: March 13Final Workshop: March 13 The final free workshop of the 2008 Rhode Island Business Plan The final free workshop of the 2008 Rhode Island Business Plan Competition--"How to Present Your Business Plan"--will be held March 13. Competition--"How to Present Your Business Plan"--will be held March 13.
• The event will feature successful Rhode Island entrepreneurs who will provide do's and don'ts on The event will feature successful Rhode Island entrepreneurs who will provide do's and don'ts on how to present a plan to investors. To register, how to present a plan to investors. To register, click hereclick here. .
• Deadline to Apply: April 7 Deadline to Apply: April 7 April 7 is the deadline to apply online to the 2008 Rhode Island April 7 is the deadline to apply online to the 2008 Rhode Island Business Competition. Business Competition.
• Final plans are not required at that time--only completion of an online application. For more on Final plans are not required at that time--only completion of an online application. For more on how to apply, how to apply, click hereclick here. .
• Dates to WatchDates to Watch• Rules & PrizesRules & Prizes• Apply OnlineApply Online• Upcoming EventsUpcoming Events• SponsorsSponsors• Helpful ResourcesHelpful Resources• email: [email protected] email: [email protected] • web: http://www.ri-bizplan.com web: http://www.ri-bizplan.com • The 2008 Rhode Island Business Plan Competition, sponsored by a consortium of businesses, The 2008 Rhode Island Business Plan Competition, sponsored by a consortium of businesses,
nonprofits, colleges and universities, and public agencies to promote the development of start-up nonprofits, colleges and universities, and public agencies to promote the development of start-up and early stage companies in Rhode island.and early stage companies in Rhode island.
1.1. Explain the need for firms to study and understand their Explain the need for firms to study and understand their internal environment.internal environment.
2.2. Define value and discuss its importance.Define value and discuss its importance.
3.3. Describe the differences between tangible and Describe the differences between tangible and intangible resources.intangible resources.
4.4. Define capabilities and discuss how they are Define capabilities and discuss how they are developed.developed.
5.5. Describe four criteria used to determine whether Describe four criteria used to determine whether resources and capabilities are core competencies.resources and capabilities are core competencies.
Studying this chapter should provide you with the strategic management knowledge needed to:
KKNOWLEDGENOWLEDGE O OBJECTIVES BJECTIVES (cont’d)(cont’d)
6.6. Explain how value chain analysis is used to identify and Explain how value chain analysis is used to identify and evaluate resources and capabilities.evaluate resources and capabilities.
7.7. Define outsourcing and discuss the reasons for its use.Define outsourcing and discuss the reasons for its use.
8.8. Discuss the importance of identifying internal strengths Discuss the importance of identifying internal strengths and weaknesses.and weaknesses.
Studying this chapter should provide you with the strategic management knowledge needed to:
• Firms achieve strategic competitiveness and Firms achieve strategic competitiveness and earn above-average returns when their core earn above-average returns when their core competencies are effectively:competencies are effectively: Acquired.Acquired. Bundled.Bundled. Leveraged.Leveraged.
• Over time, the benefits of any value-creating Over time, the benefits of any value-creating strategy can be duplicated by competitors.strategy can be duplicated by competitors.
• Sustainability of a competitive advantage is a Sustainability of a competitive advantage is a function of:function of:
The rate of core competence obsolescence due to The rate of core competence obsolescence due to environmental changes.environmental changes.
The availability of substitutes for the core The availability of substitutes for the core competence.competence.
The difficulty competitors have in duplicating or The difficulty competitors have in duplicating or imitating the core competence.imitating the core competence.
By studying the external environment, firms By studying the external environment, firms identify what they identify what they might choose to do.might choose to do.
OpportunitieOpportunities and s and threatsthreats
The Context of Internal AnalysisThe Context of Internal Analysis
• Global EconomyGlobal Economy Traditional sources of advantages can be overcome Traditional sources of advantages can be overcome
by competitors’ international strategies and by the by competitors’ international strategies and by the flow of resources throughout the global economy.flow of resources throughout the global economy.
• Global Mind-SetGlobal Mind-Set The ability to study an internal environment in ways The ability to study an internal environment in ways
that are not dependent on the assumptions of a single that are not dependent on the assumptions of a single country, culture, or context.country, culture, or context.
• Analysis OutcomeAnalysis Outcome Understanding how to leverage the firm’s bundle of Understanding how to leverage the firm’s bundle of
heterogeneous resources and capabilities.heterogeneous resources and capabilities.
FIGUREFIGURE 3.13.1 Components of Internal Analysis Leading to Components of Internal Analysis Leading to Competitive Advantage and Strategic Competitive Advantage and Strategic CompetitivenessCompetitiveness
• By exploiting their core competencies or By exploiting their core competencies or competitive advantages, firms create value.competitive advantages, firms create value.
Product attributes for which customers are willing to Product attributes for which customers are willing to paypay
• Firms create value by innovatively bundling and Firms create value by innovatively bundling and leveraging their resources and capabilities.leveraging their resources and capabilities.
• Superior value Superior value Above-average returnsAbove-average returns
• Core competencies, in combination with product-Core competencies, in combination with product-market positions, are the firm’s most important market positions, are the firm’s most important sources of competitive advantage.sources of competitive advantage.
• Core competencies of a firm, in addition to its Core competencies of a firm, in addition to its analysis of its general, industry, and competitor analysis of its general, industry, and competitor environments, should drive its selection of environments, should drive its selection of strategies.strategies.
The Challenge of Internal AnalysisThe Challenge of Internal Analysis
• Strategic decisions in terms of the firm’s Strategic decisions in terms of the firm’s resources, capabilities, and core competencies:resources, capabilities, and core competencies:
Are non-routine.Are non-routine.
Have ethical implications.Have ethical implications.
Significantly influence the firm’s ability to earn above-Significantly influence the firm’s ability to earn above-average returns.average returns.
The Challenge of Internal Analysis The Challenge of Internal Analysis (cont’d)(cont’d)• To develop and use core competencies, To develop and use core competencies,
managers must have:managers must have:
CourageCourage
Self-confidenceSelf-confidence
IntegrityIntegrity
The capacity to deal with uncertainty and complexityThe capacity to deal with uncertainty and complexity
A willingness to hold people (and themselves) A willingness to hold people (and themselves) accountable for their workaccountable for their work
Financial Resources • The firm’s borrowing capacity
• The firm’s ability to generate internal funds
Organizational Resources • The firm’s formal reporting structure and its formal planning, controlling, and coordinating systems
Physical Resources •Sophistication and location of a firm’s plant and equipment
• Access to raw materials
Technological Resources • Stock of technology, such as patents, trademarks, copyrights, and trade secrets
Sources: Adapted from J. B. Barney, 1991, Firm resources and sustained competitive advantage, Journal of Management, 17: 101; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 100–102.
Human Resources • Knowledge• Trust• Managerial capabilities•Organizational routines
Innovation Resources • Ideas• Scientific capabilities• Capacity to innovate
Reputational Resources • Reputation with customers• Brand name• Perceptions of product quality, durability, and reliability• Reputation with suppliers• For efficient, effective, supportive, and mutually beneficial interactions and relationships
Sources: Adapted from R. Hall, 1992, The strategic analysis of intangible resources, Strategic Management Journal, 13: 136–139; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 101–104.
Resources, Capabilities and Core Resources, Capabilities and Core CompetenciesCompetencies
• CapabilitiesCapabilities Represent the capacity to deploy Represent the capacity to deploy
resources that have been resources that have been purposely integrated to achieve a purposely integrated to achieve a desired end statedesired end state
Emerge over time through complex Emerge over time through complex interactions among tangible and interactions among tangible and intangible resourcesintangible resources
Often are based on developing, Often are based on developing, carrying and exchanging carrying and exchanging information and knowledge through information and knowledge through the firm’s human capitalthe firm’s human capital
Resources, Capabilities and Core Resources, Capabilities and Core CompetenciesCompetencies
• Capabilities (cont’d)Capabilities (cont’d) The foundation of many The foundation of many
capabilities lies in:capabilities lies in:• The unique skills and The unique skills and
knowledge of a firm’s knowledge of a firm’s employeesemployees
• The functional expertise of The functional expertise of those employeesthose employees
Capabilities are often Capabilities are often developed in specific developed in specific functional areas or as part functional areas or as part of a functional area.of a functional area.
Resources, Capabilities and Core Resources, Capabilities and Core CompetenciesCompetencies
• Core CompetenciesCore Competencies Resources and capabilities that Resources and capabilities that
are the sources of a firm’s are the sources of a firm’s competitive advantage:competitive advantage:
• Distinguish a company Distinguish a company competitively and reflect its competitively and reflect its personality.personality.
• Emerge over time through an Emerge over time through an organizational process of organizational process of accumulating and learning accumulating and learning how to deploy different how to deploy different resources and capabilities.resources and capabilities.
Resources, Capabilities and Core Resources, Capabilities and Core CompetenciesCompetencies
• Core CompetenciesCore Competencies Activities that a firm performs Activities that a firm performs
especially well compared to especially well compared to competitors.competitors.
Activities through which the firm Activities through which the firm adds unique value to its goods adds unique value to its goods or services over a long period of or services over a long period of time.time.
TableTable 3.53.5 Outcomes from Combinations of the Outcomes from Combinations of the Criteria for Sustainable Competitive Criteria for Sustainable Competitive AdvantageAdvantage
• Allows the firm to understand the parts of its Allows the firm to understand the parts of its operations that create value and those that do operations that create value and those that do not.not.
• A template that firms use to:A template that firms use to:
Understand their cost position.Understand their cost position.
Identify multiple means that might be used to facilitate Identify multiple means that might be used to facilitate implementation of a chosen business-level strategy.implementation of a chosen business-level strategy.
Value Chain Analysis (cont’d)Value Chain Analysis (cont’d)
• Value ChainValue Chain Shows how a product moves from the raw-material Shows how a product moves from the raw-material
stage to the final customer.stage to the final customer.
• To be a source of competitive advantage, a To be a source of competitive advantage, a resource or capability must allow the firm:resource or capability must allow the firm: To perform an activity in a manner that is superior to To perform an activity in a manner that is superior to
the way competitors perform it, orthe way competitors perform it, or
To perform a value-creating activity that competitors To perform a value-creating activity that competitors cannot completecannot complete
TableTable 3.63.6 Examining the Value-Creating Potential of Primary Examining the Value-Creating Potential of Primary ActivitiesActivities
Inbound LogisticsActivities, such as materials handling, warehousing, and inventory control, used to receive, store, and disseminate inputs to a product.
OperationsActivities necessary to convert the inputs provided by inbound logistics into final product form. Machining, packaging, assembly, and equipment maintenance are examples of operations activities.
Outbound LogisticsActivities involved with collecting, storing, and physically distributing the final product to customers. Examples of these activities include finished goods warehousing, materials handling, and order processing.
Marketing and SalesActivities completed to provide means through which customers can purchase products and to induce them to do so. To effectively market and sell products, firms develop advertising and promotional campaigns, select appropriate distribution channels, and select, develop, and support their sales force.
ServiceActivities designed to enhance or maintain a product’s value. Firms engage in a range of service-related activities, including installation, repair, training, and adjustment.
Each activity should be examined relative to competitors’ abilities. Accordingly, firms rate each activity as superior, equivalent, or inferior.
TableTable 3.73.7 Examining the Value-Creating Potential of Support Examining the Value-Creating Potential of Support ActivitiesActivities
ProcurementActivities completed to purchase the inputs needed to produce a firm’s products. Purchased inputs include items fully consumed during the manufacture of products (e.g., raw materials and supplies, as well as fixed assets—machinery, laboratory equipment, office equipment, and buildings).
Technological DevelopmentActivities completed to improve a firm’s product and the processes used to manufacture it. Technological development takes many forms, such as process equipment, basic research and product design, and servicing procedures.
Human Resource ManagementActivities involved with recruiting, hiring, training, developing, and compensating all personnel.
Firm InfrastructureFirm infrastructure includes activities such as general management, planning, finance, accounting, legal support, and governmental relations that are required to support the work of the entire value chain. Through its infrastructure, the firm strives to effectively and consistently identify external opportunities and threats, identify resources and capabilities, and support core competencies.
Each activity should be examined relative to competitors’ abilities. Accordingly, firms rate each activity as superior, equivalent, or inferior.
The Value-Creating Potential of Primary The Value-Creating Potential of Primary Activities (cont’d)Activities (cont’d)• Marketing and SalesMarketing and Sales
Activities completed to provide the means through Activities completed to provide the means through which customers can purchase products and to which customers can purchase products and to induce them to do so.induce them to do so.
• ServiceService Activities designed to enhance or maintain a product’s Activities designed to enhance or maintain a product’s
valuevalue• Each activity should be examined relative to competitor’s Each activity should be examined relative to competitor’s
abilities and rated as superior, equivalent or inferior.abilities and rated as superior, equivalent or inferior.
The Value-Creating Potential of Primary The Value-Creating Potential of Primary Activities: SupportActivities: Support• ProcurementProcurement
Activities completed to purchase the inputs needed to Activities completed to purchase the inputs needed to produce a firm’s products.produce a firm’s products.
• Technological DevelopmentTechnological Development Activities completed to improve a firm’s product and Activities completed to improve a firm’s product and
the processes used to manufacture it.the processes used to manufacture it.
• Human Resource ManagementHuman Resource Management Activities involved with recruiting, hiring, training, Activities involved with recruiting, hiring, training,
developing, and compensating all personnel.developing, and compensating all personnel.
The Value-Creating Potential of Primary The Value-Creating Potential of Primary Activities: Support (cont’d)Activities: Support (cont’d)• Firm InfrastructureFirm Infrastructure
Activities that support the work of the entire value Activities that support the work of the entire value chain (general management, planning, finance, chain (general management, planning, finance, accounting, legal, government relations, etc.)accounting, legal, government relations, etc.)• Effectively and consistently identify external Effectively and consistently identify external
opportunities and threatsopportunities and threats• Identify resources and capabilitiesIdentify resources and capabilities• Support core competenciesSupport core competencies
Each activity should be examined relative to Each activity should be examined relative to competitor’s abilities and rated as superior, equivalent competitor’s abilities and rated as superior, equivalent or inferior.or inferior.
• The purchase of a value-creating activity from an The purchase of a value-creating activity from an external supplierexternal supplier Few organizations possess the resources and Few organizations possess the resources and
capabilities required to achieve competitive superiority capabilities required to achieve competitive superiority in all primary and support activities.in all primary and support activities.
• By performing fewer capabilities:By performing fewer capabilities: A firm can concentrate on those areas in which it can A firm can concentrate on those areas in which it can
create value.create value. Specialty suppliers can perform outsourced Specialty suppliers can perform outsourced
capabilities more efficiently.capabilities more efficiently.
Outsourcing DecisionsOutsourcing DecisionsA firm may A firm may outsource all or only outsource all or only part of one or more part of one or more primary and/or primary and/or support activities.support activities.
Strategic Rationales for OutsourcingStrategic Rationales for Outsourcing
• Improving business focusImproving business focus Helps a company focus on broader business issues Helps a company focus on broader business issues
by having outside experts handle various operational by having outside experts handle various operational details.details.
• Providing access to world-class capabilitiesProviding access to world-class capabilities The specialized resources of outsourcing providers The specialized resources of outsourcing providers
makes world-class capabilities available to firms in a makes world-class capabilities available to firms in a wide range of applications.wide range of applications.
Strategic Rationales for Outsourcing Strategic Rationales for Outsourcing (cont’d)(cont’d)• Accelerating re-engineering benefitsAccelerating re-engineering benefits
Achieves re-engineering benefits more quickly by Achieves re-engineering benefits more quickly by having outsiders—who have already achieved world-having outsiders—who have already achieved world-class standards—take over process.class standards—take over process.
• Sharing risksSharing risks Reduces investment requirements and makes firm Reduces investment requirements and makes firm
more flexible, dynamic and better able to adapt to more flexible, dynamic and better able to adapt to changing opportunities.changing opportunities.
• Freeing resources for other purposesFreeing resources for other purposes Redirects efforts from non-core activities toward those Redirects efforts from non-core activities toward those
that serve customers more effectively.that serve customers more effectively.
Outsourcing IssuesOutsourcing Issues• Seeking greatest valueSeeking greatest value
Outsource only to firms possessing a core Outsource only to firms possessing a core competence in terms of performing the primary or competence in terms of performing the primary or supporting the outsourced activity.supporting the outsourced activity.
• Evaluating resources and capabilitiesEvaluating resources and capabilitiesDo notDo not outsource activities in which the firm itself outsource activities in which the firm itself
can create and capture value.can create and capture value.
• Environmental threats and ongoing tasksEnvironmental threats and ongoing tasksDo notDo not outsource primary and support activities that outsource primary and support activities that
are used to neutralize environmental threats or to are used to neutralize environmental threats or to complete necessary ongoing organizational tasks.complete necessary ongoing organizational tasks.
• Nonstrategic team resourcesNonstrategic team resourcesDo notDo not outsource capabilities critical to the firm’s outsource capabilities critical to the firm’s
success, even though the capabilities are not actual success, even though the capabilities are not actual sources of competitive advantage.sources of competitive advantage.
• Firm’s knowledge baseFirm’s knowledge baseDo notDo not outsource activities that stimulate the outsource activities that stimulate the
development of new capabilities and competencies.development of new capabilities and competencies.
Cautions and RemindersCautions and Reminders• Never take for granted that core competencies will Never take for granted that core competencies will
continue to provide a source of competitive advantage.continue to provide a source of competitive advantage.
• All core competencies have the potential to become All core competencies have the potential to become core core rigiditiesrigidities——former core competencies that now generate former core competencies that now generate inertia and stifle innovation.inertia and stifle innovation.
• Determining what the firm can do through continuous and Determining what the firm can do through continuous and effective analyses of its internal environment will increase effective analyses of its internal environment will increase the likelihood of long-term competitive success.the likelihood of long-term competitive success.
