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Resources, capabilities, and core competencies  4.2.. It is core because of its location in the linkages of competencies to aspirations” Core competences are the skills and abilities by

CHAPTER 4 INTERNAL ANALYSIS

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 4.1 Resources, capabilities, and core competencies

 4.2 Building blocks of competitive advantages

 4.3 Internal factor analysis summary (IFAS)

4.1.1 Resources

 Resource: The inputs that firms use to create goods and services

(Porter, 1985; Fred David, 2011)

 Resources are what you have

 Capabilities/competences are what you can do

 Tangible

 Financial, Organizational, Physical, and Technological

 Assets that can be seen, touched and quantified

 Examples: equipment, facilities, distribution centers, formal reporting structures

 Intangible

 Human, Innovation and Reputational Resources

 Assets rooted deeply in the firm’s history, accumulated over time

 Usually, can’t be seen or touched

 Examples: knowledge, trusts, organizational routines, capabilities, innovation, brand

4.1.1 Resources

4.1.2 Capabilities

Competence/Capability is central to a corporation’s main business operations and allows

it to generate new products and services.

Competences are the skills and abilities by which resources are deployed effectively

through an organization’s activities and processes

4.1.3 Core competencies

Ackermann et al (2007, p 704) stated that “a core competency is one that is crucial

to the success of the organization It is core because of its location in the linkages of competencies to aspirations”

Core competences are the skills and abilities by which resources are deployed

through an organization’s activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain (Gary Hamel and C.K Prahalad, 1990)

4.1.3 Core competencies

Examples of Core Competencies

efficient management processes, and developing and training leaders

Core competence Distinctive and superior

skills, technology relationships, knowledge and reputation of the firm Unique, and difficult to copy

Intangible and invisible assets

Perceived customer benefits/value added

Not all capabilities are core

competences – only those

that add greater value than

those of competitors

Denotes feedback loop

denotes core competence development

Figure1 The relationships between resources, capabilities and core competence

 4.1 Resources, capabilities, and core competencies

 4.2 Building blocks of competitive advantages

 4.3 Internal factor analysis summary (IFAS)

 Competitive advantage: special capability that helps businesses achieve the same

benefits as the competitors but at a lower cost (cost advantage) or achieve benefits far beyond the products competition (differential advantage) It allows businesses

to provide higher value to customers, while generating greater profits for the company itself (Porter, 2016).

4.2.1 Definition of competitive advantage

 Sustainable competitive advantage: According to Coyne Kevin (1986):

Sustainable competitive advantage is related to enterprises' efforts to establish and maintain advantages over a long period of time Sustainable competitive advantage is influenced by three factors: size of the target market; greater access

to resources and customers and limitations on the powers of the CCPs Often an enterprise can create a sustainable competitive advantage based on characteristics that cannot be easily copied.

4.2.1 Definition of competitive advantage

 Employee productivity refers to the output produced per employee.

lower cost structure.

 A product is said to have superior quality when customers perceive that its

attributes provide them with higher utility than the attributes of products sold by rivals.

 When customers evaluate the quality of a product, they commonly measure two attributes.

 Quality as excellence: Product design and styling, aesthetic appeal, features, and so on.

 Quality as reliability: The product consistently performs, its function well, and rarely, if

ever, breaks down.

Superior Quality

 Process innovation is the development of a new process for producing products and delivering them to customers (Toyota’s lean production system helped to boost employee productivity).

Superior innovation

 To achieve superior customer responsiveness, a company must be able to do a better job at identifying and satisfying its customers’ needs.

 A company needs to customize goods and services to the unique demands of individual customers or customer groups.

 Customer response time is the time it takes for the goods to be delivered or a service to be performed.

Superior Customer Responsiveness

4.2.3 Criteria for assessing sustainable competitive advantage (VRINE)

Performance implication Test Competitive implication

Valuable? Does the resource or capability allow the firm

to meet a market demand or protect the firmfrom market uncertainties?

If so, it satisfies the value requirement

Valuable resources are needed just to compete

in the industry, but value by itself does notconvey an advantage

Valuable resources and capabilities convey the

potential to achieve “normal profits” (i.e., profits

which cover the cost of all inputs including thecost of capital)

Rare? Assuming the resource or capability is valuable,

is it scarce relative to demand? Or, is it widelypossessed by most competitors?

Valuable resources which are also rare convey acompetitive advantage, but its relativepermanence is not assured

The advantage is likely only temporary

A temporary competitive advantage conveys thepotential to achieve above normal profits, atleast until the competitive advantage is nullified

Valuable resources and capabilities which aredifficult to imitate or substitute provide thepotential for sustained competitive advantage

A sustained competitive advantage conveys thepotential to achieve above normal profits forextended periods of time (until competitorseventually find ways to imitate or substitute orthe environment changes in ways that nullify thevalue of the resources)

Exploit-able?

For each step of the preceding steps of theVRINE test, can the firm actually exploit theresources and capabilities that it owns orcontrols?

Resources and capabilities that satisfy the otherVRINE requirements but which the firm isunable to exploit actually result in significantopportunity costs (other firms would likely paylarge sums to purchase the VRINE resources

Firms which control unexploited VRINEresources and capabilities generally suffer fromlower levels of financial performance anddepressed market valuations relative to whatthey would otherwise enjoy (though not as

 4.1 Resources, capabilities, and core competencies

 4.2 Building blocks of competitive advantages

 4.3 Internal factor analysis summary (IFAS)

4.4.1 Stages of establishing IFAS

 Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm’s industry Regardless of whether a key factor is an internal strength or weakness, factors considered to have the greatest effect on organizational performance should be assigned the highest weights The sum of all weights must equal 1.0.

 Assign a 1-to-4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4) Note that strengths must receive a 3

or 4 rating and weaknesses must receive a 1 or 2 rating Ratings are thus company-based, whereas the weights in step 2 are industry-based.

 Multiply each factor’s weight by its rating to determine a weighted score for each variable.

 Sum the weighted scores for each variable to determine the total weighted score for the organization.

4.4.2 IFAS framework