It is an easy-to-use tool for developing an overview of a company’s strategic situation It forms a basis for matching your company’s strategy to its situation

1. Ch3
The Internal Environment:The Internal Environment:
Resources, Capabilities andResources, Capabilities and
Core CompetenciesCore Competencies
www.aashrayforeveryone.org

2. Ch3
Chapter 2
External Environment
What the Firm Might Do
Chapter 3
Internal Environment
What the Firm Can Do
SustainableSustainable
CompetitiveCompetitive
AdvantageAdvantage

3. Ch3
SWOT Analysis
• Strengths
• Weaknesses
• Opportunities
• Threats

4. Ch3
The purpose of SWOT Analysis
• It is an easy-to-use tool for developing
an overview of a company’s strategic
situation
– It forms a basis for matching your
company’s strategy to its situation

5. Ch3
Strengths
• A STRENGTH is something a company
is good at doing or a characteristic that
gives it an important capability.
• Possible Strengths:
– Name recognition
– Proprietary technology
– Cost advantages
– Skilled employees
– Loyal Customers

6. Ch3
Weaknesses
• A WEAKNESS is something a company
lacks or does poorly (in comparison to
others) or a condition that places it at a
disadvantage
• Possible Weaknesses:
– Poor market image
– Obsolete facilities
– Internal operating problems
– Poor marketing skills

7. Ch3
Strengths and Weakness form a
basis for INTERNAL analysis
• By examining strengths, you can
discover untapped potential or identify
distinct competencies that helped you
succeed in the past.
• By examining weaknesses, you can
identify gaps in performance,
vulnerabilities, and erroneous
assumptions about existing strategies.

8. Ch3
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

9. Ch3
How do we assembleHow do we assemble bundlesbundles of Resources,of Resources,
Capabilities and Core Competencies to createCapabilities and Core Competencies to create
VALUEVALUE for customers?for customers?
Will environmental changes make our coreWill environmental changes make our core
competencies obsolete?competencies obsolete?
And...And...
Are substitutes available for our coreAre 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

10. Ch3-
Resources
* Tangible
* Intangible
Discovering Core
Competencies

11. Ch3-
What a firm has to work with:What a firm has to work with:
itsits assetsassets, including its, including its peoplepeople andand
the value of itsthe value of its brand namebrand name
What a firmWhat a firm HasHas......Resources

12. Ch3-
Resources representResources represent inputs into ainputs into a
firm’s production processfirm’s production process......
such as capital equipment, skills ofsuch as capital equipment, skills of
employees, brand names, financesemployees, brand names, finances
and talented managersand talented managers
What a firmWhat a firm HasHas......
What a firm has to work with:What a firm has to work with:
its assets, including its peopleits assets, including its people
and the value of its brand nameand the value of its brand name
Resources

13. Ch3-
What a firm has to work with:What a firm has to work with:
its assets, including its peopleits assets, including its people
and the value of its brand nameand the value of its brand name
Resources represent inputs into aResources represent inputs into a
firm’s production process...firm’s production process...
such as capital equipment, skillssuch as capital equipment, skills
of employees, brand names,of employees, brand names,
finances and talented managersfinances and talented managers
““Some genius invented the Oreo. We’re justSome 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 NabiscoRJR Nabisco
What a firmWhat a firm HasHas......Resources

14. Ch3-
Tangible Resources
Financial*
Physical*
Human Resources*
Organizational*
What a firm Has...
What a firm has to work with:
its 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
Intangible Resources
Technological*
Innovation*
Reputation*
“Some genius invented the Oreo.
We’re just living off the inheritance.”
F. Ross Johnson,
Former President & CEO, RJR Nabisco
Resources

15. Ch3-
Resources
* Tangible
* Intangible
Capabilities
Teams of
Resources
Discovering Core
Competencies

16. Ch3-
What a firm Does...
Capabilities represent:Capabilities represent:
the firm’s capacity or ability tothe firm’s capacity or ability to integrateintegrate
individual firm resourcesindividual firm resources to achieve a desiredto achieve a desired
objective.objective.
Capabilities

17. Ch3-
What a firm Does...
Capabilities develop over time as a result of complex
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 represent:
the firm’s capacity or ability to integrate individual
firm resources to achieve a desired objective.
Capabilities

18. Ch3-
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 of complex
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 combinedCapabilities become important when they are combined
inin unique combinationsunique combinations which create core competencieswhich create core competencies
which havewhich have strategic valuestrategic value and can lead toand can lead to competitivecompetitive
advantageadvantage..
Capabilities

19. Ch3-
Resources
* Tangible
* Intangible
Capabilities
Teams of
Resources
Discovering Core
Competencies
Sources of
Core
Competencies
Competitive
Advantage
Discovering
Core
Competencies

20. Ch3-
What a firm Does...
that is Strategically
Valuable
“…“…are the essence of what makes an organizationare the essence of what makes an organization
unique in its ability to provide value tounique in its ability to provide value to
customers.”customers.”
Leonard-Barton, Bowen, Clark, Holloway & WheelwrightLeonard-Barton, Bowen, Clark, Holloway & Wheelwright
McKinsey & Co. recommends identifying three to fourMcKinsey & Co. recommends identifying three to four
competencies to use in framing strategic actions.competencies to use in framing strategic actions.
Core Competencies

21. Ch3-
Resources
* Tangible
* Intangible
Capabilities
Teams of
Resources
Sources of
Core
Competencies
Competitive
Advantage
Discovering
Core
Competencies
Criteria of
Sustainable
Advantages
Valuable
Rare
Costly to Imitate
Nonsubstitutable
*
*
*
*
Discovering Core
Competencies
* Outsource

22. Ch3-
For a strategic capability to be aFor a strategic capability to be a
Core Competency, it must be:Core Competency, it must be:
Core Competencies
Valuable
Rare
Costly to Imitate
Nonsubstitutable
What a firm Does...
that is Strategically
Valuable

23. Ch3-
Core Competencies must be:
Nonsubstitutable
Capabilities that do not have strategic equivalents, such as firm-
specific knowledge or trust-based relationships
What a firm Does...
that is Strategically
Valuable
Core Competencies
Valuable
Rare
Costly to Imitate
Capabilities 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
competitors
Capabilities that either help a firm to exploit opportunities to
create value for customers or to neutralize threats in the
environment

24. Ch3-
Resources
* Tangible
* Intangible
Capabilities
Teams of
Resources
Sources of
Core
Competencies
Competitive
Advantage
Discovering
Core
Competencies
Value
Chain
Analysis
* Outsource
Valuable
Rare
Costly to Imitate
Nonsubstitutable
*
*
*
*
Criteria of
Sustainable
Advantages
Discovering Core
Competencies

25. Ch3-
Support
Activities
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

26. Ch3-
Support
Activities
Primary Activities
InboundInbound
LogisticsLogistics
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

27. Ch3-
Support
Activities
Primary Activities
InboundInbound
LogisticsLogistics
OperationsOperations
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

28. Ch3-
Support
Activities
Primary Activities
InboundInbound
LogisticsLogistics
OperationsOperations
OutboundOutbound
LogisticsLogistics
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

29. Ch3-
Support
Activities
Primary Activities
InboundInbound
LogisticsLogistics
OperationsOperations
OutboundOutbound
LogisticsLogistics
MarketingMarketing
&Sales&Sales
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

30. Ch3-
Support
Activities
Primary Activities
InboundInbound
LogisticsLogistics
OperationsOperations
OutboundOutbound
LogisticsLogistics
MarketingMarketing
&Sales&Sales
ServiceService
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

31. Ch3-
Support
Activities
Primary Activities
InboundInbound
LogisticsLogistics
OperationsOperations
OutboundOutbound
LogisticsLogistics
MarketingMarketing
&Sales&Sales
ServiceService
ProcurementProcurement
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

32. Ch3-
Support
Activities
Primary Activities
InboundInbound
LogisticsLogistics
OperationsOperations
OutboundOutbound
LogisticsLogistics
MarketingMarketing
&Sales&Sales
ServiceService
ProcurementProcurement
Technological DevelopmentTechnological Development
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

33. Ch3-
Support
Activities
Primary Activities
Technological DevelopmentTechnological Development
ProcurementProcurement
InboundInbound
LogisticsLogistics
OperationsOperations
OutboundOutbound
LogisticsLogistics
MarketingMarketing
&Sales&Sales
ServiceService
Human Resource ManagementHuman Resource Management
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

34. Ch3-
Support
Activities
Primary Activities
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
InboundInbound
LogisticsLogistics
OperationsOperations
OutboundOutbound
LogisticsLogistics
MarketingMarketing
&Sales&Sales
ServiceService
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

35. Ch3-
Support
Activities
Primary Activities
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
InboundInbound
LogisticsLogistics
OperationsOperations
OutboundOutbound
LogisticsLogistics
MarketingMarketing
&Sales&Sales
ServiceService
M
A
R
G
IN
M
A
R
G
IN
M
A
R
G
IN
M
A
R
G
IN
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

36. Ch3-
Support
Activities
Primary Activities
OutsourcingOutsourcing
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
InboundInbound
LogisticsLogistics
OperationsOperations
OutboundOutbound
LogisticsLogistics
MarketingMarketing
&Sales&Sales
ServiceService
M
A
R
G
IN
M
A
R
G
IN
M
A
R
G
IN
M
A
R
G
IN
Strategic Choice to Purchase Some Activities From Outside Suppliers

37. Ch3-
Support
Activities
Primary Activities
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
InboundInbound
LogisticsLogistics
OperationsOperations
OutboundOutbound
LogisticsLogistics
MarketingMarketing
&Sales&Sales
ServiceService
M
A
R
G
IN
M
A
R
G
IN
InboundInbound
LogisticsLogistics
OperationsOperations
OutboundOutbound
LogisticsLogistics
ServiceService
MarketingMarketing
& Sales& Sales
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
ProcurementProcurement
M
A
R
G
IN
M
A
R
G
IN
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

38. Ch3-
Lets company focus on broader business issues by having outside
experts handle various operational details
Strategic Rationales for OutsourcingStrategic Rationales for Outsourcing
Improve Business Focus
Permits firm to redirect efforts from non-core activities toward those
that serve customers more effectively
Free Resources for Other Purposes
Provide Access to World-Class Capabilities
Accelerate Business Re-Engineering Benefits
Share Risks
The specialized resources of outsourcing providers makes world-
class capabilities available to firms in a wide range of applications
Achieves re-engineering benefits more quickly by having outsiders--
who have already achieved world-class standards--take over process
Reduces investment requirements and makes firm more flexible,
dynamic and better able to adapt to changing opportunities

39. Ch3-
Core Competencies--Cautions and Reminders
Never take for granted that core competencies will
continue to provide a source of competitive advantage
All core competencies have the potential to become
Core Rigidities
Core Rigidities are former core competencies that sow
the seeds of organizational inertia and prevent the firm
from responding appropriately to changes in the
external environment
Strategic myopia and inflexibility can strangle the firm’s
ability to grow and adapt to environmental change or
competitive threats

40. Ch3-
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
Value
Chain
Analysis
Valuable
Rare
Costly to Imitate
Nonsubstitutable
*
*
*
*
* Outsource
Criteria of
Sustainable
Advantages
Discovering Core
Competencies