Ch.

Internal
Environment:
Resources &
Capabilities

From External to Internal

THE FIRM
Goals and
Values
Resources and
Capabilities
Structure and
Systems

STRATEGY

THE
INDUSTRY
ENVIRONME
NT
Competitor
s
Customers
Suppliers

The
The
Firm-Strategy Environment-Strategy
Interface
Interface

Internal Elements
Functional Analysis (HIFORMS)
Keys to Core Competency (VRIN)
Aspects of Inimitability (CUTTS)

Internal Analysis
Divide firm up into different elements
Assess aspects of each
Determine level of strength or
weakness
Search for elements of core
competencies

Porters Value Chain

FIRM INFRASTRUCTURE

SUPPORT
ACTIVITIES

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT
PROCUREMENT

INBOUND
SERVICE
LOGISTICS

OPERATIONS

OUTBOUND

LOGISTICS

& SALES

MARKETING

PRIMARY
ACTIVITIES

Functional Analysis
(HIFORMS)
Human Resources
Training, motivation and compensation
of the workforce
Both systems and personnel
General Electric, Pepsico

Functional Analysis
(HIFORMS)
Infrastructure & Information Systems
Company context in which other
activities occur
Structure, control systems, culture,
leadership
Electronic systems for tracking firm
activities
Walmart, Cisco

Finance
Monetary resources, debt levels, &
profitability

Functional Analysis
(HIFORMS)
Operations
Creation of core good or service
generating value for the firm
Inbound, transformation, outbound
UPS, Four Seasons Hotels, Singapore
Airlines

Functional Analysis
(HIFORMS)
Research and Development
Design of products and processes
Resulting in either goods, service or
delivery mechanisms
Merck, Apple, 3M, Canon

Functional Analysis
(HIFORMS)
Marketing & Sales
Brand positioning, advertising, pricing
tactics & sales force
Proctor & Gamble, Pfizer

Service
After sales support, warranty &
relationship maintenance
Caterpillar

Core Competencies
Defined
Firm-specific strengths that allow a firm
to gain competitive advantage
Through differentiation or lower costs
Arise from resources and capabilities
May relate to value chain functions or
to elements within them
Should specifically and precisely
identify these

Resources and Capabilities

Resources
Resources
Core
Competencies

Capabilities

Tangible (land, equipment)

or intangible (reputation,
patents, know how) assets
of the firm
Unique strengths allowing
firm to create superior value
Skills at coordinating
resources and putting them
to productive use

VRIN: Key to Core

Competency
Resources & Capabilities must be:
Valuable
Rare
Inimitable
Nonsubstitutable

You can win with VRIN

VRIN: Key to Core

Competency
Valuable
Is a relevant Key Success Factor
Lowers cost, increases differentiation

Rare
Scarcity: few other companies have
them
Example: all firms have workers &
brands what is unique about yours?

VRIN: Key to Core

Competency
Inimitable
Difficult to transfer from one firm to
another
Not available on the open market
If so, requires special skill or system
Difficult for firm itself to copy or replicate
it

CUTTS: Barriers to Imitation

Causal Ambiguity
Difficult to discern reasons for a firms
success
Often the product of many little
decisions

Unique History
Conditions happening to one firm but not
another
Path dependency: advantage depends on
the sequence taken to achieve it

CUTTS: Barriers to Imitation

Tacitness
Source of advantage difficult to
articulate
Learning by doing a factor

Time Compression Diseconomies

Takes as long to imitate as it does to
develop
Provides lead time: develop new
strengths while others catch up

CUTTS: Barriers to Imitation

Social Complexity
Based on the interactions of many
people, units and technologies
Is integrated and irreducible
Parts work together to achieve an
unified result
All parts are needed to attain that
result

CUTTS: Barriers to Imitation

From easiest to most difficult to
Imitate
Tangible Resources
Few CUTTS barriers
Intangible Resources
May be have several CUTTS barriers
Capabilities
Easily can have all CUTTS barriers

VRIN: Key to Core

Competency
Nonsubstitutable
Cant be replaced by an entirely different
type of resource or technology
What benefits does resource or
capability provide?
What else can provide these same
benefits?
Substitution more likely in dynamic
industries
More difficult to sustain any advantage

VRIN: Key to Core

Competency
V Only
Has paid price of admission but no real
advantage

R Only
No one else has it, but who wants it?

V & R Only
Advantage real but only temporary

V & I Only
Unlikely: inimitability assumes rarity

VRIN: Key to Core

Competency
V, R & I Only
Advantage lasts pending some major
technological, political and/or sociocultural shift

V, R, I & N
Matchless and unassailable advantage
likely to withstand considerable shocks
Long Run Competitive Advantage

VRIN: Generic Example

Assume Strengths in . . .
Marketing: strong brand name
R&D: new product design capabilities
Operations: use of advanced industrial
robotics

Procedure
See how far each one goes down the
VRIN/CUTTS list

VRIN: Generic Example

Valuable?
Strong Brand lowers customer
acquisition costs
Strong R&D permits high prices for
innovative and cutting-edge products
Strong Operations provides high quality
at lower costs

VRIN: Generic Example

Rare?
Strong Brand is not rare: other
competitors have compelling brands
with similar traits
Strong R&D uncommon in the industry;
firm is an obvious leader
Advanced robotics still unusual in the
industry; firm has purchased latest
technology

VRIN: Generic Example

Inimitable?
Marketing: not considered since it wasnt
rare

Use CUTTS for the other two

R&D: social complexity and unique
history relating to creative culture
Operations: imitable since other firms
can purchase equipment & use it
modularly

VRIN: Generic Example

Substitutable?
Operations: not considered since it was
inimitable
R&D: provides unique and cutting edge
technology, not to mention the cool
factor
No substitutes for leading edge
features
Cool factor could be substituted
through innovative marketing

VRIN: Generic Example

Core Competency?
R&D: mostly fits the bill
Operations: more so than marketing,
though advantage is temporary
Marketing: valuable indeed, but not rare

Strategy should throw the best

punch
Leverage unique strength in R&D