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Topic3-InternalOrganization1.pptxWPC480 Strategic Management
Topic 3: Internal Organization
Professor R. Scott Livengood
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Big Question Question
How does the internal organization of a business influence the strategic management process?
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Fender Amps Up Its Digital Play
What characteristics of the external environment are most impactful to Fender’s business?
What are Fender’s most important internal resources? How has Fender been able to leverage these resources to make itself relevant in the digital age?
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Auto Companies: Better With Batteries Not Included
What resources, capabilities, and core competencies do traditional car manufacturers possess? Are these a source of sustainable competitive advantage going forward?
What are the pros and cons of traditional car manufacturers shifting into increasingly important areas such as battery production and electronic operating systems?
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External to Internal
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External Environment
what the firm could do (opportunities and threats)
Internal Environment
what the firm can do (strengths and weaknesses)
Resources, capabilities, and competencies form the basis of sustainable competitive advantage
Resource-based View
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Two Critical Assumptions of the RBV
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Resource Heterogeneity
A firm is a bundle of resources and capabilities that differ across firms
Resource Immobility
A firm has resources that tend to be “sticky” and do not move easily from firm to firm
Resources → SCA
Resources form the foundation
that leads to a sustainable
competitive advantage
Competitive Advantage
Resources
Tangible
Intangible
Capabilities
Core
Competencies
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Two Classes of Resources
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Building Core Competencies – VRIN
The four criteria of sustainable competitive advantages:
valuable capabilities
rare capabilities
costly to imitate
non-substitutable
Sustainable Competitive Advantage
Valuable
Rare
Costly to imitate
Nonsubstitutable
Four Criteria of
Sustainable
Advantages
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VRIN Payoff Matrix
Valuable?
Rare?
Nonsubstitutable?
Competitive
Consequences
Performance
Implications
No
No
No
No
Competitive
Disadvantage
Below Average
Returns
Yes
No
No
Yes/
No
Competitive
Parity
Average Returns
Yes
Yes
No
Yes/
No
Temporary Com-
petitive Advantage
Above Average to Average Returns
Yes
Yes
Yes
Yes
Sustainable Com-
petitive Advantage
Above Average Returns
Costly to Imitate?
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Continuous Process
VRIN Criteria
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Outsourcing
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By performing fewer activities, a firm can:
concentrate on those areas in which it can create value
share risks across the industry value chain
leverage world-class capabilities
Outsourcing Risks
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Consider not:
outsourcing activities in which the firm itself can create and capture value
outsourcing primary and support activities that are used to neutralize environmental threats or to complete necessary ongoing organizational tasks
outsourcing capabilities critical to the firm’s success, even though the capabilities are not actual sources of competitive advantage
outsourcing activities that stimulate the development of new capabilities and competencies
Cautions and Reminders
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Never take core competencies for granted
All core competencies could become core rigidities
Continuous and effective analyses of its internal environment
SWOT
Strengths
Weaknesses
Opportunities
Threats
Combines external (5 Forces) and internal (RBV) analyses
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What is your competitive advantage?
What are your strengths and weaknesses?
What are you doing to ensure your capabilities are dynamic?
Skill upgrades, behavior modifications, continuing education, etc.
Are some of your strengths valuable, rare, costly to imitate, and non-substitutable?
How can you persuade your employer you could be a vital source of sustainable competitive advantage?
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Summary
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Internal analysis aligns core competencies with external environment
Core competencies (VRIN) are necessary for sustainable competitive advantage
Iterative, recurring, and evolving process
