BREE 420 Lecture 15: Chap_3_The_internal_Org

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Chap 3
The internal Org
All competitive advantages
eventually can be duplicated -
their sustainability depends on
Availability of substitutes for core competency
Imitability of the core competence (CC)
rate of CC obsolescence cause of environmental changes
challenge - effectively management current ones while
developing new CCs
By analyzing internal orgs, a firm determines what it
. Matching what it can do and what it
(opportunities, threats etc) yields insights that allows
a firm to select strategies
can do might do
Analyzing the internal org
Context 1. Traditional resources (land, labor etc) - less likely to be sources
of competitive adv
2. ^ since inc (increase / increasing) number of firms using their
resources to form core competencies - they implement using
them international strategies - overcoming the adv of these
more traditional resources
3. Using global mindset in this competitive context good idea - ie
ability to analyze, understand and manage an internal org in a
way that's not dependent on the assumptions of a specific
culture / context (thereby allowing to respond to situations
caused by unique country / context specific factors)
Creating Value
- measured by product characteristics and how much
customers willing to pay for it
1. Value
2. Those firms with a competitive adv create more value than
competitors
3. Create value by innovatively bundling and leveraging
resources to form capabilities and core competencies
4. What it intends regarding value creation effects business lvl
strategy and org structure
5. Core competencies in combination with the product market
position - need to be considered and leveraged to develop a
firm's strongest competitive adv
Challenge of Analyzing the Internal Org
Strategic decisions
manager make
non routine
have ethical implications
influence firm's ability to earn abv avg returns
includes deciding which resources to collect and how to manager
/ leverage them
Difficult - abt half decisions fail
Mistakes eg
Thinking that a capability is a core competency
What to do when bad
decision made
Admit
Analyze
Eventually - develop capability of learning when to quit
Conditions that effect
managers as they analyze
internal orgs
Uncertainity Abt characteristics of firm's general and industry environments +
customer needs
Complexity
Results from inter relationships shaping a firm
Intra organizational conflict
Make exist b/w manager making decisions and those affect by
them
Resources, Capabilities and Core Competencies
2. Resource
Tangible - can be observed and quantified
Financial resources
firm's ability to borrow / generate funds from internal operations
Organizational resources
Formal reporting structure
Physical resources
Sophistication of plant, distribution of facilities, inventory ...
Tech resources
tech related resources, patents, copy rights, trade secrets ,,,
Intangible - rooted deep in a firm's history
and accumulate over time - difficult for
competitors to analyze and imitate
In unique patterns of routines
eg. Culture, trust, reputation etc
primary categories
Reputational resource
brand name
perception of product
+Ve reputation with stakeholders (suppliers, customers,
community etc)
Innovation resource
ideas
scientific capabilities
capacity to innovate
human resource
knowledge
trust
skills
abilities to collaborate with others
Superior sources of core competencies than tangible
more reliable since diff to imitate - the more observable, the more
valuable
can be leveraged - ie sharing knowledge doesn't diminish it
1. Resources form capabilities,
which form core competencies,
which form competitive advs
- through combining
tangible and intangible resources
Capabilities
1. Used to fulfill org tasks delivering value
2. Often based on developing, carrying and exchanging info
and knowledge through human capital
3. Human capital key in developing capabilities and core
competencies
Core competencies
1. Capabilities that serve as a source of competitive adv for
a firm over its rivals.
Criterion
Capabilities that are Valuable
to avail opportunities or counter threats
Rare
Costly to imitate
Because of unique historical conditions ie. A culture formed
across years
Casual ambiguity - difficult to understand what capabilities make
competitive adv possible (but since firm might itself not know, diff
to measure and improve)
Social complexity - Trust etc
non-substituteable by /for competitors
how long will be useful depends on speed of competitors to
imitate
building core competencies
Consider VRIO (valuable, rare ...) to check if something is a
core competency
Value chain analysis - check which value creating
competencies to be maintained, developed or outsourced
Value chain Analysis
1. Firm only earns Abv Avg returns when value created is
greater than costs incurred to create that value
2. Value chain activities- tasks firm complete to produce,
sell, distribute and service in a way that creates value
3. Support functions - Includes work being done to support
value chain activites (ie. HR, Finance etc)
4. A firm can develop core competencies in any of the
activities in the value chain or support functions - those
are not to be out sourced
5. To become a source of competitive adv - a capability
must either provide value competitors cannot match or
provide at all
6. Comparisons should be done at the global scale given our
current global economy
7. Where value chain or support activity not source of core
competence - one option is to out source
Outsourcing
Purchase of value creating or support activity from external
source
Cons
Loss of jobs in focal firm - ie. Loose valuable human capital
loss of ability to innovate
out sourced company may have some -ve practices
Mitigates risk, gives flexibility, allows to focus
some cases may give more innovation if companies
outsourced to are innovating
Start from here
Therefore, firms try to nurture resources that
have competitive parity (Valuable but imitable)
while preparing core competencies
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Document Summary

Purchase of value creating or support activity from external source. Mitigates risk, gives flexibility, allows to focus some cases may give more innovation if companies outsourced to are innovating. Outsourcing out sourced company may have some -ve practices. Loss of jobs in focal firm - ie. loose valuable human capital loss of ability to innovate. All competitive advantages eventually can be duplicated - their sustainability depends on rate of cc obsolescence cause of environmental changes. Imitability of the core competence (cc) challenge - effectively management current ones while developing new ccs. Matching what it can do and what it. Casual ambiguity - difficult to understand what capabilities make competitive adv possible (but since firm might itself not know, diff to measure and improve) Because of unique historical conditions ie. a culture formed across years. Therefore, firms try to nurture resources that have competitive parity (valuable but imitable) while preparing core competencies.

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