COMM 315 Chapter Notes - Chapter 3: Organizational Culture, Imitation, Social Capital
Chapter 3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive
•Firms achieve strategic competitiveness and earn above-average returns when their unique core
competencies are effectively acquired, bundled, and leveraged to take advantage of opportunities in the
•In general, the sustainability of a competitive advantage is a function of three factors: (1) the rate of
core competence obsolescence because of environmental changes, (2) the availability of substitutes for
the core competence, and (3) the imitability of the core competence.
•Matching what a firm can do (a function of its resources, capabilities, core competencies, and
competitive advantages) with what it might do (a function of opportunities and threats in the external
environment) allows the firm to develop vision, pursue its mission and select and implement its
•Resources and capabilities are not inherently valuable, but they create value when the firm can use
them to perform certain activities that result in a competitive advantage.
A. Analyzing the Internal Organization:
1. The context of Internal Analysis
•Increasingly, those who analyze the firm’s internal organizational should use a global mind-set to do
•A global mind-set is the ability to analyze, understand and manage an internal organization in ways
that are not dependent on the assumptions of a single country, culture, or context.
•Analysis of the firm’s internal organization requires that evaluators examine the firm’s portfolio of
resources and the bundles of heterogeneous resources and capabilities manager have created.
•Understanding how to leverage the firm’s unique bundle of resources and capabilities is a key outcome
decision makers seek when analyzing the internal Organization. (See figure 3.1) difficult managerial
2. Creating Value
•By exploiting their core competencies to meet if not exceed the demanding standards of global
competition, firms create value for customers.
•Value is measured by a product’s performance characteristics and by its attributes for which customers
are willing to pay.
•Firms with a competitive advantage offer value to customers that is superior to the value competitors
•Firms create value by innovatively bundling and leveraging their resources and capabilities.
•Core competencies, in combination with product-market positions, are the firm’s most important
sources of competitive advantage.
•The core competencies of a firm, in addition to results of analyses of its general, industry, and
competitor environments, should drive its selection of strategies.
3. The Challenge of Analyzing the Internal Organization
•Difficult managerial decisions concerning resources, capabilities, and core competencies are
characterized by three conditions: uncertainty, complexity, and intraorganizational conflicts.
Uncertainty Regarding characteristics of the general and industry
environments, competitors’’ actions, and customer
Complexity Regarding the interrelated causes shaping a firm’s
environments and perceptions of the environments.
Intraorganizaitonal Conflicts Among people making managerial decisions and
those affected by them.
B. Resources, Capabilities and Core Competencies
•Resources, capabilities, and core competencies are the foundation of competitive advantage.
•Resources are bundled to create organizational capabilities. In turn, capabilities are the source of a
firm’s core competencies, which are the basis of competitive advantages.
•Some of the firm’s resources are tangible while others are intangible.
•Tangible resources are assets that can be observed and quantified.
•Intangible resources: include assets that are rooted deeply in the firm’s history accumulate over time,
and are relatively difficult for competitors to analyze and imitate.
oBecause intangible resources are less visible and more difficult for competitors to understand,
purchase, imitate, or substitute for, firms prefer to rely on them as the foundation for their
capabilities and core competencies.
oThe more unobservable (i.e., intangible) a resource is, the more sustainable will be the
competitive advantage that is based on it.
Financial resources •The firm’s borrowing capacity
•The firm’s ability to generate internal funds
Organizational resources •The firms’ formal reporting structure and its
formal planning, controlling, and coordinating
Physical resources •Sophistication and location of a firm’s plant
•Access to raw materials
Technological Resources •Stock of technology, such as patents,
trademarks, copyrights and trade secrets
Human resources •Knowledge; trust, managerial capabilities;
Innovation resources •Ideas; scientific capabilities; capacity to
Reputational Resources •Reputation with customers; brand name;
perceptions of product; reputation with
suppliers; for efficient, effective, supportive
and mutually beneficial interactions and
•Capabilities exist when resources have been purposely integrated to achieve a specific tasks or set
•These tasks range from human resource selection to product marketing and research and development
•Capabilities are often based on developing, carrying, and exchanging information and knowledge
through the firm’s human capital.
•Client-specific capabilities often develop from repeated interactions with clients and the learning about
their needs that occurs.
•Capabilities are often developed in specific functional areas (such as manufacturing, marketing) or in a
part of a functional area (e.g. advertising).
•See figure 3.3 for examples of firms’ capabilities. (E.g. Functional area: Human resources—
Capabilities: Motivating, empowering, and retaining employees.
3. Core Competencies
•Core competencies are capabilities that serve as a source of competitive advantage for a firm over its
•Core competencies are the activities the company performs especially well compared with competitors
and through which the firm adds unique value to its goods and services along period of time.
•E.g. Innovation is a core competence at Xerox today.
•No more than 3-4 competencies around which strategic actions can be framed. More than 4= may
prevent a firm from developing the focus it needs to exploit its competencies in the marketplace.
C. Building Core Competencies
•Two tools help firms identify and build their core competencies.
•(1) Four criteria of sustainable competitive advantage that firms can use to determine those
capabilities that are core competencies; (2) Value chain analysis- select the value creating
competencies that should be maintained, upgraded, or developed and those that should be outsourced.
1. Four Criteria of Sustainable Competitive Advantage
•Capabilities that are valuable, rare, costly to imitate, and nonsubstitutable are core competencies.
Valuable capabilities •Allow the firm to exploit opportunities or
neutralize threats in its external
•E.g. emphasize on human capital because
it is important in creating value for
Rare Capabilities •Are not possessed by many others.
•Develop and exploit valuable capabilities
that differ from those shared with
Costly-to-Imitate Capabilities: capabilities that
other firms cannot easily develop. •Conditions of being costly to imitate:
•Historical: a unique and a valuable
•Ambiguous cause: the causes and uses
of a competence are unclear.
•E.g. trying to imitate airlines’ low-cost
strategy but unable to do so because can’t
duplicate their unique culture.
•Social complexity: interpersonal
relationships, trust and friendship among
mangers, suppliers and customers.
Nonsubstitutable Capabilities •No strategic equivalent.
•E.g. firm-specific knowledge and trust-
based working relationships between
managers and nonmanageerial personnel