Chapter 3 Notes

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University of Toronto Scarborough
Management (MGS)
Professor Constantinou

Chapter 3 Examining the Internal Environment Resources Capabilities and Activities Notes Internal Drivers of Strategy and Competitive AdvantageInternal Models of Competitive Advantage y two dominant models regarding internal sources of competitive advantage which explain how and why some firms perform better y the two models are distinct but complementary theories that both suggest that differences in longtermperformance outcomes across firms within the same industry are derived largely from different levels of internal sources of competitive advantage y however the source of competitive advantage differs between these theories y the first explanation as to why some firms perform better than others attributes this success to fundamental differences in the resources firms control as well as their capabilities to perform certain aspects of value creation activities y the second theory for why firms differ within industries focuses not on resources but on the specific value chain activities firms choose to engage in which relies heavily on the value chain and the advantages firms might gain by configuring valuechain activities in ways to add more value to their products or services than competitors Resources and Capabilities y resources and capabilities are the fundamental building blocks of a firms strategy y the choices made by firms managers relative to the five elements of a strategy as organized by the strategy diamond require these y successful strategies exploit the resources and capabilities that a firm enjoys and put the firm on a path to acquire missing resources and capabilities and upgrade existing ones whereas unsuccessful strategies often reflect the fact that critical resources and capabilities are lacking Resources y resources are the inputs that firms use to create goods or services y some resources are rather undifferentiated inputs that any firm can acquire y other resources are more firmspecific in nature and are difficult to purchase through normal supply chain channels y since tangibles are easier to identify and value they may be less likely to be a source of competitive advantage than intangibles y this is because their tangible nature gives competitors a head start on imitation or substitution but some tangible sources are quite instrumental in helping firms achieve favourable competitive positions partly because of their intangible benefits Capabilities y capabilities refer to a firms skill in using its resources both tangible and intangible to create goods and services y capabilities may be possessed by individuals or embedded in companywide rules and routines y capabilities span from the rather simple tasks that firms must perform to accomplish their daily business to mor
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