Unit 3

The Internal Organization:

Resources, Capabilities, Core
Competencies, and Competitive
Advantages

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Learning Objective

1. Internal Organization Analysis

 The Context of Internal Analysis
 Creating Value
 The Challenges of Internal Analysis
2. Resources, Capabilities, and Core Competencies
3. Building Core Competencies
 The Four Criteria of Sustainable Competitive Advantage
 Value Chain Analysis
4. Outsourcing

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 Opening Case: Chipotle Mexican Grill

• Chipotle
3/25 has highest stock price in The U.S.
Restaurant Stock Market.
• Established in July 1993 by Steve Ells Jeff Bezos
 Trademark: Chipotle
 Products: Mexican Grill (Meats: from livestock
cultivated naturally in farm without antibiotic or growth
hormone).
 Compare to McDonald: less dishes, fast customer flow,
but more expensive (more than $7)
• In 1998, McDonald became the largest
shareholder of Chipotle. In 2006, Chipotle was
formally listed on the U.S stock market with
$22/per share, McDonald sold out all its stocks.
• Restaurant design: considering the impacts of
music and atmosphere
• Advertising strategy: celebrities (Bryce Harper,
Russell Wilson, Obama…)
• Brand image: “healthy foods” (e.g. no
genetically modified foods, strict selection of
suppliers…).
 Internal Organization Analysis

 The context of internal analysis

 Traditional resources are now less likely to be the
source of competitive advantages.
Example: Volkswagen’s “2018 Policy” international strategy.
 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.
Example: Google, Coca Cola…
 Analysis of the firm’s internal organization requires that
evaluators examine the firm’s portfolio of resources.

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 Internal Organization Analysis

 Creating Value
 Management concepts of value creation：

Production Product Selling Customer oriented

concept concept concept concept

 Firm’s key success: creating value for customer

 Value：is measured by a product’s performance
characteristics and by its attributes for which
customers are willing to pay
Example： Walmart “everyday low price”
 Creating value for customers needs to understand
both external and internal environment.
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 Internal Organization Analysis

 The challenges of internal analysis

 Factors influence the failure of strategy:
• Lack of understanding or unable to respond to environmental
change.
Example: Nokia, Borders bookstores
• Lack of understanding internal organization. Identify capabilities as
core competencies that do not create a competitive advantage
Example: Polaroid company
• Managers or strategic leaders’ errors
Example: Borders bookstores
 The challenges of internal analysis
• Uncertainty
• Complexity
• Intraorganizational conflict
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 Resources, Capabilities, and Core
Competencies

Core Competitive Superior

Competencies Advantages Profits

Capabilities

Four
Resources Criteria of Value Chain
Sustainable Analysis
Tangible Advantages
intangible

Valuable
Rare Outsourcing
Costly to Imitate
Nonsubstitutable

Components of an internal analysis

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 Resources, Capabilities, and Core
Competencies
 Resources
 Resources: cover a spectrum of individual, social, and
organizational phenomena.
 By themselves, resources do not allow firms to create value for
customers. Indeed, resources are combined to form capabilities
Example： Amazon uses the internet to sell goods at low prices to form customer
service capability.

Tangible Physical: Plant, equipment, Materials…

Resources Financial: Internal funds, ability to borrow...
Organizational: Formal reporting structures…
Technological: Patents, trademark…

Resources

Human resource: Knowledge, skills, experience…

Intangible Innovation: Ideas, scientific capabilities…
Resources Reputational: Brand, images…
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 Resources, Capabilities, and Core
Competencies
 Tangible resources
 The value of many tangible resources can be established through financial
statements.
 The value of tangible resources is constrained because they are hard to
leverage.
Example: FedEx’s trucks and drivers

 Intangible resources
 The value of many tangible resources can not be established through financial
statements.
 Intangible resources are a superior source of capabilities and subsequently,
core competencies.
 Most tangible resources can be leveraged.
Example: employee’s knowledge and experience
 Reputation and innovation is also a superior source of capabilities and core
competencies.
Example: Harley brand 9/22
 Resources, Capabilities, and Core
Competencies
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Building reputation: Relationships with Customers-Customer
Loyalty
Unique
Merchandise
Customer
Positioning Service

Customer Customer
loyalty Relationship
Brand Image
Management
Programs
 Resources, Capabilities, and Core
Competencies
 Capabilities
 The firm combines individual tangible and intangible resources to
create capabilities. In turn, these capabilities are used to complete
different tasks and creating value for customers.

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 Resources, Capabilities, and Core
Competencies

 Core competencies
 Core competencies are capabilities that serve as a
source of competitive advantage. Core competencies
distinguish a company competitively and reflect its
personality.
 Core competencies emerge over time through an
organizational process of accumulating and learning
how to deploy different resources and capabilities.
Example: Apple’s core competencies
• Innovation
• Customer service

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 Strategic Focus: P&G’s Core
Competencies

 Two global business units:

Beauty & Grooming and
Household Care
 Brands: more than 250
brands
 Markets: more than 80
countries
 Employees: more than
1,270,000
 Annual sales profits:
80,000,000,000 USD
 Marketing Strategy:
 undifferentiated marketing
strategy
 Building Core Competencies

 Identify and build core competencies methods

 The four criteria of sustainable competitive advantages:
• Valuable capabilities
• Rare capabilities
• Costly to imitate capabilities
• Nonsubstitutable capabilities
 Value chain analysis
• Value chain activities
• Support activities

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 Building Core Competencies

 The four criteria of sustainable advantages

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Building Core Competencies

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 Strategic Focus：Howard
Schultz and Starbucks

-Established in 1971
-No. of Stores: 24,000
-Markets: more than 70 countries
-Revenue: 19,2 Billions

Marketing Strategy:
-Store designs
1987 -Customer Experience
-High value, High price

Howard Schulz
 Building Core Competencies

Support activities

Financial Information
Human Resource
Management Management

Customer
Supply-Chain Follow-up Value
operations Distribution Marketing
Management service

Value chain activities

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Building Core Competencies
Value Chain Activities

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Building Core Competencies
Support Activities

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 Outsourcing

 Outsourcing
 Outsourcing is the purchase of a value-creating activity or a support
function activity from an external supplier.
 Reasons for outsourcing:
• Lack of resources and capabilities.
• Enhance firm’s flexibility, avoid risk, and decrease capital investment.
• Only activities where they cannot create value or where they are at a
substantial disadvantage compared to competitors should be
outsourced
 Risks of outsourcing：
• Outsourcing management.
• Decrease job positions and affect innovation capability.
• Dependence on outsourcing firms.
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 Conclusions

 Identify strengths and weaknesses through internal

organization analysis.
 Having a significant quantity of resources is not the same as
having the “right” resources.
 The ability of a core competence to be a permanent
competitive advantage can’t be assumed. All core
competencies have the potential to become core rigidities.
 Sustainable competitive advantages depend on:
• The rate of core competence obsolescence because of
environmental changes
• The availability of substitutes for the core competence
• The imitability of the core competence

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 SWOT Model

Internal analysis External analysis

Strengths Opportunities

Weaknesses Threats

Resource-based view IO theory

(RBV) (Macro-environment and Five
Resources-capabilities-core forces model)
competencies
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