Posted: September 1st, 2023

MSL 686 Strategic Leadership

MSL 686
Strategic Leadership
Prompt: Value chain analyses is used to identify and evaluate the competitive potential of a firm’s resources. Firms consider outsourcing when they cannot create value in a value chain activity or a support function. Discuss value chain analysis activity and the considerations for outsourcing.
Requirements: 250 words minimum initial post, 100 words minimum reply
Unit 4
• Internal Organization Resources,
Capabilities, Competencies, and
Advantages
1
 Explain why firms need to study and
understand their internal organization.
 Define value and discuss its importance.
 Describe the differences between tangible
and intangible resources.
 Define capabilities and discuss their
development.
 Describe four criteria used to determine
whether resources and capabilities are core
competencies.
Unit 4 Objectives
2
Unit 4 Objectives, cont.
 Explain value chains and where they are able
to create value when using resources,
capabilities, and core competencies.
 Define outsourcing and discuss reasons for
its use.
 Discuss the importance of identifying internal
strengths and weaknesses.
 Discuss the importance of avoiding core
rigidities.
3
 Unit 4 addresses the internal organization of
a company. We will discuss value creation;
tangible and intangible assets; the firms
capabilities and the criteria to determine the
use of resources; core competencies;
outsourcing; internal strengths and
weaknesses; and core rigidities avoidance.
Introduction to Internal Organization
4
 To achieve strategic competitiveness and
earn above-average returns, firms must
leverage their core competencies to exploit
opportunities in the external environment.
 However, a competitive advantage does not
always last, because value-creating
strategies may be successfully imitated or
duplicated by competitors.
Introduction, cont.
5
Introduction, cont.
 Several features of the global economy, such
as technological changes, can result in the
erosion of the competitive advantage of
established competitors.
 Competitive advantages are often strongly
related to the resources firms hold and how
they are managed. Resources are the
foundation for strategy and these can
generate competitive advantages leading to
wealth creation.
6
Introduction, cont.
The sustainability of a competitive advantage is
a function of three factors:
 The obsolescence of a core competence –
the basis of value creation – as a result of
environmental changes
 The availability of substitutes for the core
competence (or the extent to which
competitors can use different core
competencies to overcome value created by
the original core competence)
7
 The imitability of the core competence (or the
abilities of competitors to develop the same core
competence).
 To sustain a competitive advantage, firms must
manage current core competencies while
simultaneously developing new competencies.
In other words, strategists must continuously
make investments that will enhance the value of
current competencies.
Introduction, cont.
8
 Internal organization
 Value creation its importance
 Tangible and intangible resources
 Capabilities and their development
 Resources and capabilities
 Outsourcing
 Internal strengths and weaknesses
 Avoiding core rigidities
Unit 4 Topics
9
 1 Corinthians 16:5-6, 8-9—Effective leader’s
planning
 Luke 14:28-30—Planning for a project
 Isaiah 32:7-8—Liberals and plans
 Proverbs 19:21-22—Man’s planning and God’s will
 Proverbs 24:1& 27—Preparing plans
Biblical Foundation Unit 4
10
Analyzing the Internal Organization
 Analysis of the firm’s internal environment
requires that evaluators examine the firm’s
portfolio of resources and the bundles of
heterogeneous resources and capabilities
managers 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 environment.
11
Analyzing the Internal Organization,
cont.
 By using or exploiting their core competencies,
firms can develop and perform value-creating
strategies better than their competitors or to
create and perform value-creating strategies that
competitors either are unable or unwilling to
imitate.
 Value represents a concept of the relationship
between a product’s features (such as quality)
and its price relative to those offered by
competitors.
12
Analyzing the Internal Organization,
cont.
 A firm’s tangible and intangible resources (for
example, its facilities and corporate culture,
respectively) represent sources of capabilities.
 These capabilities represent sources of core
competencies.
 When exploited and nurtured (and valuable,
costly to imitate, rare, and non-substitutable),
core competencies are potential sources of
competitive advantage.
13
Analyzing the Internal Organization,
cont.
 If a firm is able to use its core competencies
to achieve a competitive advantage, it will
achieve strategic competitiveness and earn
above-average returns so long as
competitors are unable or unwilling to imitate
them successfully.
14
Analyzing the Internal Organization,
cont.
15
Creating Value
 Firms create value by exploiting core
competencies and meeting the standards of
global competition.
 Value is measured by the product’s
performance and by its attributes for which
customers are willing to pay.
 Firms must provide value to customers that is
superior to the value provided by competitors
in order to create a competitive advantage.
16
Creating Value, cont.
 Customers perceive higher value in global
rather than domestic-only brands.
 Firms create value by innovatively bundling
and leveraging their resources and
capabilities.
 Ultimately, value is the foundation for earning
above-average profits.
17
Creating Value, cont.
 Core competencies, combined with productmarket positions, are the most important
sources of advantage.
 The core competencies of a firm, in addition
to analysis of its general, industry, and
competitor environments, should drive its
selection of strategies.
18
Creating Value, cont.
 Correctly identifying, developing, deploying,
and protecting firm resources, capabilities,
and core competencies requires managers to
make difficult decisions. In part, these
challenges are a result of characteristics of
both the internal and external environments
of the firm. This challenge is multiplied
because of three conditions that characterize
important strategic decisions – uncertainty,
complexity, and intra-organizational conflict.
19
Creating Value, cont.
 Uncertainty regarding the assessment of the
general and industry environments,
assessments, and predictability of
competitive actions, and customer
preferences. Strategic leaders need to be
aware of how biases affect decisions about
how to cope with uncertainty and how to
manage resources and capabilities to form
core competencies.
20
Creating Value, cont.
 Complexity regarding the nature of any
interrelatedness of the causes of change in
the environment and how the environments
are perceived, especially regarding decisions
as to which of the firm’s resources and
capabilities might serve as the foundation for
competitive advantage.
21
Creating Value, cont.
 Intra-organizational conflicts among
managers making decisions about which core
competencies are to be nurtured and about
how the nurturing should take place.
22
Creating Value, cont.
 Uncertainty is present because of the
inherent difficulty in identifying, assessing,
and characteristics are correctly predicting
the extent, direction, and timing of changes in
the general environment, such as those
resulting from societal values, political and
economic conditions, customer preferences,
and emerging technologies from other
industries (and how they might ultimately
affect the firm).
23
Creating Value, cont.
 Complexity is increased because of the
uncertain nature of interrelationships among
the characteristics of the external
environment and the related challenge
regarding how to assess the effects of
changes in one set of characteristics on other
characteristics. The issue becomes more
complex when managers must relate the
complex external environment to the
assessment of the internal environment.
24
Creating Value, cont.
 Intra-organizational conflicts often develop
as a result of uncertainty and complexity.
When managers make decisions regarding
the identification of the firm’s capabilities and
choose to nurture them (with resources) to
develop core competencies that can be
exploited to achieve a competitive advantage,
they must make these important decisions
without absolute certainty that the decision is
correct.
25
Creating Value, cont.
 Significant changes in the value-creating
potential of a firm’s resources and capabilities
can occur in a rapidly changing global
economy. Because these changes affect a
company’s power and social structure, inertia
or resistance to change may surface. Even
though these reactions may happen, decision
makers should not deny the changes needed
to assure the firm’s strategic competitiveness.
26
Resources, Capabilities, and Core
Competencies
 Resources represent inputs into a firm’s
production process, such as capital
equipment, the skills of individual employees,
brand names, financial resources, and
talented managers.
27
Resources, Capabilities, and Core
Competencies, cont.
 By themselves – or individually – resources
generally will not enable a firm to achieve a
competitive advantage. They must be combined
or integrated with other firm resources to
establish a capability. When these capabilities
are identified and nurtured, they can result in
core competencies, which may lead to a
competitive advantage. A firm’s resources can
be classified either as tangible or intangible.
28
Resources, Capabilities, and Core
Competencies, cont.
Tangible resources are assets that can be
seen or quantified, such as a firm’s physical
assets (e.g., its plant and equipment). Tangible
resources are classified in one of four ways:
 1. Financial resources, such as borrowing
capacity
 2. Organizational resources, such as its
formal reporting structure and systems
29
Resources, Capabilities, and Core
Competencies, cont.
 3. Physical resources, such as location
 4. Technological resources, such as patents and
trademarks.
 A firm’s intangible resources may be less visible, but they
are no less important. In fact, they may be more important
as a source of core competencies. Intangible resources
range from innovation resources, such as knowledge,
trust, and organizational routines, to the firm’s peopledependent or subjective resources of know-how,
networks, organizational culture, to the firm’s reputation for
its goods and services and the way it interacts with others
(such as employees, suppliers, or customers).
30
Resources, Capabilities, and Core
Competencies, cont.
 Intangible resources range from innovation
resources, such as knowledge, trust, and
organizational routines, to the firm’s peopledependent or subjective resources of knowhow, networks, organizational culture, to the
firm’s reputation for its goods and services
and the way it interacts with others (such as
employees, suppliers, or customers).
31
Resources, Capabilities, and Core
Competencies, cont.
 Tangible resources are those that can be seen
(such as plants), touched (such as equipment),
documented (such as contracts with suppliers of
raw materials), or quantified (such as the value
of a specific asset), they generally do not, by
themselves, represent capabilities that serve as
sources of core competencies. However, they
still have value and will contribute to the
development of capabilities and core
competencies.
32
Resources, Capabilities, and Core
Competencies, cont.
 Because they cannot be quantified, touched, or
seen, and are more difficult to explain, intangible
resources are more likely to be sources of
sustainable competitive advantage. And, if they
also are difficult for competitors to identify and/or
understand, they also may represent the most
likely source(s) of a firm’s capabilities, core
competencies, and sustained competitive
advantage.
33
Resources, Capabilities, and Core
Competencies, cont.
A firm’s intangible resources can be classified
as:
 Human resources, such as knowledge, trust,
and managerial capabilities
 Innovation resources, such as scientific
capabilities and capacity to innovate
 Reputational resources, such as the firm’s
reputation with customers or suppliers
34
Resources, Capabilities, and Core
Competencies, cont.
 Capabilities develop over time as a result of
complex interactions that take advantage of
the interrelationships between a firm’s
tangible and intangible resources that are
based on the development, transmission, and
exchange or sharing of information and
knowledge as carried out by the firm’s
employees (its human capital).
35
Resources, Capabilities, and Core
Competencies, cont.
 A firm’s ability to achieve a competitive
advantage is thus reflected in its knowledge
base and the ability of its human capital to
successfully exploit firm capabilities. Thus,
human capital is of significant value in the
firm’s ability to develop capabilities and core
competencies to achieve strategic
competitiveness.
36
Resources, Capabilities, and Core
Competencies, cont.
 The knowledge possessed by the firm’s human
capital may be one of the most significant
sources of a firm’s competitive advantage
because it represents everything that the firm
has learned, and everything that it knows about
successfully linking or bundling sets of individual
resources to develop capabilities as a
foundation for developing core competencies
and, to achieve a competitive advantage.
37
Resources, Capabilities, and Cor
Competencies, cont.
 Establishing and nurturing the skills and
abilities of the workforce is of critical
importance to a firm’s ability not only to
establish, but to sustain a competitive
advantage by acquiring new knowledge and
developing new skills that will enhance
existing capabilities and core competencies,
as well as aid in the development of new
ones.
38
Strategic Focus
 Once a firm has identified its resources and
capabilities, it is ready to identify its core
competencies, the resources and
capabilities that are a source of competitive
advantage for the firm over its competitors.
Core competencies emerge over time
through an organizational process of
accumulating and learning how to deploy
different resources and capabilities.
39
Strategic Focus, cont.
 As the capacity to take action, core
competencies are the “crown jewels of a
company,” the activities the company
performs especially well compared with
competitors and through which the firm adds
unique value to its goods or services over a
long period.
40
Strategic Focus, cont.
 Not all of a firm’s resources and capabilities
are strategic assets – that is, assets that have
competitive value and the potential to serve
as a source of competitive advantage. Some
resources and capabilities may result in
incompetence, because they represent
competitive areas in which the firm is weak
compared to competitors. Thus, some
resources or capabilities may stifle or prevent
the development of a core competence.
41
Strategic Focus, cont.
 When the firm’s resources and capabilities
result in a core competence, the firm will be
able to produce goods or services with
features and characteristics that are valued
by customers. This implies that firms can
implement value-creating strategies only
when its capabilities and resources can be
combined to form core competencies.
42
Core Competencies
Four criteria should be used to determine
whether a firm’s capabilities are core
competencies and can be a source of
competitive advantage.They are:
 1. Valuable
 2. Rare
 3. Costly-to-imitate
 4. Non-substitutable
43
Core Competencies, cont.
 A short-term competitive advantage is
available when firm capabilities are valuable,
rare, and non-substitutable. The length of
time that a firm possessing such capabilities
can expect to sustain a competitive
advantage depends on how long it takes for
competitors to successfully imitate the valuecreating activity or process, or reproduce
valued features or characteristics of the
product or service.
44
Core Competencies, cont.
 Capabilities that are valuable help a firm
exploit opportunities and/or neutralize threats
in the external environment. Valuable
capabilities allow a firm to develop and
implement strategies that create customer
value.
45
Core Competencies, cont.
 Capabilities are rare when they are
possessed by few, if any, current or potential
competitors. If many firms have the same
capabilities, the same value-creating
strategies will be selected. As a result, none
of the firms will be able to achieve a
sustainable competitive advantage. A
competitive advantage will be achieved by
firms that develop and exploit capabilities that
are different from those held by other firms.
46
Core Competencies, cont.
 Capabilities are costly to imitate when other
firms are unable to develop them except at a
cost disadvantage relative to firms that
already have them. This usually is a result of
one or a combination of three conditions:
47
Core Competencies, cont.
 1. Unique historical conditions can make
duplication of capabilities costly. For example,
establishing facilities in a key location that can
preempt competition when no other locations
have similar value-related characteristics or
developing a unique organizational culture in the
early stages of the organization’s life may not be
cheap to duplicate by firms that are developing
theirs at a different time.
48
Core Competencies, cont.
 2. Causal ambiguity also may prevent
competitors from perfectly imitating a
competency if the link between a firm’s
capabilities and core competencies is not
identified or understood. Competitors may not
be able to identify or determine how a firm uses
its competencies to achieve a sustainable
competitive advantage.
49
Core Competencies, cont.
 3. Social complexity means that a firm’s
capabilities are the product of complex social
phenomena such as interpersonal relationships
within the firm (e.g., how managers and
subordinates at Hewlett-Packard work with each
other) or a firm’s reputation with its customers
and suppliers.
50
Core Competencies, cont.
 A firm’s capabilities are non-substitutable when
they do not have strategic equivalents. Firm
resources are strategically equivalent when
each can be separately exploited to implement
the same strategies. If capabilities are invisible,
it is more difficult for competitors to identify
viable substitutes. Examples of capabilities that
can be difficult to identify or substitute include
firm-specific knowledge and trust-based working
relationships.
51
Core Competencies, cont.
 Resources and capabilities that are neither
valuable, rare, costly to imitate, nor nonsubstitutable mean that the firm will be at a
competitive disadvantage and will earn belowaverage returns.
 Resources and capabilities that are valuable, but
are neither rare nor costly to imitate and may or
may not be non-substitutable mean that the firm
can achieve competitive parity and earn average
returns.
52
 Resources and capabilities that are both
valuable and rare, but are not costly to imitate
and may or may not be non-substitutable, may
enable the firm to achieve a temporary
competitive advantage and will earn aboveaverage to average returns.
 Resources and capabilities that are valuable,
rare, costly to imitate, and non-substitutable will
enable the firm to achieve a sustainable
competitive disadvantage and earn aboveaverage returns.
53
Core Competencies, cont.
Core Competencies, cont.
 A framework that firms can use to identify
and evaluate the ways in which their
resources and capabilities can add value is
value chain analysis. This framework is
useful because it enables firms to understand
which parts of their operations or activities
create value by segmenting the value chain
into primary and secondary activities.
54
Core Competencies, cont.
 Value chain activities represent traditional
line activities such as supply chain
management, operations, distribution,
marketing, and follow-up service.
 Support functions are represented by a
firm’s staff activities and include its financial
infrastructure, human resource management
practices, and management information
systems activities.
55
Core Competencies, cont.
 Supply-chain management consists of activities
including sourcing, procurement, conversion, and
logistics management that are necessary for the firm to
receive raw materials and convert them into final
products.
 Operations consist of activities necessary to efficiently
change raw materials into finished products. Developing
employees’ work schedules, designing production
processes and physical layout of the operations’
facilities, determining production capacity needs, and
selecting and maintaining production equipment are
examples of specific operations activities.
56
Core Competencies, cont.
 Operations consist of activities necessary to
efficiently change raw materials into finished
products. Developing employees’ work
schedules, designing production processes and
physical layout of the operations’ facilities,
determining production capacity needs, and
selecting and maintaining production equipment
are examples of specific operations activities.
57
Core Competencies, cont.
 Distribution consists of activities related to
getting the final product to the customer.
Efficiently handling customers’ orders, choosing
the optimal delivery channel, and working with
the finance support function to arrange for
customers’ payments for delivered goods are
examples of these activities.
58
Core Competencies, cont.
 Marketing (including sales) consists of activities
taken for the purpose of segmenting target
customers on the basis of their unique needs,
satisfying customers’ needs, retaining
customers, and locating additional customers.
Advertising campaigns, developing and
managing product brands, determining
appropriate pricing strategies, and training and
supporting a sales force are specific examples of
these activities.
59
Core Competencies, cont.
 Follow-up service consists of activities taken to
increase a product’s value for customers.
Surveys to receive feedback about the
customer’s satisfaction, offering technical
support after the sale, and fully complying with a
product’s warranty are examples of these
activities.
60
Core Competencies, cont.
Creating Value Through Support Functions
 Finance consists of effectively acquiring and
managing financial resources. Securing
adequate financial capital, investing in
organizational functions that will support the
efforts to produce and distribute products in the
short- and long-term, and managing
relationships with those providing financial
capital to the firm.
61
Core Competencies, cont.
Creating Value Through Support Functions
 Human Resource consists of activities
associated with managing the firm’s human
capital. Selecting, training, retaining, and
compensating human resources in ways that
create a capability and hopefully a core
competence are specific examples of these
activities.
62
Core Competencies, cont.
63
Creating Value Through Support Functions
 Management Information Systems consist of
activities taken to obtain and manage
information and knowledge throughout the firm.
Identifying and utilizing sophisticated
technologies, determining optimal ways to
collect and distribute knowledge, and linking
relevant information and knowledge to
organizational functions.
Core Competencies, cont.
 Using the value chain framework enables
managers to study the firm’s resources and
capabilities in relationship to the primary and
support activities performed to design,
manufacture, and distribute products, and to
assess them relative to competitors’ capabilities.
64
Core Competencies, cont.
For these activities to be sources of competitive
advantage, a firm must be able to:
 Perform primary or support activities in a
manner superior to competitors and
 Perform a primary or support activity that no
competitor is able to perform to create
superior value for customers and achieve a
competitive advantage
65
Outsourcing
Outsourcing describes a firm’s decision to
purchase a value-creating activity from an external
supplier. Outsourcing has become important – and
may become more important in the future – for two
reasons:
 1. There are limits to the abilities of firms to
possess all of the bundles of resources and
capabilities that are required to achieve superior
performance (relative to competitors) in all its
primary and support activities.
66
Outsourcing, cont.
 2. With limited resources and capabilities, firms
can increase their ability to develop resources
and capabilities to form core competencies and
achieve competitive advantage by nurturing a
few core competencies.
67
Outsourcing, cont.
To ensure that the appropriate primary and
support activities are outsourced, four skills are
essential for managers:
 1. Strategic thinking – understanding
whether/how outsourcing creates competitive
advantage within the company
 2. Deal making – ability to secure rights from
external providers that can be fully used by
internal managers
68
Outsourcing, cont.
 3. Partnership governance – ability to oversee
and govern the relationship with the outsourced
company.
 4. Change management – because outsourcing
can significantly change how an organization
operates, managers administering these
programs must also be able to manage that
change, including resolving employee resistance
that accompanies any significant change effort
69
Competencies, Strengths, Weaknesses
and Strategic Decisions, cont.
 Events occurring in the firm’s external
environment create conditions through which
core competencies can become core rigidities,
generate inertia, and stifle innovation. The dark
side, of core capabilities is revealed due to
external events when new competitors figure out
a better way to serve the firm’s customers, when
new technologies emerge, or when political or
social events shift the ground underneath.”
70
Competencies, Strengths, Weaknesses
and Strategic Decisions, cont.
 In the final analysis, changes in the external
environment do not cause core competencies
to become core rigidities; rather, strategic
myopia and inflexibility on the part of
managers are the cause. Thus, nurturing
existing competencies must be balanced by
efforts to encourage the development of new
competencies.
71
Competencies, Strengths, Weaknesses
and Strategic Decisions
 All core competencies have the potential to
become core rigidities.
 Each competence is a strength and a
weakness – a strength because it is the
source of competitive advantage and, hence,
strategic competitiveness, and a weakness
because, if emphasized when it is no longer
competitively relevant, it can sow the seeds
of organizational inertia
72
Unit 4 Recap
73
Studying this unit should provide you with the strategic management
knowledge needed to:
1. Explain why firms need to study and understand their internal organization.
2. Define value and discuss its importance.
3. Describe the differences between tangible and intangible resources.
4. Define capabilities and discuss their development.
5. Describe four criteria used to determine whether resources and capabilities are core
competencies.
6. Explain how firms analyze their value chain for the purpose of determining where they
are able to create value when using their resources, capabilities, and core
competencies.
7. Define outsourcing and discuss reasons for its use.
8. Discuss the importance of identifying internal strengths and weaknesses.
9. Discuss the importance of avoiding core rigidities.
 Complete reading assignments
 Complete writing assignments
 Answer discussion questions
 Complete unit quiz
74
What’s next?
Hitt, M., Ireland, R., & Hoskisson, R. (2017). Strategic Management
Competitiveness and Globalization 2015-2017. Boston, MA:
Cengage
75
References
Image References
Hitt, M., Ireland, R., & Hoskisson, R. (2017). Strategic Management
Competitiveness and Globalization 2015-2017. Boston, MA:
Cengage
76

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