Chapter 4: Internal Analysis: Resources, Capabilities, and Core Competencies

Question 1

What are core competencies?

Answer 1

unique strengths embedded deep within a firm, that are critical to gaining and sustaining a competitive advantage.

Question 2

What is the importance of core competencies?

Answer 2

they allow a firm to differentiate its products and services from those of its rivals. This results in creating higher value for the customer or offering products and services at a lower cost.

Question 3

Core Competency Example: Beats Electronics

Answer 3

• superior marketing; create a perception of “coolness.”

- created an ecosystem that combines hardware (headphones) with software (streaming).

Question 4

Core Competency Example: IKEA

Answer 4

• Superior in designing functional, modern furniture at a low cost.

Question 5

Core Competency Example: Facebook

Answer 5

-superior algorithms for targeted electronic ads.

Question 6

How do companies develop core competencies?

Answer 6

-via the interplay of resources and capabilities.

Question 7

Resources and Capabilities

Answer 7

• resources: any asset that a firm can draw on when formulating or implementing a strategy.
• Capabilities: organizational and managerial skills needed to orchestrate a diverse set of resources and deploy them strategically.

Question 8

How are a firm’s capabilities demonstrated?

Answer 8

through activities: distinct and fine-grained business processes that enable a firm to add incremental value by transforming inputs into goods and services.

Question 9

Why is it important to continually nourish core competencies?

Answer 9

Core competencies that are not continuously nourished will eventually lose their ability to yield a sustainable competitive advantage.

Question 10

What are visible elements of core competencies?

Answer 10

superior products or services.

Question 11

What are invisible elements of core competencies?

Answer 11

more important than visible competencies; e.g., customer-centricity.

Question 12

What is the Resource-Based View (RBV)?

Answer 12

a model that sees certain types of resources as key to superior firm performance. AKA VRIO method.

Question 13

What are the properties of resources under the VRIO method?

Answer 13

• Valuable
• Rare
• costly to Imitate
• Organized to capture value

Question 14

What 2 categories to resources fall into?

Answer 14

1. ) tangible: visible resources with physical attributes (labor, capital, land, buildings, etc.)
2. ) Intangible: Invisible resources with no physical attributes (culture, knowledge, reputation, etc) (More likely to lead to competitive advantage).

Question 15

Tangible and Intangible Resources at Google Headquarters.

Answer 15

• tangible: futuristic building and land
• intangible: location (heart of silicon valley), large and computer-savvy workforce, largest concentration of venture capitalists.

Question 16

What are the 2 critical assumptions of RBV?

Answer 16

Resource heterogeneity and resource mobility.

Question 17

What is Resource Heterogeneity?

Answer 17

assumption in the resource-based view that a firm is a bundle of resources and capabilities that differ across firms.

Question 18

What is resource immobility?

Answer 18

Assumption in the resource-based view that a firm has resources that tend to be “sticky” and that do not move easily from firm to firm.

Question 19

What is the VRIO Framework?

Answer 19

a theoretical framework that explains and predicts firm-level competitive advantage.

Question 20

A resource is valuable if… (3)

Answer 20

1. ) it enables a firm to exploit an opportunity.
2. ) It enables a firm to offset a threat.
3. ) It enables a firm to increase its economic value creation (V-C).
   e. g., Beats is able to make its headphones more valuable with a coolness factor. They only cost $15 to produce but retail for $150-$450 (Large gap between V and C).

Question 21

A resource is rare if…(1)

Answer 21

only one or few firms possess it.

e.g., Beats Electronics’ celebrity endorsements.

Question 22

A resource is costly to imitate if…(1)

Answer 22

firms that do not possess the resource are unable to develop or buy the resource at a reasonable price.
e.g., Beats- Dr. Dre’s social capital is likely impossible to imitate.

Question 23

A resource is organized to capture value if…(2)

Answer 23

1. ) It has an effective organizational structure
2. ) It has coordinating systems
   e. g., Xerox Palo Alto Research Center- Invented and developed first word processing software, pointer mouse, and even the first PC before Apple or Microsoft had a significant share of the market. However, executives ignored these innovations because they were wrapped up in photo copier innovations.

Question 24

What is Direct Imitation?

Answer 24

copying or imitating a valuable and rare resource; usually happens when firms are unable to protect their advantage. e.g., Crocs.

Question 25

What is Substitution?

Answer 25

Satisfying the same customer need in a different way. This is done via strategic equivalence. e.g., Amazon satisfied consumer needs for books digitally, thereby circumventing many costs such as brick-and-mortar bookstores.

Question 26

Provide an example of combining imitation and substitution.

Answer 26

Apple and Samsung. Samsung was able to directly imitate the look and feel of the iphone, and was able to substitute some of Apples software like Google Play as a substitute for iTunes.

Question 27

What are barriers to imitation?

Answer 27

conditions that make it more difficult for a firm’s resources, capabilities, or competencies to be imitated.

Question 28

Barriers to Imitation: Better Expectations of Future Resource Value

Answer 28

sometimes firms can acquire resources at a low cost, which lays the foundation for a competitive advantage later when expectations about the future of the resource turn out to be accurate.

Question 29

Barriers to Imitation: Path Dependence

Answer 29

a process in which the options one faces in a current situation are limited by decisions made in the past.

Question 30

Barriers to Imitation: Causal Ambiguity

Answer 30

a situation in which the cause and effect of a phenomenon are not readily apparent.

Question 31

Barriers to Imitation: Social Complexity

Answer 31

situations in which different social and business systems interact.

Question 32

Barriers to Imitation: Intellectual Property (IP) Protection

Answer 32

a critical intangible resource that can help sustain a competitive advantage.

Question 33

What is a core rigidity?

Answer 33

a former core competency that turned into a liability because the firm failed to adapt to a changing environment.- they were dependent on the core competency for too long without upgrading it.

Question 34

What are dynamic capabilities?

Answer 34

a firm’s ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage; essential for creating a sustained competitive advantage.
e.g.,- Apple is constantly innovating which causes other tech companies to respond. For example, iPhones prompted a response from Samsung, Blackberry, and Google.

Question 35

Example: Dynamic Capabilities at IBM

Answer 35

IBM is a solutions-based company that solves data-based problems for its clients. They understand that data and problems change over time and they need to adapt. So, the company has successfully transformed itself several times over its 100 year history.

Question 36

What is the dynamic capabilities perspective?

Answer 36

a model that emphasizes a firm’s ability to modify and leverage its resource base in a way that enables it to sustain a competitive advantage in a constantly changing environment.

Question 37

What are resource stocks?

Answer 37

the firm’s current level of intangible resources e.g., dynamic capabilities, new product development, employee loyalty (the water currently in the tub).

Question 38

What are resource flows?

Answer 38

the firm’s level of investments to maintain or build a resource e.g., the faucets pouring water into the tub- these represent the different investments that a firm can make in intangible resources. Each investment flow is different from one another.

Question 39

Explain a reduction in a firm’s intangible resources?

Answer 39

the resources a firm loses- represented by the water that leaks out of the tub. This could be things like employee turnover. Resource leakage can erode a firm’s competitive advantage.

Question 40

What is the value chain?

Answer 40

the internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value.

Question 41

What are primary activities?

Answer 41

primary activities add value directly by transforming inputs into outputs as a firm moves a product horizontally along the internal value chain.

Question 42

Examples of Primary Activities (5)

Answer 42

1. ) supply chain management
2. ) operations
3. ) Distributions
4. ) marketing and sales
5. ) After-sales service

Question 43

What are support activities?

Answer 43

firm activities that add value indirectly, but are necessary to sustain primary activities.

Question 44

Examples of Support Activities (5)

Answer 44

1. ) Research and devlelopment
2. ) information systems
3. ) human resources
4. ) accounting and finance
5. ) firm infrastructure including processes, policies, and procedures.

Question 45

What is the SWOT Analysis?

Answer 45

a framework that allows managers to synthesize insights obtained from an internal analysis of the company’s strengths and weaknesses (S and W) with those from an analysis of external opportunities and threats (O and T) to derive strategic implications.

Question 46

What are the 4 strategic SWOT questions?

Answer 46

1. ) How can the firm use its strengths to take advantage of opportunities?
2. ) How can a firm use its strengths to reduce the likelihood and impact of threats?
3. ) How can a firm overcome weaknesses that prevent it from taking advantage of opportunities?
4. ) How can the firm overcome weaknesses that will make external threats a reality?

Question 47

What are the remaining steps in the SWOT Analysis?

Answer 47

• evaluate the pros and cons of each strategic alternative.
• select 1 or more to implement
• carefully explain decision rationale including why other strategic alternatives were rejected.

Question 48

Limitation of the SWOT method:

Answer 48

a strength can also be a weakness; an opportunity can also be a threat. e.g., global warming is a threat because gasoline taxes make driving more expensive, but it is also an opportunity because carmakers respond to regulation with innovation.