CHAPTER 4 Internal Analysis: Resources, Capabilities, and Core Competencies 99
Looking inside the firm to analyze its resources, capabilities, and core competencies allows us to understand the firm’s strengths and weaknesses. Linking these insights from a firm’s internal analysis to the ones derived in the prior chapter on external analysis allows managers to determine their strategic options. Ideally, firms want to leverage their internal strengths to exploit external opportunities, and to mitigate internal weaknesses and external threats. E xhibit 4.2 depicts how we move from the firm’s external environment to its internal environment. To formulate and implement a strategy that enhances the firm’s chances of gaining and sustaining competitive advantage, the firm must have certain types of resources and capabilities that combine to form core competencies. The goal should be to develop resources, capabilities, and competencies that create a strategic fit with the firm’s environment. Rather than creating a static fit, the firm’s internal strengths should change with its external environment in a dynamic fashion. The chapter will provide a deeper understanding of the sources of competitive advantage that reside within a firm. T o gain a better understanding of why and how firm differences explain competitive advantage, we begin this chapter by taking a closer look at core competencies. Next, we introduce the resource-based view of the firm to provide an analytical model that allows us to assess resources, capabilities, and competencies and their potential for creating a sustainable competitive advantage. We then discuss the dynamic capabilities perspective, a more recent model that emphasizes a firm’s ability to modify and leverage its resource base to gain and sustain a competitive advantage in a constantly changing environment. We finally turn our attention to the value chain analysis to gain a deeper understanding of the internal activities a firm engages in when transforming inputs into outputs. We conclude with Implications for the Strategist, with a particular focus on how to use the SWOT analysis to combine external and internal analysis.
c ore competencies Unique strengths, embedded deep within a firm, that allow a firm to differentiate its products and services from those of its rivals, creating higher value for the customer or offering products and services of comparable value at lower cost.
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