Exam 3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages

Analyzing the internal environment enables a firm to determine what it might do by identifying what opportunities and threats exist.

Why is it important to prevent core competencies from becoming core rigidities?

The most numerous of the following organizational characteristics are

____ can be viewed as the capacity to take action.

Compared to tangible resources, intangible resources are ____ and ____.

If a core competence is emphasized when it is no longer competitively relevant, it can become a core rigidity.

Outsourcing is the

By themselves, resources can allow firms to create value for customers as the foundation for earning above-average returns.

____ is an example of a capability that is based in the functional area of distribution.

The Chapter 3 Strategic Focus on P&G illustrates that the company uses its capabilities and core competencies to grow

"Motivating, empowering, and retaining employees" is an example of a capability that resides within the "Human Resources" functional area.

____ is/are the source of a firm's ____, which is/are the source of the firm's ____.

Case Scenario : Heartsong LLC. Heartsong LLC is a designer and manufacturer of replacement heart valves based in Peoria, Illinois. While a relatively small company in the medical devices field, it has established a worldwide reputation as the provider of choice high-quality, leading-edge artificial heart valves. Most of its products are sold to large regional hospital systems and research hospitals. Specialty heart centers are another emerging, but fast-growing, market for its valves. While Heartsong would like to grow quickly, its growth is constrained by the need to finance larger production runs and then carry this additional inventory. For products like those of Heartsong, vendors typically do not collect payment until the unit is actually used in surgery. Moreover, heart valves are usually required on short notice which means that they must be either onsite, or inventoried at a nearby location. If nearby, then transport of the unit to a hospital or heart center occurs within a matter of hours, and sometimes minutes. For this reason, accelerated growth would require Heartsong to both finance increased production of its heart valves, along with carrying increased levels of inventory that are in fact sitting on their customers' shelves. In fact, inventory-carrying cost is its single largest cost outside of research and development. While profitable growth is necessary if Heartsong is to continue extending its competitive advantage through increasingly greater investments in basic heart valve R&D, it is not clear that the company can internally support all these increased financial commitments (R&D, manufacturing, and inventory). Doc Watson, the CEO of Heartsong, is considering an outside contractor, EdFex, to handle the inventorying, warehousing, and delivery of its valves. EdFex has secure, high-tech warehouses in most major population centers around the country, and can ensure delivery of a product to these markets from its warehouses in less than one hour. -(Refer to the above Case Scenario) If Heartsong LLC is to continue extending its competitive advantage in high-quality, leading-edge artificial heart valves, it must keep the inventorying, warehousing, and delivery of its heart valves in-house rather than outsourcing these activities.

Capabilities of an organization emerge spontaneously through the interaction of tangible and intangible resources.

Value consists of

Firms that achieve competitive parity can expect to

The three conditions that characterize difficult managerial decisions concerning resources, capabilities, and core competencies are

A global mind-set is free of the assumptions of a single country, culture, or context.

Capabilities that other firms cannot develop easily are classified as

Case Scenario : ERP Inc. ERPI is a leading provider of enterprise integration software (EIS). EIS allows a firm to connect and integrate processes across all aspects of its business, regardless of where they are located around the world. ERPI is a product-focused company, whereas most competitors in its market space, like Oracle, operate as "solutions companies." Oracle and Microsoft have begun to devote considerable resources to the development of and acquisition of products to compete in the EIS space. Despite these recent threats, one benefit of its product-focused strategy is that ERPI's proprietary product is generally recognized as being 200% to 300% better than competitors' software. ERPI estimates it will take 2 to 3 years for competitors to develop the capabilities needed to bring a competing product to market. ERPI invests a considerable percentage of its profits in basic R&D to support its core products. As evidence of this, among its competitors the firm maintains the largest in-house programming staff dedicated solely to the development of advanced enterprise integration software. Installation and related consulting for EIS typically cost between $100 and $200 million, with the ERPI software component accounting for about 20% of the installed cost (the remaining 80% is spent on the actual installation, not counting the value of the customer's time). ERPI's target market consists of the world's largest manufacturing and industrial firms and it currently enjoys a 60 percent market share -(Refer to the above Case Scenario) Imagine that ERPI's historic growth strategy has focused on making one sale and then moving on to the next target company. After several years of building market share using this approach, what new resources has ERPI developed?