HITT- STRATEGIC MANAGEMENT-14E-CHAPTER 03-PPT.pdf

Chapter 3 The Internal Organization: Resources, Capabilities, Core...

Chapter 3 The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages Hitt, th Hitt, Ireland, Ireland, Hoskisson, Hoskisson, Harrison, Harrison, Strategic Strategic Management: Management: Concepts Concepts and and Cases: Cases: Competitiveness Competitiveness and and Globalization, Globalization, 14 14th Edition. Edition. © © 2024 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.in part.  Learning Objectives By the end of this chapter, you should be able to: 3.1 Explain why a firm needs to study and understand its internal organization. 3.2 Define value, and discuss its importance. 3.3 Describe the differences between tangible and intangible resources. 3.4 Define capabilities, and discuss their development. 3.5 Describe four criteria used to determine if resources and capabilities are core competencies. 3.6 Explain how firms analyze value chains to determine where they are able to create value when using their resources, capabilities, and core competencies. 3.7 Define outsourcing, and discuss reasons for its use. 3.8 Discuss the importance of identifying internal strengths and weaknesses. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  3-1 Understanding the Firm’s Internal Environment Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Understanding the Firm’s Internal Environment (1 of 3) Firms and organizations achieve strategic competitiveness and earn above-average returns by acquiring, bundling, and leveraging their resources for the purpose of taking advantage of opportunities in the external environment in ways that create value for customers. Competitors will eventually learn how to duplicate the benefits of any firm’s value-creating strategy. − Thus, all competitive advantages have a limited life. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Understanding the Firm’s Internal Environment (2 of 3) In general, a competitive advantage’s For all firms, the challenge is to sustainability is a function of three effectively manage current core factors: competencies while simultaneously − The rate of core competence developing new ones. obsolescence because of Only when firms are able to do this environmental changes can they expect to: − The availability of substitutes for the − achieve strategic competitiveness. core competence − earn above-average returns. − The imitability of the core competence − remain ahead of competitors in both the short and long term. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Understanding the Firm’s Internal Environment (3 of 3) By analyzing its internal organization, a firm determines what it can do. Matching what a firm can do with what it might do yields insights for the firm to select its strategies. − Can do—a function of its resources, capabilities, and core competencies in the internal organization − Might do—a function of opportunities and threats in the external environment Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Why Understand the Internal Organization (1 of 2) In today’s global economy, some of the resources that were traditionally critical to firms’ efforts to produce, sell, and distribute their goods or services are now less likely to be the source of competitive advantages. This is because an increasing number of firms are using their resources to form core competencies through which they successfully implement an international strategy as a means of overcoming the advantages created by more traditional resources. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Why Understand the Internal Organization (2 of 2) Firms analyzing their internal organization should use a global mind-set to do so. − A 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. Analyzing the firm’s internal organization requires that evaluators understand how to leverage the firm’s unique bundle of resources and capabilities. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Figure 3.1 Components of an Internal Analysis Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Knowledge Check 3-1 The source of capabilities is: a. competition. b. core competencies. c. resources. d. advantages. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  3-2 Creating Value and Its Importance Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Creating Value and Its Importance (1 of 3) Value is measured by a product’s The strategic decisions managers performance characteristics and make about the internal by its attributes for which customers are willing to pay. organization: Firms create value by innovatively − are nonroutine. building and leveraging their − have ethical implications. resources to form capabilities and core competencies. − significantly influence the firm’s ability to earn above-average Ultimately, creating value for customers is the source of above- returns. average returns for a firm. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Creating Value and Its Importance (2 of 3) Making decisions regarding the firm’s assets: − involves identifying, developing, deploying, and protecting resources, capabilities, and core competencies. − is challenging and difficult. − is increasingly internationalized. A firm can improve by studying its mistakes. − The learning generated by making and correcting mistakes can be important in the creation of new capabilities and core competencies. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Figure 3.2 Conditions Affecting Managerial Decisions About Resources, Capabilities, and Core Competencies Condition Uncertainty Uncertainty exists about the characteristics of the firm’s general and industry environments and customers’ needs. Condition Complexity Complexity results from the interrelationships among conditions shaping a firm. Condition Intraorganizational Intraorganizational conflicts may exist among Conflicts managers making decisions as well as among those affected by the decisions. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Creating Value and Its Importance (3 of 3) In making decisions affected by these three conditions, judgment is required. − Judgment is the capability of making successful decisions when no obviously correct model or rule is available or when relevant data are unreliable or incomplete. − When exercising judgment, decision makers: ▪ must be aware of possible cognitive biases, such as overconfidence. ▪ often take intelligent risks. In a competitive landscape, executive judgment can become a valuable capability. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Polling Activity 3-2 Strategic leaders are individuals who need to make effective choices about the use and development of the firm’s … a. resources. b. capabilities. c. core competencies. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  3-3 Resources, Tangible and Intangible Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Resources, Tangible and Intangible (1 of 4) The foundations of competitive advantage are: − Resources − Capabilities − Core competencies Resources are bundled to create organizational capabilities. Capabilities are the source of a firm’s core competencies, which are the basis of establishing competitive advantages. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Resources, Tangible and Intangible (2 of 4) Broad in scope, resources cover a Tangible resources are assets spectrum of individual, social, and that can be observed and organizational phenomena. quantified. By themselves, resources do not Four primary categories of tangible allow firms to create value for resources are: customers as the foundation for Financial earning above-average returns. Organizational Some of a firm’s resources are tangible, while others are Physical intangible. Technological Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Table 3.1 Tangible Resources Financial The firm’s capacity to borrow Resources The firm’s ability to generate funds through internal operations Organizational Formal reporting structures Resources Physical The sophistication of a firm’s plant and equipment and the Resources attractiveness of its location Distribution facilities Product inventory Technological Availability of technology-related resources such as copyrights, Resources patents, trademarks, and trade secrets Sources: Adapted from J. B. Barney, 1991, Firm resources and sustained competitive advantage, Journal of Management, 17: 101; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge: U.K.: Blackwell Business, 100–102. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Resources, Tangible and Intangible (3 of 4) Intangible resources are assets that are rooted deeply in the firm’s history, accumulate over time, and are relatively difficult for competitors to analyze and imitate. Three primary categories of intangible resources are: Human Innovation Reputational Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Table 3.2 Intangible Resources Human Knowledge Resources Trust Skills Abilities to collaborate with others Innovation Ideas Resources Scientific capabilities Capacity to innovate Reputational Brand name Resources Perceptions of product quality, durability, and reliability Positive reputation with stakeholders such as suppliers and customers Sources: Adapted from R. Hall, 19 92, The strategic analysis of intangible resources, Strategic Management Journal, 13: 136–139; R. M. Grant, 19 91, Contemporary Strategy Analysis, Cambridge U.K.: Blackwell Business, 101–104. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Resources, Tangible and Intangible (4 of 4) Tangible Resources: Intangible Resources: are hard to leverage. are less visible and more difficult for competitors to are difficult to derive additional understand, purchase, imitate, business or value from. or substitute for. are more relied on to be the foundation for a firm’s capabilities. can be leveraged. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Knowledge Check 3-3 Which of the following are an intangible resource? a. Manufacturing facilities b. Distribution centers c. Formal reporting structures d. Managerial capabilities Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  3-4 Capabilities and Core Competencies Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Capabilities and Core Competencies Capabilities are: − created by combining individual tangible and intangible resources. − used to complete the organizational tasks required to produce, distribute, and service the goods or services the firm provides to customers. − the foundation for building core competencies and competitive advantages. − often based on developing, carrying, and exchanging information and knowledge through the firm’s human capital. − Strategic human capital allows a firm to develop capabilities through matching the knowledge, skills, and abilities of their employees to particular strategic objectives. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Table 3.3 Example of Firms’ Capabilities (1 of 2) Functional Areas Capabilities Examples of Firms Distribution Effective use of logistics management Walmart techniques Human Resources Motivating, empowering, and retaining Microsoft employees Management Information Effective and efficient control of inventories Walmart Systems through point-of-purchase data collection methods Marketing Effective promotion of brand-name products Procter & Gamble Effective customer service Ralph Lauren Corp. Innovative merchandising McKinsey & Co. Nordstrom Inc. Crate & Barrel Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Table 3.3 Example of Firms’ Capabilities (2 of 2) Functional Areas Capabilities Examples of Firms Management Ability to envision the future of clothing Hugo Boss Zara Manufacturing Design and production skills yielding reliable Komatsu products Witt Gas Technology Product and design quality Sony Miniaturization of components and products Research & Innovative technology Caterpillar Development Development of sophisticated elevator control Otis Elevator Co. solutions Chaparral Steel Rapid transformation of technology into new Thomson Consumer products and processes Electronics Digital technology Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Core Competencies Are capabilities that serve as a source of competitive advantage for a firm over its rivals Distinguish a company competitively and reflect its personality. Emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities The activities the company performs especially well compared to competitors The activities through which the firm adds unique value to the goods or services it sells to customers Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Building Core Competencies Two tools help firms identify their core competencies: − The four criteria of sustainable competitive advantage − Value chain analysis Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Knowledge Check 3-4 Effective customer service is a capability within which of the following functional areas? a. Distribution b. Human resources c. Marketing d. Management Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  3-5 The Four Criteria of Sustainable Competitive Advantage Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  The Four Criteria of Sustainable Competitive Advantage (1 of 2) Capabilities that are valuable, rare, costly to imitate, and nonsubstitutable are core competencies. Capabilities failing to satisfy the four criteria are not core competencies, meaning that although every core competence is a capability, not every capability is a core competence. In slightly different wording: − For a capability to be a core competence, it must be valuable and unique from a customer’s point of view. − For a core competence to be a potential source of competitive advantage, it must be inimitable and nonsubstitutable by competitors. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Table 3.4 The Four Criteria of Sustainable Competitive Advantage Valuable Capabilities Help a firm neutralize threats or exploit opportunities Rare Capabilities Are not possessed by many others Costly-to-Imitate Historical: A unique and a valuable organizational Capabilities culture or brand name Ambiguous cause: The causes and uses of a competence are unclear Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, and customers Non substitutable No strategic equivalent Capabilities Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  The Four Criteria of Sustainable Competitive Advantage (2 of 2) Core competencies are: − Costly to imitate − Valuable ▪ Costly-to-imitate capabilities are capabilities ▪ Valuable capabilities allow the that other firms cannot easily firm to exploit opportunities or develop. neutralize threats in its external environment. − Nonsubstitutable − Rare ▪ Nonsubstitutable capabilities are capabilities ▪ Rare capabilities are that do not have strategic capabilities that few, if any, equivalents. competitors possess. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Table 3.5 Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage Is the Is the Is the Capability Is the Capability Competitive Performance Capability Capability Costly to Nonsubstitutable? Consequences Implications Valuable? Rare? Imitate? No No No No Competitive Below-average disadvantage returns Yes No No Yes/No Competitive parity Average returns Yes Yes No Yes/No Temporary Average returns competitive to above-average advantage returns Yes Yes Yes Yes/No Sustainable Above-average competitive returns advantage Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Polling Activity 3-5 Which type of capability contributes the most to a sustainable competitive advantage? a. Valuable capability b. Rare capability c. Costly to imitate capability d. Nonsubstitutable capability Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  3-6 Value Chain Analysis Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Value Chain Analysis (1 of 4) Value chain analysis allows the firm to understand the parts of its operations that create value and those that do not. Understanding these issues is important because the firm earns above-average returns only when the value it creates is greater than the costs incurred to create that value. The value chain is a template that firms use to analyze their cost positions and to identify the multiple means that can be used to facilitate implementation of their chosen strategies. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 3.3 A Model of the Value Chain Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Value Chain Analysis (2 of 4) Value chains are segmented into: − Value chain activities are activities or tasks the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customers. − Support functions include the activities or tasks the firm completes in order to support the work being done to produce, sell, distribute, and service the products the firm is producing. A firm can develop a capability and/or a core competence in any of the value chain activities and support functions. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Figure 3.4 Creating Value through Value Chain Activities Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 3.5 Creating Value through Support Functions Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Value Chain Analysis (3 of 4) All items in both figures should be evaluated relative to competitors’ capabilities and core competencies. To become a core competence and a source of competitive advantage, a capability must allow the firm to either: − perform an activity in a manner that provides value superior to that provided by competitors, or − perform a value-creating activity that competitors cannot perform. Value chain analysis can help managers determine which activities hold the most potential for the firm to develop a competence. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Value Chain Analysis (4 of 4) Value chain analysis can also be used to look for deficiencies in the organization that could be holding back the creation of value. This part of the analysis rests on the assumption that a firm is a value creation system. In a value creation system, each part of a system depends on other parts of the system to create value. Creating value for customers by completing activities that are part of the value chain requires building strong and productive relationships with stakeholders (social capital). Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Discussion Activity 3-6 Trust is identified as a potential source of competitive advantage. Have you ever been involved in a situation in which trust was instrumental in accomplishing an organization’s goals? If so, what outcomes were made possible because of trust? Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Discussion Activity 3-6 Debrief Have you ever been involved in a situation in which trust was instrumental in accomplishing an organization’s goals? If so, what outcomes were made possible because of trust? The organizations we trust are the ones we are likely to frequent and recommend to others—which builds social capital for the company. Organizations with social capital have the potential to grow, expand, and reach new markets. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  3-7 Reasons for Outsourcing Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Reasons for Outsourcing (1 of 3) When the firm cannot create value in Firms engaging in effective either a value chain activity or a outsourcing: support function, outsourcing is − increase their flexibility. considered. − mitigate risks. Outsourcing is the purchase of a − reduce their capital investments. value-creating activity or a support function activity from an external Firms should use outsourcing only for supplier. activities where they: − cannot create value. − are at a substantial disadvantage compared to competitors. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Reasons for Outsourcing (2 of 3) Outsourcing can be effective By nurturing a smaller number of because few, if any, organizations capabilities, a firm: possess the resources and − increases the probability of capabilities required to achieve developing core competencies competitive superiority in each and achieving a competitive value chain activity and support advantage because it does not function. become overextended. − can fully concentrate on those areas in which it has the potential to create value. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Reasons for Outsourcing (3 of 3) There are concerns associated with outsourcing; two significant concerns are: − The potential loss in a firm’s ability to innovate − The loss of jobs within the focal firm Firms are sometimes able to enhance their own innovation capabilities by studying how the companies to which they’ve outsourced complete those activities. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Knowledge Check 3-7 Outsourcing is concerned with how components, finished goods, or services will be: a. distributed. b. obtained. c. produced. d. managed. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  3-8 Competencies, Strengths, Weaknesses, and Strategic Decisions Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Competencies, Strengths, Weaknesses, and Strategic Decisions (1 of 2) By analyzing the internal organization, firms identify their strengths and weaknesses as reflected by their resources, capabilities, and core competencies. If a firm has weak capabilities or does not have core competencies in areas required to achieve a competitive advantage, it must acquire those resources and build the needed capabilities and competencies. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Competencies, Strengths, Weaknesses, and Strategic Decisions (2 of 2) Having a significant quantity of resources is not the same as having the “right” resources. − The “right” resources are those with the potential to be formed into core competencies as the foundation for creating value for customers and developing competitive advantages because of doing so. 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 that generate inertia and stifle innovation. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Knowledge Check 3-8 When a company assumes that a core competence will be a permanent competitive advantage, that competency runs the risk of becoming a core: a. rigidity. b. incompetence. c. disadvantage. d. resource. e.. Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Summary Click the link to review the objectives for this presentation. Link to Objectives Hitt, Ireland, Hoskisson, Harrison, Strategic Management: Concepts and Cases: Competitiveness and Globalization, 14th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.