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Class 2; Friday 7: Read Chapter 3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages

• Participate in Discussion 1.  

Chapter 3

This chapter introduces the concepts of capabilities and competencies that we have, I am sure, heard so much about in our professional lives. It is important to understand that while capabilities encompasses the know-how, which is reflected in the policies and practices, within a particular function (i.e., finance, marketing…), competencies involve the integration of capabilities across functions. So why is it important to understand these concepts? Because the competitive advantage that an organization may have over others typically lies in these competencies. Furthermore, being able to identify the competencies of competitors is an important step in being able to formulate one’s own strategic plan; we are trying to play to our strengths while being aware of our weaknesses! Based on what should we compete? Where lie our strengths? Barney, in his very famous VRIO (or VRIN) framework, gives us an idea that in order to compete successfully, a firm should develop or have competencies that should offer Value to customers, they should be Rare and therefore not be offered by competitors, they need to be Inimitable or else they the advantage will rapidly be erased by competitors, and finally the Organization needs to be structured or structured in such a way allowing these competencies to be exploited. In some textbooks, such as ours, they replace 'organization' with Nonsubstitutability; that is, that competencies are not easy to exchange with other similar substitutes. I find that an interesting exercise is for us to analyze what our own VRIO’s are. Give yourself a moment to think about what makes you, as an employee, so unique, so indispensable, so desired by your employer. As a mater of fact, I enjoy thinking of our whole strategic process from an individual perspective and analyze how we can analyze ourselves and formulate strategies about how we intend to reach our own mission, vision and objectives based on our VRIO’s. Many professionals wonder why they aren't advancing in their careers; I think that a little 'external environmental analysis' and industry analysis to identify trends in the market along with self-reflection of strengths and weaknesses based on our competencies in relation to others in the market (our competitors) is a beneficial exercise. The concept of value chain and understanding the value chain for your particular industry is very important. I assume that we all understand the general concept of value chain as the movement of goods from one organization that adds value to a product to another until the good or service finally reaches the end consumer. But now lets think about what makes this topic important besides the obvious… for example, what if you decide that your organization needs to grow, what alternatives of growth do you have and which best align its competencies? A firm may decide, for example, to vertically integrate (forward or backward—or as the text says upstream or downstream) or horizontally into other markets. What will this decision be based on? Probably some knowledge of industry attractiveness, of the firms core and distinctive competencies, and intimate knowledge of profit margins earned during each link of the value chain, right?

Value chain analysis can also be useful for the internal analysis of value within your company; where is value being created inside your firm? This exercise is useful to many times determine where to allocate resources and also to determine what to outsource.

Discussion

Based on the discussion in the first chapter regarding ‘strategic flexibility’, what mechanisms (policies and/ or practices) does the firm where you work have in place to create and maintain ‘strategic flexibility’? How does your organization learn about its environment, disseminate this knowledge throughout the firm and react? If you are not currently working, please offer an example from a previous employer or use another firm that you have knowledge about. For all discussions make sure you: 1) research and reference at least 5 articles (the more you research, the more you learn and hence the higher grade you will receive) on the topic, 2) provide definitions based on the extant literature and explain important antecedents (causes of) and outcomes of the phenomenon under analysis, and 3) explain how the research resonates (compare and contrast) with your personal professional experience. So, for example, for this discussion research the definitions of strategic flexibility, what organizational characteristics lead to strategic flexibility and then what are the outcomes of having strategic flexibility; finally explain how the research resonates with what you have experienced.