Chapter 3.

The Internal Environment: Resources, Capabilities, Competencies, and Competitive Advantages In nowadays business competition, every firm is challenged to effectively manage current core competencies while simultaneously developing new ones. When a firm can develop their capabilities that contribute to competitive advantages, they have achieved strategic competitiveness, earn above-average returns, and remain ahead of competitors. This chapter explained about analysis of internal organization: roles of resources and capabilities in developing core competencies, which are the sources of the firms competitive advantages; the techniques firms use to identify and evaluate resources and capabilities and the area for selecting core competencies among them. In internal organization analysis, firm should use global mind-set to capture the whole situation. Global mind-set is to analyze and understanding situation in ways that are not dependent on the assumptions of a single country, culture, or context. Firms populated with people having a global mind-set have a key source of long-term competitive advantage in global marketplace. Value is measured by a products performance characteristics and by its attributes for which customers are willing to pay. Firms with competitive advantage offer value to customers that are superior to the value competitors provide. Firms create value using their resources and capabilities innovatively. The Challenge of Analyzing the Internal Organization Difficulties in making a strategic decision regard to resources, capabilities, and core competencies are characterized by three conditions: uncertainty, complexity, and

intraorganizational conflicts. Strategic decision makers face uncertainty in terms of new proprietary technologies, rapidly changing economic and political trends, transformations in society values, and shifts in customer demands. The uncertainties increase the complexity and spectrum of issues to examine the internal organization. intraorganizational conflicts come up when among people making decisions and those affected by them.

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In making decision which affected by those three conditions, judgment is needed. Judgment is the capability of making successful decisions when no obviously correct model or rule is available or when relevant data are incomplete. Resources, Capabilities, and Core Competencies Resources, capabilities, and core competencies are foundation of competitive advantage. Resources are bundled to create organizational capabilities which are the source of firms core competencies; and those are basis of competitive advantages. Several resources are bundling together to generate a competitive advantage. Resources of a firm can be divided into two main forms: intangible and tangible resource. Tangible resources are assets that can be observed and quantified; for examples: machineries, manufacturing facilities, distribution centers, trucks to transfer goods, and so on. Intangible resources are relatively difficult for competitors to analyze or imitate; for examples: patent, knowledge, scientific capabilities, brand image, capacities for innovation, and so on. There are for types of tangible resources, which are financial, organizational, physical, and technological. In other side, there are three types of intangible resources, which are human, innovation, and reputational. Capabilities generated when resources are integrated to achieve a specific goal. In creating competitive advantages, capabilities are the outcome of developing, carrying, and exchanging knowledge and information through the firms human capital. The foundation of many capabilities lies in the unique skills and knowledge of firms employees and often their functional expertise. Firm is challenged to create an environment that allows people to integrate their individual knowledge with that held by others in the firm so that the firm has significant organizational knowledge. Core competencies are capabilities as source of competitive advantage of a firm over its rival. It is reflected the personality of the firm. Every firm needs to identify their core competencies due to frame their strategic actions. There are two tools that can be used to identify and build their core competencies.

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1. Four criteria of sustainable competitive advantage: valuable capabilities, rare capabilities, costly to imitate capabilities, and nonsubstitutable capabilities. For a capability to be a core competence, it must be valuable and unique from a customers point of view. For a competitive advantage to be sustainable, the core competence must be inimitable and nonsubstitutable by competitors. 2. Value chain analysis This analysis allow firm to understand the parts of its operations that create value and those that do not. Firms value chain is segmented into primary and support activities. Primary activities are involved with a products physical creation, its sale and distribution to buyers, and its service after the sale. Support activities provide the assistance necessary for the primary activities to take place. Outsourcing can be a value-creating activity if it is done effectively. It can increase firms flexibility, mitigate risks, and reduce their capital investment. Competencies, Strengths, Weaknesses, and Strategic Decisions The conclusion for internal analysis is firms must identify their strengths and weaknesses in resources, capabilities, and core competencies. Firms need to have the appropriate resources and capabilities to develop the desired strategy and create value for customers and other stakeholder. After studying firm external environment to determine what it might choose to do and its internal organization to understand what it can do, the firm has the information requires in choosing business-level strategy that will help it reach its goal.

Reading Material 6. A Resource-Based View of Competitive Advantage at the Port of Singapore This case explains about the analysis of Ports strategy using a resource-based view and showing the importance of operations and information technology in creating an advantage. The Port of Singapore has achieves sustainable competitive advantage considering to its location by build resources that other competitors find very difficult to match.

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Singapores most important natural resources including the size; it is large and protected harbor, and its location on major trade routes, also well-educated workforce. More than 200 shipping lines with connections to 600 ports in 123 countries choose to call at Port of Singapore (PSA). Key customer requirement on PSA is essentially for shipping lines. As Singapore is a transhipment hub for shippers, port operations are very demanding. These operations have to be well coordinated to minimize ship turnaround times. In these activities, information is essential and PSA has well IT system to support it. Not only supported by sufficient IT system but PSA also invest in culture organization where their workforce is trained to focus in customers. PSAs Strategy Analysis PSA know their opportunities and threats by identifying their external and internal environment. From internal environment, PSA focus on enhancing their capabilities on resources especially in information system and human capital. PSA understand that these two resources are essential for operation activities at PSA. The success of PSA is determined from the way PSA integrate the potential of each resource because competitive advantage is resulted from combination of resources work. One potential resource cannot be effective without support from other resources. As an example, information system technology alone could not confer an advantage without an investment in physical infrastructure at the port like dicks and cranes. The Singapore experience shows how IT can reduce the consequences of disadvantages; it can and has used IT to increase the capacity of its constrained physical resources to run a large port. Conclusion PSA supplemented limited natural resources with man-made resources, including operation and information system technology, to build one of the leading ports in the world. These man-made resources compensated for some of the countrys natural limitations. These group dynamic resources can help sustain an organizations competitive advantage.

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