Global Strategic Management
ISBN: 9781337062916
Read Chapter 3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages
- Participate in Discussion 3
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.
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 organized in such a way allowing these competencies to be exploited. In some textbooks, such as our, 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.
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 the firms core and distinctive competencies as well as intimate knowledge of profit margins earned during each link of the value chain right?
Discussion:
Identify and explain to the class the core competencies of the firm where you are currently employed or a firm where you have been employed in the past. Also explain these competencies in light of those of the competition and if the competencies contain any of the four elements that lead to sustainable advantages mentioned in chapter 3 (valuable, rare, costly to imitate and non-substitutable). During your discussion, please include the role of organizational culture as a source of strategic competitiveness. Finally, don't forget to engage in active discussions with your peers.... learn what makes their firms competitive in the market.
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