The Internal Environment

• Even if the firm develops and manages resources in ways that create core competencies and competitive advantages, competitors will eventually learn how to duplicate the benefits of any firm’s value-creating strategy; thus, all competitive advantages have a limited life.
• The question of duplication of a competitive advantage is not if it will happen, but when.
• In general, a competitive advantage’s sustainability is a function of three factors:

  • rate of core competence obsolescence because of environmental changes
  • availability of substitutes for the core competence
  • imitability of the core competence
• For all firms, the challenge is to effectively manage current core competencies while simultaneously developing new ones.
• Only when firms are able to manage current core competencies while developing new ones can they expect to achieve strategic competitiveness, earn above - average returns, and remain ahead of competitors in both the short and long term.
• By analyzing its internal organization, a firm determines what it can do.
• a function of its resources, capabilities, and core competencies in the internal organization

  what a firm can do
• a function of opportunities and threats in the external environment

  what a firm might do
• Matching what a firm can do with what it might do is a process that yields insights that the firm requires to select strategies from.
• resources and capabilities develop core competencies, which are the sources of the firm’s competitive advantages
• Resources by themselves typically are not competitive advantages.
• resources create value when the firm uses them to form capabilities, some of which become core competencies, and hopefully competitive advantages
• The existence of core rigidities indicates that the firm is too anchored to its past, a situation that prevents it from continuously developing new capabilities and core competencies.