CH3: Evaluating a Firm’s
Internal Capabilities
Porter’s Model
Strategy becomes a matter of choosing an
appropriate industry and positioning the
firm within that industry according to a
generic strategy of either low cost or
product differentiation.
SWOT, “Five forces” – external side of
strategy
Criticism on Porter’s Model
Profitability of industries rather than
individual firms.
It focuses on the overall pattern of
relationships among firms in the industry.
If the industry as a whole is structured
properly (ex. Sufficient barriers), then all
firms should realize excess returns.
Resource-Based View
Unique characteristics of particular firms
within an industry can make a difference in
terms of profit performance.
It argues that firms should position
themselves strategically based on their
unique, valuable, and inimitable resources
and capabilities rather than products and
services derived from those capabilities.
Resource-Based View
Leveraging resources and capabilities
across many markets and products, rather
than targeting specific products for specific
markets, becomes the strategic driver.
While products and markets may come and
go, resources and products are more durable.
Resource-Based View
Therefore, a resource-based strategy
provides a more long-term view rather than
the traditional approach, and one more
robust in uncertain and dynamic
competitive environments.
Knowledge as a Strategic
Resource
By having superior intellectual resources,
an organization can understand how to
exploit and develop their traditional
resources better than competitors, even if
some or all of those traditional resources are
not unique.
Therefore, knowledge can be consider the
most important strategic resource.
What is it about knowledge that
makes the advantage sustainable?
1. Knowledge – especially context-specific,
tacit knowledge embedded in complex
organizational routines and developed from
experience.
2. Knowledge-based competitive advantage
is also sustainable because the more a firm
already knows, the more it can learn.
What is it about knowledge that
makes the advantage sustainable?
3. Knowledge can provide increasing returns, not
decreasing, over time.
If a firm can identify areas where its knowledge
leads the competition, and if the unique
knowledge can be applied profitably in the
marketplace, it can represent a powerful and
sustainable competitive advantage.
Knowledge-Strategy Link
In essence, firms need to perform a
knowledge-based SWOT analysis, mapping
their knowledge resources and capabilities
against their strategic opportunities and
threats to better understand their points of
advantages and weakness.
Knowledge-Strategy Link
To explicate the link between strategy and
knowledge, a firm must articulate its
strategic intent, identify the knowledge
required to execute its intended strategy,
and compare that to its actual knowledge,
thus revealing its strategic knowledge gaps.
A Strategic Framework for
Mapping Knowledge
1. Classification
1) Core knowledge: Minimum scope and
level of knowledge required just to “play
the game.”
A basic knowledge barrier to entry
Not assure the long-term competitive viability
Commonly held by members of an industry
A Strategic Framework for
Mapping Knowledge
2) Advanced knowledge: It enables a firm
to be competitively viable. (knowledge
differentiation)
3) Innovative knowledge: It enables a
firm to lead its competitors. (significant
differentiation)
Can change the rules of the game
A Strategic Framework for
Mapping Knowledge
2. Gap Analysis
1) Strategic Gap: The gap between what a firm
must do to compete and what it actually is doing.
It is the stuff of traditional strategic management
(SWOT)
It represents how the firm balances its
competitive “cans” and “musts” to develop and
protect its strategic niche.
A Strategic Framework for
Mapping Knowledge
2) Knowledge Gap: Given a strategic gap, the gap
between what the firm must know to execute its
strategy and what it does know.
The greater the gap, the more volatile.
Align its strategy with its capabilities or acquire
the capabilities to execute its strategy
Knowledge Strategy 1
1. Exploration vs. Exploitation
1) Lack of knowledge: Explorer – a creator or
acquirer of the knowledge required to become
and to remain competitive in its strategic
position.
2) Excess of knowledge: Exploiter – a finder of
other opportunities within or across other
competitive niches based on significantly exceed
knowledge resources and capabilities.
Knowledge Strategy 1
Exploitation & exploration are not mutually
exclusive.
Ultimately, the ideal for most firms is to
maintain a balance between exploration and
exploitation within all areas of strategic
knowledge.
Knowledge Strategy 1
Exploration provides the knowledge capital
to propel the firm into new niches while
maintaining the viability of existing ones.
Exploitation of that knowledge provides the
financial capital to fuel successive rounds of
innovation and exploration.
Knowledge Strategy 2 & 3
2. Internal vs. External Knowledge
3. Aggressive vs. Conservative