The internal resources, capabilities and competences of an organisation

Welcome to Your Internal Analysis Journey!

In our previous studies, we looked at the world outside an organisation (the external environment). Now, it’s time to turn the mirror inward. In this chapter, we explore what makes a business tick from the inside. Think of a world-class chef: they need the best ingredients (Resources) and the skill to cook them perfectly (Competences). By the end of these notes, you’ll understand how businesses use what they have and what they do to beat the competition. Don’t worry if some terms sound fancy; we will break them down into everyday language!

Why is this important? In the SBL exam, you aren't just identifying facts; you are acting as a leader. You need to know if a company is actually capable of carrying out a strategy. There's no point in planning to fly to the moon if you don't have a rocket or an astronaut!

Quick Review: Strategy is about the long-term direction of an organisation. Internal analysis helps us find our "Competitive Advantage"—that special something that makes customers choose us over everyone else.

1. Resources and Competences: The Building Blocks

To understand an organisation’s internal strength, we divide it into two categories: what we have and what we do.

Resources (The "What")

Resources are the assets an organisation owns or can access. A simple way to remember the different types of resources is the 9Ms model:

1. Machinery: Equipment and tech.
2. Management: The leadership and expertise.
3. Money: Cash flow and funding.
4. Men (Human Resources): The staff and their basic skills.
5. Materials: Raw materials or inventory.
6. Markets: Existing customer base.
7. Methods: Processes and systems.
8. Management Information: Data and insights.
9. Make-up: The brand image and reputation.

Competences (The "How")

Competences are the activities and processes through which an organisation uses its resources. It’s not just having the 9Ms; it’s how well you use them. For example, having a laptop is a resource; knowing how to code a famous app on it is a competence.

Threshold vs. Unique/Core

We further split these into two levels:

Threshold Resources/Competences: These are the "must-haves." They are the minimum requirements needed just to play the game. If you open a coffee shop, you must have coffee beans and a machine. Without these, you can't even start.
Unique Resources / Core Competences: These are the "game-winners." These are things your competitors don't have or can't do as well as you. This is what creates a Sustainable Competitive Advantage.

Did you know? A "Core Competence" is often something "invisible" or "embedded" in the way a company works, making it very hard for others to copy.

Key Takeaway: Threshold factors keep you in the business; Core Competences make you the leader of the business.

2. The VRIO Framework: Testing for Success

How do we know if a resource or competence is actually "Core"? We use the VRIO framework. Think of this as a "filter." If a resource passes all four tests, it’s a gold mine!

V - Value: Does the resource allow us to exploit an opportunity or neutralise a threat? Does it provide value to the customer?
R - Rarity: Is it something that only we (or very few others) possess? If everyone has it, it’s just a threshold factor.
I - Inimitability: Is it difficult or expensive for others to copy? (e.g., a secret recipe or a very complex culture).
O - Organisational Support: Is the company actually organised to capture this value? Do we have the right systems and culture to use it?

Example: Imagine a tech company with a brilliant, world-unique patent (Value, Rarity, Inimitability). However, if the management is disorganized and doesn't know how to sell the product (lack of Organisation), they won't make money from it!

Common Mistake: Students often think "Inimitability" only means patents. It also includes Causal Ambiguity (competitors can't figure out why you are so good) and Social Complexity (the way your team works together is unique).

3. Porter’s Value Chain

To find where our strengths and weaknesses are, we look at the Value Chain. Michael Porter suggested that an organisation is a series of activities that "add value" to a product or service. If the value added is more than the cost of the activities, the firm makes a Margin (profit).

Primary Activities (The "Line" functions)

These are directly involved in creating and selling the product:

1. Inbound Logistics: Receiving and storing raw materials.
2. Operations: Turning raw materials into the finished product.
3. Outbound Logistics: Distributing the product to customers.
4. Marketing and Sales: Making customers want to buy.
5. Service: After-sales support and repairs.

Support Activities (The "Background" functions)

These make the primary activities possible:

1. Procurement: Buying the resources (not the resources themselves, but the process of buying).
2. Technology Development: R&D, IT systems, and process innovation.
3. Human Resource Management: Recruiting, training, and rewarding staff.
4. Firm Infrastructure: The "skeleton" of the company—finance, legal, and general management.

Analogy: In a restaurant, the chef cooking is "Operations" (Primary). The HR manager who hired the chef is "HR Management" (Support). Both are needed to serve a great meal!

The Value Shop: For service-based companies (like doctors or accountants), the "Value Chain" doesn't quite fit. Instead, we use the Value Shop, where value is created by solving specific customer problems through a cycle of: Problem finding -> Problem solving -> Choice -> Execution -> Control.

Quick Review: The Value Chain helps you identify which specific activity is your Core Competence. Is it your amazing marketing? Or your super-efficient logistics?

4. SWOT Analysis: Bringing it Together

Now that we’ve looked at our resources and our value chain, we can perform a SWOT Analysis. In the context of "Internal Analysis," we are focusing on the S and the W.

Strengths (Internal): Things the organisation is good at or positive resources it possesses (e.g., a strong brand, high cash reserves).
Weaknesses (Internal): Things the organisation lacks or does poorly (e.g., outdated technology, high staff turnover).

Encouraging Note: Don't worry if you find it hard to distinguish between a Strength and an Opportunity. Just remember: Strengths/Weaknesses are about the inside of the company (controllable). Opportunities/Threats are about the outside world (uncontrollable).

Summary of the Chapter: - Resources are what you have; Competences are what you do.
- Use VRIO to see if your resources give you a long-term edge.
- Use Porter's Value Chain to look at every step of your business to find where you add value.
- Summarise your findings using the internal parts of SWOT.

Leader's Tip: When answering SBL case studies, always ask: "Does this company have the internal capability to achieve its goals?" If they want to expand globally but have no international experience (Weakness), you should recommend training or hiring new experts (improving Resources/Competences).