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review some of the challenges involved in sustaining market leadership once it is
attained (i.e., avoiding the natural complacency that tends to creep into an operation
once dominance of the market is achieved).
KEY TAKEAWAY

Strategic focus seems to be a common element in the strategies across
successful firms. Two prevalent views of strategy where focus is a key component
are strategy as trade-offs and strategy as discipline. Michael Porter identifies three
flavors of strategy: (1) cost leadership, (2) differentiation, or (3) focus of cost
leadership or differentiation on a particular market niche. Firms can straddle these
strategies, but such straddling is likely to dilute strategic focus. Strategy also provides
discipline. Treacy and Wiersema’s three strategic disciplines are (1) operational
excellence, (2) product leadership, and (3) customer intimacy.
EXERCISES
1. What is strategic focus and why is it important?
2. What are Porter’s three generic strategies?
3. Can a firm simultaneously pursue a low-cost and a differentiation
strategy?
4. What are the three value disciplines?
5. What four rules underlie the three value disciplines?
6. How do Porter’s generic strategies differ from, and relate to, the Treacy
and Wiersema approaches?

5.4 Developing Strategy Through Internal Analysis
LEARNING OBJECTIVES
1. Learn about internal analysis.
2. Understand resources, capabilities, and core competencies.
3. See how to evaluate resources, capabilities, and core competencies using
VRIO analysis.
In this section, you will learn about some of the basic internal inputs for
strategy formulation—starting with the organization’s strengths and weaknesses. We
will focus on three aspects of internal analysis here, though you recognize that these
should be complemented by external analysis as well. There is no correct order in
which to do internal and external analyses, and the process is likely to be iterative.
That is, you might do some internal analysis that suggests the need for other external
analysis, or vice versa. For the internal environment, it is best to start with an
assessment of resources and capabilities and then work your way into the
identification of core competences using VRIO analysis.
Internal Analysis
By exploiting internal resources and capabilities and meeting the demanding
[1]
standards of global competition, firms create value for customers. Value is
measured by a product’s performance characteristics and by its attributes for which
customers are willing to pay. Those particular bundles of resources and capabilities
[2]
[3]
that provide unique advantages to the firm are considered core competencies. Core
competencies are resources and capabilities that serve as a source of a firm’s
competitive advantage over rivals. Core competencies distinguish a company

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