Internal Environment: Resources, Capabilities, Core Competence and Value Chain (Basics) Questions

Question 1

What are resources (in internal analysis)?

Accepted Answer

**Resources** are the assets/inputs a firm has or can access (physical, financial, human, technological, intangible) to run its business.

Question 2

What are capabilities?

Accepted Answer

**Capabilities** are the firm’s ability to **use resources effectively** through skills, routines, and processes.

Question 3

Define internal environment.

Accepted Answer

**Internal environment** refers to the factors **within the organization** (resources, systems, culture, etc.) that influence its decisions and performance.

Question 4

What is core competence?

Accepted Answer

**Core competence** is a unique, valuable capability/strength that gives a firm **competitive advantage** and is difficult for competitors to copy.

Question 5

Write the full form of VRIO.

Accepted Answer

**VRIO** = **Valuable, Rare, Inimitable, Organized**.

Question 6

What is value chain analysis?

Accepted Answer

**Value chain analysis** studies a firm’s activities to see where it can **reduce cost** or **increase customer value** (differentiation).

Question 7

Explain types of resources in a firm (any three).

Accepted Answer

Any three types of resources:
- **Physical resources**: plant, machines, buildings, location.
- **Financial resources**: capital, cash flow, loans/credit.
- **Human resources**: employees’ **skills**, experience, leadership.
- **Technological resources**: patents, IT systems, R&D.
- **Intangible resources**: **brand image**, goodwill, reputation.

(Write any three with brief explanation and one example.)

Question 8

Differentiate between resources and capabilities with examples.

Accepted Answer

**Resources** are what a firm **has** (assets), while **capabilities** are what the firm **can do** using those assets.

Examples:
- Resource: delivery vehicles + warehouses
- Capability: **fast / same-day delivery** through routing systems, trained staff and IT

So, resources are inputs, and capabilities convert inputs into performance.

Question 9

Explain the concept of core competence (any three features).

Accepted Answer

**Core competence** is a special internal strength that gives competitive advantage.

Features (any three):
- creates **customer value** (better quality, lower cost, better experience)
- is **unique** and difficult to imitate
- can be leveraged across **multiple products/markets**
- supported by firm’s learning, culture and systems

Hence, it becomes a base for long-term advantage.

Question 10

Explain VRIO framework (basic) and how it helps internal analysis.

Accepted Answer

VRIO is used to check whether a resource/capability can provide advantage:
- **V (Valuable)**: adds value or reduces cost
- **R (Rare)**: not many competitors have it
- **I (Inimitable)**: hard to copy
- **O (Organized)**: firm has systems to exploit it

It helps identify which internal strengths can become a **competitive advantage**.

Question 11

List primary and support activities in Porter’s value chain (any six activities).

Accepted Answer

Porter’s value chain:

**Primary activities**:
- **Inbound logistics**
- **Operations**
- **Outbound logistics**
- **Marketing & sales**
- **Service**

**Support activities**:
- **Firm infrastructure**
- **HR management**
- **Technology development**
- **Procurement**

(Write any six.)

Question 12

Explain value chain analysis and state its importance (any three points).

Accepted Answer

**Value chain analysis** breaks a business into activities to understand where value is created and where cost is incurred.

Importance (any three):
- helps identify **cost drivers** and reduce unnecessary cost (cost leadership)
- helps improve **quality/efficiency** in specific activities (e.g., operations, logistics)
- supports **differentiation** by improving marketing, service and customer experience
- helps decide **outsourcing** vs in-house by comparing activity performance

Thus, it improves competitiveness by improving the right activities.

Question 13

Explain internal environment and its components (resources, capabilities, core competence) with a flowchart.

Accepted Answer

### **Internal Environment and its Components**

The **internal environment** consists of controllable factors inside the organization that shape performance and strategy. A strong internal environment helps the firm compete even when external conditions are difficult.

**Main components**:
- **Resources**: what the firm **has** (physical, financial, human, technological, intangible).
- **Capabilities**: what the firm **can do well** using resources (process efficiency, supply chain, innovation).
- **Core competence**: a unique, valuable capability that is **hard to imitate** and provides **competitive advantage**.

```text
Internal Environment
      ↓
Resources (assets)
      ↓
Capabilities (effective use of assets)
      ↓
Core competence (unique strength)
      ↓
Competitive advantage & performance
```

Thus, internal analysis helps managers decide which strengths to build and which weaknesses to improve.

Question 14

Differentiate resources, capabilities and core competence with a table and examples.

Accepted Answer

### **Resources vs Capabilities vs Core Competence**

| Basis | **Resources** | **Capabilities** | **Core competence** |
|---|---|---|---|
| Meaning | Assets the firm has | Ability to use assets effectively | Unique capability giving advantage |
| Nature | Tangible/intangible | Skills, routines, processes | Valuable + rare + hard to copy |
| Examples | plant, cash, **brand** | efficient supply chain, service | low-cost operations, strong innovation |
| Result | inputs available | better execution | **competitive advantage** |

Examples:
- Resource: warehouses + vehicles
- Capability: **same-day delivery system**
- Core competence: consistently **fast delivery** with high reliability that competitors can’t match.

Hence, resources build capabilities, and strong capabilities can become core competence.

Question 15

Explain Porter’s value chain and show primary vs support activities using a diagram/table.

Accepted Answer

### **Porter’s Value Chain (Meaning and Activities)**

**Value chain** explains how a firm creates value for customers through a set of activities. By analyzing activities, a firm can improve **cost efficiency** or create **differentiation**.

| **Primary activities** | **Support activities** |
|---|---|
| **Inbound logistics** | **Firm infrastructure** |
| **Operations** | **Human resource management** |
| **Outbound logistics** | **Technology development** |
| **Marketing & sales** | **Procurement** |
| **Service** | (supports all primary activities) |

```text
Support activities (Infrastructure / HR / Tech / Procurement)
                 ↓ supports
Inbound → Operations → Outbound → Marketing/Sales → Service
(Primary activities that deliver value)
```

Therefore, value chain analysis helps identify where to reduce cost (e.g., operations) or add value (e.g., service/marketing).

Internal Environment: Resources, Capabilities, Core Competence and Value Chain (Basics)

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