Chapter 3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages 83
When studying the internal organization, managers face uncertainty because of a num-
ber of issues, including those of new proprietary technologies, rapidly changing economic
and political trends, transformations in societal values, and shifts in customers’ demands.^37
Environmental uncertainty increases the complexity and range of issues to examine
when studying the internal environment.^38 Consider how uncertainty affects how to use
resources at coal companies such as Peabody Energy Corp. and Murray Energy Corp.
Peabody is the world’s largest private coal sector producer. The firm’s coal products
fuel approximately 10 percent of all U.S. electricity generation and 2 percent of world-
wide electricity. But this firm and others competing in its industry face a great deal of
uncertainty, particularly political uncertainty. As a result, there are questions about how
Peabody and its competitors might best allocate their resources today to prepare for
success tomorrow. Viewing coal as a “dirty fuel” and its production as environmental
unfriendly, the U.S. Environmental Protection Agency (EPA) announced in 2014 and
described in greater detail in 2015 new regulations. Focusing on carbon emissions, the
EPA’s carbon regulations “call for a 30 percent cut in power-plant carbon emissions by
2030 based on emissions levels in 2005.” Coal producers such as Peabody, Arch Coal, and
Murray Energy to name only a few, believe that the regulations are too strict and that
moreover, the EPA misinterpreted the Clean Air Act when developing them. Time is
required for the parties to sort through all of these issues, some of which will be decided
by various courts given lawsuits filed by states (such as West Virginia) and firms (such
as Murray Energy Corp.).^39 The issue though is that the decision makers in these energy
firms face a great deal of uncertainty as they examine the resources, capabilities, and core
competencies that form their firms’ internal organization.^40
Biases regarding how to cope with uncertainty affect decisions made about how to
manage the firm’s resources and capabilities to form core competencies.^41 Additionally,
intraorganizational conflict may surface when decisions are made about the core com-
petencies a firm should develop and nurture. Conflict might surface in the energy com-
panies mentioned above about the degree to which resources and capabilities should be
used to form new core competencies to support newer “clean technologies.”
In making decisions affected by these three conditions, judgment is required.
Judgment is the capability of making successful decisions when no obviously correct
model or rule is available or when relevant data are unreliable or incomplete. In such
situations, decision makers must be aware of possible cognitive biases, such as overconfi-
dence. Individuals who are too confident in the decisions they make about how to use the
firm’s resources may fail to fully evaluate contingencies that could affect those decisions.^42
When exercising judgment, decision makers often take intelligent risks. In the current
competitive landscape, executive judgment can become a valuable capability. One reason
is that, over time, effective judgment that decision makers demonstrate allows a firm to
build a strong reputation and retain the loyalty of stakeholders whose support is linked
to above-average returns.^43
Finding individuals who can make the most successful decisions about using the
organization’s resources is challenging. Being able to do this is important because the
quality of leaders’ decisions regarding resources and their management affect a firm’s abil-
ity to achieve strategic competitiveness. Individuals holding these key decision-making
positions are called strategic leaders. Discussed fully in Chapter 12, for our purposes in
this chapter we can think of strategic leaders as individuals with an ability to make effec-
tive decisions when examining the firm’s resources, capabilities, and core competencies
for the purpose of making choices about their use.
Next, we consider the relationships among a firm’s resources, capabilities, and core
competencies. While reading these sections, keep in mind that organizations have more
resources than capabilities and more capabilities than core competencies.