4 Internal Analysis

Strategic Management
Internal Analysis: Assessing Strengths and Weaknesses
Learning Outline
Understand organizational strengths and weaknesses Understand the relationship between organizational resources, organizational capabilities, core competencies, and distinctive organizational capabilities Understand the Value Chain Outsourcing How to do an Internal Analysis
How to evaluate S&Ws
SWOT Analysis
Threats
Weaknesses
Organization
Strengths
Opportunities
What is an Internal Analysis

Identifies and evaluates resources, capabilities, and core competencies As such organizations need to understand their
Strengths are resources that an organization possesses and capabilities that an organization has developed that can be exploited and developed into a sustainable competitive advantage Weaknesses are resources and capabilities that are lacking or deficient and prevents an organization from developing a sustainable competitive advantage
The Road to Competitive Advantage

Performance Results Competitive Advantage Distinctive Organizational Capabilities Organizational Resources Financial assets Physical assets Human resources Intangible assets 5 Structural-cultural assets Organizational Capabilities Organizational processes and routines Accumulated knowledge Core Competencies
The road to distinctive organizational capabilities

Distinctive Organizational Capabilities
Organizational Capabilities
Core Compete ncies
Resources Tangible Intangible
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building block for developing core competencies Organizational processes and routines to get the work done
Fundamental

Distinctive Organizational Capabilities
Organizati onal Capabiliti es
Core Competencies
Fundamental building block for developing core competencies Organizational processes and routines to get the work done
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Core Competencies
Fundamental skills and capabilities Exploitable by organization Major value-creating capabilities Not a source of competitive advantage
Types of Core Competencies

After-sale service capability Skills in manufacturing a high quality product (BMW) System to fill customer orders accurately and swiftly (Amazon; Dell) Expertise in integrating multiple technologies to create families of new products (W.L. Gore)

Distinctive Organizational Distinctive Organizational Capabilities
Special and unique capabilities Distinguish from competitors Sustainable competitive advantage Outperform competition
Capabilities
Organizat ional Capabiliti es
Core Competencies
Core Competencies
Not a source of competitive advantage Fundamental skills and capabilities Exploitable by organization Major value-creating capabilities
Hondas Distinctive Capability

Expertise in gasoline engine technology and small engine design
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Procter & Gambles Distinctive Capabilities
Superb marketing-distribution skills and R&D capabilities in five core technologies - fats, oils, skin chemistry, surfactants, emulsifiers
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From Distinctive capabilities to competitive advantage

Contributes to Superior Customer Value
Can Be Used in a Variety of Ways

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Is Difficult Distinctive for Competitors Organizational to Imitate Capabilities
Capabilities vs. Core Competencies vs. Distinctive Capabilities
A company capability is the product of organizational learning and experience and represents real proficiency in performing an internal activity A core competence is a well-performed internal activity that is central (not peripheral or incidental) to a companys competitiveness and profitability A distinctive Capability is a competitively valuable activity that a company performs better than its rivals
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Value Chain Analysis

Support Activities
Firm Infrastructure
Human Resource Management Technological Development Procurement
AR M IN G
Inbound Logistics Operations
Outbound Logistics Marketing and Sales Service
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Primary Activities
M A R
IN
From Value Chain Analysis to Competitive Advantage
Sustainable competitive advantage can be created by 1.Managing value chain activities better than rivals and/or 2.Developing distinctive value chain capabilities to serve customers!
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Other types of Internal Analysis
Internal audit
Look
at all functional areas and see which are performing well capabilities to identify potential sources of competitive advantage
Capabilities assessment profile

Analyze
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Appeal of Outsourcing
Outsourcing non-critical activities allows a firm to concentrate its energies and resources on those value-chain activities where it

Can create unique value Can be best in the industry
Advantages to outsourcing

Decrease internal bureaucracies Flatten organization structure Provide firm with heightened strategic focus
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Potential Advantages of Outsourcing Non-Critical Activities
Outsourcing makes strategic sense when outsiders can perform certain activities at a lower cost and/or with higher value-added.
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How do you do an internal analysis?

Step 1 Prepare current product-market profile. Identify sources of competitive advantage and disadvantage in the main product-market segments. Describe all the organizational capabilities and competencies. Sort the core capabilities and competencies according to strategic importance. Identify and agree on the key capabilities and competencies.
Step 2
Step 3
Step 4
Step 5
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Identify Strategy-Critical Activities
Which activities are strategy-critical depends

Particulars of a firms strategy Value-chain make-up Competitive requirements External market conditions What business processes have to be performed extra well or in timely fashion to achieve competitive advantage? In what value-chain activities would poor work performance impair strategic success?
Identify strategy-critical activities

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Criteria to Judge Organizational Strengths and Weaknesses

Past Performance Trends
Comparison Against Competito
Are organizational resources and capabilities strengths or weaknesses?
Specific Goals or Targets
Personal Opinions of Strategic Decision Makers or Consultants
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Difficulty in developing competencies
Because these competencies are in people

Hard
to develop Hard to identify Hard to change / improve Also hard to steal

Social Complexity Historical Casually ambiguous
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Take Aways
Internal Analysis tells what a firm CAN do Goal is to create core competencies and distinctive capabilities
Without
them, you will not be in business long Creating distinctive capabilities takes time Very hard to doEven harder to steal
Value chain analysis a way to

Understand
where the competencies lie Think about outsourcing

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Strategic Management

Internal Analysis: Assessing Strengths and Weaknesses

How to evaluate S&Ws

What is an Internal Analysis

The Road to Competitive Advantage

The road to distinctive organizational capabilities

Core Compete ncies

The road to distinctive organizational capabilities

Organizati onal Capabiliti es

Types of Core Competencies

The road to distinctive organizational capabilities

Organizat ional Capabiliti es

Hondas Distinctive Capability

Procter & Gambles Distinctive Capabilities

From Distinctive capabilities to competitive advantage

Can Be Used in a Variety of Ways

Is Difficult Distinctive for Competitors Organizational to Imitate Capabilities

Capabilities vs. Core Competencies vs. Distinctive Capabilities

Value Chain Analysis

Human Resource Management Technological Development Procurement

Inbound Logistics Operations

Outbound Logistics Marketing and Sales Service

From Value Chain Analysis to Competitive Advantage

Other types of Internal Analysis

Capabilities assessment profile

Can create unique value Can be best in the industry

Potential Advantages of Outsourcing Non-Critical Activities

How do you do an internal analysis?

Identify Strategy-Critical Activities

Which activities are strategy-critical depends

Identify strategy-critical activities

Criteria to Judge Organizational Strengths and Weaknesses

Comparison Against Competito

Are organizational resources and capabilities strengths or weaknesses?

Specific Goals or Targets

Personal Opinions of Strategic Decision Makers or Consultants

Difficulty in developing competencies

Because these competencies are in people

to develop Hard to identify Hard to change / improve Also hard to steal

Value chain analysis a way to

where the competencies lie Think about outsourcing

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