Internal Analysis 123

8/3/2019 Internal Analysis 123

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Strategic Management

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Internal Environment

Analysis


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Outcomes from External and InternalEnvironmental Analyses

Examine opportunitiesand threats Examine uniqueresources, capabilities,and competencies(sustainable competitiveadvantage)


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Components of Internal Analysis


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Creating Value

By exploiting their core competencies orcompetitive advantages, firms create value

Value is measured by

A products performance characteristics

The products attributes for which customers arewilling to pay

Firms create value by innovatively bundlingand leveraging their resources andcapabilities


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Creating Competitive Advantage

Core competencies, in combination withproduct- market positions, are the firmsmost important sources of competitiveadvantage

Core competencies of a firm, in addition toits analysis of its general, industry, andcompetitor environments, should drive itsselection of strategies


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The Challenge of Internal Analysis

Strategic decisions in terms of the firmsresources, capabilities, and corecompetencies

Are non-routineHave ethical implications

Significantly influence the firms ability to earnabove-average returns


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The Challenge of Internal Analysis (contd)

To develop and use core competencies,managers must have

CourageSelf-confidenceIntegrityThe capacity to deal with uncertainty andcomplexity

A willingness to hold people (and themselves)accountable for their work


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Conditions Affecting Managerial Decisions aboutResources, Capabilities and Core Competencies

Figure 3.3


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Resources, Capabilities and Core Competencies

ResourcesAre the source of afirms capabilities Are broad in scopeCover a spectrum ofindividual, social andorganizationalphenomena

Alone, do not yield acompetitive advantage


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ResourcesAre a firms assets,including people and thevalue of its brand name

Represent inputs into afirms productionprocess, such as:

Capital equipment

Skills of employeesBrand namesFinancial resourcesTalented managers


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ResourcesTangible resources

Financial resources

Physical resources

Technological resources

Organizational resources

Intangible resourcesHuman resources

innovation resources

Reputation resources


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Tangible Resources

Financial Resources The firms borrowing capacity The firms ability to generate internal

funds

Organizational Resources The firms formal reporting structureand its formal planning, controlling,and coordinating systems

Physical Resources Sophistication and location of a firmsplant and equipment

Access to raw materials

Technological Resources Stock of technology, such as patents,trade-marks, copyrights, and tradesecrets


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Intangible ResourcesHuman Resources Knowledge

Trust Managerial capabilities Organizational routines

Innovation Resources Ideas Scientific capabilities Capacity to innovate

Reputational Resources Reputation with customers Brand name Perceptions of product quality,

durability, and reliability Reputation with suppliers For efficient, effective, supportive, and

mutually beneficial interactions andrelationships


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CapabilitiesAre the firms capacity to deployresources that have beenpurposely integrated to achievea desired end state

Emerge over time throughcomplex interactions amongtangible and intangibleresources

Often are based on developing,carrying and exchanginginformation and knowledgethrough the firms human capital


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Examples of Firms

Capabilities

Table 3.3


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Core CompetenciesResources and capabilitiesthat serve as a source of afirms competitive advantage:

Distinguish a companycompetitively and reflect itspersonality

Emerge over time through an

organizational process ofaccumulating and learning howto deploy different resources andcapabilities


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Core CompetenciesActivities that a firmperforms especially wellcompared to competitors

Activities through which thefirm adds unique value to itsgoods or services over along period of time


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Building Sustainable Competitive Advantage

Four Criteria ofSustainableCompetitive Advantage

ValuableRareCostly to imitateNonsubstituable


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The Four Criteria of Sustainable Competitive Advantage

Valuable Capabilities Help a firm neutralize threats orexploit opportunities

Rare Capabilities Are not possessed by many others

Costly-to-Imitate Capabilities

Historical: A unique and a valuableorganizational culture or brand name Ambiguous cause: The causes and

uses of a competence are unclear Social complexity: Interpersonal

relationships, trust, and friendship

among managers, suppliers, andcustomers

Nonsubstitutable Capabilities No strategic equivalent


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Valuable capabilitiesHelp a firm neutralizethreats or exploitopportunities

Rare capabilitiesAre not possessed bymany others


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Costly-to-ImitateCapabilitiesHistorical

A unique and a valuableorganizational culture orbrand name

Ambiguous causeThe causes and uses of acompetence are unclear

Social complexityInterpersonal relationships,trust, and friendship amongmanagers, suppliers, andcustomers


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NonsubstitutableCapabilities

No strategic equivalent


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Value Chain Analysis

Allows the firm to understand the parts of itsoperations that create value and those thatdo not

A template that firms use to:Understand their cost position

Identify multiple means that might be used tofacilitate implementation of a chosen business-level strategy


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Value Chain Analysis (contd)

Primary activities involved with:A products physical creation

A products sale and distribution to buyers

The products service after the sale Support activities

Provide the support necessary for the primary

activities to take place


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Value Chain Analysis (contd)

Value chainShows how a product moves from raw-materialstage to the final customer

To be a source of competitive advantage, aresource or capability must allow the firm:

To perform an activity in a manner that issuperior to the way competitors perform it, or

To perform a value-creating activity thatcompetitors cannot complete


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The Basic ValueChain

Inbound Logistics

Operations

Outbound Logistics

Marketing and Sales

Service

F i r m

I n f r a s

t r u c

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H u m a n

R e s o u r c e

M a n a g e m e n

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T e c

h n o l o g

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P r o c u r e m e n

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The Value-Creating Potential of Primary Activities

Inbound logisticsActivities used to receive, store, and disseminate inputs toa product (materials handling, warehousing, inventorycontrol, etc.)

OperationsActivities necessary to convert the inputs provided byinbound logistics into final product form (machining,packaging, assembly, etc.)

Outbound logisticsActivities involved with collecting, storing, and physicallydistributing the product to customers (finished goodswarehousing, order processing, etc.)


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The Value-Creating Potential of Primary Activities: Support

ProcurementActivities completed to purchase the inputs needed toproduce a firms products (raw materials and supplies,machines, laboratory equipment, etc.)

Technological developmentActivities completed to improve a firms product and theprocesses used to manufacture it (process equipment,basic research, product design, etc)

Human resource managementActivities involved with recruiting, hiring, training,developing, and compensating all personnel


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Copyright 2004 South-Western. All rights reserved. 3 32

The Value-Creating Potential of Primary Activities: Support (contd)

Firm infrastructureActivities that support the work of the entire value chain(general management, planning, finance, accounting, legal,government relations, etc.)

Effectively and consistently identify external opportunities andthreatsIdentify resources and capabilitiesSupport core competencies

Each activity should be examined relativeto competitors abilities and rated assuperior, equivalent or inferior


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Operations

Marketing and Sales

F i r m

I n f r a s

t r u c

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Outsourcing Decisions

A firm mayoutsource all or onlypart of one or moreprimary and/orsupport activities.

Outsourcedactivity

Inbound Logistics

Service

Outbound Logistics

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Strategic Rationales for Outsourcing

Improve business focusLets a company focus on broader businessissues by having outside experts handle variousoperational details

Provide access to world-class capabilitiesThe specialized resources of outsourcingproviders makes world-class capabilitiesavailable to firms in a wide range of applications


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Strategic Rationales for Outsourcing (contd)

Accelerate business re-engineering benefitsAchieves re-engineering benefits more quicklyby having outsiders who have already achievedworld-class standards take over process

Sharing risksReduces investment requirements and makesfirm more flexible, dynamic and better able toadapt to changing opportunities

Frees resources for other purposesRedirects efforts from non-core activities towardthose that serve customers more effectively


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Outsourcing Issues

Greatest valueOutsource only to firms possessing a corecompetence in terms of performing the primaryor supporting the outsourced activity

Evaluating resources and capabilitiesDo not outsource activities in which the firmitself can create and capture value

Environmental threats and ongoing tasks

Do not outsource primary and support activitiesthat are used to neutralize environmental threatsor to complete necessary ongoing organizationaltasks


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Outsourcing Issues (contd)

Nonstrategic team of resourcesDo not outsource capabilities that are critical tothe firms success, even though the capabilitiesare not actual sources of competitive advantage

Firms knowledge base Do not outsource activities that stimulate thedevelopment of new capabilities andcompetencies


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Cautions and Reminders

Never take for granted that core competencies willcontinue to provide a source of competitiveadvantage

All core competencies have the potential to becomecore rigidities

Core rigidities are former core competencies thatnow generate inertia and stifle innovation

Determining what the firm can do through

continuous and effective analyses of its internalenvironment increases the likelihood of long-termcompetitive success


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Internal Analysis 123

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