4 internal analysis
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Strategic Management
Internal Analysis: Assessing Strengths and Weaknesses
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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
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SWOT Analysis
OrganizationStrengthsWeaknesses
Opportunities
Threats
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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
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The Road to Competitive Advantage
OrganizationalResources
Financial assetsPhysical assetsHuman resourcesIntangible assetsStructural-cultural assets
OrganizationalCapabilities
Organizational processes and routines
Accumulated knowledgeActual work activities
CoreCompetencies
Distinctive OrganizationalCapabilities
Competitive Advantage
Performance Results
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The road to distinctive organizational capabilities
OrganizationalCapabilities
Organizational Capabilities •Fundamental building block for
developing core competencies • Organizational processes and
routines to get the work done
CoreCompetencies
Distinctive OrganizationalCapabilities
ResourcesTangible
Intangible
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The road to distinctive organizational capabilities
OrganizationalCapabilities
Organizational Capabilities •Fundamental building block for
developing core competencies •Organizational processes and
routines to get the work done
CoreCompetencies
Core Competencies•Fundamental skills and capabilities•Exploitable by organization•Major value-creating capabilities•Not a source of competitive advantage
Distinctive OrganizationalCapabilities
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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)
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The road to distinctive organizational capabilities
OrganizationalCapabilities
CoreCompetencies
Core Competencies •Not a source of competitive advantage •Fundamental skills and capabilities •Exploitable by organization •Major value-creating capabilities
Distinctive OrganizationalCapabilities
Distinctive Organizational Capabilities
•Special and unique capabilities •Distinguish from competitors •Sustainable competitive advantage •Outperform competition
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Honda’s Distinctive Capability
Expertise in gasoline engine
technology and small engine
design
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Procter & Gamble’s 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
DistinctiveOrganizational
Capabilities
• Contributes toSuperior CustomerValue
• Can Be Usedin a Varietyof Ways
• Is Difficultfor Competitorsto Imitate
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Capabilities vs. Core Competenciesvs. 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 company’s 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
MARG
IN
MARGIN
SupportActivities{
Procurement
Technological Development
Human Resource Management
Firm Infrastructure
Primary Activities{Inbo
und
Logi
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Ope
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Out
boun
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ics
Mar
ketin
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d Sa
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Serv
ice
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From Value Chain Analysisto 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 auditLook at all functional areas and see
which are performing well Capabilities assessment profile
Analyze capabilities to identify potential sources of competitive advantage
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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
Step 2
Step 3
Step 4
Step 5
Prepare current product-market profile.
Identify sources of competitiveadvantage and disadvantage inthe main product-market segments.
Describe all the organizationalcapabilities and competencies.
Sort the core capabilities andcompetencies according tostrategic importance.
Identify and agree onthe key capabilitiesand competencies.
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Identify Strategy-Critical Activities
Which activities are strategy-critical depends Particulars of a firm’s strategy Value-chain make-up Competitive requirements External market conditions
Identify strategy-critical activities 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?
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Criteria to Judge Organizational Strengths and Weaknesses
Are organizational resources and capabilitiesstrengths or weaknesses?
Past Performance Trends
Specific Goals or Targets
Comparison Against Competitors
Personal Opinions of StrategicDecision Makers or Consultants
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Difficulty in developing competencies Because these competencies are in
peopleHard to developHard to identifyHard to change / improveAlso 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 do…Even harder to “steal”
Value chain analysis a way to Understand where the competencies lie Think about outsourcing