*3Assessing Strengths and Weaknesses:Doing An Internal AnalysisStrategic Management

*Learning OutlineWhat is an internal analysis?Define internal analysis.Describe the relationship between organizational resources, organizational capabilities, core competencies, and distinctive capabilities.Explain what organizational strengths and weaknesses are.How to do an internal analysisDescribe the primary and support activities on the value chain.Explain what an internal audit is and how it can be used for internal analysis.Describe the steps in a capabilities assessment profile.

*Learning Outline (contd.)Why do an internal analysis?Explain the criteria that could be used to assess an organizations strengths and weaknesses.Discuss why an internal analysis is important.

*What is an Internal Analysis?Internal AnalysisIdentifies and evaluates resources, capabilities, and core competenciesLooks at the organizationsCurrent visionMissionStrategic objectivesStrategies

*A Quick Review of Organizational ResourcesOrganizational Resources (assets)Financial resourcesPhysical assetsHuman resourcesIntangible resourcesStructural-cultural resources

*The Strategic Role of Organizational Resources and Organizational CapabilitiesOrganizationalResourcesFinancial assetsPhysical assetsHuman resourcesIntangible assetsStructural-cultural assetsOrganizationalCapabilitiesOrganizational processes and routinesAccumulated knowledgeActual work activitiesCoreCompetenciesDistinctive OrganizationalCapabilitiesCompetitive AdvantagePerformance Results

*From Capabilities toDistinctive Capabilities & Core CompetenciesOrganizationalCapabilitiesOrganizational Capabilities Org. capabilities come first Fundamental building block fordeveloping core competencies Organizational processes androutines to get the work doneCoreCompetenciesCore Competencies Not a source of competitive advantage Develop distinctive organizational capabilities Improve and enhance organizational capabilities Fundamental skills and capabilities Exploitable by organization Major value-creating skills and capabilities Distinctive OrganizationalCapabilitiesDistinctiveOrganizational Capabilities Special and unique capabilities Distinguish from competitors Sustainable competitive advantage Outperform competition

*Characteristics of Distinctive Organizational Capabilities

DistinctiveOrganizationalCapabilities Contributes toSuperior CustomerValue Can Be Usedin a Varietyof Ways Is Difficultfor Competitorsto Imitate

*From Capabilities toDistinctive Capabilities & Core CompetenciesOrganizationalCapabilitiesOrganizational Capabilities Org. capabilities come first Fundamental building block fordeveloping core competencies Organizational processes androutines to get the work doneCoreCompetenciesCore Competencies Not a source of competitive advantage Develop distinctive organizational capabilities Improve and enhance organizational capabilities Fundamental skills and capabilities Exploitable by organization Major value-creating skills and capabilities Distinctive OrganizationalCapabilitiesDistinctiveOrganizational Capabilities Special and unique capabilities Distinguish from competitors Sustainable competitive advantage Outperform competition

*The Role of Strengths and WeaknessesStrengths: Resources that an organization possesses and capabilities that an organization has developed. Both can be exploited and developed into a sustainable competitive advantageWeaknesses: Resources and capabilities that are lacking or deficient. Prevent an organization from developing a sustainable competitive advantage

*Value Chain AnalysisThe premise behind value chain analysis is that customers demand value from goods and services they obtainCustomer valueProduct is unique and differentProduct is low pricedQuick response to specific or distinctive customer needsA value chain is a systematic way of examining organizations functional activities

*Primary and Support Activities in the Value ChainMARGINMARGINSupportActivities{ProcurementTechnological DevelopmentHuman Resource ManagementFirm InfrastructurePrimary Activities{OperationsOutbound LogisticsMarketing and SalesServiceInbound Logistics

*Value Chain AnalysisAssessing the PRIMARY Activities in the Value ChainInbound LogisticsMaterials control systemInventory control systemRaw material handling and warehousingOperationsEquipment comparison to competitorsPlant layoutProduction control systemLevel of automation in production processes

*Value Chain AnalysisAssessing the PRIMARY Activities in the Value Chain (continued)Outbound LogisticsTimeliness and efficiency of finished products deliveryWarehousing of finished productsMarketing and SalesMarketing researchSales promotions and advertisingAlternative distribution channelsCompetency and motivation of sales forceOrganizations image of qualityOrganizations reputationBrand loyalty of customersDomination of various market segments

*Value Chain AnalysisAssessing the PRIMARY Activities in the Value Chain (continued)Customer ServiceCustomer input for product improvementsHandling of customer complaintsWarranty and guarantee policiesEmployee training in customer education & service issuesReplacement parts and services

*Value Chain AnalysisAssessing the SUPPORT Activities in the Value Chain ProcurementAlternate sources for obtaining needed resourcesTimeliness of resources procurementProcurement of large capital expenditure resourcesLease-versus-purchase decisionsLong-term relationships with reliable suppliersTechnological DevelopmentR&D activities in product and process innovationsRelationship between R&D and other departmentsMeeting deadlines in technological development activitiesQuality of labs and other research facilitiesQualifications of lab technicians and scientistsCreativity and innovation in organizational culture

*Value Chain AnalysisAssessing the SUPPORT Activities in the Value Chain (continued)Human Resource ManagementRecruiting, selecting, orienting, and training employeesEmployee promotion policiesReward systems to motivate and challenge employeesAbsenteeism and turnoverUnion-organization relationsEmployee participation in professional organizationsEmployee motivation, job commitment, and satisfaction

*Value Chain AnalysisAssessing the SUPPORT Activities in the Value Chain (continued)Firm InfrastructureIdentification of external opportunities and threatsAccomplishing goals with strategic planning systemCoordination and integration of value chain activitiesLow-cost capital expenditures & working capital fundsIS support for strategic and operational decisionsRelationships with stakeholdersPublic image as a responsible corporate citizen

*Using an Internal AuditAn internal audit thoroughly assessesan organization's various internal functional areasSix Primary Functional AreasProductions-OperationsMarketingResearch and DevelopmentFinancial and AccountingManagement (including HRM)Information Systems

*Capabilities Assessment ProfileComplex Analysis of CapabilitiesNot as easily identifiable as organizational functionsHard for competitors to imitate

Two-phased Capability AssessmentPhase I: Identify distinctive capabilitiesPhase II: Develop and leverage these distinctive capabilities

*Identifying Distinctive Organizational CapabilitiesStep 1Step 2Step 3Step 4Step 5Prepare 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.

*Criteria to Judge Organizational Strengths and WeaknessesAre organizational resources and capabilitiesstrengths or weaknesses?Past Performance TrendsSpecific Goals or TargetsComparison Against CompetitorsPersonal Opinions of StrategicDecision Makers or Consultants

*Why Do an Internal Analysis?It is the only way to identify an organizations strengths and weaknesses

Its needed for making good strategic decisions

*Chapter ThreeDeveloping and exploiting distinctive competenciesThree approaches to internal analysisKnow the What, How and Why

*This chapter shifts the focus of the discussion to a firms internal environment. This complements the discussion of the external environment in chapter 3.*The learning outline has 3 major parts. The first defines internal analysis while the second goes into the practical aspects of conducting an internal analysis.*The third part of the learning outlines looks at the rationale for conducting an internal analysis.*The resource-based view (RBV) was introduced in chapter 2. Internal analysis identifies a companys resources, capabilities, and core competencies. It also focuses on the four items listed above.*Examples of financial resources: debt capacity, credit lines, etc.Examples of physical assets: buildings, equipment and fixturesExamples of human resources: experience, knowledge, etc. of employeesExamples of intangible resources: brand names, patentsExamples of structural-cultural resources: culture, work systems*Although an organizations tangible and intangible resources can be a source of competitive advantage, they play a more important role (as the figure indicates) in determining an organizations capabilities and core competencies.*This figure helps distinguish between distinctive organizational capabilities on the one hand and organizational capabilities and core competencies on the other. It also indicates the relationship between these 3 concepts.*These are the 3 characteristics that make capabilities truly distinctive.

Example of the first (superior customer value): Timexs easy to use alarm clocks

Example of the second (difficult to imitate): Anheuser-Buschs data mining

Example of the third (used in a variety of ways): Hondas engine design*This slide focuses on capabilities and core competencies and their relationship to distinctive organizational capabilities.*The whole reason for doing an internal analysis is to assess what the organization has or doesnt have (resources) and what it can and cant do (capabilities) i.e., its strengths and weaknesses. The slide links both strengths and weaknesses to sustainable competitive advantage.*The value chain is an important technique for analyzing an organizations internal situation. It views an organizations work as a series of value-creating activities.

Michael Porter (the same person who created the five forces model chapter 3 ) developed the concept of the value chain.*The 9 activities of the value chain are divided into five primary and four support activities.

Tables 4.1 and 4.2 (in the text) lists some questions to ask in assessing the primary and support activities of the value chain.*This slide looks at the key assessment areas under each of the first 2 primary activities.*This slide looks at areas for assessment under primary activities 3 and 4.*This slide looks at the areas covered by the last primary activity.*This slide covers assessment areas in the first two support activities.*Areas to cover in the HRM activity are listed here.*This slide looks at areas covered by firm infrastructure.*An internal audit is the second approach to assessing strengths and weaknesses of an organization. Table 4.3 (in the text) provides a detailed list of important internal audit questions in each of the six areas listed above.*The third and final approach for doing an internal analysis is a capabilities assessment profile. It is an in-depth evaluation of an organizations capabilities in order to determine strengths and weaknesses.*Capabilities assessment profile is done in two phases (as indicated in the previous slide). This figure illustrates the steps in phase I.*To assess whether resources and capabilities are strengths or weaknesses and whether certain ones could be sources of sustainable competitive advantage, the four criteria listed above are used. *Two important reasons for doing an internal analysis are listed.

With the information from an internal analysis, strategic decision makers can make intelligent judgments about what competitive advantages the organization might currently have, what might potentially be developed into competitive advantages, and what might be preventing competitive advantages from being developed.*