Strategic Management Chapter 4

“Internal Analysis”Diana Perkins

Ashley GonzenbachBrian Byrne

Amanda Long

What Will Be CoveredWhat is an internal analysisHow to do an internal analysisWhy an internal analysis is important

What an Internal Analysis IsThe process of evaluating an organization’s

resources and capabilities.Provides information on organization’s

assets, skills, and work activities.What is good? What is lacking?Most Important- Evaluating resources,

capabilities, and core competencies

Organizational ResourcesInfo On Resources

Assets for doing businessInputs needed to perform

workWhat it hasFinancial, physical,

human, intangible, structural, cultural

Important in producing capabilities and core competencies

Can lead to a competitive advantage

Comparison to Companies

Kraft- size, people, knowledge of the industry, companies within

Cirque du Soleil- performers, producers, sets

Apple- human capital, market share, partners, knowlege

Organizational CapabilitiesInfo on Capabilities

Various routines and processes that transform inputs into outputs

Organizational routines and processes- regular, predictable, sequential work activities done by organizations and its members

Interaction between people and resources

Some never get the hang of itCapabilities changeDynamic Capabilities-

ability to build and integrate capabilities to address rapidly changing environments

Comparisons to Companies

Kraft- Produce food, markets food, deliver products

Cirque du Soleil- Best performances and venues

Apple- Provide leading technology to the masses

Distinctive Organizational CapabilitiesSpecial unique capabilities that distinguish

an organization from its competitorsThree Characteristics:1.Contributes to superior customer value and

offers real benefits to customers2.Difficult for competitors to imitate3.The capability should be usable in a variety of

ways

Organizational Core CompetenciesInfo on Core

CompetenciesAny major value-creating

capabilities that are essential to business

Capabilities are the building blocks of core competencies

Any core competencies are created out of routines, processes, knowledge, work activities (resources & capabilities)

Comparison to Companies

Kraft-largest confectionery, food, and beverage corporation headquartered in the US. Markets brands in more than 155 countries.

Cirque du Soleil- The performance itself

Apple- Customer service, Apple experience

In Simpler WordsInternal Analysis assesses:What an organization has/doesn’t haveWhat an organization can/cannot doStrengths- resources an organization

possesses & capabilities it has developedWeaknesses- resources and capabilities the

organization lacks or are deficient

Gaining a Competitive AdvantageResources, capabilities, and core

competencies all link togetherCan’t have one without the otherHow strengths and weaknesses are managed

changes an organization Members at all levels deal with these

strategic decisions

How to Do an Internal AnalysisThree approaches to Internal Analysis

Value Chain Analysis Views the organization’s work

Internal Audit Used to examine and asses all internal areas of an

organization.Capabilities Assessment Profile

Develops a profile on the organization’s capabilities.

Value Chain AnalysisA systematic way of examining all the

organization’s functional activities and how they create customer value.Comes from 3 categories

Unique product Low prices Meets the needs of a specific group of customers

quickly and efficient

How to Do an Internal Analysis

How to Do an Internal Analysis

Primary activitiesActivities that create customer value

Support activitiesSupport the primary activities

Value Chain Analysis

How to Do an Internal Analysis

A thorough assessment of an organization’s internal areas.

Six organizational functional areas:1. Production-operations2. Marketing3. Research and development4. Financial-accounting5. Management6. Information systems

Internal Audit

How to Do an Internal AnalysisCapabilities Assessment Profile- evaluation of an organization’s capabilities

Two Phases

1. Identifying distinctive capabilities (5 steps)

2. Developing and leveraging distinctive capabilities

Phase 1: Identifying distinctive capabilities1. Prepare current product-market profile

2. Identify sources of competitive advantage and disadvantage in the main product –market segments

3. Describe all the organizational capabilities and competencies

4. Sort the core capabilities and competencies according to strategic importance

5. Identify and agree on the key capabilities and competencies

How to Do an Internal Analysis

How to Do an Internal Analysis

Are organizational resources and capabilities strengths or weaknesses?

Criteria to measure against

- Past performance trends- Specific goals or targets- Comparison against competitors- Personal opinions of strategic

decision makers or consultants

Phase 2: Determining Strengths and Weaknesses

Why an Internal Analysis is Important

Two Reasons:

1. Identifies an organization’s strengths and weaknesses

2. Needed for making good strategic decisions

Why an Internal Analysis is Important

Identifies Strengths and Weaknesses • Outcome from Internal Analysis is information

about resources, skills, work routines, and processes

• What strengths and weaknesses do we have because of our specific resources and capabilities?

-Kraft Foods go Global• No Internal Analysis = No critical strategic

information

Why an Internal Analysis is Important

Used to Make Good Strategic Decisions

• Use this critical strategic information for decision making

• Determine current competitive advantages, discover potential advantages, and what is preventing competitive advantages from being developed

• Provides basis for which strategic actions are necessary for sustainable competitive advantage

- Kraft Foods invests in “Power Brands”

Three Takeaways 1. What an Internal Analysis is

- Process of evaluating an organization’s resources and capabilities - Resources are inputs and capabilities transform inputs into

outputs

2. How to Do an Internal Analysis - Value chain—examines functional activities that create customer

value- Internal Audit—assessment of internal functional areas- Capabilities Assessment Profile—evaluates organization’s capabilities

3. Why an Internal Analysis is Important- Identifies strengths and weaknesses- Needed for making good strategic decisions