Strategic Management Internal Environment Analysis DJC Version (1)

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STRATEGIC ANALYSIS: INTERNAL ENVIRONMENTLecturer: Dr David Cunneen

Strategic Analysis: Internal Environment

Copyright 2011 Cengage Learning Pty LimitedLearning ObjectivesExplain why strategic analysis of a firms internal environment is importantOutline what internal environment information is neededDescribe the differences between tangible and intangible resourcesDefine capabilities and discuss how they are developedDiscuss the characteristics of core competencies and their combination into a firms strategic competitive advantage Outline and discuss the four criteria that identify a firms core competencies and hence strat4gic competitive advantage.

Copyright 2011 Cengage Learning Pty Limited

OutlineIntroduction:Why is strategic analysis of a firms internal environment important?What strategic information is needed?

Analysing the internal environment:Components of internal analysisWhat are resources?What are strategic capabilities?What are core competencies?Concept of strategic competitive advantageLinking resources, strategic capabilities, core competencies and SCA to the marketStraying from the SCA?Analysing competitive strengths and weaknesses

Conclusion: completing a SWOT analysisStrategic analysis: summary

ReferencesHanson et al., (2014) Chapter 3 (especially pp. 72-94)

Article 1(d): Viljoen and Dann (2003) Chapter 7 (especially pp.197-198)

Readings in bold black are important

Analyse the environmentIdentify opportunities and threatsIdentify the organisations current vision, mission and strategic objectivesReassess the organisations vision, mission and strategic objectivesFormulate business strategies

Implement strategies

Evaluate resultsAnalyse the organisations resourcesIdentify strengths and weaknesses A Strategic Management Process: Rational or Formal Model Strategic direction-setting Strategic choice Strategic analysisStrategic implementationStrategic evaluation

2.

9.8.7.6.3.1.4.5.(Source: Robbins, S. P., Bergman, R., Stagg, I. and Coulter, M. 2009. Management, 5th edition, Pearson Education, Australia: 276; and Robbins, S. P., Bergman, R., and Stagg, I. 1997. Prentice Hall, Australia: 248 ).

Introduction: Why is strategic analysis of a firms internal environment important?A firm operating in an attractive industry (see Topic 3) does not automatically enjoy above average returns!

An ability to secure above average returns also requires a firm to utilise its resources in a superior way to its competitors:

Superior use of resources creates greater value for customers than competitors can achieve

Greater value for customers is the source of above average returns!

Copyright 2014 Cengage Learning Pty Limited. Hanson et al., 2014: 17 Strategic analysis of a firms internal environment focuses on the first three stages of the resource-based model of above-average returns

Copyright 2014 Cengage Learning Pty Limited. Hanson et al., 2014: 17

Strategic analysis of a firms internal environments therefore focuses upon examining the way a firm utilises its resources.

Superior combinations and uses of resources = competitive strengths Poor combinations and uses of resources = competitive weaknesses.

Strategic internal analysis aims to determine a firms competitive strengths and weaknesses relative to its rivals in its industry = competitive position.

The stronger a firms competitive position, the more likely it will earn above average returns!Introduction: Why is strategic analysis of a firms internal environment important?

Constructing a SWOT for strategic analysis of an organisation

Analysing the internal environmentWhat strategic information is needed?

Analysing the internal environmentComponents of internal analysis

Copyright 2011 Cengage Learning Pty LimitedHanson et al., 2011: 73(Hanson et al., 2014: 76)

Copyright 2011 Cengage Learning Pty LimitedHanson et al., 2011: 73

Analysing the internal environmentWhat are resources? Copyright 2014 Cengage Learning Pty LimitedAre inputs into a firms production processesMay be classified in many ways eg:

Physical, human, financial, intellectual, organisational

Tangible and intangible


TANGIBLE RESOURCES

Copyright 2014 Cengage Learning Pty Limited Hanson et al., 2014: 81

INTANGIBLE RESOURCES

Copyright 2014 Cengage Learning Pty Limited Hanson et al., 2014: 81

Analysing the internal environmentWhat are resources? Copyright 2014 Cengage Learning Pty Limited

Typically, resources alone do not give a firm a competitive advantage. Most firms in an industry will have the needed resources to operate or they would soon fail.


Analysing the internal environmentWhat are strategic capabilities?



Analysing the internal environmentWhat are strategic capabilities?

Copyright 2014 Cengage Learning Pty LimitedStrategic Capabilities

Strategic capabilities are bundles of resources that give a firm the ability to compete in its marketAre often based on developing, carrying and exchanging information and knowledge through the firms human capitalAre often developed in specific functional areas, such as R&D and marketing.


Hanson et al., 2014: 83

Analysing the internal environment What are strategic capabilities?HOWEVER

The presence of strategic capabilities alone usually does not produce sustained superior performance against competitors in a market.

Why?

Because most (if not all) competitors are likely to have similar strategic capabilities to enable them to operate and compete in the market.

Analysing the internal environment What are core competencies?Sustained superior performance requires combining strategic capabilities in ways unique to each firm:

that is combining strategic capabilities into:

core competencies

Analysing the internal environment Combining strategic capabilities into core competencies

Copyright 2011 Cengage Learning Pty Limited. Hanson et al., 20114 76

Copyright 2011 Cengage Learning Pty Limited. Hanson et al., 20114 76

Analysing the internal environment What are core competencies?A core competence

(an activity) a company does especially well in comparison to its competitors (Hamel and Pralahad,1990 cited in Viljoen and Dann, 2003:197, bracket added).

Analysing the internal environment What are core competencies?

Copyright 2014 Cengage Learning Pty LimitedCore CompetenciesAre combinations of strategic capabilities that serve as a source of competitive advantage for a firm over its rivals

Distinguish a firm competitively and give it a unique identity against its competitors

Emerge over time through an organisational process of accumulating and learning how to deploy different resources and capabilities


Analysing the internal environment What are core competencies?Characteristics of Core Competencies:

Systems of integrated strategic capabilitiesBased on strategic capabilities (skills and knowledge) rather than products or servicesBuilt up through organisational experience, commitment and investment over timeAre in a constant state of adaptation and evolutionLimited in number (maximum 5?)Difficult to replicate; they are areas where a firm dominates its competitorsAreas of activity that provide major value to customersUnique to each organisation cant be acquired in the marketAre deeply embedded in the firms organisation and systemsDifficult to readily observe(Hanson et al., 2014: 80-92; Viljoen and Dann, 2003:197-198; Hubbard et al, 1996: 127-129)



Remember

Every core competence is made up of many strategic capabilities, but not every strategic capability is a core competence!


Analysing the internal environment Concept of strategic competitive advantage




The combination of a firms core competencies emerges

IN THE MARKETPLACE

in the form of the firms strategic competitive advantage (SCA) or uniquely competitive position in its market

Analysing the internal environment Concept of strategic competitive advantageThe firms strategic competitive advantage (SCA) and hence the core competencies that make up the SCA, must satisfy the four core competencies criteria:

Valuable to the customers in the markets targeted by the firmRare. That is, much better than competitors offerings in the eyes of those customers; Costly or difficult for competitors to imitate, exceed, or substitute with something else.The offering has no competitive substitute (ie. few competitors, if any, can offer anything like it).


In sum, internal environment analysis is about identifying core competencies and SCA:

Firms with a clear core competencies, which combine into an SCA in the market, demonstrate a superior use of resources compared to their competitors

The firms core competencies and hence SCA provides its customers with superior value

Superior value for customers is the source of above average returns!

Analysing the internal environment

Linking resources, strategic capabilities, core competencies and SCA to the market

Analysing the internal environmentStraying from the SCA?

Analysing the internal environment Analysing competitive strengths and weaknesses

Competitive strengths = core competencies and SCA

Competitive weaknesses = lack of certain strategic capabilities; lack of core competencies; lack of an SCA.

A reminder! Be sure to include the results of turbulence analysis about the strategic focus of the firm: namely, if strategic management is well-focused for the degree of turbulence faced by the firm, that is a strength; if poorly focused, that could be a potential weakness for a firm.

The overall conclusion that should emerge from the strategic SWOT analysis is the answer to the question:

How competitively well-positioned is the firm in its industry, both now and in the future, to seize opportunities and mitigate threats, thereby consistently earning above average returns?

Conclusion: Completing a SWOT analysis

Constructing a SWOT for strategic analysis of an organisation*

Strategic Analysis: Summary

Strategic Analysis: Summary

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Strategic Management Internal Environment Analysis DJC Version (1)