Strategic Management

Internal Analysis: Assessing Strengths and Weaknesses

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

SWOT Analysis
Threats

Weaknesses

Organization

Strengths

Opportunities

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

The Road to Competitive Advantage

Performance Results Competitive Advantage Distinctive Organizational Capabilities Organizational Resources Financial assets Physical assets Human resources Intangible assets 5 Structural-cultural assets Organizational Capabilities Organizational processes and routines Accumulated knowledge Core Competencies

The road to distinctive organizational capabilities

Distinctive Organizational Capabilities

Organizational Capabilities

Core Compete ncies

Organizational Capabilities
Resources Tangible Intangible
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building block for developing core competencies Organizational processes and routines to get the work done

Fundamental

The road to distinctive organizational capabilities

Distinctive Organizational Capabilities

Organizati onal Capabiliti es

Core Competencies

Organizational Capabilities
Fundamental building block for developing core competencies Organizational processes and routines to get the work done
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Core Competencies
Fundamental skills and capabilities Exploitable by organization Major value-creating capabilities Not a source of competitive advantage

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)

The road to distinctive organizational capabilities

Distinctive Organizational Distinctive Organizational Capabilities
Special and unique capabilities Distinguish from competitors Sustainable competitive advantage Outperform competition
Capabilities

Organizat ional Capabiliti es

Core Competencies

Core Competencies
Not a source of competitive advantage Fundamental skills and capabilities Exploitable by organization Major value-creating capabilities

Hondas Distinctive Capability

Expertise in gasoline engine technology and small engine design

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Procter & Gambles 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

Contributes to Superior Customer Value

Can Be Used in a Variety of Ways

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Is Difficult Distinctive for Competitors Organizational to Imitate Capabilities

Capabilities vs. Core Competencies vs. 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 companys 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

Support Activities

Firm Infrastructure

Human Resource Management Technological Development Procurement

AR M IN G

Inbound Logistics Operations

Outbound Logistics Marketing and Sales Service

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Primary Activities

M A R

IN

From Value Chain Analysis to 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 audit
Look

at all functional areas and see which are performing well capabilities to identify potential sources of competitive advantage

Capabilities assessment profile

Analyze

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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 Prepare current product-market profile. Identify sources of competitive advantage and disadvantage in the main product-market segments. Describe all the organizational capabilities and competencies. Sort the core capabilities and competencies according to strategic importance. Identify and agree on the key capabilities and competencies.

Step 2

Step 3

Step 4

Step 5
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Identify Strategy-Critical Activities

Which activities are strategy-critical depends

Particulars of a firms strategy Value-chain make-up Competitive requirements External market conditions 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?

Identify strategy-critical activities

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Criteria to Judge Organizational Strengths and Weaknesses

Past Performance Trends

Comparison Against Competito

Are organizational resources and capabilities strengths or weaknesses?

Specific Goals or Targets

Personal Opinions of Strategic Decision Makers or Consultants

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Difficulty in developing competencies

Because these competencies are in people

Hard

to develop Hard to identify Hard to change / improve Also 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 doEven harder to steal

Value chain analysis a way to

Understand

where the competencies lie Think about outsourcing

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