1. Dickson K.W. Chiu PhD, SMIEEE
COMP5331: Web Pub and Web Ad
7. Internal Analysis
Dickson K.W. Chiu
PhD, SMIEEE

2. What is an Internal Analysis?
Looks at the organization’s
Vision
Mission
Strategic objectives
Identifies and evaluates resources, capabilities, and core competencies
The resource-based view (RBV) was introduced in chapter 2. Internal analysis identifies a company’s resources, capabilities, and core competencies. It also focuses on the four items listed above.
Dickson Chiu 2006

3. Company Vision Hierarchy of Goals Massively inspiring Overarching
Long-term
Driven by and evokes passion
Fundamental statement of the organization’s
Values, Aspiration, Goals
E.g., Disneyland: “To be the Happiest place on earth”
Hierarchy of Goals
Company vision
Dickson Chiu 2006

4. Mission Statements Hierarchy of Goals Purpose of the company
Basis of competition and competitive advantages
More specific than vision
Focused on the means by which the firm will compete
E.g., FedEx: “To produce superior financial returns for our shareholders as we serve our customers with the highest quality transportation, logistics, and e-commerce.”
Hierarchy of Goals
Company vision
Mission statements
Dickson Chiu 2006

5. Strategic Objectives Hierarchy of Goals Company vision
Operationalize the mission statement
Provide guidance on how the organization can fulfill or move toward the “higher goals”
More specific, a more well-defined time frame, measurable (yardstick for rewards and incentives), consistent with vision and mission, realistic (challenging but doable), timely
E.g., P&G: “Increase sales growth 6% to 8% in each of the next five years”
Hierarchy of Goals
Company vision
Mission statements
Strategic objectives
Dickson Chiu 2006

6. A Quick Review of Organizational Resources
Organizational Resources (assets)
Financial resources: debt capacity, credit lines, etc.
Physical assets: buildings, equipment and fixtures
Human resources: experience, knowledge, etc. of employees
Intangible resources: brand names, patents
Structural-cultural resources: culture, work systems
Examples of financial resources: debt capacity, credit lines, etc.
Examples of physical assets: buildings, equipment and fixtures
Examples of human resources: experience, knowledge, etc. of employees
Examples of intangible resources: brand names, patents
Examples of structural-cultural resources: culture, work systems
Dickson Chiu 2006

7. Competitive Advantage Distinctive Organizational
The Strategic Role of Organizational Resources and Organizational Capabilities
Performance Results
Competitive Advantage
Distinctive Organizational
Capabilities
Organizational
Capabilities
Organizational
Resources
Core
Competencies
Although an organization’s tangible and intangible resources can be a source of competitive advantage, they play a more important role (as the figure indicates) in determining an organization’s capabilities and core competencies.
Financial assets
Physical assets
Human resources
Intangible assets
Structural-cultural assets
Organizational processes and routines
Accumulated knowledge
Actual work activities
Dickson Chiu 2006

8. From Resources to Organizational Capabilities
Competencies or skills that a firm employs to transform inputs to outputs, and capacity to combine tangible and intangible resources to attain desired end
Outstanding customer service
Excellent product development capabilities
Innovativeness of products and services
Ability to hire, motivate, and retain human capital
Organizational routines and processes
Capabilities – patterns of coordination
Sustainable competitive advantage
Dynamic capabilities
It is important that the terms listed above are thoroughly understood, for they form the basis of internal analysis.
Organizational capabilities can be defined as the network of organizational routines and processes that determine how efficiently and effectively the organization transforms its inputs (resources) into outputs.
Organizational routines and processes are the regular, predictable, and sequential patterns of work activities performed by organizational members.
Dynamic capabilities refer to an organization’s ability to build, integrate, and reconfigure capabilities to address rapidly changing environments.
Dickson Chiu 2006

9. Characteristics of Distinctive Organizational Capabilities
• Contributes to
Superior Customer
Value
Distinctive
Organizational
Capabilities
These are the 3 characteristics that make capabilities truly distinctive.
Example of the first (superior customer value): Timex’s easy to use alarm clocks
Example of the second (difficult to imitate): Anheuser-Busch’s data mining
Example of the third (used in a variety of ways): Honda’s engine design
• Can Be Used
in a Variety
of Ways
• Is Difficult
for Competitors
to Imitate
Dickson Chiu 2006

10. The Role of Strengths and Weaknesses
Strengths: Resources that an organization possesses and capabilities that an organization has developed. Both can be exploited and developed into a sustainable competitive advantage
Weaknesses: Resources and capabilities that are lacking or deficient. Prevent an organization from developing a sustainable competitive advantage
The whole reason for doing an internal analysis is to assess what the organization has or doesn’t have (resources) and what it can and can’t do (capabilities) – i.e., its strengths and weaknesses. The slide links both strengths and weaknesses to sustainable competitive advantage.
Dickson Chiu 2006

11. How to do an internal analysis: value chain
Using a value-chain analysis
The premise behind value chain analysis is that customers demand value from goods and services they obtain
Customer value
Product is unique and different
Product is low priced
Quick response to specific or distinctive customer needs
A value chain is a systematic way of examining organization’s functional activities
The value chain is an important technique for analyzing an organization’s internal situation. It views an organization’s 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.
Dickson Chiu 2006

12. Primary and Support Activities in the Value Chain{
Firm Infrastructure
Human Resource Management
Support
Activities
MARGIN
Technological Development
Procurement
Operations
Service {
MARGIN
Inbound Logistics
Outbound Logistics
Marketing and Sales
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.
Primary Activities
Dickson Chiu 2006

13. How to do an internal analysis – internal audit
Using an internal audit
Thoroughly assesses an organization's various internal functional areas
Are the necessary resources available so that the people in these functional areas can perform their assigned work activities and how well do they perform these assigned work activities?
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.
Dickson Chiu 2006

14. Using an internal audit
Six Primary Functional Areas
Productions-Operations
Marketing
Research and Development
Financial and Accounting
Management (including HRM)
Information Systems
Dickson Chiu 2006

15. How to do an internal analysis – Capabilities Assessment Profile
Complex Analysis of Capabilities
Not as easily identifiable as organizational functions
Hard for competitors to imitate
Two-phased Capability Assessment
Phase I: Identify distinctive capabilities
Phase II: Develop and leverage these distinctive capabilities
The third and final approach for doing an internal analysis is a capabilities assessment profile. It is an in-depth evaluation of an organization’s capabilities in order to determine strengths and weaknesses.
Dickson Chiu 2006

16. Identifying Distinctive Organizational Capabilities
Step 1
Prepare current product-market profile.
Identify sources of competitive
advantage and disadvantage in
the main product-market segments.
Step 2
Step 3
Describe all the organizational
capabilities and competencies.
Sort the core capabilities and
competencies according to
strategic importance.
Step 4
Capabilities assessment profile is done in two phases (as indicated in the previous slide). This figure illustrates the steps in phase I.
Identify and agree on
the key capabilities
and competencies.
Step 5
Dickson Chiu 2006

17. Criteria to Judge Organizational Strengths and Weaknesses
Past Performance Trends
Comparison Against Competitors
Are organizational
resources and capabilities
strengths or weaknesses?
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.
Personal Opinions of Strategic
Decision Makers or Consultants
Specific Goals or Targets
Dickson Chiu 2006

18. Why Do an Internal Analysis?
It is the only way to identify an organization’s strengths and weaknesses
It’s needed for making good strategic decisions
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.
Dickson Chiu 2006