1. Doing An Internal Analysis
Strategic Management 3
Assessing Strengths
and Weaknesses:
Doing An Internal Analysis
This chapter shifts the focus of the discussion to a firm’s internal environment. This complements the discussion of the external environment in chapter 3.

2. Learning Outline What 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 analysis
Describe 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.
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.

3. Learning Outline (contd.)
Why do an internal analysis?
Explain the criteria that could be used to assess an organization’s strengths and weaknesses.
Discuss why an internal analysis is important.
The third part of the learning outlines looks at the rationale for conducting an internal analysis.

4. What is an Internal Analysis?
Identifies and evaluates resources, capabilities, and core competencies
Looks at the organization’s
Current vision
Mission
Strategic objectives
Strategies
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.

5. A Quick Review of Organizational Resources
Organizational Resources (assets) •
Financial resources
Physical assets
Human resources
Intangible resources
Structural-cultural resources
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

6. 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

7. From Capabilities to Distinctive Capabilities & Core Competencies
Organizational Capabilities
• Special and unique capabilities
• Distinguish from competitors
• Sustainable competitive advantage
• Outperform competition
Distinctive Organizational
Capabilities
Organizational
Capabilities
Core
Competencies
Organizational Capabilities
• Org. capabilities come first
• Fundamental building block for
developing core competencies
• Organizational processes and
routines to get the work done
Core 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
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.

8. 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

9. From Capabilities to Distinctive Capabilities & Core Competencies
Organizational Capabilities
• Special and unique capabilities
• Distinguish from competitors
• Sustainable competitive advantage
• Outperform competition
Distinctive Organizational
Capabilities
Organizational
Capabilities
Core
Competencies
Organizational Capabilities
• Org. capabilities come first
• Fundamental building block for
developing core competencies
• Organizational processes and
routines to get the work done
Core 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
This slide focuses on capabilities and core competencies and their relationship to distinctive organizational capabilities.

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.

11. 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.

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

13. Value Chain Analysis Inbound Logistics Operations •
Assessing the PRIMARY Activities in the Value Chain
Inbound Logistics
Materials control system
Inventory control system
Raw material handling and warehousing •
Operations
Equipment comparison to competitors
Plant layout
Production control system
Level of automation in production processes •
This slide looks at the key assessment areas under each of the first 2 primary activities.

14. Value Chain Analysis Outbound Logistics Marketing and Sales
Assessing the PRIMARY Activities in the Value Chain (continued)
Outbound Logistics
Timeliness and efficiency of finished products delivery
Warehousing of finished products •
Marketing and Sales
Marketing research
Sales promotions and advertising
Alternative distribution channels
Competency and motivation of sales force
Organization’s image of quality
Organization’s reputation
Brand loyalty of customers
Domination of various market segments •
This slide looks at areas for assessment under primary activities 3 and 4.

15. Value Chain Analysis Customer Service
Assessing the PRIMARY Activities in the Value Chain (continued)
Customer Service •
Customer input for product improvements
Handling of customer complaints
Warranty and guarantee policies
Employee training in customer education & service issues
Replacement parts and services
This slide looks at the areas covered by the last primary activity.

16. Technological Development
Value Chain Analysis
Assessing the SUPPORT Activities in the Value Chain
Procurement
Alternate sources for obtaining needed resources
Timeliness of resources procurement
Procurement of large capital expenditure resources
Lease-versus-purchase decisions
Long-term relationships with reliable suppliers •
Technological Development
R&D activities in product and process innovations
Relationship between R&D and other departments
Meeting deadlines in technological development activities
Quality of labs and other research facilities
Qualifications of lab technicians and scientists
Creativity and innovation in organizational culture •
This slide covers assessment areas in the first two support activities.

17. Human Resource Management
Value Chain Analysis
Assessing the SUPPORT Activities in the Value Chain (continued)
Human Resource Management •
Recruiting, selecting, orienting, and training employees
Employee promotion policies
Reward systems to motivate and challenge employees
Absenteeism and turnover
Union-organization relations
Employee participation in professional organizations
Employee motivation, job commitment, and satisfaction
Areas to cover in the HRM activity are listed here.

18. Value Chain Analysis Firm Infrastructure •
Assessing the SUPPORT Activities in the Value Chain (continued)
Firm Infrastructure •
Identification of external opportunities and threats
Accomplishing goals with strategic planning system
Coordination and integration of value chain activities
Low-cost capital expenditures & working capital funds
IS support for strategic and operational decisions
Relationships with stakeholders
Public image as a responsible corporate citizen
This slide looks at areas covered by firm infrastructure.

19. Using an Internal Audit
An internal audit thoroughly assesses
an organization's various internal functional areas
Six Primary Functional Areas •
Productions-Operations
Marketing
Research and Development
Financial and Accounting
Management (including HRM)
Information Systems
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.

20. 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.

21. 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.
Capabilities assessment profile is done in two phases (as indicated in the previous slide). This figure illustrates the steps in phase I.
Sort the core capabilities and
competencies according to
strategic importance.
Step 4
Identify and agree on
the key capabilities
and competencies.
Step 5

22. 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

23. 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.

24. ? Chapter Three Developing and exploiting distinctive competencies
Three approaches to internal analysis
Know the What, How and Why ?