INTERNAL ANALYSIS

Quote of the Day “ If you don ’ t add value, you simply add cost! ”

DEGREEOFCHANGEDEGREEOFCHANGE TIMETIME A MODEL OF STRATEGIC ANALYSIS Internal Factors Affecting Strategy Key External Factors Affecting Strategy Strategic Choices Current Performance

Sources of Competitive Advantages Resources Standard Critical What you have Competencies Standard Core How you use resources Competitive Advantages Values to customers Standard requirements

Strategic Capability  Resources Tangible resources – physical assets of an organisation Intangible resources – non-physical assets of an organisation  Competences The activities and processes through which an organisation deploys its resources effectively Strategic capability is the adequacy and suitability of the resources and competences of an organisation for it to survive and prosper Strategic capability is the adequacy and suitability of the resources and competences of an organisation for it to survive and prosper

Resources  Physical resources Machines, buildings, production capacity  Financial resources Capital, cash, debtors/creditors, suppliers of money (shareholders, bankers etc)  Human resources Number and mix of people, skills and knowledge  Intellectual capital Patents, brands, business systems, customer databases, “ goodwill ”

Examples: Core Competencies  Sharp Corporation Expertise in flat-panel display technology  Honda High power/size engine  Intel Ability to design and manufacture ever more powerful microprocessors for PCs  Motorola Defect-free manufacture (six-sigma quality) of cell phones

Critical Resources and Core Competencies Is the Resource and Competency:  Valuable? (create value to customers)  Rare? (only few firms have it)  Difficult for competitors to copy or substitute? history numerous small decisions socially complex resources Legal protection  “ Exploited ” by the organization?

Sample of Internal Audit Resources Competencies ValuableRareHard to copyExploitedSCAs HistorySmall Dec. ComplexLegal RESOURCES Physical Human Res. Financial … COMPETENCIES Short innovation- market cycle Adaptation to local market …

Example: Microsoft story  Since its establishment, Microsoft never needs cash. Yet, 1986, they went public. Why?  From , Microsoft's share prices increased 784 times. One third of the employees became millionaires.  Late 1990s, many high-executives and senior staff left the companies  Some opened new businesses, such as internet companies, some just took a break for some times  What would be a problems for Microsoft from this trend?

7S Model Structure SystemStyle StaffSkills Strategy Shared values

Case: The Design Company  Applying 7S model to analyze the problems at the Design company?  What would you recommend the company to do?

Firm Infrastructure Human Resource Management Technology Development Procurement Inbound logistics Operations Outbound logistics Marketing & Sales Service Margin Value Chain Support activities Primary activities

Questions  How do the parts fit together to create value?  Where are the strong and weak points?  What need to be improved?

Inbound Logistics  Soundness of material and inventory control systems  Efficiency of raw material warehousing activities Primary Activities

Operation Productivity of equipment Appropriate automation Production control systems to improve quality Plant layout and work-flow design Primary Activities

Outbound Logistics Finished goods/services - Timely? Efficiency? Finished goods - warehousing activities Primary Activities

Marketing and Sales Market research - identify customer needs Innovation in advertising Alternate distribution channels Competence of sales force Image and reputation Brand loyalty Market share Primary Activities

Customer Service How to solicit customer inputs for production improvements Promptness to customer complaints Appropriateness of warranty policies Quality of customer education and training Ability to provide replacement parts and repair services Primary Activities

Human Resource Management Recruiting, training, and promoting all levels of employees Reward systems Working environment - absenteeism? turnover? Relation with trade unions Participation in professional organisations Employee job satisfaction Support Activities

Technology Development Success of research and development activities Relationships between R&D personnel and other departments Quality of laboratories and other facilities Qualification and experience of laboratory technicians and scientists Does working environment encourage creativity and innovation? Support Activities

Procurement Development of alternate sources for inputs Procurement of raw materials, plant, machinery, and buildings Development of criteria for lease versus purchase decisions Good, long term relationships with reliable suppliers Support Activities

Firm Infrastructure Quality of the strategic planning system to achieve corporate objectives Coordination and integration of all activities Ability to obtain low cost funds for capital expenditure Timely and accurate information system for management Relationship with public policy makers and interest groups Leadership and culture Support Activities