Assessing Strengths and Weaknesses: doing an Internal Analysis Chapter 4 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter Four Learning Outcomes 4.1 Describe an internal analysis. 4.2 Explain how to do an internal analysis. 4.3 Discuss why an internal analysis is important. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Outcome 4.1 Describe What an Internal Analysis Is To formulate appropriate and effective strategies, it is important to know what an organization can and cannot do particularly well and what assets it does or does not have Internal analysis is the process of evaluating an organization’s assets, skills, and work activities; what it does well or what is lacking As part of managing strategically, an internal analysis is the process of evaluating an organization’s resources and capabilities. It provides important information about an organization’s assets, skills, and work activities—what’s good and what’s lacking or deficient? The most important part of this analysis involves evaluating the organization’s resources, capabilities, and core competencies, all of which we’re going to look at next. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

A Quick Review of Organizational Resources Resources are the assets an organization has for doing whatever it is in business to Resources can be financial, physical, human, tangible, intangible, structural-cultural Among the financial resources are debt capacity, credit lines, available equity, cash reserves As you’ll recall, resources are simply the assets an organization has for doing whatever it’s in business to do do (e.g., make tacos, provide healthcare, create and sell greetings cards). These resources (or assets) can be financial, physical, human, intangible, and structural-cultural. Financial resources include debt capacity, credit lines, available equity (stock), cash reserves, and other financial holdings Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

A Quick Review of Organizational Resources – cont’d Other examples of Resources Human resources, which include experiences, knowledge, judgment, skills, accumulated wisdom, competencies of employees The value of resources is context dependent; based on it seeks to do to make money Resources can be a source of competitive advantage for a company Human resources include the experiences, knowledge, judgment, skills, accumulated wisdom, and competencies of the organization’s employees. Although an organization’s resources can be a source of competitive advantage (see Chapter 2), they’re also important to the organization’s capabilities and core competencies. Figure 4.2 illustrates this relationship. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

From Resources to Organizational Capabilities An organization’s resources are that which are needed to perform its work To reach its goals an organization must generate value from its resources and does so through capabilities An organization’s resources are the inputs needed to perform its work. For example: A top chef needs pots, pans, utensils, spices, raw food materials to do their job . To reach its goals an organization must generate value from its resources and does so through capabilities using the same example: A chef needs skills to combine ingredients to create a quality meal Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

From Resources to Organizational Capabilities – cont’d Are the various routines and processes that transform resources (inputs) into products/services (outputs) Organizational routines and processes Are regular, predictable, sequential work activities done by organizational members Complex network of these routines and processes encompass all work activities Resources are the inputs used in organizational capabilities, which are the various routines and processes that transform those inputs (resources) into outputs (products including physical goods and services). These organizational routines and processes are the regular, predictable, and sequential work activities done by organizational members Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

From Resources to Organizational Capabilities – cont’d Employees learn how to best use organizational resources and processes, creating core competencies and distinctive organizational capabilities Capabilities result from learning and are more than the mere possession of resources Some organizations do it better than others; they are unable to develop capabilities to survive in an increasingly dynamic and competitive marketplace As organizational members do their work using organizational resources and routines and processes, they learn how best to capture the value of these resources and turn them into possible core competencies or distinctive organizational capabilities. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

From Resources to Organizational Capabilities – cont’d Southwest Airlines is an example of a firm that has developed valuable capabilities and competitive advantages Loading, unloading planes Reservations Safety inspections Customer service For instance, look at how Southwest Airlines and American Air Lines differ. Both have organizational resources (planes, logos, employees, customer information databases, etc.) and organizational routines and processes (loading and unloading planes, making reservations, doing safety inspections, customer service, etc.), yet Southwest has developed valuable capabilities and competitive advantages while American has struggled. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

From Resources to Organizational Capabilities – cont’d Capabilities are not self-sustaining in today’s complex and dynamic environment Future conditions and competitors change Today’s environment demands dynamic capabilities The ability to build, integrate, and reconfigure capabilities to address the rapidly changing environment Organizational capabilities can change. Just because they were once the source of competitive advantage doesn’t mean they will continue to be a source of competitive advantage—that is, they don’t always lead to a sustainable competitive advantage. Some researchers have proposed that we need to think in terms of dynamic capabilities—an organization’s ability to build, integrate, and reconfigure capabilities to address rapidly changing environments. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

From Capabilities to Core Competencies and Distinctive Capabilities Value creating capabilities that an organization possesses that are essential to their business Contribute to improving and enhancing other organizational capabilities They are the result of accumulated knowledge and actual work activities every organization has capabilities that enable it to do what it’s in business to do. Any major value-creating capabilities organizations have that are essential to their business are known as core competencies. Organizational capabilities are the fundamental building blocks for developing core competencies. If core competencies are established they can, in turn improve and enhance other organizational capabilities and contribute to developing distinctive capabilities, which as Figure 4.2 shows, is what leads to acompetitive advantage. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall From Capabilities to Core Competencies and Distinctive Capabilities – cont’d Distinctive organizational capabilities These are special and unique organizational capabilities that distinguish an organization from its competitors Example of distinctive capabilities Southwest Airlines: gate turnaround, ticketing, and employee-customer interaction Distinctive organizational capabilities are the special and unique capabilities that distinguish an organization from its competitors. For example, Southwest Airlines has developed distinctive organizational capabilities in organizational processes and routines such as gate turnaround, ticketing, and employee–customer interactions. Although every airline has these same organizational processes and routines, Southwest has developed them into distinctive capabilities, leading to a sustainable competitive advantage that has resulted in above-average performance. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Characteristics of Distinctive Capabilities Must contribute to superior customer value and offer real benefits to customers Being good at what customers value Requires adaptiveness Must be difficult for competitors to imitate Requires balancing a complex array of employee skills and knowledge Harnessing learning in the organization Utilizing cross-functional interaction First, a distinctive capability contributes to superior customer value and offers real benefits to customers. The second characteristic of distinctive organizational capabilities is that they should be Difficult for competitors to imitate. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Characteristics of Distinctive Capabilities 3. A distinctive capability should be used in a variety of ways Organizational routines and processes developed in one area should be transferable to other areas Example of transferred capabilities Honda: Reliable, fuel efficient drive trains for cars, motorcycles, boats, lawnmowers, snow blowers, and power generators Finally, a distinctive organizational capability should be able to be used in a variety of ways. The organizational routines and processes developed in one area should be transferable to other areas of the organization. For example, Honda Corporation’s capabilities at developing fuel-efficient, reliable, and responsive engines and drive trains has provided it with access to different markets including automobiles, motorcycles, lawn mowers, snowblowers, tillers, all-terrain vehicles, power generators, marine outboard engines, and now small passenger jets. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage and Performance Results Sets the organization apart from competitors Must come from unique resources or distinctive capabilities Will positively affect performance results Benefits may be short or long term Demands that decision makers know the strengths and weaknesses of its resources, capabilities, and competencies Competitive advantage, as we know, is what sets an organization apart—its competitive edge. Having a competitive advantage will affect an organization’s performance results positively. Although it’s possible for an organization to enjoy strong performance results in the short run without a significant competitive advantage, there are limits to how long such results can last. Therefore it’s important,, that organizational decision makers know where the organization’s strengths and weaknesses are in terms of its resources, capabilities, and competencies. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Role of Strengths and Weaknesses These are resources that the organization possesses and capabilities that is has developed These can be exploited and developed into a sustainable competitive advantage Not all strengths will lead to competitive advantage, but they can be competitive weapons if nurtured and reinforced Strengths are resources the organization possesses and capabilities it has developed, both of which can be exploited and developed into a sustainable competitive advantage. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Role of Strengths and Weaknesses – cont’d Are resources and capabilities that are lacking or deficient and prevent the organization from developing competitive advantage Organizational weaknesses must be corrected if they are in critical areas that prevent the organization from competing effectively Organization with limited resources to correct the problem will simply seek to minimize the impact Weaknesses, on the other hand, are resources and capabilities that are lacking or deficient and prevent the organization from developing a sustainable competitive advantage. Organizational weaknesses need to be corrected if they’re in critical areas that are preventing the organization from developing a sustainable competitive advantage. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Role of Strengths and Weaknesses – cont’d Organizational members at all levels struggle with strategic questions: What strengths and weaknesses are in my area/s of responsibility? (This implies the need for effective internal analysis to be able to answer the next question) How can I manage these areas strategically to achieve high levels of performance? 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)—in other words, its strengths and its weaknesses. Organizational members at all levels of the organization struggle with these types of strategic decisions: What strengths and weaknesses are in my area(s) of responsibility, and how can I strategically manage these areas to high levels of performance? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Review: Learning Outcome 4.1 What is an internal analysis and how is it different from an external analysis? Describe the relationship between resources, capabilities, and competitive advantage. What characteristics do distinctive organizational capabilities have? Define strengths and weaknesses. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Outcome 4.2 Explain How to Do an Internal Analysis This section looks at three different approaches for doing internal analysis An effort to understand the work of the business and look at its value creating activities An examination and assessment of all internal areas that goes beyond financial information A focus on developing a profile of the organization’s capabilities Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Value Chain Analysis Every organization (for profit or not-for-profit) needs “customers” to survive The premise is that there is a demand for some type of value in the goods/services they purchase or obtain To assess the ability to provide value it is important that strategic decision makers use a systematic process to examine organizational activities and how they produce value Every organization needs customers if it’s going to survive. Even not-for-profit organizations must have “customers” who use its services or purchase its products. every organization has specific organizational routines and processes— work activities done by organizational members—that allow it to do whatever it’s in business to do. Each of these activities creates varying levels of customer value and organizational costs. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Value Chain Analysis – cont’d Value chain activities are specific organizational routines and processes that create varying levels of customer value and organizational costs The concern for organizations is that the value created outweighs the cost of creating that value (often referred to as the margin) The effort is to assess the organization’s ability to create value through its work activities In using the value chain, we’re assessing the organization’s ability to create customer value through its work activities. In other words, what are the organization’s strengths and weaknesses in these areas? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Value Chain Analysis – cont’d Value chain analysis evaluates the internal environment, the organization’s strengths and weaknesses Value chain analysis assesses nine activities Five primary Four support In order to assess an organization’s ability to provide value, strategic decision makers can use an approach developed by Mike Porter called value chain analysis, a systematic way of examining all the organization’s functional activities and how well they create customer value. Porter believed there were nine activities—five primary and four support—that were important to assess. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Value Chain Analysis – cont’d Primary activities – create customer value Inbound logistics – routines and processes that bring resources into the organization Operations – processing the resources into goods and services Outbound logistics – physically distributing these to customers Marketing/Sales – appealing to customers Customer service – serving customer needs The primary activities are those activities that create customer value. These include the Organizational routines and processes involved with bringing resources into the business (inbound logistics), processing these resources into the organization’s goods or services (operations), physically distributing them to customers (outbound logistics), marketing the goods and services to customers (marketing and sales), and servicing customers (customer service). Table 4.1 (p. 91) lists some questions to ask when assessing the organizational activities that create value. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Value Chain Analysis – cont’d Support activities – support primary activities and each other Procurement – gathering resources Technology – provide efficiencies and improve operational efforts Human Resources – recruit, select, train, retain employees Infrastructure – capabilities to identify external opportunities and threats Support activities are the activities that support the primary activities as well as each other. keep in mind that doing the primary activities wouldn’t be possible without the support activities like effective human resources management processes and routines. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Value Chain Analysis – cont’d Assessment of both primary and support activities is essential The effective or efficient performance of these activities helps create potential competitive advantage This analysis is not easily done because organizational activities do not always fit nicely and neatly into the analytical framework Table 4.2 (see p. 100) lists some questions to ask in assessing the organizational activities that reinforce the others. With both assessments, you get a good picture of the resources and capabilities that are strengths and those that are weaknesses. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Using the Internal Audit How well the basic organizational functions are performed determines the identification of organizational strengths and weaknesses A financial audit is simply an examination of an organization’s financial records and procedures An internal audit is a thorough assessment of an organization’s internal functions The internal audit approach starts with the premise that every organization has certain functions it must perform. In pursuing a sustainable competitive advantage, these functions may be performed well or performed poorly. An internal audit is a thorough assessment of an organization’s internal areas. It’s similar to a financial audit although it obviously focuses on much more than just the financial aspects. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Using the Internal Audit – cont’d Focuses on more than the financial aspects Used by strategic decision makers to assess the organization’s resources and capabilities Focuses on different functions and organizational elements Seeks to determine if the necessary resources are available so people can perform their work Assesses how well work is being performed Strategic decision makers use the internal audit to assess the organization’s resources and capabilities from the perspective of its different functions and organizational elements. Are the necessary resources available so that people can perform their assigned work activities and how well do they perform these work activities (i.e., what are their capabilities)? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Using the Internal Audit – cont’d Internal audit looks at six organizational-functional areas Production/operations Marketing Research and development Financial/accounting Management (includes all general management) Information systems An internal audit looks at six organizational functional areas: production–operations, marketing, research and development, financial–accounting, management (which typically includes human resources management and other general management activities), and information systems. Table 4.3 (see p. 102) lists some key questions to use in assessing the strengths and weaknesses of each functional area. This assessment concentrates on the availability or lack of critical resources and the level of capabilities (i.e., how efficiently and effectively work is being done) in each functional area. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Using the Internal Audit – cont’d In addition to the six organizational-functional areas, internal audit looks at three other important elements Strategic managers Organizational structure Organizational culture In addition to the assessment of the functional areas, an internal audit should look at three other important organizational elements: the strategic managers, the organizational structure, and the organization’s culture. Table 4.4 (p. 104) lists some key questions to use in assessing these areas. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Capabilities Assessment Profile This approach involves an in-depth evaluation of an organization’s capabilities The approach was developed because strategic decision makers had few guidelines for identifying and evaluating their organization’s distinctive capabilities Assessing capabilities can be complex since they arise from the ways resources are combined within the basic work processes and routines The last approach we’re going to discuss is a capabilities assessment profile, an in-depth evaluation of an organization’s capabilities. This approach was developed because strategic decision makers had few guidelines for identifying and evaluating their organization’s distinctive capabilities. Assessing capabilities can be rather complex since they arise from the ways that resources are combined in the organization’s basic work processes and routines. They’re not as easily determined as organizational functions or even the primary and support activities. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Capabilities Assessment Profile – cont’d A capabilities assessment consists of two phases Identifying distinctive capabilities Developing and leveraging these capabilities Remember what makes capabilities distinctive They contribute to superior customer value They are difficult for competitors to imitate They can be used in a variety of ways A capabilities assessment consists of two phases: (1) identifying distinctive capabilities and (2) developing and leveraging these distinctive capabilities. capabilities are distinctive when they contribute to superior customer value, they are difficult for competitors to imitate, and they are usable in a variety of ways. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Capabilities Assessment Profile – cont’d Steps in Assessing Organizational Capabilities Preparing a current product-market profile Emphasizes organization-customer interactions This requires identifying what we are selling, who we sell to, and whether we are providing superior customer value and benefits The effort demands information on for each product-market segment The first step in assessing organizational capabilities—preparing a current product–market profile—emphasizes organization–customer interactions. In this step, we identify what we’re selling, who we’re selling to, and whether we’re providing superior customer value and offering the customer desirable benefits. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Capabilities Assessment Profile – cont’d 2. Identifying sources of competitive advantage and disadvantage in main product-market segments We want to know why customers choose our products instead of those of competitors The assessment involves identifying specific cost, product, and service attributes This helps identify those attributes customers value in the products The next step in the capabilities assessment is identifying sources of competitive advantage and disadvantage in the main product-market segments. We want to know why customers choose our products instead of our competitors. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Capabilities Assessment Profile – cont’d 3. Describing organizational capabilities and competencies This requires the examination of resources, skills, and abilities of the various functions within the organization This step allows for the uncovering of what resources and capabilities led to a competitive advantage the firm enjoys In step 3, you need to uncover what resources and capabilities led to this competitive advantage. This intense analysis of the organizational resources and the routines and processes behind the capabilities is an important step. It forces strategic decision makers to really understand what has to happen in order to deliver superior customer value and benefits. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Capabilities Assessment Profile – cont’d 4. Sorting the core capabilities and competencies according to their strategic importance Which capabilities are most important for the organization’s future? Judging capabilities as most important for building the organization’s future is a matter of evaluating each according to three specific criteria Step 4 involves sorting these core capabilities and competencies according to their strategic importance. In other words, which capabilities are most important for building the organization’s future? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Capabilities Assessment Profile – cont’d 4. Sorting the core capabilities and competencies according to their strategic importance : the three criteria for judging capabilities Does the capability provide tangible customer benefits? Is the capability difficult for customers to imitate? Can the capability provide wide access to a number of different markets? Judging which capabilities are strategically important is a matter of evaluating each according to three criteria: (1) Does the capability provide tangible customer benefits? (2) Is the capability difficult for competitors to imitate? (3) Can the capability provide wide access to a number of different markets? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Capabilities Assessment Profile – cont’d 5. Identify and agree on the key competencies and capabilities Based on rankings of importance, decision makers identify key competencies and capabilities Achieving agreement is essential as it will determine future resource allocation and support for various departments, units, or divisions Without agreement, managing strategically to achieve competitive advantage is difficult The final step involves identifying and agreeing on the key competencies and capabilities. Based on the ranking of strategic importance, decision makers can easily identify the organization’s key competencies and capabilities. What’s difficult is agreeing that these are the key ones. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Determining Strengths and Weaknesses Each internal analysis can be used to identify an organization’s resources and capabilities It can be from the perspective of analyzing customer value created by primary and support activities It can be from the perspective of auditing various functional areas It can be from the perspective of identifying distinctive capabilities Each internal analysis approach can be used to identify an organization’s resources and capabilities. We also need to determine the organization’s strengths and weaknesses in each of these areas. What are its strong points? What are its weak points? What resources and capabilities can be enhanced and exploited for a sustainable competitive advantage? What resources and capabilities are lacking or not used effectively? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Determining Strengths and Weaknesses – cont’d Past performance is one way to determine strengths and weaknesses This would include such performance measures as financial ratios, operational efficiency statistics, employee productivity statistics, quality control data, or any measurable aspects of the operation While performance trends show important information, they do not provide comparative measures to determine if trends are good or not One criterion that could be used to determine strengths or weaknesses is past performance trends. This criterion could include any performance measures such as financial ratios, operational efficiency statistics, employee productivity statistics, or quality control data. Although performance trends show important information about the organization’s use of resources and capabilities, it doesn’t show us whether performance is up to standards. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Determining Strengths and Weaknesses – cont’d Organizational goals are a second was to determine strengths and weaknesses and they provide means to measure performance against a desired end Every organization needs goals in all functional areas that state what and how organizational resources and capabilities are used in carrying out the organizational vision and mission This is used to compare against competitors Another criterion to use in assessing organizational strengths and weaknesses is how actual performance measures up against specific performance goals. By comparing actual performance in the various functional areas against stated goals, strengths and weaknesses can be assessed.. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Determining Strengths and Weaknesses – cont’d By comparing resources and capabilities against competitors, an organization can see how it stacks up against how competitors are performing The effort to obtain information that enables for comparisons with competitors can raise legal and ethical questions There are no easy answers to the ethical dilemmas of competitive intelligence gathering Competitor comparisons are needed, which is another criterion we can use to measure strengths and weaknesses. By comparing resources and capabilities against competitors, an organization can see how it stacks up. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Determining Strengths and Weaknesses – cont’d Personal and subjective opinions by strategic decision makers or consultants is the last criterion for helping judge organizational strengths and weaknesses Quantitative measures do not always capture an understanding of what is really going on in an functional area The perspective of those in a functional area can be useful as they see what is working or not The last criterion for judging organizational strengths and weaknesses is personal or subjective opinions of strategic decision makers or consultants. Sometimes the best assessment is the personal opinion of those directly involved in the activity, as it may not be possible to quantitatively measure every resource or capability. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall The Grey Zone Some techniques for gathering competitor information include: Pretend to be a journalist writing a story and call competitors and pretend to interview them Dig through competitors trash Sit outside the business and count customers Get copies of in-house newsletters read them Check with the Better Business Bureau for customer complaints A key consideration for gathering this information is whether competitive-intelligence methods are legal and ethical. These difficult decisions about competitive intelligence arise because often there’s a fine line between what’s considered legal and ethical and what’s considered legal but unethical. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall The Grey Zone – cont’d Do these methods seem ethical or unethical? Which ones? Why? What ethical guidelines might you propose for strategic decision makers when seeking competitor intelligence? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Review: Learning Outcome 4.2 How would the value chain approach to internal analysis be used? What does an organizational internal audit evaluate? How do you judge which organizational capabilities are strategically important? Describe the criteria that can be used to judge organizational resources and capabilities as either strengths or weaknesses Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Outcome 4.3 Discuss Why an Internal Analysis is Important Doing an internal analysis is important for two reasons: It is the only way to identify an organization’s strengths and weaknesses It is needed for making good strategic decisions Doing an internal analysis is important for two reasons: (1) it’s the only way to identify an organization’s strengths and weaknesses, and (2) it’s needed for making good strategic decisions. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Outcome 4.3 - cont’d An internal analysis is a process for identifying and evaluating an organization’s strengths and weaknesses The outcome provides information about resources, skills, work routines and processes It answers the critical questions What strengths come from the firm’s resources and capabilities? What weaknesses do we have? An internal analysis is a process of identifying and evaluating an organization’s resources and capabilities. The outcome from an internal analysis is information about those resources, skills, and work routines and processes. What strengths do we have because of our specific resources and capabilities? What weaknesses do we have? If we didn’t do this analysis, this critical strategic information wouldn’t be available Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Outcome 4.3 – cont’d With information from the internal analysis, decision makers can make good judgments What competitive advantages is might possess What might be developed into competitive advantages What might be preventing the development of competitive advantages Combined with external analysis it is the basis for strategic action 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. This internal information, coupled with the information from the external analysis and information about the organizational context, provides the basis for deciding what strategic actions are necessary for sustainable competitive advantage. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Review: Learning Outcome 4.3 • How would the value chain approach to internal analysis be used? • What does an organizational internal audit evaluate? • How do you judge which organizational capabilities are strategically important? • Describe the criteria that can be used to judge organizational resources and capabilities as either strengths or weaknesses. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall