1 Internal Analysis

2 Strategic Managers must evaluate the Internal Environment of the organization. What is the process? –Identify and classify variables within an organization as strengths or weaknesses.

3 STRENGTH = factor that is better than: –past performance –key competitors –industry as a whole WEAKNESS = factor that is worse than: –past performance –key competitors –industry as a whole

4 Approaches for scanning and analyzing Internal Variables Functional Analysis Value Chain Analysis Core Competencies Analysis

5 Functional Analysis

6 Management 1. General Management 2. Human Resource Management

7 General Management Factors Structure of the organization Organizational Culture Record in Achieving Objectives Top management skills, capabilities, & interests. Reputation of the Organization and Top Management Social Responsibility record

8 Human Resource Management Number of employees Unionization Employee skills and morale Quality of Work/Life Issues –Recent downsizings Recognition/promotion/reward systems Training programs; educational reimbursement

9 Operations (Manufacturing or Service Firms) Quality Initiatives –Quality certifications –Policies and procedures for quality Six sigma quality = 3.4 manufacturing defects per million items Location of facilities Outsourcing Flexible manufacturing Raw material costs and availability

10 Operations - Continued (Manufacturing or Service) Economies of scale –decreasing fixed costs/ unit when producing more Economies of scope –common parts of different products manufactured together. Re-engineering Percentage of cost of goods sold to sales

11 Information Systems Chief Information Officer Network Capabilities Hardware and software upgrades Y2K compliance & costs Internet page –quality; features

12 Research and Development Expenditures –Over time –In relation to competitors/industry –Percentage of sales Product to market time Own labs/facilities or lease?

13 Finance Currency risk management –Global impact Financing decisions

14 Financial Ratios

15 Value Chain Analysis

16 Firm Infrastructure general management,accounting finance Human Resource Management recruiting, training, development Technology Development R&D, product and process improvement Procurement purchasing raw materials; machines, supplies Support Activities Inbound Logistics raw matl handling ware- housing Operations machining assembling testing packaging Outbound Logistics ware- housing distri- bution Marketing and Sales advertising promotion pricing channel relations Service instal- lation, repair, replace- ment PRIMARY ACTIVITIES Profit Margin

17 Core Competencies

18 Core Competencies of the Corporation Real sources of advantage - not based on businesses. –management’s ability to consolidate corporatewide technologies and production into competencies. Core competencies are collective learning in the organization, especially: – how to coordinate diverse production skills by integrating multiple streams of technologies.

19 Three tests to identify core competencies Provide potential access to a wide variety of markets. Make a significant contribution to the perceived customer benefits of the end product. Are difficult to imitate.

20 examples Engines Powertrains Optics Imaging Microprocessor controls Cars; motorcycles; lawn mowers; generators Copiers; laser printers; cameras; image scanners; medical imaging Core CompetenciesProducts/businesses

21 More kinds of core competencies: Systems Integration Virtual reality Bioengineering Delighting the customer

22 Purpose of Internal Analysis Identify and evaluate what’s going on inside the firm. The goal is to assess what are strengths and what are weaknesses. Critical in making decisions about the future of the organization.