Internal Analysis

Strategic Management

Internal Analysis: Assessing Strengths and Weaknesses

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Learning Outline

Understand organizational strengths and weaknesses

Understand the relationship between organizational resources, organizational capabilities, core competencies, and distinctive organizational capabilities

Understand the Value Chain Outsourcing

How to do an Internal Analysis How to evaluate S&Ws

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SWOT Analysis

OrganizationStrengthsWeaknesses

Opportunities

Threats

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What is an Internal Analysis

Identifies and evaluates resources, capabilities, and core competencies

As such organizations need to understand their Strengths are resources that an organization

possesses and capabilities that an organization has developed that can be exploited and developed into a sustainable competitive advantage

Weaknesses are resources and capabilities that are lacking or deficient and prevents an organization from developing a sustainable competitive advantage

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The Road to Competitive Advantage

OrganizationalResources

Financial assetsPhysical assetsHuman resourcesIntangible assetsStructural-cultural assets

OrganizationalCapabilities

Organizational processes and routines

Accumulated knowledgeActual work activities

CoreCompetencies

Distinctive OrganizationalCapabilities

Competitive Advantage

Performance Results

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The road to distinctive organizational capabilities


Organizational Capabilities •Fundamental building block for

developing core competencies • Organizational processes and

routines to get the work done

CoreCompetencies


ResourcesTangible

Intangible

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Organizational Capabilities •Fundamental building block for

developing core competencies •Organizational processes and

routines to get the work done

CoreCompetencies

Core Competencies•Fundamental skills and capabilities•Exploitable by organization•Major value-creating capabilities•Not a source of competitive advantage


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Types of Core Competencies After-sale service capability Skills in manufacturing a high quality

product (BMW) System to fill customer orders

accurately and swiftly (Amazon; Dell) Expertise in integrating multiple

technologies to create families of new products (W.L. Gore)

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CoreCompetencies

Core Competencies •Not a source of competitive advantage •Fundamental skills and capabilities •Exploitable by organization •Major value-creating capabilities


Distinctive Organizational Capabilities

•Special and unique capabilities •Distinguish from competitors •Sustainable competitive advantage •Outperform competition

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Honda’s Distinctive Capability

Expertise in gasoline engine

technology and small engine

design

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Procter & Gamble’s Distinctive Capabilities

Superb marketing-distribution

skills and R&D capabilities in five

core technologies - fats, oils, skin

chemistry, surfactants, emulsifiers

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From Distinctive capabilities to competitive advantage

DistinctiveOrganizational

Capabilities

• Contributes toSuperior CustomerValue

• Can Be Usedin a Varietyof Ways

• Is Difficultfor Competitorsto Imitate

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Capabilities vs. Core Competenciesvs. Distinctive Capabilities

A company capability is the product of organizational learning and experience and represents real proficiency in performing an internal activity

A core competence is a well-performed internal activity that is central (not peripheral or incidental) to a company’s competitiveness and profitability

A distinctive Capability is a competitively valuable activity that a company performs better than its rivals

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Value Chain Analysis

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From Value Chain Analysisto Competitive Advantage

Sustainable competitive advantage can be created by

1.Managing value chain activities better than rivals and/or

2.Developing distinctive value chain capabilities to serve customers!

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Other types of Internal Analysis

Internal auditLook at all functional areas and see

which are performing well Capabilities assessment profile

Analyze capabilities to identify potential sources of competitive advantage

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Appeal of Outsourcing

Outsourcing non-critical activities allows a firm to concentrate its energies and resources on those value-chain activities where it Can create unique value Can be best in the industry

Advantages to outsourcing Decrease internal bureaucracies Flatten organization structure Provide firm with heightened strategic focus

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Potential Advantages of Outsourcing Non-Critical Activities

Outsourcing makes strategic sense when outsiders can perform certain activities at a lower cost and/or with

higher value-added.

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How do you do an internal analysis?

Step 1

Step 2

Step 3

Step 4

Step 5

Prepare current product-market profile.

Identify sources of competitiveadvantage and disadvantage inthe main product-market segments.

Describe all the organizationalcapabilities and competencies.

Sort the core capabilities andcompetencies according tostrategic importance.

Identify and agree onthe key capabilitiesand competencies.

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Identify Strategy-Critical Activities

Which activities are strategy-critical depends Particulars of a firm’s strategy Value-chain make-up Competitive requirements External market conditions

Identify strategy-critical activities What business processes have to be performed extra well

or in timely fashion to achieve competitive advantage? In what value-chain activities would poor work performance

impair strategic success?

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Criteria to Judge Organizational Strengths and Weaknesses

Are organizational resources and capabilitiesstrengths or weaknesses?

Past Performance Trends

Specific Goals or Targets

Comparison Against Competitors

Personal Opinions of StrategicDecision Makers or Consultants

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Difficulty in developing competencies Because these competencies are in

peopleHard to developHard to identifyHard to change / improveAlso hard to “steal”

• Social Complexity• Historical• Casually ambiguous

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Take Aways

Internal Analysis tells what a firm CAN do Goal is to create core competencies and

distinctive capabilities Without them, you will not be in business long Creating distinctive capabilities takes time Very hard to do…Even harder to “steal”

Value chain analysis a way to Understand where the competencies lie Think about outsourcing

Business

Internal Analysis