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McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-3 Chapter Objectives To review the basics of management theory. To provide a number of approaches for analyzing a firm’s internal strengths and weaknesses including the value chain, the 7Ss, and the resource based view (RBV). To distinguish between resources, capabilities, and competencies. To explain how RBV may be used to achieve sustained competitive advantage (SCA).
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McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
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INTERNAL ANALYSIS
McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
3-3
Chapter Objectives To review the basics of management theory. To provide a number of approaches for analyzing
a firm’s internal strengths and weaknesses including the value chain, the 7Ss, and the resource based view (RBV).
To distinguish between resources, capabilities, and competencies.
To explain how RBV may be used to achieve sustained competitive advantage (SCA).
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Internal Analysis
Internal analysis is the process of examining an organization’s strengths and weaknesses. Its purpose is to understand the degree to which the organization can deal with the external opportunities and threats that it confronts.
It focuses on two questions:
•What can an organization do to enhance its position?•How can it put itself in a better position to compete against its foes?
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Ex. 3.1 Strategy Requires External Analysis and Internal Analysis
Strategy
Internal Analysis
•Management Principles•Seven Ss•Value Chain•Resources, Capabilities, and Competencies
External Analysis
•Five Forces•Macroenvironment•Stakeholders
The Firm-Strategy Interface
The Strategy-Environment Interface
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Attributes of Core Competencies
Provide access to new markets Give customer benefits Difficult for competitors to imitate
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Classic Approach to Management Theory
The organization must have: A well defined hierarchy A division of labor to allow high degrees of
specialization Specific assignments of authority and
responsibility Unity of command and direction and
subordination of individual interest to the common good
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The Human Relations Approach to Management Theory
Informal coordination in groups should replace centralized controls
Communications between employees and managers should be two-way
Compensation should be based on performance, not on following orders
Management should foster an environment that is conducive to employees’ development and learning
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Ex. 3.2 The 7S Framework
Skills Style
Shared Values
Strategy Systems
Structure
Staffing
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Ex. 3.3 The Value Chain
Administration
Human Resource Management
Technology Development
Resource Procurement
Inbound Logistics
Operations
Outbound Logistics
Marketing and Sales
Service
Profit
Primary Activities
Support
ActIvities
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Ex. 3.4 Value Chain Linkages
Supplier Value Chain
SupplierValueChain
FirmValueChain
ChannelValueChain
Channel Value Chain
Customer Value Chain
Customer Value Chain
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Ex. 3.5 Basic Differences Between IO and RBV
Industrial Organization Model (IO)
Resource-Based Model View (RBV)
Sustained advantage is determined by factorsOutside firmFocus on Industry structure and attractiveness
Inside FirmIdentifying, developing, and obtaining these factors
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Ex. 3.6 Approaches to Achieving Superior Performance
IO Model Resource-Based ViewFocus on …External Factors (Porter’s Five Forces)
Internal factors (Resources, Capabilities, Competencies)
Which affect…All firms in the industry equally; all have the same prospects
Each firm in industry differently; each has different prospects
Which explains why …All firms in the same industry perform roughly the same
Some firms in the same industry perform at a higher level than others
So select the …Right industry to achieve superior performance
Right firm to achieve superior performance
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Resources and Capabilities Resources are the organization’s basic
financial, physical, and human capital
Capabilities allow the organization to exploit these resources
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Competencies
Competencies allow managers to link key resources and capabilities and to combine, transfer, and channel them to satisfy customer needs
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Types of Resources
Resources
Financial capitalMoney from:•Entrepreneurs•Equity holders•Bonds•Banks•Retained earnings
Physical capital•Plant•Equipment•Land•Natural resources•Raw materials•Manufacturing robots
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Ex. 3.7 Key Organizational Resources
Tangible IntangibleFinancial and physical capital Land Buildings Plant EquipmentNatural resources/raw materialsSemifinished and unsold goods
Brand names and trademarksReputationPatents and licensesTechnical or mkting. know-howTrade secrets/intellectual prop.
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Ex. 3.8 Key Organizational Capabilities
Company Skills RoutinesCoordination and allocation of resources Putting resources to productive useOrganization structure and control systemsCultural norms and valuesTechnological skillsProduction knowledgeExperience with governmentCustomer loyalty
Managerial talentHow managers make decisionsHow internal processes are handledHow employees interact and cooperate
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Ex. 3.9 Interaction of Resources and Capabilities
ResourcesRelatively easy to imitate•Buy on open market if tangible•Develop if intangible
CapabilitiesHard to imitate•Invisible to outsiders•Deep in company•Not dependent on individuals•Team chemistry
Competencies•Rare: possessed by few, if any, of firm’s competitors•Costly to imitate: other firms cannot obtain, or must obtain at much higher cost•Valuable: allow firm to exploit opportunities or neutralize threats in environment•Nonsubstitutable: nothing else provides same value
+ =
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Ex. 3.10 Creation of Distinctive Competencies
Resources
Capabilities
DistinctiveCompetence
Superior•Efficiency•Quality•Innovation•Customer Responsiveness
•Hardware•Ingredients•Paint, Easel
•Software•Recipes•Artistic Sense
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Ex. 3.11 From Capabilities to Competencies
•Efficient production•Skilled people•Low-cost supply•Efficient delivery and ordering
•Product dev. Teams•Timely customer info.•Market research•Sales force feedback
•Close supplier ties•Und. What is happening in field•Point-of-sale data from vendors•Rapid inv. change
Low-cost Products and Services
Innovative Products and Services
Quick Response and Flexibility
Constituent Capabilities
Distinctive Competencies
Behind every distinctive competence there is blend of
many capabilities
