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M A R C U

M A R C U S. McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-2 3 INTERNAL ANALYSIS

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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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Page 1: M A R C U S. McGraw-Hill/Irwin  2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-2 3 INTERNAL ANALYSIS

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Page 2: M A R C U S. McGraw-Hill/Irwin  2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-2 3 INTERNAL ANALYSIS

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

3-2

3

INTERNAL ANALYSIS

Page 3: M A R C U S. McGraw-Hill/Irwin  2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3-2 3 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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3-4

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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3-5

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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3-7

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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3-8

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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3-9

Ex. 3.2 The 7S Framework

Skills Style

Shared Values

Strategy Systems

Structure

Staffing

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3-10

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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3-11

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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3-12

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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3-13

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