UNIT IV
Internal Resource
Analysis
WHAT IS AN INTERNAL ANALYSIS?
Internal Analysis
Identifies and evaluates
resources, capabilities, and core competencies
Looks at the organization's
• Current vision
• Mission(s)
• Strategic objectives
• Strategies
A Quick Review of Organizational Resources
Organizational Resources (assets)
• Financial resources
• Physical assets
• Human resources
• Intangible resources
• Structural-cultural resources
Core Competencies -- A
Valuable Company Resource
• A competence becomes a core competence when the
well-performed activity is central to a company’s
competitiveness and profitability
• Often, a core competence results from collaboration
among different parts of a company
•Typically, core competencies reside in a company’s
people, not in assets or the balance sheet
• A core competence gives a company a
potentially
valuable
competitive
capability
and represents a definite competitive asset
Examples: Core Competencies
• Expertise in integrating multiple technologies to
create families of new products
• Know-how in creating operating systems for cost
efficient supply chain management
• Speeding new/next-generation products to market
• Better after-sale service capability
• Skills in manufacturing a high quality product
• System to fill customer orders accurately and swiftly
Distinctive Competence -- A
Competitively Superior Resource
• A distinctive competence is a competitively significant
activity that a company performs better than its
competitors
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A distinctive competence
Represents a competitively
valuable capability rivals do not have
Presents attractive potential for
being a cornerstone of strategy
Can provide a competitive edge in the
marketplace—because it represents a
competitively superior resource strength
#1
Examples: Competencies
Toyota, Honda, Nissan
Low-cost, high-quality manufacturing
capability and short design-to-market cycles
Intel
Design of complex chips for personal computers
Sony
Superb marketing-distribution skills and R&D
capabilities
Test to Identify Core Competence
• Prahlad and Hamel gave three test to
identify the core competence: 1. Provide access to wide variety of markets
2. Contribute significantly to end-product
benefits
3. Be difficult for competitors to imitate
COMPETITIVE ADVANTAGE
• Competitive advantage is a firm’s ability to outperform
its competitors (earn higher profits).
• It could consist of superior quality, service or technical
assistance, a strong brand name, a unique or innovative
product or service.
• Sustained competitive advantage comes from
maintaining higher profits than competitors over long
periods of time.
• Core competencies serve as a source of CA.
Distinctive Competencies, Resources, and
Capabilities
The roots of competitive advantage:
SYNERGY
• Strategic Advantages in business area do not yield
requisite benefits automatically unless all parts work
together smoothly.
• Synergy is an economic efect in which the different
parts of the firm contribute a unique source of
heightened value to the firm when managed as a single
unified entity.
• Effect of synergy: 2+2>5
Value Chain Analysis
• A tool developed by Dr. Michael Porter of Harvard
Business School
• Can be used to examine the various activities of the
firm and how they interact in order to provide a source
of competitive advantage by:
- Performing these activities better
or
- At a lower cost than the competitors
Value Chain Analysis
Value Chain Analysis
Assessing the PRIMARY Activities in the Value Chain
Inbound Logistics
• Materials control system
• Inventory control system
• Raw material handling and warehousing
Operations
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Equipment comparison to competitors
Plant layout
Production control system
Level of automation in production processes
( from Table 4-1)
Value Chain Analysis
Assessing the PRIMARY Activities in the Value Chain (continued) ( from Table 4-1)
Outbound Logistics
• Timeliness and efficiency of finished products delivery
• Warehousing of finished products
Marketing and Sales
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Marketing research
Sales promotions and advertising
Alternative distribution channels
Competency and motivation of sales force
Organization’s image of quality
Organization’s reputation
Brand loyalty of customers
Domination of various market segments
Value Chain Analysis
Assessing the PRIMARY Activities in the Value Chain (continued) ( from Table 4-1)
Customer Service
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Customer input for product improvements
Handling of customer complaints
Warranty and guarantee policies
Employee training in customer education & service issues
Replacement parts and services
Value Chain Analysis
Assessing the SUPPORT Activities in the Value Chain
( from Table 4-2)
Procurement
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Alternate sources for obtaining needed resources
Timeliness of resources procurement
Procurement of large capital expenditure resources
Lease-versus-purchase decisions
Long-term relationships with reliable suppliers
Technological Development
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R&D activities in product and process innovations
Relationship between R&D and other departments
Meeting deadlines in technological development activities
Quality of labs and other research facilities
Qualifications of lab technicians and scientists
Creativity and innovation in organizational culture
Value Chain Analysis
Assessing the SUPPORT Activities in the Value Chain (continued) ( from Table 4-2)
Human Resource Management
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Recruiting, selecting, orienting, and training employees
Employee promotion policies
Reward systems to motivate and challenge employees
Absenteeism and turnover
Union-organization relations
Employee participation in professional organizations
Employee motivation, job commitment, and satisfaction
Value Chain Analysis
Assessing the SUPPORT Activities in the Value Chain (continued) ( from Table 4-2)
Firm Infrastructure
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Identification of external opportunities and threats
Accomplishing goals with strategic planning system
Coordination and integration of value chain activities
Low-cost capital expenditures & working capital funds
IS support for strategic and operational decisions
Relationships with stakeholders
Public image as a responsible corporate citizen
• Value chain Analysis helps in defining a firm’s core
competencies and the activities in which it can pursue a
competitive advantage as follows: - Cost Advantage – by better understanding cost and
squeezing them out of the value-adding activities
- Differentiation – by focusing on those activities
associated with core competencies and capabilities in
order to perform them better than the competitors do.
Example: Key Value Chain Activities
Pulp & Paper Industry
Timber farming
Logging
Pulp mills
Papermaking
Example: Key Value Chain Activities
Home Appliance Industry
Parts and components manufacture
Assembly
Wholesale distribution
Retail sales
Example: Key Value Chain Activities
Soft-Drink Industry
Processing of basic ingredients
Syrup manufacture
Bottling and can filling
Wholesale distribution
Advertising
Retailing
Example: Key Value Chain Activities
Computer Software Industry
Programming
Disk loading
Marketing
Distribution
STRATEGIC ADVANTAGE PROFILE (SAP)
A picture of the more critical areas which can have a
relationship of the strategic posture of the firm in the future.
Capability Factor
Competitive strengths/Weaknesses
• Finance
High cost of capital, reserves &
surplus
• Marketing
Fierce competition, company
position secure
• Operational
P&M - excellent - parts &
components available
STRATEGIC ADVANTAGE PROFILE (SAP)
Capability Factor
Competitive strengths /
Weakness
•Personnel
Quality of management &
personnel par with competition
•General
High Quality experienced top
management - take proactive
stance