Chapter Four:
Analyzing an Industry
By: Lauren Sterna, Collin
Gillaspie, Clint Chapman, Craig
Crowell, Jennifer Eccles, & Scott
Addison
What is an Internal Analysis?
• Evaluates an organization’s resources and
capabilities, and core competencies
▫ Resources include financial, physical, human,
intangible, and structural-cultural.
• Provides information on assets, skills, and work
activities
Organizational Capabilities
• Definition: The various routines and processes
that transform those inputs (resources) into
outputs (physical goods and services)
• These organizational routines and processes are
the regular and predictable work activities done
by organizational members
▫ Delta Air Lines vs. Southwest Airlines
Sustainable Competitive Advantage
• Capabilities that lead to a competitive advantage
now may not do so in the future as conditions
and competitors change
• Dynamic Capabilities: an organizations ability to
build, integrate, and reconfigure capabilities
to address rapidly changing environments
Figure 4.2
The Strategic Role of
Organizational Resources
and Organizational
Capabilties
Performance
Results
Competitive
Advantage
Unique
Resources
Distinctive
Organizational
Capabilities
Organizational
Resources
Organizational
Capabilities
•Financial assets
•Physical assets
•Human Resources
•Intangible Assets
•Structural-Cultural
•Organizational
processes and routines
•Accumulated
knowledge
•Actual work activities
Core
Competencies
Organizational Capabilities, Core
Competencies & Distinctive Capabilities
• Core Competencies-Any major value-creating capabilities
organizations have that are essential to their business.
• Nokia-Product design, customer research
• Dordstrom-customer service
• What comes first out of the 3? Organizational Capabilities
• Fundamental building blocks for developing core competencies
• Distinctive Organizational Capabilities-the special and unique
capabilities that distinguish an organization from its competitors.
• Southwest-Processes and routines(turnaround, ticketing, and
interaction)
Distinctive Capabilities
• Three Characteristics
▫ First, a distinctive capability contributes
to superior customer value and offers
real benefits to customers.
▫ Second, the should be difficult to imitate.
▫ Third, should be able to be used in a
variety of ways.
Ex. Honda
Strengths & Weaknesses
• Internal Analysis-Find S&W
▫ Strengths-resources that the organization possesses and
capabilities that it has developed which can be turned into a
competitive advantage.
 Not every strength will lead to a sustainable competitive advantage, but an
organization’s strengths should be nurtured and reinforced as its main
competitive weapons
▫ Weaknesses-resources and capabilities that are lacking or
deficient and prevent the organization from developing a
sustainable competitive advantage.
 To be corrected if they’re in critical areas that are preventing the organization
from developing a sustainable competitive advantage.
 Most organizations simply minimize the impact of the weakness.
Value Chain Analysis
• A systematic way of examining all the
organization’s functional activities and how well
they create customer value.
• Value comes from 3 broad categories:
▫ Product is unique and different
▫ Product is low priced
▫ Product meets the needs of a specific group of
customers quickly and efficiently
Assessing the Activities in the Value
Chain
• Primary Activities
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▫
▫
▫
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Inbound logistics
Operations
Outbound logistics
Marketing and sale
Customer service
• Support Activities
▫ Procurement
▫ Technological
development
▫ Human resource
management
▫ Firm infrastructure
Assessing the Primary Activities in the
Value Chain
• Inbound Logistics
▫ Materials control system, inventory control system, raw
materials
• Operations
▫ Plant layout, productive equipment as compared to
competitors
• Outbound logistics
▫ Finished products
• Marketing and Sales
▫ Marketing research, brand loyalty, alternative distribution
channels
• Customer Service
▫ Customer input, product warranty, employee training,
repair and replacement services
Assessing the Support Activities in the
Value Chain
• Procurement
▫ Alternate resources, long-term relationships and
reliable suppliers
• Technological Development
▫ R & D activities, organizational culture, trained
technicians
• Human Resource Management
▫ Effective recruiting, and training programs, promotion
policies, reward systems, employee motivation
• Firm Infrastructure
▫ External opportunities and threats, organizational
goals, public image, stakeholder relationships
Overview
• Value chain analysis is important because it
creates the varying levels of customer value and
organizational costs.
• They assess the organization’s ability to create
customer value through its work activities.
• The advantage of the value chain analysis is that
it emphasizes the importance of how well an
organization performs the primary and support
activities in creating customer value
Internal Audit
• A thorough examination of an organization’s
internal areas.
• Begins with the premise that every organization
has functions it must perform, and strengths and
weaknesses are based on how well they are
performed.
• Looks at six organizational functional areas and
measures the efficiency of each area.
• Central theme of auditing is looking for
competencies in each area.
Organizational functional areas
•
•
•
•
•
•
Production and operations
Marketing
Research and Development
Financial and Accounting
Management
Information systems and Information
technology
3 Additional Organizational Elements
• Strategic Managers-board of directors and top
managers
• Organizational Structure
• Organizational Culture
Capabilities Assessment Profile
CAP is an in-depth evaluation of an organization’s
capabilities.
• Assessing capabilities can be complex since they
arise from the ways that resources are combined
in the organization’s basic work processes and
routines.
• Capabilities assessment consists of two phases:
▫ Identify distinctive capabilities
▫ Developing and leveraging these distinctive
capabilities
Capabilities Assessment Profile
The first step in assessing organizational
capabilities is preparing a current productmarket profile.
▫ Emphasizes organization-customer interactions.
▫ Identifies what we’re selling, who we’re selling to,
and whether we’re providing superior customer
value and offering the customer desirable benefits.
Capabilities Assessment Profile
In order to prepare a current product-market
profile we need:
▫ Information about specific products and markets
▫ Principal competitors in each of these productmarket segments
▫ Performance measures for each product-market
segment.
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Sales growth rate
Market share
Competitive position
Contribution to sales and earnings
Capabilities Assessment Profile
The next step is identifying sources of competitive
advantage and disadvantage in the main
product-market segments.
▫ We need to know why customers choose our
products instead of our competitors.
▫ Identify specific costs, product, and service
attributes.
▫ When someone buys our product they are buying
a bundle of attributes that they believe will satisfy
their needs.
▫ We need to know what these attributes are!!!
Capabilities Assessment Profile
The third step involves describing organizational
capabilities and competencies.
▫ Examine the resources, skills, and abilities of your
organizations different divisions.
▫ Uncover what resources and capabilities lead to
your competitive advantage.
Capabilities Assessment Profile
The last step involves sorting these capabilities and
competencies according to their strategic importance.
▫ Which capabilities are most important for building the
organization’s future.
▫ We should evaluate each category according to three
criteria:
 Does the capability provide tangible customer benefits?
 Is the capability difficult for competitors to imitate?
 Can the capability provide wide access to a number of different
markets?
By sorting organizational capabilities according to level of
strategic importance, strategic decision makers gain an
understanding of their organization’s critical strengths
and weaknesses.
Capabilities Assessment Profile
The final step involves identifying and agreeing on
the key competencies and capabilities.
▫ By ranking key competencies and capabilities,
decision makers can easily identify the key ones.
▫ The hard part is agreeing with competencies and
departments deserve future resource allocation.
Determining Strengths and Weaknesses
The first criteria used to determine strengths and
weaknesses is past performance.
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Financial ratios
Operational efficiency statistics
Employee productivity statistics
Quality control data
• Is market share increasing or decreasing?
• Are liquidity ratios going up or down?
• Ect…
Determining Strengths and Weaknesses
The second criteria is how actual performance
measures up against specific performance goals.
▫ Organizational goals are statements of desired
outcomes.
▫ Looking at performance trends and organizational
goals isn’t enough, we need something to compare
them to.
Determining Strengths and Weaknesses
• The third criteria is comparing resources and
capabilities against competitors.
▫ To do this you use SEC fillings, industry
association newsletters, annual reports, customer
contacts, and the competitor's web page.
▫ However it’s unethical to go through someone’s
garbage cans.
Determining Strengths and Weaknesses
The fourth and last criterion for judging
organizational strengths and weaknesses is
personal or subjective opinions.
▫ These can come from decision makers or
consultants from inside or outside the company.
Summary
• Internal Analysis
▫ Evaluating a company based on its resources and
capabilities
• Strengths and Weaknesses
• Capabilities Assessment Profile