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Pan-Atlantic
University
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Week 4: Internal Analysis
Dynamics of Internal Environment
Organisational capability Factors
Methods and Techniques Used for Organisational
Appraisal
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Learning Outcomes for Week 4
After this class, you should be able
to:
Describe the concept of internal
environment
Describe and exemplify the various
factors of organisational capability.
Explain the process of conducting
organisational appraisal
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Explain the concept internal environment in
your own words.
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Internal
Environment
Refers to all the factors
that are within an
organization which impart
strengths
or
cause
weaknesses of strategic
nature.
The trends and events
within an organization
that
affect
the
management, employees,
and organizational culture
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Explain the dynamics of internal environment
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Dynamics of Internal
Environment
The organisation uses different
types of resources and exhibits a
certain type of behaviour.
The interplay of these different
resources along with the prevalent
behaviour
produces
synergy
within the organisation.
This leads to the development of
strengths or weaknesses over a
period of time.
Some of these strengths make an
organisation especially competent
in particular area of its activity
causing
it
to
develop
competencies.
Organisational capability rests on
organisation’s capacity and the
ability to use competencies to
excel in a particular field, thereby
giving it competitive advantage.
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Resources
Resources refer to inputs into a firm’s production process such as capital, equipment, skill of
individual employees, patents, finance, and talented managers. They are bundled to create
organizational capabilities.
▫ Tangible Resources – Assets that can be seen and quantified
Four specific types:
-financial: cash, equity capital
-organizational: The firm’s formal reporting structure and its formal planning, controlling,
and coordinating systems
-physical : include plant and machinery, building
-technological: patents, brands, trademarks
▫ Intangible Resources – Usually can’t be seen or touched
– Assets rooted deeply in the firm’s history, accumulated over time (e.g. Family commitment,
networks, organizational culture, reputation, intellectual property rights, trademarks,
copyrights ).
Three specific types: human, innovation, and reputational
By themselves, resources do not create a competitive advantage for the firm.
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Examples of Tangible Resources
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Examples of Intangible Resources
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Capabilities
This refer to the capacity of the firm
to deploy its resources that have been
purposely integrated to achieve a
specific task or set of tasks.
Source of a firm’s core competencies and
basis for competitive advantage (CA).
Primary base for the firm’s
capabilities is the skills and
knowledge of its employees, often
developed in specific functional areas.
Just because the firm has a strong
capacity for deploying resources does
not mean it has a competitive
advantage.
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Examples of Firms’ Capabilities
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Core Competencies
Core competencies refers to that set of distinctive
capabilities that provide a firm with a sustainable source of
competitive advantage
Resources and capabilities serve as a source of competitive
advantage for a firm over its rival.
Distinguish a company from its competitors
Not all resources and capabilities are core competencies.
However, it has been suggested that a firm should not
nurturing more than four core competencies as this may
prevent a firm from developing the focus needed to fully
exploit its competencies in the marketplace.
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The Resource-Based View (RBV)
The RBV gained popularity in the 1990s.
According to Barney (1991), who is credited with the
developing this view of strategy as a theory contends that
internal resources are more important for a firm than
external factors in achieving and sustaining competitive
advantage.
The proponents of the RBV view contend that
organizational performance will primarily be determined
by internal resources that can be grouped into three allencompassing categories: physical resources, human and
organizational resources.
RBV theory asserts that resources are actually what help a
firm exploit opportunities and neutralize threats.
The basic premise of the RBV is that mix, type, amount,
and nature of a firm’s internal resources should be
considered first and foremost in devising strategies that
can lead to sustainable competitive advantage.
RBV concluded that for an organization's resources to
ultimately lead to competitive advantage, they possess
four characteristics
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Four Criteria of Sustainable Competitive Advantage
 Four Criteria of Sustainable CA as suggested by RBV
Must be Valuable – help exploit opportunities or neutralize threats in
external environment
 Must be Rare – few competitors possess them. Valuable resource that
isn’t rare won’t necessarily contribute to competitive advantage.
 Must be Costly-to-imitate – other firms cannot easily develop
▫ Historical : A unique and a valuable organizational culture or brand name
▫ Ambiguous cause: The causes and uses of a competence are unclear
▫ Social complexity: Interpersonal relationships, trust, and friendship among
managers, suppliers, and customers
 Must be Non-substitutable – there are no strategic equivalents
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Outcomes from Combinations of the Criteria for
Sustainable Competitive Advantage
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What is internal analysis and its challenges?
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Internal Analysis
Internal analysis is the systematic evaluation of the key
internal features of an organization.
The aim of Internal analysis: objective assessment of your
strengths and weaknesses
▫ relative to competitors
▫ important to customers
▫ understand how to leverage these bundles of heterogeneous
resources and capabilities
 Creating Value
 Exploit core competencies or competitive advantage
 Value: measured by a product's performance characteristics
and by its attributes for which customers are willing to pay
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Challenge of Internal Analysis

Strategic decisions are non-routine, have ethical implications and
influence the organization’s above-average returns
 Involves identifying, developing, deploying and protecting firms’
resources, capabilities and core competencies
 Requires
strategic thinking, making judgments, and taking
intelligent risks

Conditions affecting managers decisions when making decisions
about resources, capabilities, and core competencies
 Uncertainty regarding characteristics of the general and the
industry environments, competitors’ actions, and customers’
preferences
 Complexity regarding the interrelated causes shaping a firm’s
environments and perceptions of the environments
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Intraorganizational Conflicts among people making managerial
decisions and those affected by them
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Outcomes from Internal Organizational Analysis
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Identify and explain the methods and
techniques used for Organisational Appraisal
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Value Chain Analysis
Value chain is a representation of organisational processes, divided into primary
and support activities that create value for customers
Total of primary and support value-adding activities by which a company produces,
distributes, and markets a product.
A framework for identifying core competencies
▫ Inside the firm
▫ In the supply chain
Can be used to
Identify strengths and weaknesses
Identify sources of competitive advantage
Identify market opportunities
Help a firm to understand the parts of its operations that create value and
those that do not
▫ Identify competitive advantages and disadvantages based on costs
▫ Make outsourcing decisions
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▫
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The Value Chain
Supporting
Activities
Firm Infrastructure
Human Resource Management
Technological Development
Procurement
Inbound
Operations
Logistics
Relationship with Suppliers
Outbound Marketing Service
Logistics & Sales
Relationship with Buyers
Elapsed Time - Value added time cost
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Primary Activities in the Value Chain
The primary activities deal with the flow of the product or service through
the business, such as:
■ inbound logistics, which include receiving, warehousing, and inventory
control of input materials.
■ operations, which include machining, assembling, and all other
activities that transform inputs into the final product.
■ outbound logistics, which include warehousing, order fulfillment, and
other activities required to get the finished product to the customer.
■ marketing and sales, which include channel selection, advertising,
pricing, and other activities associated with getting buyers to purchase the
product.
■ service, which includes customer support, repair services, and other
activities that maintain and enhance the product’s value to the customer.
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Supporting Activities in the Value Chain
The support activities are the activities that support the primary
value-chain activities, such as:
■ procurement, which includes purchasing raw materials,
components, supplies, and equipment.
■ technology development, which includes research and
development, process automation, and other technology
development.
■ human resources management, which includes recruiting,
hiring, training, development, and compensating employees.
■ company infrastructure, which includes finance, legal, quality
management, information systems, organizational structure,
control systems, company culture, and so on.
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Outsourcing
 Outsourcing: The purchase of a value-creating
activity from an external supplier.


Effective execution includes an increase in flexibility,
risk mitigation and capital investment reduction
Trend continues at a rapid pace
 Can be used in areas where a firm cannot create
value or is at a substantial disadvantage compared
to competitors.
 Should also consider outsourcing non strategically
critical activities.
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Other Techniques for Internal Analysis
Benchmarking : is reference
point for taking measures against.
The process of benchmarking is
aimed at finding the best practices
within and outside the industry to
which an organisation belongs.
The purpose of benchmarking is
to find the best performers in an
area so that one could match one’s
own performance with them and
even surpass them.
There are three types of
benchmarking:
Performance benchmarking: is
comparing one’s own
performance with that of some
other organisation for the purpose
of determining how good one’s
own organisation is.
Process benchmarking: is
comparing the methods and
practices for performing
processes.
Strategic benchmarking: is
comparing the long-term,
significant decisions and actions
undertaken by other organisations
to achieve their objectives
Benchmarking
- at three
levels
Through
Examples of measures
Level of
benchmarking
Resources
Resource audit
Quantity of resources,
e.g.
·
revenue/employee
·
capital intensity
Quality of resources,
e.g.
·
qualifications of
employees
·
age of machinery
·
uniqueness (e.g.
patents)
Competences in
separate activities
Analysing activities
Sales calls/sales person
Output/ employee
Materials wastage
Competences
through
managing linkages
Analysing overall
performance
Market share
Profitability
Productivity
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Competencies, Strengths, Weaknesses and Strategic
Decisions
 Firms must identify their strengths and weaknesses
 Appropriate resources and capabilities needed to
develop desired strategy and create value for
customers/other stakeholders
 Tools (i.e., outsourcing) can help a firm focus on
core competencies as the source for CA
 Core competencies have potential to become core
rigidities
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Competencies emphasized when no longer competitively
relevant can become a weakness
Should keep updating and improving competencies
 External environmental conditions and events
impact a firm’s core competencies
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References
David, F.R. (2010). Strategic management:
Concepts and cases (13th edition).New Delhi: PHI
Learning Private Limited.
Kazmi, A. (2008). Strategic management and
business Policy (3rd edition). New Delhi: McGrawHill.
Oghojafor, B.E.A. (2006). Essential of Business
Policy. Lagos: Ababa Press.