INDIAN INSTITUTE OF FOREIGN TRADE
BUSINESS STRATEGY
Internal Environment Analysis
K. Rangarajan
External Environment
What the Firm Might Do
Sustainable
Competitive
Advantage
Internal Environment
What the Firm Can Do
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
The purpose of SWOT Analysis
It is an easy-to-use tool for developing an
overview of a company’s strategic situation
– It forms a basis for matching your
company’s strategy to its situation
Strengths
A STRENGTH is something a company is
good at doing or a characteristic that gives
it an important capability.
Possible Strengths:
– Name recognition
– Proprietary technology
– Cost advantages
– Skilled employees
– Loyal Customers
Weaknesses
A WEAKNESS is something a company
lacks or does poorly (in comparison to
others) or a condition that places it at a
disadvantage
Possible Weaknesses:
– Poor market image
– Obsolete facilities
– Internal operating problems
– Poor marketing skills
Strengths and Weakness form a
basis for INTERNAL analysis
By examining strengths, you can discover
untapped potential or identify distinct
competencies that helped you succeed in the
past.
By examining weaknesses, you can identify
gaps in performance, vulnerabilities, and
erroneous assumptions about existing
strategies.
Key Questions for Managers
in Internal Analysis
How do we assemble bundles of Resources,
Capabilities and Core Competencies to create
VALUE for customers?
And...
Will environmental changes make our core
competencies obsolete?
Are substitutes available for our core
competencies?
Are our core competencies easily
imitated?
Core Competencies
A Competence is a bundle of skills and technologies rather than a
Single discrete skill
A Core Competence represents the sum of learning across
individual skill sets and individual organisational units.
Example: Federal Express
Logistics – Meta Competencies
Package tracking – Core competencies
Bar Coding – Constituent skill
( Learning: Core competence is very unlikely to reside in its entirety
in a single individual or a small team)
Core Competencies … (cont)
Three Tests of a skill:
1. Customer value ( Honda’s know-how in engines)
2. Competitor Differentiation ( Sony’s
Miniaturisation)
3. Extendibility ( SKF’s antifriction ideas, precision
engg.)
Core Competencies
Why Core Competencies?
Canon
Optics, imaging,
microprocessor
controls
Fax Machines,
cameras, desk-top
printers,
Photocopiers,
Image scanners
Sony
Miniaturization,
Microprocessor
design, ultra-thin
precision casting
Miniature card
calculators, pocket
TVs, digital
watches, video tape
recorders etc
3M
Substrates,
coatings, adhesives
Magnetic tapes,
photographic film,
coated abrasives,
post-it notes,
sticker products
Honda
Design & Mfg. of
engines and power
trains
Cars, motorcycles,
generators, lawn
mowers
Product
Precision Mechanics
Fine Optics
Basic camera
X
X
Compact fashion camera
X
X
Electronic camera
X
X
EOS autofocus camera
X
X
X
Video still camera
X
X
X
X
Laser beam printer
X
X
X
X
Color video printer
X
X
X
Bubble jet printer
X
X
X
Basic fax
X
X
X
Laser fax
X
X
X
Calculator
Microelectronics
Electronic Imaging
X
Plain paper copier
X
X
X
X
Battery PPC
X
X
X
X
Color copier
X
X
X
X
Laser copier
X
X
X
X
Color laser copier
X
X
X
X
Still video system
X
X
X
X
Laser imager
X
X
X
X
Cell analyzer
X
X
X
X
Mask aligners
X
X
X
Stepper aligners
X
X
X
Excimer laser aligners
X
X
X
X
HOW TO DO AN INTERNAL ANALYSIS
Value Chain Analysis
Customers demand value from the goods and services they
obtain
Customer Value
Product is unique and different
Product is low priced
Quick response to specific or distinctive customer
needs
Value Chain
Systematic way of examining organization's
functional activities
• How well these activities create customer value
• Organization's strengths and weaknesses in these
areas
SOFT DRINKS
Processing ingredients
Syrup manufacture
Bottling/Can Filling
Wholesale distribution
Retailing
SOFTWARE
Programming
Disk Loading
Marketing
Distribution
ACCOUNTANCY
Human Resource
Management
Customer Service
Value Chain Composition
Differs by Industry & by
Company
THE VALUE CHAIN SYSTEM
Upstream
Value Chains
Activities,
Costs, and
Margins of
Suppliers
Company
Value Chain
Downstream
Value Chains
Internally
Performed
Activities, Costs
and Margins
Activities,
Costs, Margins
of Forward
Channels
END
USER
Adapted from Michael Porter, Competitive Advantage, 1985.
The value chain
Support
Activities
Firm infrastructure
Human resource management
Technology development
Procurement
Inbound
logistics
Operation
Outbound
logistics
Marketing
and sales
Primary Activities
Service
Value Chain Activities: Textile Industry
Fibre/Yarn
• > 70% fibre from cotton
• % of raw cotton in total fibre
is declining
• 90% cotton yarn prod. Is in
lower counts
• Share of cotton fibre
consumption has come
down
• Blended yarn segment is
growing fast
• 80% yarn from mills sector
Fabric
• 60% share of fabric prodn.
with powerloom sector
• Share of 100% NC is
growing
• Ratio is –
1997 – 58:14:28
2001 – 50:16:34
• Mill’s share is low
Dying /Finishing
• 12596 process houses
• Majority are hand
processing units
(83%).
• Primitive tech.
• More in fabric to
clothing stage
Clothing
• Apparel: Rs.700bl – 950 bl.
Highly decentralised 30,000 units
+3 million people knitting segment
is growing fast.
• Tech. Text. Prodn is cap. Intensive.
Domestic mkt growing. Weak
connected activities
• Home Text: organised sector for
domestic mkt. Unorganised sector in
exports. Exports around Rs70
billion. Fabric export is high than
clothing
Some Aspects in the Textile Value Chain
Description
Link in the VC
Strategy for Capturing Value
1. Better design, sourcing,
production, logistics and
inventory management
Inbound Logistics
Operations
Outbound Logistics
1. Reduce delay in the key
steps of SCM
2. Shorten the Cycle time
3. Reduce unplanned
shipments
2. Ability to reach low cost
supplier given changes in
tariffs, labor rates and
exchange rates
Inbound logistics
Marketing & Sales
1. Reach low-cost supplier to
reduce COGS
3. Increase revenue from
current customer
Marketing and Sales
After Sales Service
1. Ensure timely availability of
high-fashion trendy or
highly seasonal goods
4. Reduce process costs
Operations
1. Establish Business
Processes for sourcing and
logistics functions.
Multi-plant, multinationals with joint ventures and
subsidiaries at appropriate location
Decentralized local autonomy but strong central direction
• Cycle of goodness in Japan; • Japanese management worldwide
• Employee participation and involvement in subsidiaries
•Substantial annual investment in assets • Invented own production
machinery
• Constant innovation in own production machinery
Vertically integrated: manufacture own production machinery
Little
dependence
on suppliers
Heavily automated
for cost saving.
Production of coils in
Japan for subsidiaries
worldwode.
High quality of
produciton
Tight stock
control
systems
Coils (semifinished zips)
held in stocks
Concentration on
key accounts
Wide range of
sizes and colours
with fast
deliverlies
High quality at
competitive prices
The value chain of MMTC (Precious Metals)
Support
Activities
* One of the Biggest Trading Coy. with offices in
various parts of India & outside
* Centralised authority, with Ltd. autonomy
Strong national workforce: Opportunities for Trg. & Dev.
Substantial investment in assets; R & D, design facilities
Centralised procurement of common facilities
Inbound
logistics
Operation
Outbound
•Manufacturing logistics
Marketing
and sales
•Concentrati
•Import of
of Jewellary
•Decentralised on on govt.
Gold, Silver
• Processing of storage points supplies &
& other
off-the-shelf
exports
precious
• Supply
supplies
metals
routing of raw •Wide range
of jewellary
materials
• Purchase of • Cutting &
& other
polishing of
Jewellary
• Packaging
items
stones
locally
•High quality
• Quality testing
products to
of metals
International
Stds
Service
•Exhibitions
• Quality
testing
Levi Strauss & Co.
World’s largest producer of branded clothing
Second largest maker of Jeans
Levis,Dockers and Slates – Labels
Sales: 1998 - $0.6 billion; 2008 - $ 4.5 billion
Market share: 1998 – 14%; 2008 – 16%
Value Chain of Levi Strauss
Demand
Forecasting
Market
Research
Produc-tion
Planning
Raw
Material
Logistics
Production
Factory
Warehousing
Shipping by
Truck Fleet
& Common
Carrier
Distrib.
Warehouses
-----------Hub &
Spoke
Ship to
Retail
Stores
----------Truck Fleet
Retail
Outlets
Sales &
Promo-tions
THE
CUSTOMER
Design
Research
Lead-time Cycle-time
Uncertainty Uncertainty
and
Variation
INVENTORY
R. M.
Inventory
~ 15 days
WIP
Inventory
~ 15 days
Demand
Schedule
Uncertainty Uncertainty
and
and
Variation
Variation
F.G.
Inventory
~ 15 days
Demand
Uncertainty
and
Variation
Schedule
Variation
F.G.
Inventory
~ 100 days
Micro
Demand
Uncertainty
Customer
Satisfaction Level?
F.G.
Inventory
~ 60 days
54% of customers
generate 90% of
sales
Average 8 Month Lead-Time
FIXED ASSETS
INVENTORY
VARIETY
Heavy Eqp.
Cutting (60 ply)
Sewing
Handling &
Shipping
Real Estate
Investment
Vehicles
Investment
20,000 SKU’s
Real Estate
Investment
Vehicles
Investment
Working
Capital
Investment
500 to 1,000
SKU’s per
store, based
on local
patterns
Likelihood of
Repeat Purchase?
76% of women
customers not fully
satisfied with the
purchase
Value Chain of Levi Strauss
Levi’s Personal Pair Value Chain
PP Kiosk in
Retail Store
Cut the order
(1 ply) at
Mountain City
EDI link to Mfg.
Via CCTC
Raw Material
Logistics
Sew, Inspect and
Pack the Pair at
Crystal City
Fed. Exp. Directly
to the
Customer
Core Competencies--Cautions and Reminders
Never take for granted that core competencies will
continue to provide a source of competitive advantage
All core competencies have the potential to become
Core Rigidities
Core Rigidities are former core competencies that sow
the seeds of organizational inertia and prevent the firm
from responding appropriately to changes in the
external environment
Strategic myopia and inflexibility can strangle the firm’s
ability to grow and adapt to environmental change or
competitive threats
WHY DO AN INTERNAL ANALYSIS?
• Identify organization’s strengths and
weaknesses
• Make good strategic decisions
• Provide basis for developing
strategic alternatives
Outcomes
By studying the external
environment
Organizations identify what
they might choose to do
By studying the internal
environment
Organizations identify what
they can do