Internal Scanning:
Organizational Analysis
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A Comprehensive Strategic Management Model
Feedback
Perform
external
audit
Develop
Mission
statement
Perform
internal
audit
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Establish
long term
objectives
Generate,
Evaluate,
and select
strategies
Establish
policies
and
annual
objectives
Formulation
Allocate
resources
Implementation
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Measure and
evaluate
performance
Evaluation
2
Situational Analysis
SWOT -–Internal
•Strengths/Weaknesses
–External
•Opportunities/Threats
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TOWS Matrix
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Resource-Based Approach
Internal strategic factors:
Critical strengths and weaknesses
that are likely to determine if the firm
will be able to take advantage of
opportunities while avoiding threats.
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Resource-Based Approach
Resource:
An asset, competency, process, skill,
or knowledge controlled by the
corporation.
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Evaluating Key Resources
VRIO Framework
• Barney, in his VRIO framework of analysis,
proposes four questions to evaluate a firm’s
Competencies:
1. Value: Does it provide customer value and
competitive advantage?
2. Rareness: Do no other competitors possess it?
3. Imitability: Is it costly for others to imitate?
4. Organization: Is the firm organized to exploit the
resource?
• If the answer is yes to all it is considered
distinctive competence.
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Core and distinctive competencies
• Capabilities: organization ability to utilize its
resources. Its business process and routine.
• Competency: cross-functional integration and
coordination of capabilities. E.g., new product
development.
• Core-competency: collection of competencies
that crosses divisional boundaries. E.g., new
product development is a core-competency if it
goes beyond one division.
• Distinctive competencies: when corecompetencies are superior to those of the
competitions.
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Keys of Strategic Outsourcing
Success
1- Understand the bus core competencies.
‘What it gives competitive Differentiation’
Core comp. Is the integration of technologies,
constituent skills and collective learning which
makes healthy bus.
2- Mapping out the work of bus.
3- Requires trust between parties
4- Understand the type of work of bus.
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Competitive advantage analysis
• Analyzing competences and core
competences:
The analysis here determines how resources
are deployed
Competitive advantage is built on the
uniqueness of resources or on the core
competences.
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Strategic Outsourcing for
Competitive Advantage
• Used mainly for downsizing and cost
reductions at corporations.
• Usually corps outsourcing non-essential
work, why?
To free valuable resources and focus on its
areas of competitive advantage.
To do this org. must know its core
competences.
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Resource-Based Approach
5-Step approach to strategy analysis:
•
1- Identify & classify firm’s resources
• What are the Strengths & weaknesses
•
2- Combine firm’s strengths into capabilities
• Core competencies
• Distinctive competencies
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Resource-Based Approach
5-Step approach to strategy analysis:
•
3- Appraise the Profit potential of
resources\capabilities.
- Identify the competitive advantages.
- Sustainable competitive advantage
•
4- Select strategy
• Exploits firm’s resources relative to external
opportunities
•
5- Identify resource gaps
• Invest in upgrading weaknesses
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Why some nations are more
competitive than others?
• M. Porter in his diamond, suggests that
there are inherited reasons why some
nations are more competitive, and there
organizations are as well, than others.
• Porter believes that national home base of
an organization influence the global
success of organization.
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Porter’s Determinants of
National Advantage
There are four forces:
1- The conditions of the nation, availability of
skills, infrastructure.
2- Home country’s demand for products.
3- The presence or absence of supporting
industries.
4- The firm’s strategy, structure, rivalry,
establishment process..
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Four Nation’s Distinct
Strategies
•
•
•
•
S-O, or maxi-maxi
S-T, or maxi-mini
W-O, or mini-maxi
W-T, or mini-mini
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Determining the Sustainability
of an Advantage
• Two characteristics determine the
sustainability of a firms’ distinctive
competency: durability and limitability.
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Determining the Sustainability
of an Advantage
Durability:
Rate at which a firm’s
underlying\basic resources and
capabilities (core competencies)
depreciate or become obsolete.
E.g., new technology can make the
company core competency
irrelevant.
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Sustainability of an Advantage
Imitability:
Rate at which a firm’s underlying
resources and capabilities (core
competencies) can be duplicated
by others?. Competitors will do
what they can to learn and imitate
that set of skills and capabilities.
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Core Competencies
Imitability of core competencies
determined by:
1.
Transparency/clearly understood.
Gillette’s razor design is very difficult to
copy; complicated manufacturing
equipment.
2. Transferability. Ability of competitors to
gather necessary resources and capabilities
to support a competitive challenge.
3. Replicability/ do it exactly by the
competitors :imitate other firms’ success.
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Core Competencies
Is it easy to imitate another company’s core
competency? Depends if it comes from:
Explicit Knowledge:
– Knowledge that can be easily articulated and
communicated.
Tacit/unexpressed Knowledge:
– Knowledge that is not easily communicated
because it is deeply rooted in employee
experience or in a corporation’s culture
.
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Resource Sustainability
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Business models
• How firms earn revenue and make profit. This is
based on business model used which is usually
composed of 5 elements:
1. Who it serves
2. What it provides
3. How it makes money
4. How it differentiates and sustains competitive
advantage.
5. How it provides its products.
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Competitive advantage analysis
• Steps of analyzing competences:
1- Value chain analysis: describes the
activities within and around the
organization, and relates them to an
analysis of the competitive strength of the
organization.
2- the bases of core competences.
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Corporate Value Chain
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Corporate Value Chain Analysis steps:
•
Examine each product line’s value chain
• Core competencies & core deficiencies
•
Examine the “linkages” within each product
line’s value chain
• Connections between the way one value activity is
performed and the cost of performance of another
activity
•
Examine the synergies among the value
chains of different product lines or
business units
• Economies of scope
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How can value chain analysis help identify
a company's strengths and weaknesses?
•
The systematic examination of
individual value activities can lead to a
better understanding of a corporation's
strengths and weaknesses. Its advantage
over other methods of analyzing a firm's
internal environment is, its ability to
visualize a company in terms of strings of
product value chains.
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Competitive advantages
• When competitive advantage is
materialized?
When a firm earns persistently higher rate of
profit over its rivals.
• Determinants of profit level
1- Value of company products in customers’
eyes.
2- Company production cost.
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Competitive advantage
• It can be created in certain industrial field,
through the adoption of low-costdifferentiation strategy. .M. Porter
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What is the success strategy
• The strategy which enables organizations
developing new advantages, or maintaining
the existing advantages.
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Market segmentation analysis
•
It aims to identify similarities and differences
between groups of customers or users .
Not all customers are the same.
• Some criteria for market segmentation:
1. Characteristics of customers (e.g., income,
gender),
2. Purchase situation (e.g., behavior, its size,
importance),
3. Users needs and preferences for product
characteristics (e.g., quality, price, brand).
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What is efficiency and effectiveness?
• Management (cont.)
• elements of definition
• Efficiency - getting the most output from the least
amount of inputs
• “doing things right”
• concerned with means
• Effectiveness - completing activities so that
organizational goals are attained
• “doing the right things”
• concerned with ends
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Boston Consulting Group Matrix
• It portrays differences among divisions in
terms of relative market share position and
industry growth rate.
• The matrix allows multidivisional corp. to
manage its portfolio of business
effectively.
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Boston Consulting Group Matrex ‫مصفوفه‬
‫بوستن‬
+20
high
Industrial
Growth
Rate 0
‫معدل نمو‬
% ‫الصناعة‬
low
‫ الحصة السوقية‬Relative market share
high
0.5
1
1
‫النجمة‬
ٍStar
low
0.0
Question mark
?
‫البقرة النقدية‬Cash Cow
‫الفخ النقدي‬Cash Trap
-20
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Benchmarking
• .
•
•
•
•
•
Benchmarking is the search for the best
practices among competitors or non-competitors that
lead to their superior performance.
The benchmarking process typically follows four
steps.
a. A benchmarking planning team is formed. The
team’s initial task is to identify what is to be
benchmarked, identify comparative organizations,
and determine data collection methods.
b. The team collects internal and external data.
c. The data is analyzed to identify performance
gaps and to determine the cause of the difference.
d. An action plan is prepared and implemented.
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Steps In Benchmarking
Form a benchmarking
planning team
Best
Practices
Prepare and
implement
action plan
Gather internal and
external data
Analyze data to
identify performance
gaps
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Suggestions for improving benchmarking
1. Link benchmarking efforts with strategic
objectives.
2. Have the right size team -6-8 persons.
3. Involve those people who will be directly affected
by the benchmarking.
4. Focus on specific targeted issues rather than broad.
5. Set realistic timetable.
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Exercise
• Use a benchmarking to develop the MBA
program at IUG.
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Case study
• CASE 12 GOOGLE, Inc.(2010): THE
FUTURE OF THE INTERNET SEARCH
ENGINE
1. Evaluate the corporate governance?
2. Analyze the industrial environment of Google?
3. Does Google have a distinctive competency? If
yes, what is it?
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Management Audit Checklist
•Does the firm use strategic management
concepts?
•Are objectives/goals measurable? Well
communicated?
•Do managers at all levels plan effectively?
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Management Audit Checklist
•Do managers delegate well?
•Is the organization’s structure appropriate?
•Are job descriptions clear?
•Are job specifications clear?
•Is employee morale high?
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Management Audit Checklist
•Is employee absenteeism low?
•Is employee turnover low?
•Are the reward mechanisms effective?
•Are the organization’s control
mechanisms effective?
•This checklist can help determine
specific strengths and weaknesses. “No”
answers indicate potential weaknesses,
while “Yes” answers indicate areas of
strength.
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Marketing
• Marketing can be described as the process
of defining, anticipating, creating, and
fulfilling customers’ needs and wants for
products and services.
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Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
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Marketing
Marketing Audit Checklist of Questions
1. Are markets segmented effectively?
2. Is the organization positioned well among
competitors?
3. Has the firm’s market share been increasing?
4. Are the distribution channels reliable & cost
effective?
5. Is the sales force effective?
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Marketing
Opportunity Analysis
6. Does the firm conduct market research?
7. Are product quality & customer service good?
8. Are the firm’s products/services priced
appropriately?
9. Does the firm have effective promotion,
advertising, and publicity strategies?
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Marketing
Opportunity Analysis
10. Are the marketing, planning, and budgeting
effective?
11. Do the firm’s marketing managers have
adequate experience and training?
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Finance/Accounting Audit
•Does the firm have sufficient working
capital?
•Are capital budgeting procedures effective?
•Are dividend payout policies reasonable?
•Are the firm’s financial managers
experienced & well trained?
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Finance/Accounting Audit
Effective Financial Analysis Requires:
1. Analysis of how the ratios have changed
over time
2. How the ratios compare to industry norms
3. How the ratios compare with key
competitors
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Production/Operations Audit
•Are suppliers of materials, parts, etc. reliable
and reasonable?
•Are facilities, equipment, and machinery in
good condition?
•Are inventory-control policies and procedures
effective?
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Production/Operations Audit
•Are quality-control policies & procedures
effective?
•Are facilities, resources, and markets
strategically located?
•Does the firm have technological
competencies?
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Research & Development Audit
•Are the R&D facilities adequate?
•If R&D is outsourced, is it cost-effective?
•Are the R&D personnel well qualified?
•Are R&D resources allocated effectively?
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Research & Development Audit
•Are MIS and computer systems adequate?
•Is communication between R&D and other
organizational units effective?
•Are present products technologically
competitive?
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Management Information Systems
Audit
•Do managers use the information system to
make decisions?
•Is there a CIO or Director of Information
Systems position in the firm?
•Is data updated regularly?
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Management Information Systems
Audit
•Do managers from all functional areas
contribute input to the information system?
•Are there effective passwords for entry into
the firm’s information system?
•Are strategists of the firm familiar with the
information systems of rival firms?
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Management Information Systems
Audit
•Is the information system user-friendly?
•Do all users understand the competitive
advantages that information can provide?
•Are computer training workshops provided for
users?
•Is the firm’s system being improved?
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THE INTERNAL FACTOR
EVALUATION (IFE) MATRIX
• 1. A summary step in conducting an internal
strategic-management audit is to construct an IFE
Matrix. This strategy-formulation tool summarizes
and evaluates the major strengths and weaknesses in
the functional areas of a business, and it also provides
a basis for identifying and evaluating relationships
among these areas.
• 2. Intuitive judgments are required in developing an
IFE Matrix, so the appearance of a scientific approach
should not be interpreted to mean this is an allpowerful technique.
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Steps in developing Internal Factor
Evaluation (IFE) Matrix
1.
2.
3.
4.
5.
6.
List key internal factors as identified in the internal-audit
process. Use a total from ten to twenty internal factors including
both strengths and weaknesses.
Assign a weight ranging from 0 (not important) to 1.0 (very
important). The weight indicates the relative importance of the
factor to being successful in the firm’s industry. The sum of all
the weights must equal 1.0.
Assign a 1-4 rating to each factor to indicate whether that factor
represents a major weakness (1), minor weakness (2), minor
strength (3), or major strength (4).
Multiply each factor’s weight by its rating to determine a
weighted score for each variable.
Sum the weighted scores for each variable to determine the total
weighted score for the organization.
Total weighted scores of below 2.5 indicate an internally weak
organization.
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Goals & Objectives Defined
• Goals: The desired general ends towards
which efforts are directed e.g., expand firm
size.
• Objectives: are specific quantified, e.g.,
increase sales by 10% each year.
• “We may derive a number of objectives
from a goal”
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Long-Term Objectives
• Objectives: Specific results an organization
seeks to achieve in pursuing its basic mission.
• Long-term objective: More than 3 years.
Objectives should be: challenging, measurable,
consistent, reasonable and clear. Ex. Our
objective is to achieve 20% return on equity.
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Annual Objectives
• Short-term that the organization must achieve
to reach long-term objectives.
Objectives Characteristics:
Measurable, quantitative, challenging, realistic,
consistent and prioritized.
Annual objectives are important for strategy
implementation, whereas, long-term
objectives are important for strategy
formulating.
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Objectives
• We must avoid generalities e.g.:
maximize profits
reduce costs
become more efficient
increase sales
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Review
• How to use the "resource-based" approach
in environmental analysis? Is it a tool for
internal or external evaluation? How can we
benefit from resource-based approach in
enhancing the competitive advantages of
business? Draw an example in your answer?
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