Strategic Management

Chapter 4- INTERNAL ANALYSIS

BBA VIII
 Internal Environment
 It consists of the conditions and resources which are internal to
the organization and that are controllable to the firm
 Internal environment analysis refers to the analysis of resources
and capabilities of an organization
 It determines the relative strengths and weaknesses of the firm
Internal Environment Elements
 Organizational goals and policies (vision, mission,
objectives for market share, growth)
 Organizational resources
 Tangible resources (capital, plant and machineries, land &
buildings, vehicles)
 Intangible resources (skills, capability, leadership, reputation,
customer relationships, brand image)
 Organizational structure (position, relationships,
responsibilities, accountability, hierarchies)
 Organizational culture (shared values Eg. Language,
ideologies Eg. , symbols Eg. Object/ Act, behavior Eg.
Manners)
SWOT Analysis
 SWOT is an acronym for the internal Strengths and
Weaknesses of a firm, and the environmental
Opportunities and Threats facing the firm
 SWOT analysis is a technique through which managers
create quick overview of a company’s strategic
situation
 Strengths (a resource advantage relative to competitors
and the needs of the markets a firm serves or expects to
serve)
 Weaknesses (a limitation or deficiency in one or more
resources or competencies relative to competitors that
impedes a firm’s effective performance)
 Opportunities (a major favorable situation in a firm’s
environment)
 Threat (a major unfavorable situation in a firm’s
environment)
 SWOT Analysis Results
Strengths Weaknesses

Brand image Poor track

Internal Competence Employee
Analysis Finance turnover
Market share Bureaucracy
Economies No R&D trend
Technology Narrow product
Management line

Opportunities Threats

New market segments Competitors

External Vertical integration Substitute
Analysis Market growth products
Product development Government
Market development policies
Changing
economy &
Class Assignment

 Identify well known companies in each cell and

develop a SWOT Analysis Diagram.
Internal Environment Analysis
Process
1. Define vision, mission, goals and strategies (Vision –
future desire; Mission – reason of organizational existence ;
Goals – desires outcomes; Strategies – means to achieve goals)
2. Strengths and weaknesses analysis (capabilities and
limitations from functional areas that are controllable)
3. Identification of unique resources (non-substitutable, non
imitable, rare and valuable resources that gives competitive
advantage. Eg. Ownership of unique raw materials, location of
business, patents rights, source of cheap labour, franchise, etc.)
4. Identify core competency (something that a company can
do exceedingly well)
5. Locate strategic advantage (advantage over competitors
that gives competitive advantage)
Competitive Advantage Pyramid

Competitive
Advantage
Mobilizing Resources

Core
Competencies

Competitive Capabilities

Company Resources
Core Competency Vs.
Competitive Advantage
Core Competency Competitive Advantage

Core Competence refers to the specific skills, Competitive Advantage is something

knowledge and expertise, that is hard to be achieved from the core competencies.
followed by the competitors.

It refers to a specific set of skills or When a company has achieved an edge over
knowledge that are unique to a company and its rivals due to some factor that allows it to
which are not easy for rivals to reproduce. work more efficiently, produce products of
superior quality, and drive up profits, it is said
to have gained a competitive advantage.

Core Competence can be defined as the Competitive Advantage alludes to a

fundamental strength of a business which condition, that puts a firm in a position,
includes a unique combination of various favorable to it, i.e. one which allows the
resources, knowledge and skills, which company to produce products or services at
differentiates a company in the marketplace. reasonable prices, which are in vogue, for the
customers.
Examples of Core Competencies
•Consistently high quality: Google remains the world’s leading
search engine and one of the most-used email, calendar, photo
cloud and cloud storage platforms because the quality of its
software remains consistently high, no matter the tool being used.

•Incomparable value: Many companies use Dropbox for quick

and simple file sharing not only because it makes these tasks
easier but because its price is widely seen as incredibly reasonable
for its services.

•Ceaseless innovation: QuickBooks has dominated the

accounting software industry for decades because it constantly
adds new tools and features that other platforms just don’t have.
 Examples of Core
Competencies
•Clever, successful marketing: Chances are good that no matter
where you live, you have an abundance of department stores to
choose from when you need all manner of items. Despite the
competition, Target has continued to expand in large part because
its brand is undeniable.

•Great customer service: Amazon is arguably the

most omnipresent brand in the world, and its success comes in
large part from its unparalleled ability to provide excellent customer
service.

•Formidable size and buying power: Part of why McDonald’s has

been able to expand its dominance not just in the U.S. market but
also internationally is its size and buying power. The company is so
large, and has such massive buying power, that it can easily afford
to open new franchise locations wherever it pleases.
 Examples of Competitive
Advantage
Brand Image
A company brand represents the trust consumers have in it. A brand with a bad
image means that consumers do not trust it to provide them with a quality
product. For instance, Samsung faced a disaster when it had to recall its
Galaxy Note 7 after the lithium-ion battery exploded whilst charging. There was
also Volkswagen’s emissions scandal whereby it fabricated tests to comply
with regulatory standards.

Customer Satisfaction
Companies that offer superior customer service in these markets will often find
themselves ahead of the competition. For instance, Amazon has an efficient
returns policy and deals with complaints in good time – which is why it has
managed to dominate the market for so long.

Distribution Network
For example, Amazon revolutionized online shopping with its next-day delivery
service through Amazon Prime. Millions of people across the world now pay a
yearly subscription for the benefit – all thanks to Amazon’s sophisticated
distribution network. This network has become such a huge asset to Amazon that
it’s probably the firms biggest competitive advantage. It’s something that few
others could replicate, especially not in a short space of time.
 Examples of Competitive
Advantage
Economies of Scale
Economies of scale is quite a broad competitive advantage. In
markets such as supermarket retail, large firms such as WalMart has a
massive advantage over its smaller competitors. The leading players
are able to benefit from lower costs, which is effective creates
somewhat of a closed market.

Location
Location can help reduce costs if a firm locates near a supplier. It can
help reduce lead times and increase efficiency through lower breakages
and transport costs.

Proprietary Technology
Proprietary technology may cover a patent, specific recipe/formula, or
business process. This ranges from the iPhones patented design, to
Coca-Cola’s secret formula.
Resource to Competitive
Advantage Pyramid- With relating
to Himalayan Java
 Company resources
 sum of tangible assets like machines, plants, building and intangible
assets like brand image, information, knowledge to perform
activities effectively.
 Anything used to create product or service
 Eg. Strong Brand Recognition, Good Ambience, Premium Coffee Suppliers

 Competitive capabilities
 set of resources to perform a task in an integrated way – which is a
function of resources and capabilities that makes a firm strong – a
source of competitive advantage-Skills, Routine or Process
 Eg. Multiple outlets Ktm to Namche Bazaar to Jomsom, Strong Supply
Chain Management
Resource to Competitive Advantage
Pyramid

 Core and distinctive competencies

 Core competencies refers to resources, activities,
processes and abilities that support the organization to
achieve success.
 Proper use of various resources and skills that distinguish an
organization in the marketplace compared to competitors.
 the sum of competencies that is widespread within the
organization and also a source of competitive advantage or
edge over competitors
 Distinctive competency involves a combination of valuable
resources, practices and technical skills that make an
organization better than its competitors.
 Expertise in integrating multiple technologies to create a new
product
 Cost efficient supply chain management
 Expertise in after-sales service
 Skills in manufacturing high quality products at low cost
Resource to Competitive Advantage
Pyramid

 Core and distinctive competencies

 Himalayan Java Coffee Beans are grown locally and are
roasted to perfection in the ideal Himalayan air. It is then
packaged immediately and rushed off to our outlets which
ensures we deliver the best coffee experience possible for
all of our customers
 Himalayan Java is the sole distributor of various coffee
equipment and products in Nepal. Coffee machines,
grinders, blenders, tamping pad, etc.
Resource to Competitive Advantage
Pyramid
 Strategic assets (Valuable; Non-substitutable; Costly to imitate;
Rare)
 Eg. Barista Training
 Himalayan Java Barista Coffee School was introduced to promote the
culture of vocational training in Nepal.
 Bakery Training
 Himalayan Java Bakery Training School was established in 2017, with an
aim to provide a platform to Nepalese Bakery Enthusiast and aspiring
Bakery professionals
 Coffee Farm
 With tea produced on a higher belt and coffee produced on the lower
belts, now their own little coffee farm is just spreading its roots in the hills
of Fikkal. After spending about one and half years in a controlled nursery
environment, they are now out there fending on their own learning to
survive in the climate of Fikkal.
 Competitive advantage (the capability of an organization to
outperform its key competitors over long period of time)
 It is a result of combination of resources and competencies
 It is the ability to stay ahead of present and potential competition through
superior performance and attain market leadership
 It is achieved through functional areas like production, marketing, finance,
HR, R&D etc.
Class Assignment

 Identify a well known company and develop a

Competitive Advantage Pyramid
 Internal
Analysis
Approaches

• VRIO
• Value Chain
• Functional Approach
• Resource Based View (RBV)
• Benchmarking
Organizational Analysis–
VRIO Framework
 Value:Does it provide competitive
advantage?
 Rareness: Do other competitors
possess it
 Imitability: Is it costly for others to
imitate
 Organization: Is the firm organized
to exploit the resources
 Value Chain Analysis
 Value chain – a perspective in which business is seen as a chain
of activities that transforms inputs into outputs that customers
value – product differentiation, prompt delivery
 Value Chain Analysis (VCA) – an analysis that attempts to
understand how a business creates customer value by examining
the contributions of different activities within the business to that
value
 Identify activities (dividing the operations into specific activities or
business process, and grouping them into primary and support activity
categories)
 Allocate costs (attach cost to each discrete activity)
 Value Chain Diagram

General
Administration
 Value Chain Activities
 Primary Activities (also called line functions are those involved
in physical creation of the product, marketing and transfer to the
buyer, and after-sales support)
 Inbound logistics (obtaining supplies, raw materials, parts,
components, merchandise from vendors and inventory management)
 Operations (activities of converting inputs into final product from
production, packaging, assembly, maintenance, quality monitoring,
facility)
 Outbound logistics (physically distributing the products to the
buyers with warehousing, order picking, order processing, packing,
shipping, delivery vehicle management)
 Marketing and sales (sales force management, advertising and
promotion, market research and planning, obtaining dealer and
distributor supports)
 Service (providing assistance to buyers, such as installation, spare
parts delivery, maintenance and repair, technical assistance, buyer
inquiries and complaints)
 Value Chain Activities
 Support Activities (also called staff or overhead functions,
assist the firm as a whole by providing infrastructure or inputs
that allow the primary activities to take place on an ongoing
basis)
 General administration (general management, accounting and
finance, legal and regulatory affairs, safety and security,
management information systems, overhead functions)
 Human resource management (recruitment, hiring, training and
development, compensation, labor relations activities,
development of knowledge-based skills)
 Research, technology, and systems development (R&D,
design improvement, process design, computer software design,
database management)
 Procurement (purchasing and providing raw materials, supplies,
services, and outsourcing activities)
 After conducting a value chain analysis, you’ll be
able to identify value gaps in your operations,
products and services.
Value Chain Activities-Starbucks
 Inbound logistics The inbound logistics for Starbucks refer to company-
appointed coffee buyers selecting the finest quality coffee beans from
producers in Latin America, Africa, and Asia. In the case of Starbucks, the
green or unroasted beans are procured directly from the farms by the
Starbucks buyers. These are transported to storage sites, after which the
beans are roasted and packaged.
 Operations Starbucks operates in more than 80 markets, either in the form
of direct company-owned stores or licensed stores. (Starbucks does not
follow the traditional franchising terms.) The company has more than 32,000
stores globally. It is also the owner of several brands, including Teavana,
Seattle’s Best Coffee, and Evolution Fresh.
 Outbound logistics There is very little or no presence of intermediaries in
product selling for Starbucks. The majority of the products are sold in stores.
However, storage and distribution to retail locations are important.
 Marketing and sales Starbucks invests more in superior quality products
and a high level of customer service than in aggressive marketing. However,
need-based marketing activities are carried out by the company during new
product launches in the form of sampling in areas around the stores.
 Service Starbucks aims at building customer loyalty through its in-store
customer service. A signature retail objective of Starbucks has always been
to provide customers with a unique Starbucks Experience.
 Value Chain Activities-
Starbucks
 Support Activities
 General administration Starbucks employs business managers in
its corporate offices. It also has store managers on-site that help to
oversee well-designed and pleasing stores complemented with
good customer service provided by the dedicated team of
employees in green aprons.
 Human resource management The committed workforce is
considered a key attribute in the company’s success and growth
over the years. Starbucks employees are motivated through
generous benefits and incentives.
 Research, technology, and systems development Starbucks is
very well-known for the use of technology, not only for coffee-
related processes (to ensure consistency in taste and quality along
with cost savings) but to connect to its customers. Many customers
use Starbucks stores as a makeshift office or meeting place
because of free and unlimited Wi-Fi.
 Procurement Starbucks handles all of the procurement for its own
coffee beans, which it sees as one of its competitive advantages.
 Value Chain Diagram

General
Administration
Functional Approach
 Production and operational functions (enhancing product
features – inputs-transformation-outputs)
 Marketing functions (maximizing customer value by defining,
anticipating, creating, and fulfilling customer needs and wants)
 Financial functions (dealing with sources and uses of funds –
obtaining capital, managing cash, debtors, creditors)
 Human functions (managing skills and motivating team and
training personnel to build core competency)
 Research and development functions (building innovational
capabilities of an organization – implementing technological
strategy for product or service development)
Resource-Based View (RBV) of the
Firm
 A method of analyzing and identifying a firm’s strategic
advantages based on examining its distinct combination of
assets, skills, capabilities, and intangibles as an organization
 Firms differ in fundamental ways because each firm possesses
a unique “bundle” of resources – tangible and intangible
assets and organizational capabilities to make use of those
assets
 Three basic resources
 Tangible assets (physical assets including production facilities,
plant and machineries, land and building, vehicles)
 Intangible assets (brand name, company reputation, patent,
trademarks)
 Organizational capabilities (skills or the ability and ways of
combining assets, people, and processes that a company uses to
transform inputs into outputs)
 Benchmarking
 Benchmarking is a continuous process of measuring
products, services, and practices against competitors
and the industry leaders
 Identify the area or process to be examined
 Find behavioral and output measures of the area or
process and obtain measurements
 Select an accessible set of competitors and best-in-class
companies against which to benchmark
 Calculate the differences among the company’s
performance measurement and those of the best-in-class
and determine why the difference exist
 Develop tactical programs for closing performance gaps
 Implement the programs and then compare the resulting
new measurements with those of the best-in-class
companies
Benchmarking Types

 Historical benchmarking (comparing the

performance with the past or forecasted
performances)
 Industry/sector benchmarking (comparing the
performance with the competitors fro the same
industry)
 Best-in-class benchmarking (comparing firm’s
performance with the best in class performance)
Class Assignment

 Using Value Chain Approach, conduct an internal

analysis of a domestic or international company.
Thank You
Questions/Answers/Discussions