Analysis of firms’ Internal operation

The company is known for its product and service and the reputation is carried throughout the industry and the
clients that it serves. The internal business environment is defined as the evaluation in terms of respect, awareness
and knowledge, and the emotional and affective reactions of the various stakeholders. It is an intangible resource
upon which the firm can build capabilities and its core competencies.

The development of sustainable internal advantage rest with the organizations’ top management and the operating
managers as strategic management is the working of all people in the firm. The internal management resources are
the foundation for strategic actions and these bundles of resources generate competitive advantage that leads to
wealth generation and profit. In the development of this competitive advantage, the management must develop a
new mindset to successfully accomplish the desired objective. The rapid change in the conduct of business and the
global economic opportunities are challenges for a new system of work values and forward-thinking strategy.

Strategic positioning is the utilization of the bundle of heterogeneous resources, capabilities and core competencies
that can be used to create an exclusive market position. The presence of firms’ resources is a source of capabilities
that are used by the firm to develop its competitive advantage especially when such resources are not present in the
competitor’s disposal.

The challenge of internal analysis

The challenges to the implementation of strategic actions may appear to be easy in the surface. Deeply the strategic
action must be the result of careful analysis of the business conditions and the competitor’s strategy. The firm’s
success is not rooted mainly in identifying the problems, developing alternative strategies, and protecting the
corporate resources but on how effective the process of analysis and cooperative thinking done by all managers in
crafting the strategic action. Often times managers are pressured to deliver the quarterly earnings and not on the
underlying competitive strategies to remain at the upper level in the years ahead.

There are lots of management decisions that fail obviously because they see only the surface of the internal
problems. Sometimes pointing fingers roll the heads of corporate image and profitability. Decisions may be uncertain
to make results, but the important thing is for decisions makers to admit mistakes and learn from it. Learning is the
process of reforms and the development of new strategy. This learning process would avoid future mistakes and
careful to the next time around to develop more strategic actions that will give the firm its corporate advantage.

Managerial Decision Making

Managerial decision making is affected by the following:

i. Uncertainty – decisions are uncertain about the conditions of the general industry environment as it
keep changing overtime. Any changes in their environment would need new approach and new strategy.
The consumer preference change rapidly as new products and service may be available in the market
before the firm’s new product could reach the customer.
ii. Complexity – the universe of decision-making process is complex as the interrelated environment is
shaping so rapidly. Information gathering needs time and effort and decisions needed sufficient data for
analysis. The perception of the business environment needs careful study to make valuable decisions
that will generate better return on investment.
iii. Intra-organizational conflict – the rapid change in the global economy needed change in the value
creating potential of the firm’s resources and capabilities. Changes in the worlds economic structure
affect the firms’ power and social structure. The inertia for change must be kept and the firm must
remain focus on its competitive advantage. Denial for change can be an unconscious coping mechanism.
Management must initiate change in order to survive in the changing world of business.

Resources of the Internal Environment

Resources are the internal capabilities of the firm which could in turn to be the source of corporate core
competencies. It covers the wide spectrum of individuals, social structure and organizational system that operate
harmoniously in the direction of this intel. Corporate resources could be tangible and intangible as they are assets
that can be used for competitive advantage.

i. Tangible Assets could be classified as:

a. Financial resources – this refers to the firm’s cash flow assets that can be used in the operation of
the business. It is the capacity to borrow money from financial institutions and generates internal
funds to sustain the firm’s growth potential.
b. Organizational resources – refers to the organizational structure that plans, organize, directs, and
control the operation of the business. The formal and informal relationships are out in place to guide
the corporate operational dimensions.
 c. Physical resources – these are physical assets that are used in the operation of the business. This
refers to plant facilities, machinery and equipment, and used to produce products. This may also
refer to tangible assets used in the delivery of goods and other assets which can be used in other
operation.
d. Technological resources – refers to the technology such as system and procedures, patents,
corporate trademarks, copyrights and trade secrets. This may also refer to new inventions and
innovation undertaken by the company to improve its products and services to its clients.
ii. Intangible resources are classified into:
a. Human resource – it is one of the most assets that the company could depend on for competitive
advantage. It refers to skills and knowledge base of the workers to see and direct the corporate
activities towards the profit objective of the firm. It also refers to the managerial ability to plan,
organize, direct and control the organizational routine of the firm.
b. Innovation resources – it is the capacity to bring in new idea and innovative strategies that would be
necessary in the change process. It refers also to scientific innovations in terms of pollution control
and wise use of material resources. While this refer to talents and skills of the human resources,
these tangible assets can be used for competitive advantage.
c. Reputational resources – it refers to the reputation the firm has earned overtime with its customers
and other stakeholders, it refers to the perceptions about product quality, durability and reliability.
Reputation is also built with suppliers in terms of mutual and interactive relationships that are both
beneficial to both parties.

The criteria for sustainable advantage

The firm achieves a sustained competency when the competitors failed to duplicate the products or services that the
firm produced or failed in entering the firms’ market niche. Competitors will always have an eye to copy the products
that sell in the market and will just be looking for the opportune time when the firm slows down its operational
strategy.

Four Sustainable Criteria for Competitive Advantage

i. Valuable Capabilities – it refers to the state of how the firm can exploit opportunities and neutralize
threats in the external environment. It is also the creation of value among its customers and the
development of loyalty and patronage by sustaining the products’ quality and innovative features. Value
capabilities are now challenged with the online purchasing through the internet. Many would browse
the web and look for product substitutes, it is therefore necessary for firms to also use this medium to
inform their clients that they still manifest superiority in the industry.
ii. Rare Capabilities – rare products are difficult to imitate. Rare capabilities are possessed by few by the
competitors. Competitive advantage results only when firms develop and exploit capabilities that differ
from those shared with competitors. Manila Electric Company (MERALCO) has no competitor in the
distribution of electricity in most part of the Luzon grid. PLDT used to be the sole telephone company
until competitors came into existence but on limited scale.
iii. Imitation Cost Capabilities – costly capabilities are corporate competencies that other firms cannot easily
develop. Huge investment in capital base could be one reason for other competitors to enter the venture
if they are not certain on their return of investment.
The combination of one or four reasons for firms to costly imitate are:
a. Unique Historical Condition – it refers to the historical development of the firm that comes at
the right time and place in history.
b. The firm is Casually Ambiguous – it refers to the condition when the competitors cannot clearly
understand how a firm uses its capabilities as the foundation for competitive advantage.
c. Social Complexity – it means that the firms’ capabilities are the product of complex social
phenomenon. The internal personal relationship, trust and friendships among managers and
employees are the firms’ reputation with suppliers and customers.
d. Political Complexity and Government Regulations – political connection in business operation is
a competitive advantage as the power to elect officials is also dictated by the business
community. Political connections also play a great role for competitors to enter the market or
the industry.
iv. Non-substitutable Capabilities – this refers to condition where is no strategic equivalent to the firms’
existing capabilities. The existing has capabilities and the resources where other firms cannot imitate due
to its uniqueness. The firms’ strategic value of competitiveness increases as they become more difficult
to imitate or substitute.
Material Outsourcing

Outsourcing inputs to production are the process of getting materials from external sources and the trend
continuous at the rapid pace in the new global economy. Effective outsourcing develops value as few organizations
possess the resource and capabilities required to achieve competitive superiority in both primary and secondary
support activities.

Outsourcing works effectively with the extensive internal capabilities as purchasing and procurement needs
extensive relations with external suppliers in acquiring inputs for production. Relations with suppliers are developed
with effective coordination in delivery of material on time for production. Just-in-time delivery system is currently
practiced by most successful firms’ especially in the automotive industry like Toyota, which first ventured and
experimented on the system.

Outsourcing needs managers and external outsourcing executives the following characteristics:

a. Technical competence in evaluating the materials needed.

b. Effective communication and human relations with intended suppliers
c. Coordination and effective control in inventory management
d. Honest and highly committed in following agreements with suppliers
e. Possess the expertise to assist technical improvements in materials development.

Other company ventured in outsourcing the production of their products with low labor cost countries like China,
Vietnam, Thailand, and the Philippines. While production cost in labor has been achieved, the quality has been found
to be less superior to those produced in the home country in terms of design and workmanships due to the
inferiority of materials and the technology used.

*End of Preliminary Period*