Internal

Environment
External and Internal Analyses
Environment By studying the external
Sociocultural environment, firms identify
what they might choose to
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Ge
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Ec
Industry do
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Environment
Ge

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De

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Opportunities and
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t
En

threats
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Competitor
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Environment
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on

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Po
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Technological
t

General
External and Internal
Analyses
By studying the internal
environment, firms identify
what they can do

Unique resources,
capabilities, and core
competencies
(sustainable
competitive
advantage)
Challenge of Internal Analysis

How do we effectively manage current

core competencies while simultaneously
developing new ones?
How do we assemble bundles of
resources, capabilities and core
competencies to create value for
customers?
How do we learn to change rapidly?
Conditions Affecting Managerial 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 firms environments and perceptions of
the environments
Intraorganizational Conflicts among
people making managerial decisions and those
affected by them
 Choosing the right tools
for internal analysis
Start with simple techniques
Consider all tools and identify those likely to be useful
Define the competitive capabilities the enterprise needs
Identify the subsystems which support these capabilities
Identify core competence relative to competitive capabilities
Determine changes to enhance/improve core competence
Take a systemic view
Adjust the methods of analysis in the light of what is found
Some commonly used techniques
for internal analysis

Single Businesses Multiple Businesses

Resource Audit Portfolio Analysis
Analysis of cost and profit
Benchmarking
Value Chain Analysis
Supply Chain Analysis

Both Single and Multiple Businesses

Core Competencies
Shareholder Value Analysis
Resource Audit

Resources
Physical
Human
Financial
Other
Quality and Quantity
Unique resources
A good initial analysis
Internal Audit

Parallels process of external audit

Information from:
Management
Marketing
Finance/accounting
Production/operations
Research & Development
Management information Systems
Marketing
Marketing Functions
Customer analysis
Selling products/services
Product & service planning
Pricing
Distribution
Marketing research
Opportunity analysis
Finance/Accounting
Finance/Accounting Functions

Investment decision (Capital

budgeting)
Financing decision
Dividend decision
Production/Operations

Production/Operations Functions

Process
Capacity
Inventory
Workforce
Quality
Research & Development

Research & Development Functions

Development of new products

before competitors
Improving product quality
Improving manufacturing
processes to reduce costs
Management Information
Systems

Information Systems
Security
User-friendly
E-commerce
Analysis of Costs and Profit

Current sources of profits and trends

Recast standard reporting to give new insights
Pragmatic approach to get value from time and
effort spent
A good initial analysis

Single Businesses
Resource Audit
Analysis of cost and profit
Benchmarking
Value Chain Analysis
Supply Chain Analysis
Benchmarking

Objective comparison with best in class

Simple in theory - Hard in practice
Observed differences in performance may be due
to differences in parameters
Qualitative observations may be more valuable
than quantitative
 Benchmarking - at three levels
Level of Through Examples of measures
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 Analysing activities Sales calls/sales person

separate activities Output/ employee
Materials wastage

Competences Analysing overall Market share

through performance Profitability
managing linkages Productivity
Value Chain Analysis

Basic Value chain

Elegant in theory
Time-consuming in practice
Revised value chain to reflect power of people
and knowledge
Value Creation
The Basic
Value Chain
M
gin ar
a r gin
M

Technological Development
Human Resource Mgmt.
Support Activities

Service
Firm Infrastructure

Marketing & Sales

Procurement
Outbound Logistics
Operations
Inbound Logistics

Primary Activities
To capitalize on the usefulness of the
Value Chain concept...

it is important to recognize that...

Value Chains are part of a Total Value System

Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain
Value Chains are part of a Total Value System

Firm Value Chain Channel Value Chain Buyer Value Chain

Supplier Value Chain

Upstream Value

Perform valuable activities

that complement the firms
activities
Value Chains are part of a Total Value System

Supplier Value Chain Firm Value Chain Buyer Value Chain

Upstream Channel Value Chain

Value
Perform valuable activities
that complement the firms
activities

Each firm must eventually find a

way to become a part of some
buyers value chain
Value Chains are part of a Total Value System

Supplier Value Chain Firm Value Chain Channel Value Chain

Upstream Value Each firm must eventually Buyer Value Chain

find a way to become a part
Perform valuable activities that of some buyers value chain
complement the firms activities

Ultimate basis for differentiation is

the ability to play a role in a buyers
value chain
This creates VALUE!!
Value Chains are part of a Total Value System

Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain

Upstream Each firm must eventually find a way to

Value become a part of some buyers value
chain
Perform valuable activities
that complement the firms Ultimate basis for differentiation is
activities the ability to play a role in a buyers
value chain
This creates VALUE!!

Value chains vary for firms in an industry,

reflecting each firms unique qualities:

History
Strategy
Success at Implementation
Outsourcing

Outsourcing is the M
gin ar
purchase of some ar gi
M n
or all of a value-

Technological Development
creating activity

Human Resource Mgmt.

from an external
supplier Support Activities
Service

Firm Infrastructure
Usually this is
because the Marketing & Sales

Procurement
specialty supplier Outbound Logistics
can provide these
functions more Operations
efficiently
Inbound Logistics

Primary Activities
Strategic Rationales for
Outsourcing
Improve Business Focus
lets company focus on broader business issues by
having outside experts handle various operational
details
Provide Access to World-Class Capabilities
the specialized resources of outsourcing providers
makes world-class capabilities available to firms in
a wide range of applications
Strategic Rationales for
Outsourcing
Accelerate Business Re-Engineering Benefits
achieves re-engineering benefits more quickly by
having outsiders--who have already achieved
world-class standards--take over process
Share Risks
reduces investment requirements and makes firm
more flexible, dynamic and better able to adapt to
changing opportunities
Strategic Rationales for
Outsourcing
Free Resources for Other Purposes
permits firm to redirect efforts from non-core
activities toward those that serve customers more
effectively
Outsourcing Issues
Greatest Value
outsource only to firms possessing a core competence
in terms of performing the primary or support activity
being outsourced
Evaluating Resources and Capabilities
dont outsource activities in which the firm itself can
create and capture value
Environmental Threats and Ongoing Tasks
do not outsource primary and support activities that
are used to neutralize environmental threats or
complete necessary ongoing organizational tasks
Outsourcing Issues
Nonstrategic Team of Resources
do not outsource capabilities that are critical to
their success, even though the capabilities are
not actual sources of competitive advantage
Firms Knowledge Base
do not outsource activities that stimulate the
development of new capabilities and
competencies
 Revised Value Chain

Firms infrastructure
SUPPORT
ACTIVITIES Technology trapping and commercialisation

Strategic Management

INFORMATION SYSTEMS & KNOWLEDGE MANAGEMENT

basic skills, technical, price, revenue,

PRIMARY management, place, customer
know-how, core profit,
ACTIVITIES marketing, promotion satisfaction,
technologies competence market
sales, product loyalty
strategic production share,
assets service

HUMAN RESOURCE MANAGEMENT

PROCUREMENT AND SUPPLIER MANAGEMENT

 Product portfolio matrices
RELATIVE MARKET SHARE COMPETITIVE POSITION
High Low Strong Average Weak

High
Question
High Stars
marks
INDUSTRY
MARKET ATTRACTIVENESS
GROWTH Med
Cash
Low Dogs
cows
Low

(a) The original Boston Consulting

(b) Attractiveness matrix*
Group Matrix (BCG)
 Product portfolio matrices
COMPETITIVE POSITION
Strong Average Weak
High
Development Public- Political
PUBLIC NEED sector hot box
STAGE OF AND star
Growth
PRODUCT/ SUPPORT +
MARKET FUNDING Back
Golden drawer
EVOLUTION Shake-out ATTRACTIVENESS fleece issue
Low
Maturity High Low
ABILITY TO SERVE
Decline EFFECTIVELY

(c) Product/market evolution matrix (d) Public sector portfolio matrix

Portfolio Analyses
Over-coming some pitfalls:
Defining `high and `low (growth or share)
can be difficult
`Plot SBUs not products
Apply to market segments not whole markets
Assess the `role of each SBU
Consider wider resource implications - not just
cash
Dogs may have a positive role
Components of Value Creation
Internal Analysis
Competitive
Advantage
Core Discovering Core
Competencies Competencies

Capabilities

Four Criteria Value

Resources of Sustainable Chain
Tangible Advantages Analysis
Intangible

Valuable Outsource
Rare
Costly to Imitate
Nonsubstitutable
Resources, Capabilities and Core
Competencies
Capabilities
Are the firms capacity to deploy
resources that have been
purposely integrated to achieve a
desired end state
Emerge over time through
complex interactions among
tangible and intangible resources
Often are based on developing,
carrying and exchanging
information and knowledge
through the firms human capital
Resources, Capabilities and Core
Competencies
Capabilities
The foundation of many
capabilities lies in:
The unique skills and
knowledge of a firms
employees
The functional expertise of
those employees
Capabilities are often
developed in specific
functional areas or as part of
a functional area
Resources, Capabilities and Core
Competencies
Core Competencies
Resources and capabilities that
serve as a source of a firms
competitive advantage:
Distinguish a company
competitively and reflect its
personality
Emerge over time through an
organizational process of
accumulating and learning how to
deploy different resources and
capabilities
Resources, Capabilities and Core
Competencies
Core Competencies
Activities that a firm performs
especially well compared to
competitors
Activities through which the firm
adds unique value to its goods or
services over a long period of
time
Building Sustainable Competitive
Advantage
Four Criteria of
Sustainable Competitive
Advantage
Valuable
Rare
Costly to imitate
Nonsubstituable
Building Sustainable Competitive
Advantage

Valuable capabilities
Help a firm neutralize
threats or exploit
opportunities
Rare capabilities
Are not possessed by
many others
Building Sustainable Competitive
Advantage

Costly-to-Imitate
Capabilities
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
Building Sustainable Competitive
Advantage
Nonsubstitutable Capabilities
No strategic equivalent
 Core Competence as a Strategic
Capability
Resources Core Competence
Inputs to a firms A strategic
production process capability

Does it satisfy the Yes

Capability criteria of
An integration of a sustainable
The source of competitive
team of resources
advantage? No

Capability
A nonstrategic
team or resource
 Sustainability
of Competitive Advantage

Sustainability of competitive advantage is a

function of:
the rate of core-competence obsolescence due to
environmental changes
the availability of substitutes for the core competence
the imitability of the core competence
Performance Implications

le
ab
ut
tit
Ra le?

it a to

bs
on ?
Competitive Performance

N te
ab

Im tly
?

su
re
lu

s
Consequences Implications
Co
Va

Competitive Below Average

No No No No Disadvantage Returns

Yes/ Competitive
Yes No No No Parity Average Returns

Yes/ Temporary Com- Above Average to

Yes Yes No No petitive Advantage Average Returns

Sustainable Com- Above Average

Yes Yes Yes Yes petitive Advantage Returns
 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
now generate inertia and stifle innovation
 The SWOT diagram may
summarise the results of analyses

Internal
Internal
Strengths Weaknesses Analyses
Analyses

Threats Opportunities

External
External
Analyses
Analyses
 Strategic Assessment
of a business as a whole

Questions
What business are we really in?
What real customer needs do we satisfy?
What problem do we solve for our
customers?