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MGT 412: Strategic Management: Tools and Techniques To Determine Strategic Objectives (Internal)

This chapter discusses tools and techniques for determining a company's strategic objectives based on internal analysis. It covers analyzing a company's resources, capabilities, core competencies, and strengths and weaknesses. Key points include examining a firm's portfolio of resources and bundles of capabilities, understanding industry processes and competitive advantages, and creating value for customers by leveraging core competencies compared to competitors. Core competencies that provide competitive advantages over rivals distinguish a company and emerge over time through accumulating and deploying different resources and capabilities.

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Md. RuHul A.
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87 views28 pages

MGT 412: Strategic Management: Tools and Techniques To Determine Strategic Objectives (Internal)

This chapter discusses tools and techniques for determining a company's strategic objectives based on internal analysis. It covers analyzing a company's resources, capabilities, core competencies, and strengths and weaknesses. Key points include examining a firm's portfolio of resources and bundles of capabilities, understanding industry processes and competitive advantages, and creating value for customers by leveraging core competencies compared to competitors. Core competencies that provide competitive advantages over rivals distinguish a company and emerge over time through accumulating and deploying different resources and capabilities.

Uploaded by

Md. RuHul A.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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MGT 412

: STRATEGIC
Chapter 5:
MANAGEMENT Tools and
Techniques to
Determine
Strategic
Objectives
(Internal)
CHAPTER OUTLINE
ANALYSING THE INTERNAL ORGANISATION
RESOURCE, CAPABILITIES, AND CORE
COMPETENCIES
BUILDING CORE COMPETENCIES
OUTSOURCING
COMPETENCIES, STRENGTHS,
WEAKNESSES, AND STRATEGIC
DECISIONS
ANALYSING THE
INTERNAL
ORGANISATION
THE CONTEXT OF INTERNAL ANALYSIS
traditional factors such as labour costs, access to financial
resources and raw materials, and protected or regulated markets
remain sources of competitive advantage, but to a lesser degree

analysis of the firms internal organization requires that


evaluators examine the firms portfolio of resources and the
bundles of heterogeneous resources and capabilities managers
have created

those who analyse their firms internal organization should use a


global mind-set

global mind-set: ability to study an internal organization in ways


that are not dependent on the assumptions of a single country,
culture, or context
THE CONTEXT OF INTERNAL ANALYSIS -
EXAMPLE
For example, Volkswagen began establishing production
facilities in Slovakia shortly after the Russians moved out as
part of its international strategy. With a total investment
exceeding $1.6 billion, Volkswagen is thought to have a
competitive advantage over rivals such as Frances Peugeot
Citroen and South Koreas Kia Motors, firms that are now
investing in Slovakia in an effort to duplicate the competitive
advantage that has accrued to Volkswagen.

Using a global mind-set, Volkswagens leaders decided that the firm


should open facilities in Slovakia. Opening these facilities long before
their competitors has led to a distinct competitive advantage for VW in
Slovakia and surrounding countries.
CREATING VALUE (1)
strategic management process largely
understands characteristics of the industry in
which the firm competes
Successful strategists need to
cultivate a deep understanding of
strategic management then determines how the processes of competition and
the firm should position itself relative to progress and of the factors that
competitors undergird each advantage. Only
thus will they be able to see when
core competencies, in combination with old advantages are poised to
product-market positions, are the firms most disappear and how new
advantages can be built in their
important sources of competitive advantage.
stead.

the resources held by the firm and their context Clayton Christensen
are important when formulating strategy.
CREATING VALUE (2)
firms create value for customers by exploiting their core
competencies or competitive advantages to at least meet if not
exceed the demanding standards of global competition
Customers of Luby Cafeterias, for
value is measured by a products performance characteristics and example, pay for meals that are
by its attributes for which customers are willing to pay value-priced, generally healthy, and
served quickly in a causal setting.
Firms with a competitive advantage offer value to customers that is
superior to the value competitors provide. Firms create value by For example, after learning that
innovatively bundling and leveraging their resources and General Motors (GM) intended to
capabilities. focus on visual design to create
value for buyers, one former GM
Firms unable to creatively bundle and leverage their resources and customer said that in his view,
capabilities in ways that create value for customers suffer people buying cars and trucks
performance declines. valued durability, reliability, good
fuel economy, and a low cost of
value is created by a products low cost, by its highly differentiated operation more than visual design.
features, or by a combination of low cost and high differentiation, Ultimately, creating value for
compared with competitors offerings. customers is the source of above-
average returns for a firm.
Components of
Internal Analysis
Leading to
Competitive
Advantage and
Strategic
Competitiveness
CHALLENGE OF ANALYSING THE
INTERNAL ORGANISATION
implied by preliminary evidence suggesting that
one-half of organizational decisions fail Polaroid Corporation as decision
makers continued to believe that
mistakes are made as the firm analyses the skills it used to build its instant
conditions in its internal organization film cameras were highly relevant
at the time its competitors were
developing and using the skills
identification of capabilities as core required to introduce digital
competencies that do not create a competitive cameras. When a mistake occurs,
advantage such as was the case at Polaroid,
decision makers must have the
no obviously correct model or rule is available confidence to admit it and take
or when relevant data are unreliable or corrective actions.
incomplete
Components of
Internal Analysis
Leading to
Competitive
Advantage and
Strategic
Competitiveness
RESOURCE,
CAPABILITIES,
AND CORE
COMPETENCIES
RESOURCES
Broad in scope, resources cover a spectrum of
individual, social, and organizational phenomena.

Tangible resources are assets that can be seen and


quantified.

Intangible resources are assets that are rooted


deeply in the firms history and have accumulated
over time; embedded in unique patterns of
routines, intangible resources are relatively
difficult for competitors to analyse and imitate.
TANGIBLE & INTANGIBLE RESOURCES
TANGIBLE TANGIBLE

1. Knowledge
2. Trust between managers and
employees 1. Production
3. Managerial capabilities equipment
4. Organizational routines (the unique 2. Manufacturing
ways people work together) facilities
5. Scientific capabilities 3. Distribution
6. Capacity for innovation centers
7. Brand name 4. Formal
8. Firms reputation for its goods or reporting
services and how it interacts with structures
people (such as employees,
customers, and suppliers)
TANGIBLE RESOURCES
INTANGIBLE RESOURCES
CAPABILITIES
Capabilities exist when resources have been
purposely integrated to achieve a specific task or set
of tasks

capabilities are often based on developing, carrying,


and exchanging information and knowledge through
the firms human capital

capabilities are often developed in specific


functional areas (such as manufacturing, R&D, and
marketing) or in a part of a functional area (e.g.,
advertising)
Examples
of
Firms
Capabilities
CORE COMPETENCIES
Core competencies are
Even though Xerox was the first firm to integrate the mouse
capabilities that serve as a source with the graphical user interface of a PC, it was Apple Computer
of competitive advantage for a that initially recognized the incredible value of this innovation
firm over its rivals and derived value from it.

In 2000, then CEO Paul Allaire admitted that Xeroxs business


Core competencies distinguish a model no longer worked and that the firm had lost its
innovative ability.
company competitively and
reflect its personality. Some seven-plus years later, using the capabilities of its
scientists, engineers, and researchers; Xerox has reconstituted
innovation as a core competence. In the main, these
Core competencies emerge over innovations are oriented to helping customers deal with their
document-intensive processes.
time through an organizational
process of accumulating and The firm now produces new technologies that read, understand,
route, and protect documents. Reconstituting innovation as a
learning how to deploy different core competence has yielded financial payoffs as is shown by
resources and capabilities. the three-fold increase in Xeroxs profit margins since 2003.
BUILDING CORE
COMPETENCIES
FOUR CRITERIA OF SUSTAINABLE
COMPETITIVE ADVANTAGE
Capabilities exist when resources have been
purposely integrated to achieve a specific task or
set of tasks

capabilities are often based on developing, carrying,


and exchanging information and knowledge through
the firms human capital

capabilities are often developed in specific


functional areas (such as manufacturing, R&D, and
marketing) or in a part of a functional area (e.g.,
advertising)
VALUE CHAIN ANALYSIS
value chain analysis allows the firm to
understand the parts of its operations
that create value and those that do not

a template that firms use to understand


their cost position and to identify the
multiple means that might be used to
facilitate implementation of a chosen
business-level strategy

shows how a product moves from the


raw-material stage to the final customer
OUTSOURCING
OUTSOURCING
a firms that does not have resources and
capabilities that are not of core competence, Outsourcing is big business (U.S. firms spent more
it may outsource its primary and support than $68 billion on outsourcing in 2006 alone),
activities but not every outsourcing decision is successful.

For example, amid delays and cost overruns,


outsourcing is the purchase of a value- Electronic Data Systems abandoned a $1 billion
creating activity from an external supplier opportunity to run Dow Chemical Co.s phone-
and-computer networks. Stemming from
concern: potential loss in firms innovative customer complaints, Dell and Lehman Brothers
Holdings decided not to move some of the
ability and the loss of jobs within companies customer call center operations to locations
that decide to outsource some of their work outside the United States.
activities to others
These less-than-desirable outcomes indicate that
firms should carefully study outsourcing
criteria should be established to guide possibilities to verify that engaging in them will
outsourcing decisions indeed create value that exceeds the cost incurred
to generate that value.
Examining the
Value-Creating
Potential of
Primary Activities
Examining the
Value-Creating
Potential of
Support Activities
Prominent
Applications
of the
Internet in
the Value
Chain
COMPETENCIES,
STRENGTHS,
WEAKNESSES,
AND STRATEGIC
DECISIONS
COMPETENCIES, STRENGTHS,
WEAKNESSES, AND STRATEGIC DECISIONS
at the conclusion of the internal analysis, firms must identify their
strengths and weaknesses in resources, capabilities, and core
competencies

firms need to have the appropriate resources and capabilities to


develop the desired strategy and create value for customers and
other stakeholders such as shareholders

Tools such as outsourcing help the firm focus on its core


competencies as the source of its competitive advantages

After studying its external environment to determine what it might


choose to do and its internal organization to understand what it can
do, the firm has the information required to select a business-level
strategy that will help it reach its vision and mission

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