BUSINESS STRATEGY

IBS (MBA) Bangalore

SESSION -10

Course Coordinator
Dr. L.R.S.Mani
INTERNAL ANALYSIS
 Provides a comparative look at the organization’s
capabilities
 Organization’s strengths
 Organization's weaknesses
 How do the strengths and weaknesses compare to
competitors
INTERNAL ANALYSIS
 Internal analysis helps the organization to
determine if the resources and capabilities are
likely sources of competitive advantage.

 Internal analysis also helps to establish strategies

that will exploit the sources of competitive
advantage
TOOLS OF INTERNAL ANALYSIS
 SWOC framework

 RBV

 VRIO framework

 Value Chain Analysis

 SWOT ANALYSIS

 S W O T represents the first letter in

 S trengths S W
 W eaknesses
 O pportunities
 T hreats O T
 For a company’s strategy to be well-conceived, it must be
 Matched to its resource strengths and weaknesses
 Aimed at capturing its best market opportunities and erecting
defenses against external threats to its well-being
 IDENTIFYING RESOURCE STRENGTHS
AND COMPETITIVE CAPABILITIES
 A strength is something a firm does well or an attribute that
enhances its competitiveness
 Valuable competencies or know-how
 Valuable physical assets
 Valuable human assets
 Valuable organizational assets
 Valuable intangible assets
 Important competitive capabilities
 An attribute that places a company in a position of market
advantage
 Alliances or cooperative ventures with partners
 IDENTIFYING RESOURCE WEAKNESSES
AND COMPETITIVE DEFICIENCIES
 A weakness is something a firm lacks, does
poorly, or a condition placing it at a
disadvantage
 Resource weaknesses relate to
 Inferior or unproven skills,
expertise, or intellectual capital
 Lack of important physical,
organizational, or intangible assets
 Missing capabilities in key areas
 IDENTIFYING A COMPANY’S
MARKET OPPORTUNITIES
 Opportunities most relevant to a
company are those offering

 Good match with its financial and

organizational resource capabilities

 Best prospects for profitable

long-term growth

 Potential for competitive advantage

IDENTIFYING EXTERNAL THREATS
 Emergence of cheaper/better technologies
 Introduction of better products by rivals
 Entry of lower-cost foreign competitors
 Onerous regulations
 Rise in interest rates
 Potential of a hostile takeover
 Unfavorable demographic shifts
 Adverse shifts in foreign exchange rates
 Political upheaval in a country
 ROLE OF SWOT ANALYSIS IN
CRAFTING A BETTER STRATEGY
 The most important part of S W O T analysis is not
developing the 4 lists of strengths, weaknesses,
opportunities, and threats, but rather
 Using the 4 lists to draw conclusions
about a company’s overall situation and
 Acting on the conclusions to
 Better match a company’s strategy to its
resource strengths and market opportunities,
 Correct the important weaknesses, and
 Defend against external threats
STEPS OF SWOT ANALYSIS
VALUE CHAIN ANALYSIS (VCA)
 VCA describes a way of looking at a business as
a chain of activities the transform inputs into
outputs that customers value.
 It attempts to understand how value is created for
the customer by examining the contributions of
different activities within the organization that
adds value.
 VCA was proposed by Michael Porter.
VALUE CHAIN ANALYSIS (VCA)
 The idea of the value chain is based on the process
view of organizations, the idea of looking at an
organization as a system, made up of subsystems
each with their own inputs, transformation
processes and outputs.
 Inputs, transformation processes and outputs
involve the acquisition and consumption of
resources such as land, labor, materials and
management.
VALUE CHAIN ANALYSIS
 Used to identify sources of competitive
advantage
 Specifically the opportunities to secure cost
advantages and opportunities to create product /
service differentiation
 Includes the value creating activities of all
industry participants
VALUE CHAIN ANALYSIS
 The way in which value chain activities are performed determines
costs and affects profits, so it helps to understand the sources of
value for any organization.

 This idea was built upon the insight that an organization is more
than a random compilation of machinery, equipment, people and
money.

 The value chain is grouped in to two main groups of activities:

1) Primary Activities
2) Support Activities
VALUE CHAIN
VALUE CHAIN ANALYSIS
 Primary Activities:

Primary activities relate directly to the physical creation, sale,

maintenance and support of a product or service. They consist of the
following:

 Inbound logistics
 Operations
 Outbound logistics
 Marketing and sales
 Service
VALUE CHAIN ANALYSIS – PRIMARY ACTIVITIES

 Inbound logistics – processes related to receiving,

storing, and distributing inputs internally. Supplier
relationships are a key factor in creating value.
 Operation – these are the transformation activities
that change inputs into outputs that are sold to
customers. Operational systems create value here.
 Outbound activities – these activities deliver
product or service to the customer. It includes
collection, storage and distribution systems.
VALUE CHAIN ANALYSIS – PRIMARY ACTIVITIES

 Marketing and sales – process to persuade the

customers to purchase instead of from the
competitors. The benefits offered and proper
communication to the customers are the sources
of value creation.
 Service – these activities relate to maintaining the
value of the product or service to the customers
after they have purchase the same.
VALUE CHAIN ANALYSIS
 Support Activities:

These activities support the primary functions above. In

diagram, the dotted lines show that each support, or secondary,
activity can play a role in each primary activity. For example,
procurement supports operations with certain activities, but it
also supports marketing and sales with other activities.

 Procurement (purchasing)
 Human resource management
 Technological development
 Infrastructure
VALUE CHAIN ANALYSIS – SUPPORT ACTIVITIES

 Firm infrastructure – activities such as organization

structure , control system, company culture, come under
this.
 Human Resource Management , it includes activities such
as R & S , T & D , C & B etc.
 Technology Development – activities intended to improve
the product and the process and can occur in many part of
the firm.
 Procurement – concerned with the tasks of purchasing
inputs such as labor , materials and equipment.
VALUE CHAIN ANALYSIS – BENEFITS
 Systematically examines how the activities of a
firm and how they interact with one another and
affect each other’s cost and performance.
 Firm gains a competitive advantage by
performing the activities better and / or at lower
cost than competitor.
 Presents opportunities for integration
 Aligns spending with value processes.
 THE CONCEPT OF A
COMPANY VALUE CHAIN
 A company’s business consists of all activities undertaken in
designing, producing, marketing, delivering, and supporting
its product or service
 A company’s value chain consists of a linked set of value-
creating activities performed internally
 The value chain contains two types of activities
 Primary activities – where most of
the value for customers is created
 Support activities – facilitate
performance of the primary activities
VALUE CHAIN - EXAMPLE
 CHARACTERISTICS OF
VALUE CHAIN ANALYSIS
 Combined costs of all activities in a company’s value chain
define the company’s internal cost structure
 Compares a firm’s costs activity
by activity against costs of key rivals
 From raw materials purchase to
 Price paid by ultimate customer

 Pinpoints which internal activities are a

source of cost advantage or disadvantage
 WHY DO VALUE
CHAINS OF RIVALS DIFFER?
 Several factors can cause differences
in value chains of rival companies
 Internal operations
 Strategy
 Approaches used in execution of the strategy
 Underlying economics of the activities
 Differences complicate task of assessing
rivals’ relative cost positions
 THE VALUE CHAIN SYSTEM
FOR AN ENTIRE INDUSTRY
 Assessing a company’s cost competitiveness involves
comparing costs all along the industry’s value chain
 Suppliers’ value chains are relevant because
 Costs, performance features, and quality of inputs
provided by suppliers influence a firm’s own costs
and product performance
 Forward channel allies’ value chains are relevant because
 Costs and margins are part of price paid
by ultimate end-user
 Activities performed affect end-user satisfaction
 VALUE CHAIN FOR AN ENTIRE
INDUSTRY
EXAMPLE: VALUE CHAIN ACTIVITIES
Pulp & Paper Industry

Timber farming
Logging
Pulp mills
Papermaking
Distribution
EXAMPLE: VALUE CHAIN ACTIVITIES
Home Appliance Industry

Parts and components manufacture

Assembly

Wholesale distribution

Retail sales
EXAMPLE: VALUE CHAIN ACTIVITIES
Soft Drink Industry
Processing of basic ingredients
Syrup manufacture
Bottling and can filling
Wholesale distribution
Advertising Albertson’s
Retailing
EXAMPLE: VALUE CHAIN ACTIVITIES
Software Computer Industry

Programming

Disk loading

Marketing

Distribution