THE EXTERNAL

ENVIRONMENT – THE
INTERNAL
ENVIRONMENT
Dr Hazem Heswani
L7
Lecture 4
• Dr Hazem Heswani.
• Lecturer in Business Strategy, Operations and
Leeds Business School.
Enterprise Group. Leeds Beckett University, 507 The Rose Bowl, Portland Crescent,
Leeds LS1 3HB
• Pathway Lead MSc International Business.
Email: [email protected] | Tel: 01138122304.
• PhD in International Business and Strategy.
• Fellow of Advance Higher Education.
Google: What is so
Unique about it?
• Shared values across the organisation;
• Constant Innovation
• Trust
• Alignment with employers wants and
needs;
• A growth and improvement mindset;
• A dedicated focus on employee
happiness;
• ‘Radical Candor’;
• A clear purpose.
• Est 1994, 140k employees, Alphabet
parent est 2015, $307,394 (2023),
182,502 employees
Learning Outcomes

After this lecture you should be able to:

o Understand the significance of the
internal environment and core
competencies for the strategies of
multinational firms;
o Distinguish between the
positioning perspective and the
resource-based perspective;
o Conduct a resource audit and apply
the VRIO framework to a firm;
o Conduct a value-chain and value
system analysis;
o Conduct a comparative analysis for
a multinational firm.
Internal Business
Environment

• Just as the external business

environment is important,
managers need to understand
the internal firm environment:
the unique strengths and
weaknesses of their firm relative
to their competitors.
Strategic Fit versus
Strategic Stretch

• Strategic fit is about developing

strategy by identifying opportunities in
the business environment and adapting
resources and competences so as to
take advantage of these (External view).

• Strategic stretch is about identifying

and leveraging the resources and
competencies of the organization to
yield new opportunities or to provide
competitive advantage.
Positioning Perspective versus
Resource-Based Perspective

• The contrast between strategic fit and

strategic stretch exemplifies different views on
how firms should compete in global markets.
o The Positioning Perspective suggests that
the business opportunity should be the
starting point for developing successful
strategies;

o The Resource-Based View (RBV)

Perspective suggests that unique firm
resources should be the starting point for
developing successful strategies (Hamel &
Prahalad, 1993).
SWOT Analysis
• Industry profitability vs firm profitability:
 more recent studies found that effects of the industry
env. Less important than effects of firm skills;
 Firm level effect more important for MNEs and their
subs.

• Managers can analyse both the internal and the external environment
by using SWOT Analysis;

• SWOT is a simple analysis tool for managers (see also TOWS Analysis) for
classifying the various influences on the firm’s strategy into four
categories:
o Internal Strengths (S);
o Internal Weaknesses (W);
o External Opportunities (O);
o External Threats (T).
Managers can use the TOWS matrix

SWOT
Analysis
Resources and Capabilities

Firms have resources and capabilities:

 Resources are all assets, organizational
processes, firm attributes, information,
knowledge, patents, real estate etc. controlled
by a firm/ Tangible & Intangible Resources
(e.g. Brand); Nonaka & Takeuchi,
1995

 Capabilities/Competences are complex

bundles of skills and collective learning,
exercised through organizational processes,
that ensure superior coordination of functional
activities (Explicit vs Tacit knowledge).

Nonaka & Takeuchi,

1995
Foundations of resources and capabilities

The resources and capabilities (Barney, 1991) of an organisation contribute to its long-
term survival and potentially to competitive advantage.

• Resources are the assets that organisations have or can call upon (e.g. from partners
or suppliers), that is ‘what we have’ (nouns).

• Capabilities/ Competences (sometimes referred to as

competences) are the ways those assets are
used or deployed, that is ‘what we do’ (verbs).
Resources and
capabilities:
the key issues
 • Core competencies refer to the combination of individual
technologies and production skills that underlie a company’s multiple
production lines and critically underpin the firm’s competitive
Core Competencies advantage.
• Core competencies are about communication, involvement and a
deep commitment to working across organizational boundaries.
Competence as tree
metaphor

•Prahalad and Hamel (1990)

VRIO framework

The VRIO framework, devised by Jay Barney (1997), asks four questions:
The question of value Do a firm’s resources and capabilities enable it to respond to
environmental threats or opportunities?
The question of rareness How may rival firms already possess particular valuable
resources and capabilities?
The question of imitability Do firms without a resource or capability face a cost
disadvantage in obtaining it compared to firms that already possess it?
The question of organization Is a firm organized to exploit the full competitive
potential of its resources and capabilities?
Criteria for the
inimitability of
resources and
capabilities
The Concept of Value Added

• Managers must understand the economic value of the different activities that
a firm performs.
Value added is the difference between the cost of inputs and the market
value of outputs; it is the value that a firm adds to its bought-in materials
and services through its own production and marketing efforts within the
firm.
Value Chain Analysis

Value chain analysis depicts the main activities inside the firm and aims to
reveal the relative value added amongst the different parts of the firm’s
operations.
Undertaking a value chain analysis helps the firm to understand its cost
position and to identify its competitive strengths.
Competitive advantage can be derived from linkages within the value system.
The value chain

UPSTREA
M

DOWNSTREAM
Source: Porter, (1998)
Examples of value
chains in global
petroleum industry
Value System Analysis

• A value system is a wider system of creating value which involves the value
chains of the firm’s suppliers, distributors and customers.
• Value system analysis depicts the main activities inside and outside the firm
and aims to reveal the firm’s linkages with its suppliers’ value chains, its
distributors’ value chains and its customers’ value-chains.
The
Value
System
Uses of the value chain

1. A generic description of activities – understanding how the discrete

activities (or clusters of linked activities) contribute to consumer benefit.
2. Identifying activities where the organisation has particular strengths or
weaknesses.
3. Analysing the competitive position of the organisation using the VRIO
criteria – thus identifying sources of sustainable competitive advantage.
4. Looking for ways to enhance value or decrease
cost in value activities (e.g. outsourcing).
More uses of the Value System

5. The ‘make or buy’ decision – which activities to do ‘in-house’ and which to

outsource.
6. Understanding cost/price structures across the value system – analysing the
best area of focus and the best business model.
7. Identifying ‘profit pools’ (i.e. the levels of profit in different parts of the
system) – seeking ways to use existing capabilities in order to exploit these.
8. Partnering – deciding who to work with and the
nature of these relationships.
Mapping activity systems

• Identify ‘higher order strategic themes’, that is, how the organisation meets
the critical success factors in the market.
• Identify the clusters of activities that underpin these themes and how they fit
together.
• Map this in terms of how activity systems are interrelated.
Comparative Analysis

• Resources and capabilities can only be judged to be valuable or rare if a firm

compares itself with the competitors.
• Therefore, an integral part of an internal firm analysis must be a comparison
with your competitors.
• Competitor intelligence and benchmarking can help the firm to compare itself
with its peers.
Competitor Intelligence

• Competitor intelligence is the systematic collection of information about rivals

in order to assist the development of firm strategies.
• Competitor intelligence is aimed at both learning about competitors’ strengths
and weaknesses and their likely future strategies and initiatives as well as
assessing the strengths and weaknesses of the firm’s own resources and
capabilities relative to other firms.
Benchmarking

Benchmarking is a means of understanding how an organisation compares with others – typically

competitors.

Two approaches to benchmarking:

• Industry/sector benchmarking – comparing performance against other organisations in the same
industry/sector against a set of performance indicators.
• Best-in-class benchmarking – comparing an organisation’s performance or capabilities against
‘best-in-class’ performance – wherever that is
found even in a very different industry. (e.g. BA benchmarked its refuelling operations against
Formula 1, Airbus its A380 emergency shuts through Airbag tech practices).
Conclusion

 Dynamic capabilities;
 Dangers of SWOTS (summary only not for analysis);
 To be able to compete at all in a market an organisation needs threshold resources and capabilities, but to
achieve sustained competitive advantage they also need to be unique and distinctive;
 To be distinctive and provide for sustainable competitive advantage, resources and capabilities need to fulfil
the VRIO criteria of being V, R, I and supported
by the Organisation;
 Ways of diagnosing organisational resources and capabilities include;
 VRIO analysis, value chain and value system, activity systems mapping to underpin key activities;
 Benchmarking the RBV’s answer to Strategic Group Analysis?
Next week on GBS

1. Read Chapter 4: Global Business

Environment: the internal
environment, pp. 112-144;

2. Prepare discussion questions 1-4, pg.

140;

3. Read & Prepare “ JCLothing Industry

chains & Zara Business model ” case
study pp. 140-143 & answer both
questions at the end of the case study.
Assessments:

1. One International Strategy Report - chosen

Firm, 4,500 words – 7th May 2024 before midnight
Assessment
Students could adopt a number of different approaches but are advised to develop a critical argument in depth and detail
supported by a strong body of evidence (based on qualitative and quantitative analysis). Students must cover the
following:

 Introduction & Purpose (500 words): A brief overview of the chosen organisation focusing on contemporary
opportunities & challenges; This section should include a clear justification of choice for the destination country/
market together with potential opportunities or challenges it is seeking to address;

 External Environment Analysis (1250 words): The report should include a technical assessment of the chosen
destination country/ market in terms of culture, logistics, local market conditions, finances and risk. A full application
of appropriate tools such as PESTLE etc should be included in the report, including the outcome of the analysis (any
tools utilised e.g. PESTLE should be included in the appendix of the report);
Assessment
 RBV Assessment of the organisation (1,250 words): The report should include a brief critical analysis of the organisation’s
capabilities relevant to the chosen destination country/ market (e.g. competencies, resources, strengths/ weaknesses, VRIO
assessment);

 Evaluation of International Strategy Options (500 words): Based on earlier analysis, the Business Analyst should present in the
report a brief overview of potential approaches that could be used to address the opportunity/ challenges faced by the
organisation outlined in the introduction & Purpose section of the report. This section should briefly highlight a set strategic
options together with precise, their justification & respective entry modes (i.e. options presented should briefly cover what?
Why? & How?);

 Your Recommendation (1,000 words): Present and Justified chosen approach: Recommend a chosen entry mode, justify its
choice, offer clear and detailed instructions for its implementation;
Useful tips,
Not
instructions
Choice of Organisation/ Company

The choice of company is very important also. Resist the temptation to choose a company you think you are familiar with or indeed a
market that you think you know well (e.g. India or the UK). Try instead to look for the following cues in choosing you company:

- Is the organisation chosen an international enterprise’?

- Is information readily available about this company (usually MNEs and companies listed in the stock exchange tend to have many
reports and data you can access);

- Is the company’s industry accessible (e.g. avoid defence and other classified or information sensitive industries);

- Is the company too small or unready for international expansion or activities?

- Does the choice made offer the opportunity to comment on something contemporary or that has not happened yet? There is not
much benefit in taking a company and international market the company invested in e.g. seven years ago! Try to look for
something more recent
Choice of Topic

There is no prescribed topic that you can choose as the subject of your report. It is of course recommended that you choose a subject for your
report to your chosen organisation’s CEO that has a strategic management character. It is important that you do not carry out a marketing
assignment for this module. However, examples of the type of work you could be undertaking in your report are listed below:

 Access of a new international market or evaluation of performance of recently accessed international market (here you can also evaluate
market exit decisions);

 New product or service launched in existing or new international market (here you can also consider a company withdrawing a product or
service from an international market);

 Old product or service launched in new (for the company) international market (here you can also consider a company withdrawing a product
or service from an international market);

 Evaluation of key strategic alliance or acquisition to enable growth and or a competitive advantage;

 An evaluation of organisational perspectives and structures of the MNE to deliver the corporate and global strategy of the organisation;