01/04/14372012 Prentice Hall 1 Internal Scanning: Organizational Analysis.

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Internal Scanning:Organizational Analysis

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A Comprehensive Strategic Management Model

Develop Mission statement

Establish long term objectives

Generate, Evaluate, and select strategies

Establish policies and annual objectives

Allocate resources

Measure and evaluate performance

Perform external audit

Perform internal audit

Feedback

Formulation Implementation Evaluation

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Situational Analysis

SWOT --

–Internal•Strengths/Weaknesses

–External•Opportunities/Threats

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TOWS Matrix

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Resource-Based Approach

Internal strategic factors:

Critical strengths and weaknesses that are likely to determine if the firm will be able to take advantage of opportunities while avoiding threats.

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Resource:

An asset, competency, process, skill, or knowledge controlled by the corporation.

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Evaluating Key Resources VRIO Framework

• Barney, in his VRIO framework of analysis, proposes four questions to evaluate a firm’s

Competencies:

1. Value: Does it provide customer value and competitive advantage?

2. Rareness: Do no other competitors possess it?

3. Imitability: Is it costly for others to imitate?

4. Organization: Is the firm organized to exploit the resource?

• If the answer is yes to all it is considered distinctive competence.

Core and distinctive competencies• Capabilities: organization ability to utilize its

resources. Its business process and routine.

• Competency: cross-functional integration and coordination of capabilities. E.g., new product development. The process is competent if it is highly integrated with other processes.

• Core-competency: collection of competencies that crosses divisional boundaries. E.g., new product development is a core-competency if it goes beyond one division.

• Distinctive competencies: when core- competencies are superior to those of the competitions. / /١٤٤٤ ١٠ ١ 2012 Prentice Hall

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Keys of Strategic Outsourcing Success

1- Understand the bus core competencies.

‘What it gives competitive Differentiation’

Core comp. Is the integration of technologies, constituent skills and collective learning cross divisions, which makes healthy bus.

2- Mapping out the work of bus.

3- Requires trust between parties

4- Understand the type of work of bus.

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Competitive advantage analysis

• Analyzing competences and core competences:

The analysis here determines how resources are deployed

Competitive advantage is built on the uniqueness of resources or on the core competences.

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Strategic Outsourcing for Competitive Advantage

• Used mainly for downsizing and cost reductions at corporations.

• Usually corps outsourcing non-essential work, why?

To free valuable resources and focus on its areas of competitive advantage.

To do this org. must know its core competences.

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5-Steps

approach to strategy analysis:

• 1- Identify & classify firm’s resources• What are the Strengths & weaknesses

• 2- Combine firm’s strengths into capabilities• Core competencies• Distinctive competencies

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5-Step approach to strategy analysis:

• 3- Appraise the Profit potential of resources\capabilities. Includes,

- Identify the competitive advantages.

- Sustainable competitive advantage

• 4- Select strategy that best, • Exploits firm’s resources relative to external

opportunities

• 5- Identify resource gaps• Invest in upgrading weaknesses

Access to a Distinctive Competency

1. Asset endowment/available, e.g., patent.

2. Acquired from someone else, e.g., buying distributing system.

3. Shared with another business, e.g., alliance partner.

4. Built and accumulated within the company.

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Why some nations are more competitive than others?

• M. Porter in his diamond, suggests that there are inherited reasons why some nations are more competitive, and there organizations are as well, than others.

• Porter believes that national home base of an organization influence the global success of organization.

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Porter’s Determinants of National Advantage

There are four forces:

1- The conditions of the nation, availability of skills, infrastructure.

2- Home country’s demand for products.

3- The presence or absence of supporting industries.

4- The firm’s strategy, structure, rivalry, establishment process..

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Four Nation’s Distinct Strategies

• S-O, or maxi-maxi

• S-T, or maxi-mini

• W-O, or mini-maxi

• W-T, or mini-mini

Determining the Sustainability of an Advantage

• Two characteristics determine the sustainability of a firms’ distinctive competency: durability and imitability.

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Determining the Sustainability of an Advantage

Durability:

Rate at which a firm’s underlying\basic resources and capabilities (core competencies) depreciate or become obsolete. E.g., new technology can make the company core competency irrelevant.

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Sustainability of an Advantage

Imitability:

Rate at which a firm’s underlying resources and capabilities (core competencies) can be duplicated by others?. Competitors will do what they can to learn and imitate that set of skills and capabilities.

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Core Competencies

Imitability of core competencies determined by:

1. Transparency/clearly understood. Gillette’s razor design is very difficult to copy; complicated manufacturing equipment.

2. Transferability. Ability of competitors to gather necessary resources and capabilities to support a competitive challenge.

3. Replicability/ do it exactly by the competitors :imitate other firms’ success.

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Core Competencies

Is it easy to imitate another company’s core competency? Depends if it comes from:

Explicit Knowledge:– Knowledge that can be easily articulated and

communicated.

Tacit/unexpressed Knowledge:– Knowledge that is not easily communicated

because it is deeply rooted in employee experience or in a corporation’s culture .

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Resource Sustainability

Business models

• How firms earn revenue and make profit. This is based on business model used which is usually composed of 5 elements:

1. Who it serves

2. What it provides

3. How it makes money

4. How it differentiates and sustains competitive advantage.

5. How it provides its products.

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Competitive advantage analysis

• Steps of analyzing competences: 1- Value chain analysis: describes the

activities within and around the organization, and relates them to an analysis of the competitive strength of the organization.

2- the bases of core competences.

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Corporate Value Chain

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Corporate Value Chain Analysis steps:

• Examine each product line’s value chain• Core competencies & core deficiencies

• Examine the “linkages” within each product line’s value chain

• Connections between the way one value activity is performed and the cost of performance of another activity

• Examine the synergies among the value chains of different product lines or business units

• Economies of scope

How can value chain analysis help identify a company's strengths and weaknesses?

• The systematic examination of individual value activities can lead to a better understanding of a corporation's strengths and weaknesses. Its advantage over other methods of analyzing a firm's internal environment is, its ability to visualize a company in terms of strings/sequences of product value chains.

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Competitive advantages

• When competitive advantage is materialized?

When a firm earns persistently higher rate of profit over its rivals.

• Determinants of profit level

1- Value of company products in customers’ eyes.

2- Company production cost.

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Competitive advantage• It can be created in certain industrial field,

through the adoption of low-cost-differentiation strategy.

• However, M. Porter believes that the company should adopt one of these strategies other wise it will stuck in the middle.

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What is the success strategy

• The strategy which enables organizations developing new advantages, or maintaining/sustaining the existing advantages.

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Market segmentation analysis• It aims to identify similarities and differences

between groups of customers or users .Not all customers are the same.• Some criteria for market segmentation:1. Characteristics of customers (e.g., income,

gender, age, education),2. Purchase situation (e.g., behavior, its size,

importance, when purchasing), 3. Users needs and preferences for product

characteristics (e.g., quality, price, brand).Segment which was chosen must be growing,

sizeable and profitable. This is why this tool is considered internal, because internal strategic decision.

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What is efficiency and effectiveness?• Management (cont.)• elements of definition• Efficiency - getting the most output from the least

amount of inputs• “doing things right”• concerned with means• Effectiveness - completing activities so that

organizational goals are attained• “doing the right things” • concerned with ends

1-1-3333

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Boston Consulting Group Matrix

• It portrays differences among divisions in terms of relative market share position and industry growth rate.

• The matrix allows multidivisional corp. to manage its portfolio of business effectively.

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Boston Consulting Group Matrex بوستن مصفوفه

النجمة.ٍStar

Question mark

?النقدية Cash البقرة

Cow

النقدي Cash الفخTrap

Relative market share السوقية الحصةlowhigh

high

low

IndustrialGrowth

Rateنمو معدل

الصناعة %

0

20+

20-

11 0.5 0.0

Homework

• Write a short essay 2-5 pages about sustainability of competitive advantage.

• Date due: next Wednesday 2/7/2014.

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Benchmarking• . Benchmarking is the search for the best

practices among competitors or non-competitors that lead to their superior performance.

• The benchmarking process typically follows four steps.

• a. A benchmarking planning team is formed. The team’s initial task is to identify what is to be benchmarked, identify comparative organizations, and determine data collection methods.

• b. The team collects internal and external data.• c. The data is analyzed to identify performance

gaps and to determine the cause of the difference.• d. An action plan is prepared and implemented.

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Steps In BenchmarkingForm a benchmarking

planning team

Prepare andimplementaction plan

Gather internal andexternal data

Analyze data to identify performance

gaps

BestPractices

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Suggestions for improving benchmarking

1. Link benchmarking efforts with strategic objectives.

2. Have the right size team -6-8 persons.

3. Involve those people who will be directly affected by the benchmarking.

4. Focus on specific targeted issues rather than broad.

5. Set realistic timetable.

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Exercise

• Use a benchmarking to develop the MBA program at IUG.

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Case study

• CASE 2: the Wallace Group analysis.

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Ch 4-422012 Prentice Hall

Management Audit Checklist

•Does the firm use strategic management concepts?•Are objectives/goals measurable? Well communicated?•Do managers at all levels plan effectively?

•Does the firm use strategic management concepts?•Are objectives/goals measurable? Well communicated?•Do managers at all levels plan effectively?

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•Do managers delegate well?•Is the organization’s structure appropriate?•Are job descriptions clear?•Are job specifications clear?•Is employee morale high?

•Do managers delegate well?•Is the organization’s structure appropriate?•Are job descriptions clear?•Are job specifications clear?•Is employee morale high?

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•Is employee absenteeism low?•Is employee turnover low?•Are the reward mechanisms effective?•Are the organization’s control mechanisms effective?•This checklist can help determine specific strengths and weaknesses. “No” answers indicate potential weaknesses, while “Yes” answers indicate areas of strength.

•Is employee absenteeism low?•Is employee turnover low?•Are the reward mechanisms effective?•Are the organization’s control mechanisms effective?•This checklist can help determine specific strengths and weaknesses. “No” answers indicate potential weaknesses, while “Yes” answers indicate areas of strength.

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Marketing

• Marketing can be described as the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services.

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Marketing

Marketing Functions

1. Customer analysis

2. Selling products/services

3. Product & service planning

4. Pricing

5. Distribution

6. Marketing research

7. Opportunity analysis

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MarketingMarketing Audit Checklist of Questions

1. Are markets segmented effectively?

2. Is the organization positioned well among competitors?

3. Has the firm’s market share been increasing?

4. Are the distribution channels reliable & cost effective?

5. Is the sales force effective?

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Marketing

Opportunity Analysis

6. Does the firm conduct market research?

7. Are product quality & customer service good?

8. Are the firm’s products/services priced appropriately?

9. Does the firm have effective promotion, advertising, and publicity strategies?

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Marketing

Opportunity Analysis

10. Are the marketing, planning, and budgeting effective?

11. Do the firm’s marketing managers have adequate experience and training?

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Finance/Accounting Audit

•Does the firm have sufficient working capital?•Are capital budgeting procedures effective?•Are dividend payout policies reasonable?•Are the firm’s financial managers experienced & well trained?

•Does the firm have sufficient working capital?•Are capital budgeting procedures effective?•Are dividend payout policies reasonable?•Are the firm’s financial managers experienced & well trained?

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Finance/Accounting Audit

Effective Financial Analysis Requires:1. Analysis of how the ratios have changed

over time2. How the ratios compare to industry norms3. How the ratios compare with key

competitors

Effective Financial Analysis Requires:1. Analysis of how the ratios have changed

over time2. How the ratios compare to industry norms3. How the ratios compare with key

competitors

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Production/Operations Audit

•Are suppliers of materials, parts, etc. reliable and reasonable?•Are facilities, equipment, and machinery in good condition?•Are inventory-control policies and procedures effective?

•Are suppliers of materials, parts, etc. reliable and reasonable?•Are facilities, equipment, and machinery in good condition?•Are inventory-control policies and procedures effective?

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Production/Operations Audit

•Are quality-control policies & procedures effective?•Are facilities, resources, and markets strategically located?•Does the firm have technological competencies?

•Are quality-control policies & procedures effective?•Are facilities, resources, and markets strategically located?•Does the firm have technological competencies?

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Research & Development Audit

•Are the R&D facilities adequate?•If R&D is outsourced, is it cost-effective?•Are the R&D personnel well qualified?•Are R&D resources allocated effectively?

•Are the R&D facilities adequate?•If R&D is outsourced, is it cost-effective?•Are the R&D personnel well qualified?•Are R&D resources allocated effectively?

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Research & Development Audit

•Are MIS and computer systems adequate?•Is communication between R&D and other organizational units effective?•Are present products technologically competitive?

•Are MIS and computer systems adequate?•Is communication between R&D and other organizational units effective?•Are present products technologically competitive?

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Management Information Systems Audit

•Do managers use the information system to make decisions?•Is there a CIO or Director of Information Systems position in the firm?•Is data updated regularly?

•Do managers use the information system to make decisions?•Is there a CIO or Director of Information Systems position in the firm?•Is data updated regularly?

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•Do managers from all functional areas contribute input to the information system?•Are there effective passwords for entry into the firm’s information system?•Are strategists of the firm familiar with the information systems of rival firms?

•Do managers from all functional areas contribute input to the information system?•Are there effective passwords for entry into the firm’s information system?•Are strategists of the firm familiar with the information systems of rival firms?

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•Is the information system user-friendly?•Do all users understand the competitive advantages that information can provide?•Are computer training workshops provided for users?•Is the firm’s system being improved?

•Is the information system user-friendly?•Do all users understand the competitive advantages that information can provide?•Are computer training workshops provided for users?•Is the firm’s system being improved?

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THE INTERNAL FACTOR EVALUATION (IFE) MATRIX

• 1. A summary step in conducting an internal strategic-management audit is to construct an IFE Matrix. This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among these areas.

• 2. Intuitive judgments are required in developing an IFE Matrix, so the appearance of a scientific approach should not be interpreted to mean this is an all-powerful technique.

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Steps in developing Internal Factor Evaluation (IFE) Matrix

1. List key internal factors as identified in the internal-audit process. Use a total from ten to twenty internal factors including both strengths and weaknesses.

2. Assign a weight ranging from 0 (not important) to 1.0 (very important). The weight indicates the relative importance of the factor to being successful in the firm’s industry. The sum of all the weights must equal 1.0.

3. Assign a 1-4 rating to each factor to indicate whether that factor represents a major weakness (1), minor weakness (2), minor strength (3), or major strength (4).

4. Multiply each factor’s weight by its rating to determine a weighted score for each variable.

5. Sum the weighted scores for each variable to determine the total weighted score for the organization.

6. Total weighted scores of below 2.5 indicate an internally weak organization.

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Goals & Objectives Defined

• Goals: The desired general ends towards which efforts are directed e.g., expand firm size.

• Objectives: are specific quantified, e.g., increase sales by 10% each year.

• “We may derive a number of objectives from a goal”

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Long-Term Objectives

• Objectives: Specific results an organization seeks to achieve in pursuing its basic mission.

• Long-term objective: More than 3 years.

Objectives should be: challenging, measurable, consistent, reasonable and clear. Ex. Our objective is to achieve 20% return on equity.

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Annual Objectives• Short-term that the organization must achieve

to reach long-term objectives.

Objectives Characteristics:

Measurable, quantitative, challenging, realistic, consistent and prioritized.

Annual objectives are important for strategy implementation, whereas, long-term objectives are important for strategy formulating.

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Objectives

• We must avoid generalities e.g.:

maximize profits

reduce costs

become more efficient

increase sales

Review

• How to use the "resource-based" approach in environmental analysis? Is it a tool for internal or external evaluation? How can we benefit from resource-based approach in enhancing the competitive advantages of business? Draw an example in your answer?

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01/04/14372012 Prentice Hall 1 Internal Scanning: Organizational Analysis.

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