Internal Resource Analysis

UNIT IV

WHAT IS AN INTERNAL ANALYSIS?

Internal Analysis

Identifies and evaluatesresources, capabilities, and core competencies

Looks at the organization's

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Current vision

Mission(s)

Strategic objectives

Strategies

A Quick Review of Organizational Resources

Organizational Resources (assets)

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Financial resources

Physical assets

Human resources

Intangible resources

Structural-cultural resources

Core Competencies -- AValuable Company Resource

• A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability

• Often, a core competence results from collaboration among different parts of a company

•Typically, core competencies reside in a company’s people, not in assets or the balance sheet

• A core competence gives a company apotentially valuable competitive capabilityand represents a definite competitive asset

Examples: Core Competencies

• Expertise in integrating multiple technologies to create families of new products

• Know-how in creating operating systems for cost efficient supply chain management

• Speeding new/next-generation products to market• Better after-sale service capability• Skills in manufacturing a high quality product• System to fill customer orders accurately and swiftly

Distinctive Competence -- ACompetitively Superior Resource

# 1

• A distinctive competence is a competitively significant activity that a company performs better than its competitors

A distinctive competence Represents a competitively

valuable capability rivals do not have

Presents attractive potential for being a cornerstone of strategy

Can provide a competitive edge in the marketplace—because it represents a competitively superior resource strength

Examples: Competencies

Toyota, Honda, NissanLow-cost, high-quality manufacturingcapability and short design-to-market cycles

IntelDesign of complex chips for personal computers

SonySuperb marketing-distribution skills and R&Dcapabilities

Test to Identify Core Competence

• Prahlad and Hamel gave three test to identify the core competence: -

1. Provide access to wide variety of markets

2. Contribute significantly to end-product benefits

3. Be difficult for competitors to imitate

COMPETITIVE ADVANTAGE

• Competitive advantage is a firm’s ability to outperform its competitors (earn higher profits).

• It could consist of superior quality, service or technical assistance, a strong brand name, a unique or innovative product or service.

• Sustained competitive advantage comes from maintaining higher profits than competitors over long periods of time.

• Core competencies serve as a source of CA.

Distinctive Competencies, Resources, and Capabilities

The roots of competitive advantage:

SYNERGY

• Strategic Advantages in business area do not yield requisite benefits automatically unless all parts work together smoothly.

• Synergy is an economic efect in which the different parts of the firm contribute a unique source of heightened value to the firm when managed as a single unified entity.

• Effect of synergy: -2 + 2 > 5

Value Chain Analysis

• A tool developed by Dr. Michael Porter of Harvard Business School

• Can be used to examine the various activities of the firm and how they interact in order to provide a source of competitive advantage by:

- Performing these activities better or - At a lower cost than the competitors

Value Chain Analysis

Value Chain Analysis

Assessing the PRIMARY Activities in the Value Chain ( from Table 4-1)

Inbound LogisticsInbound Logistics•••

Materials control systemInventory control systemRaw material handling and warehousing

OperationsOperations••••

Equipment comparison to competitorsPlant layoutProduction control systemLevel of automation in production processes

Value Chain Analysis

Assessing the PRIMARY Activities in the Value Chain (continued) ( from Table 4-1)

Outbound LogisticsOutbound Logistics••

Timeliness and efficiency of finished products deliveryWarehousing of finished products

Marketing and SalesMarketing and Sales••••••••

Marketing researchSales promotions and advertisingAlternative distribution channelsCompetency and motivation of sales forceOrganization’s image of qualityOrganization’s reputationBrand loyalty of customersDomination of various market segments

Value Chain Analysis

Assessing the PRIMARY Activities in the Value Chain (continued) ( from Table 4-1)

Customer ServiceCustomer Service•••••

Customer input for product improvementsHandling of customer complaintsWarranty and guarantee policiesEmployee training in customer education & service issuesReplacement parts and services

Value Chain Analysis

Assessing the SUPPORT Activities in the Value Chain ( from Table 4-2)

ProcurementProcurement•••••

Alternate sources for obtaining needed resourcesTimeliness of resources procurementProcurement of large capital expenditure resourcesLease-versus-purchase decisionsLong-term relationships with reliable suppliers

Technological DevelopmentTechnological Development••••••

R&D activities in product and process innovationsRelationship between R&D and other departmentsMeeting deadlines in technological development activitiesQuality of labs and other research facilitiesQualifications of lab technicians and scientistsCreativity and innovation in organizational culture

Value Chain Analysis

Assessing the SUPPORT Activities in the Value Chain (continued) ( from Table 4-2)

Human Resource ManagementHuman Resource Management•••••••

Recruiting, selecting, orienting, and training employeesEmployee promotion policiesReward systems to motivate and challenge employeesAbsenteeism and turnoverUnion-organization relationsEmployee participation in professional organizationsEmployee motivation, job commitment, and satisfaction

Value Chain Analysis

Assessing the SUPPORT Activities in the Value Chain (continued) ( from Table 4-2)

Firm InfrastructureFirm Infrastructure•••••••

Identification of external opportunities and threatsAccomplishing goals with strategic planning systemCoordination and integration of value chain activitiesLow-cost capital expenditures & working capital fundsIS support for strategic and operational decisionsRelationships with stakeholdersPublic image as a responsible corporate citizen

• Value chain Analysis helps in defining a firm’s core competencies and the activities in which it can pursue a competitive advantage as follows: -

- Cost Advantage – by better understanding cost and squeezing them out of the value-adding activities

- Differentiation – by focusing on those activities associated with core competencies and capabilities in order to perform them better than the competitors do.

Example: Key Value Chain Activities

Timber farming

Logging

Pulp mills

Papermaking

Pulp & Paper Industry

Parts and components manufactureAssembly

Wholesale distributionRetail sales

Home Appliance Industry

Example: Key Value Chain Activities

Processing of basic ingredientsSyrup manufacture

Bottling and can fillingWholesale distribution

AdvertisingRetailing

Soft-Drink Industry

Example: Key Value Chain Activities

ProgrammingDisk loadingMarketing

Distribution

Computer Software Industry

Example: Key Value Chain Activities

STRATEGIC ADVANTAGE PROFILE (SAP)

A picture of the more critical areas which can have a relationship of the strategic posture of the firm in the future.

Capability Factor Competitive strengths/Weaknesses

• Finance High cost of capital, reserves & surplus

• Marketing Fierce competition, company position secure

• Operational P&M - excellent - parts & components available

STRATEGIC ADVANTAGE PROFILE (SAP)

Capability Factor Competitive strengths / Weakness

•Personnel Quality of management & personnel par with competition

•General High Quality experienced top management - take proactive

stance