Intrernal Scanning And Organizational Analysis

Internal Scanning: Organizational Analysis

Internal Audit Parallel process with external audit

•Information from: •Management •Marketing •Finance/accounting •Production/operations •Research & Development •Management information Systems

Organizational analysis Internal strategic factors – those critical strengths and weakness that are likely to determine if the firm will be able to take advantage of opportunities while avoiding threats Internal resources are more important than external factors

Core and Distinctive Competences

Resources are an organization’s assets and are thus the basic building blocks of the organization. Capabilities refer to corporation’s ability to exploit its resources. A competency is a cross-functional integration and coordination of capabilities.

Core and Distinctive Competences A core competency is a collection of competencies that crosses divisional boundaries, is widespread within the corporation, and is something that the corporation can do exceedingly well.

When core competencies are superior to those of the competition, they are called distinctive competences.

VRIO framework of analysis: 1. Value: Does it provide competitive advantage? 2. Rareness: Do other competitors possess it? 3. Imitability: Is it cost for others to imitate? 4. Organization: Is the firm organized to exploit the resource? If answer is yes for a particular competency, it is considered to be a strength and thus a distinctive competence.

Applying the VRIO Framework The Question of Value in theory: Does the resource enable the firm to exploit an external opportunity or neutralize an external threat? the practical: Does the resource result in an increase in revenues, a decrease in costs, or some combination of the two? (Levi’s reputation allows it to charge a premium for its Docker’s pants)

Applying the VRIO Framework The Question of Rarity •

if a resource is not rare, then perfect competition dynamics are likely to be observed

•

a resource must be rare enough that perfect competition has not set in

•

thus, there may be other firms that possess the resource, but still few enough that there is scarcity

Several pharmaceuticals sell cholesterol-lowering drugs, but the drugs are still scarce—look at prices

Applying the VRIO Framework The Question of Imitability •

the temporary competitive advantage of valuable and rare resources can be sustained only if competitors face a cost disadvantage in imitating the resource

•

intangible resources are usually more costly to imitate than tangible resources and bundles of resources are more costly than single resources

Harley-Davidson’s styles may be easily imitated, but its reputation cannot

Applying the VRIO Framework The Question of Organization •

a firm’s structure and control mechanisms must be aligned so as to give people ability and incentive to exploit the firm’s resources

•

examples: formal and informal reporting structures, management controls, compensation policies, relationships, etc.

•

these structure and control mechanisms complement other firm resources—taken together, they can help a firm achieve sustained competitive advantage

3M Company – rewards innovation and risk-taking

Mobilizing Company Resources to Produce Competitive Advantage

Competitive Advantage

Strategic Assets and Market Achievements

Core and Distinctive Competencies Competitive Capabilities Company Resources

Competitive Advantage Competitive advantage • A firm’s profitability is greater than the average profitability for all firms in its industry Sustained Competitive Advantage • A firm maintains above average and superior profitability and profit growth for a number of years The Primary Objective of Strategy is to achieve a Sustained Competitive Advantage with turn results in Superior Profit and Profit Growth

Determining the Competitive Value of a Company Resource To qualify as the basis for sustainable competitive advantage, a “resource” must pass 4 tests: 1. Is the resource hard to copy ? 2. Does the resource have staying power -- is it durable ? 3. Is the resource really competitively superior ? 4. Can the resource be trumped by the different capabilities of rivals ?

Grant’s five-step, resource-based approach to strategy analysis: 1. Identify and classify the firm’s resources in terms of strengths and weaknesses 2. Combine the firm’s strengths into corporate capabilities – core competences. 3. Appraise the profit potential of these resources and capabilities in terms of their potential for sustainable competitive advantage. 4. Select the strategy that best exploits the firm’s resources and capabilities relative to external opportunities. 5. Identify resource gaps and invest in upgrading weaknesses.

Value Chain Analysis A value chain is a linked set of valuecreating activities beginning with basic raw materials coming from suppliers, moving on to series of value-added activities involved in producing and marketing a product or service, and ending with distributors getting final goods into the hands of the ultimate consumer.

Value Chain Analysis Typical Value Chain for a Manufactured Product

Raw Materials

Primary Manufacturing

Fabrication

Product Producer

Distributor

Retailer

Corporate Value Chain Analysis Primary Activities and Costs Purchased Supplies and Inbound Logistics

Operations

Distribution And Outbound Logistics

Sales and Marketing

Service

Profit Margin

Product R&D, Technology, Systems Development Human Resources Management General Administration

Support Activities and Costs

Value Chain Analysis is a three-step process: 





Activity Analysis: you identify the activities you undertake to deliver your product or service; Value Analysis: for each activity, you think through what you would do to add the greatest value for your customer; Evaluation and Planning: you evaluate whether it is worth making changes, and then plan for action.

An Unweighted Competitive Strength Assessment KSF/Strength Measure

ABC Co.

Rival 1

Rival 2

Rival 3

Rival 4

Quality/product performance

8

5

10

1

6

Reputation/image

8

7

10

1

6

Manufacturing capability

2

10

4

5

1

Technological skills

10

1

7

3

8

Dealer network/distribution

9

4

10

5

1

New product innovation

9

4

10

5

1

Financial resources

5

10

7

3

1

Relative cost position

5

10

3

1

4

Customer service capability

5

7

10

1

4

61

58

71

25

32

Overall strength rating

Rating Scale: 1 = very weak; 5 = average; 10 = very strong

A Weighted Competitive Strength Assessment KSF/Strength Measure

Weight

ABC Co.

Rival 1

Rival 2

Rival 3

Rival 4

Quality/product performance

0.10

8/0.80

5/0.50

10/1.00

1/0.10

6/0.60

Reputation/image

0.10

8/0.80

7/0.70

10/1.00

1/0.10

6/0.60

Manufacturing capability

0.10

2/0.20

10/1.00

4/0.40

5/0.50

1/0.10

Technological skills

0.05

10/0.50

1/0.05

7/0.35

3/0.15

8/0.40

Dealer network/distribution

0.05

9/0.45

4/0.20

10/0.50

5/0.25

1/0.05

New product innovation

0.05

9/0.45

4/0.20

10/0.50

5/0.25

1/0.05

Financial resources

0.10

5/0.50

10/1.00

7/0.70

3/0.30

1/0.10

Relative cost position

0.35

5/1.75

10/3.50

3/1.05

1/0.35

4/1.40

Customer service capability

0.15

5/0.75

7/1.05

10/1.50

1/0.15

4/1.60

Sum of weights

1.00 6.20

8.20

7.00

2.10

2.90

Overall strength rating

Rating Scale: 1 = very weak; 5 = average; 10 = very strong

Scanning Functional Resources Basic Organizational Structures     

Simple structure Functional structure Divisional structure Strategic business units (SBUs) Conglomerate structure

Basic Organizational Structures Simple Structure Owner-Manager Workers Functional Structure Top management Manufacturing

Sales

Finance

Personnel

Divisional Structure Top management Product division A Manufacturing Sales

Product division B

Finance

Manufacturing Personnel

Finance Sales

Personnel

Integrating Strategy & Culture Corporate Culture

Pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration…is considered valid and taught to new members

Corporate Culture A change in mission, objectives, strategies, or policies is not likely to be successful if it is in opposition to the accepted culture of the firm. Like structure, if an organization’s culture is compatible with a new strategy, it is internal strength. In opposite – it is a serious weakness.

Integrating Strategy & Culture Values Beliefs

Legends

Heroes

Symbols

Cultural Products

Myths

Rites

Rituals

Strategic Marketing Issues Customer Needs/Wants for Products/Services 1. Market position: who are our customers? 2. Market segmentation: what niches to seek, which new types of products to develop?

3. Marketing Mix refers to the particular combination of key variables (product, place, promotion, and price)

4. Product Life Cycle is a graph showing time plotted against the dollar sales of a product as it moves from introduction through growth and maturity to decline

Strategic Financial Issues

1. Financial Leverage (the ratio of total debt to total assets) is helpful in describing how debt is used to increase the earnings available to common shareholders. 2. Capital budgeting is the analyzing and ranking of possible investments in fixed assets such as land, buildings, and equipment in terms of additional outlays which will result from each investment.

Strategic Research & Development Issues

 Development of new products before competitors  Improving product quality  Improving manufacturing processes to reduce costs

Strategic Operations Issues Production/Operations Functions  Process  Capacity  Inventory  Workforce  Quality

Strategic Human Resource Management Issues The primary task of HRM is to improve the match between individuals and jobs.

 Self-managing work teams  Cross-functional cross teams  Concurrent engineering

Management Function

Stage When Most Important

Planning

Strategy Formulation

Organizing

Strategy Implementation

Motivating

Strategy Implementation

Staffing

Strategy Implementation

Controlling

Strategy Evaluation

Management Information Systems MIS are used      

to automate back-office processes to automate individual tasks to provide sufficient data for analysis to enhance key business functions (marketing & operations) to provide customer support and help in distribution and logistics to develop competitive advantage Internet Intranet Extranet

Synthesis of Internal Factors: IFAS IFAS– Maytag (1995) Key Internal Factors

Weight

Rating

Wtd Score

1. Quality Maytag culture

0.15

5.0

0.75

2. Experienced top management

0.05

4.2

0.21

3. Vertical integration

0.10

3.9

0.39

4. Employee relations

0.05

3.0

0.15

5. Hoover’s international orientation

0.15

2.8

0.42

Strengths

IFAS– Maytag (1995) Key Internal Factors

Weight

Rating

Wtd Score

1. Process-oriented R&D

0.05

2.2

0.11

2. Distribution channels

0.05

2.0

0.10

3. Financial position

0.15

2.0

0.30

4. Global positioning

0.20

2.1

0.42

5. Manufacturing facilities

0.05

4.0

0.20

TOTAL

1.00

Weaknesses

3.05

Internal Factors Analysis Summary IFAS

The Maytag’s total weight is 3.05 means that the corporation was about average compared to the strengths and weaknesses of others in the major home appliance industry in 1995.