Internal Analysis

Introduction
Strategic analysis of any Business

enterprise involves two stages: Internal and External analysis.

Internal analysis is the systematic

evaluation of the key internal features of an organization.

External analysis will be discussed later.

Four broad areas need to be considered for internal analysis

The organizations resources, capabilities
The way in which the organization

configures and co-ordinates its key valueadding activities The structure of the organization and the characteristics of its culture The performance of the organization as measured by the strength of its products.

Analysis of the global business

Global value chain analysis: configuration and co-ordination

Resources, capabilities and core competences

Cultural and structural analysis

Global products and performance

Internal analysis

Resources
Resources are assets employed in the activities and

processes of the organization.

They can be tangible or intangible.
They can be obtained externally (organization-

addressable) or internally generated (organizationspecific). They can be specific and non-specific:

Specific resources can only be used for highly

specialized purposes and are very important to the organization in adding value to goods and services. Assets that are less specific are less important in adding value, but are more flexible.

 Resources fall within several categories:

Human
Financial Physical Technological Informational

An audit of resources would be likely to include

an evaluation of resources in terms of availability, quantity and quality, extent of employment, sources, control systems and performance.

General Competences/capabilities
They are assets like industry-specific skills,

relationships and organizational knowledge which are largely intangible and invisible assets.
Competences and capabilities will often be

internally generated, but may be obtained by collaboration with other organizations.

Certain competences are likely common to

competing businesses within a global industry or strategic group.

Core Competences/Distinctive Capabilities

Core competences or distinctive capabilities

are combinations of resources and capabilities which are unique to a specific organization and which are responsible for generating its competitive advantage. Kay (1993) identified four potential sources of Core competences:
Reputation
Architecture (i.e., internal and external relationship) Innovation

Strategic assets

Criteria to evaluate Core Competences

Complexity: How elaborate is the bundle of resources

and capabilities which comprise the core competence? Identifiability: How difficult is it to identify? Imitability: How difficult is it to imitate? Durability: How long does it be replaced by an alternative competences? Superiority: Is it clearly superior to the competences of other organizations? Adaptability: How easily can the competence be leveraged or adapted?
Customer orientation: How is the competence perceived

by customers and how far is it linked to their needs?

Resources: Capabilities: Core competence human, financial, Industry-specific Distinctive and superior physical, skills, relationships, skills, technology technological, + organizational relationships, = legal, informational knowledge knowledge and Intangible reputation of the firm Tangible and and invisible Unique, and visible assets assets difficult to copy

Perceived customer benefits/value added

Inputs to the firms processes

Integration of resources into value-adding activities

Denotes feedback loop denotes core competence development

Not all capabilities are core competences only those that add greater value than those of competitors

The relationships between resources, capabilities and core competence

Global Value Chain Analysis

Competitive advantage depends on the ability

of the organization to organize its resources and value-adding activities in a way that is superior to its competitors.
Value chain analysis is a technique developed

by Porter (1985) for understanding an organizations value-adding activities and relationship between them.

 Value can be added in two ways:

By producing products at a lower cost than

competitors By producing products of greater perceived value than those of competitors.

Porter extended value chain analysis to the

value system, analysis of the relationship between the organization, its suppliers, distribution channels and customers.

The Value Chain

The value chain is the chain of activities

which results in the final value of a businesss products.

Value added, or margin is indicated by

sales revenue minus costs.

Porter divided internal parts of organization

into primary and support activities

Primary activities are those that

directly contribute to production of good or services and organizations provision to customer

Support activities are those that aid

primary activities, but do not themselves add value

The Firm as a Value Chain

Support Activities Materials Management Human Resources Information Systems Company Infrastructure

R&D

Production

Marketing & Sales

Service

Primary Activities

 Certain activities or combinations of activities are

likely to relate closely to the organizations core

competences, termed core activities. They are:
Add the greatest value Add more value than the same activities in

competitors value chains

Relate to and reinforce core competences

Other value chain activities relate to capabilities,

but do not add greater value than competitors

and therefore do not relate to core competence.

The Value System

The value chain of an individual organization

provide an incomplete picture of its ability to add value. Many value-adding activities are shared between organizations often in the form of a collaborative network. As organizations identify and concentrate on their core competences and core activities, they increasingly outsource activities to other business for whom such activities are core.

 The value system is the chain of activities from

supply of resources through to final consumption of a product.

The total value system, in addition to the

organizations own value chain, can consists of upstream linkages with suppliers and downstream linkages with distributions and customers.
The value system is a similar concept to that of the

supply chain and illustrates the interactions between an organization, its suppliers, distribution channels and customers.

Supplier

Competitor

Distribution channel

Customers

Supplier

Organization

Distribution channel

Customers

Supplier

Competitor

Distribution channel

Customers

The Value System

The Global Value Chain

The configuration of an organizations activities

relates to where and in how many nations each activities in the value chain is performed. Co-ordination is concerned with the management of dispersed international activities and the linkages between them. Managers must examine the current configuration of value-adding activities and the extent and methods of co-ordination as part of their strategic analysis, which may determine possibilities for reconfiguration or improving co-ordination

 A global business has two broad choices of

configuration:
Concentration of the activity in a limited

number of locations to take advantage of benefits offered by those locations.

Dispersion of the activity to a large number of

locations.
Change in the business environment (e.g.,

technological change) may well lead to changes over time in the configuration that gives greatest competitive advantage.

 Co-ordination is essentially about overseeing the

complexity of the organizations configuration such that all value-adding parts of the business act in concert with each other to facilitate an effective overall synergy.
Those business that overcome the potential

difficulties of co-ordination are those that sustain the greatest competitive advantage.
Analysis of configuration and methods of co-

ordination assists in the process of understanding current competences and identifying the potential for strengthening and adding to them.

Core competences Core activities Value chain Configuration Concentration Dispersion

Co-ordination
Internal co-ordination
Internal linkages Value-adding activities Value system

External co-ordination
External linkages Suppliers Channels Customers

Internal activities External activities

Managing the value system

Global Organizational Culture and Structure

A global business must have a culture and

structure which allow it to carry out its global activities. The structure of the business must allow it to accomplish its objectives as effectively and as efficiently as possible. Culture is an important determinant of how effectively the organization operates and has important implications for employee motivation.

Portfolio Analysis
A key concept with regard to successful product

or subsidiary strategy is that of portfolio. Portfolio analysis is used in evaluating the balance of an organizations range of products. A broad portfolio can spread risk across more than one market. A narrow portfolio mean that the organalization become more specialized in its knowledge of fewer products and markets

The BCG Matrix

The Boston Consulting Group (BCG) growth-share

matrix is most often used by organizations in multiproduct and multimarket situations. BCG matrix offers a way of examining and making sense of a companys portfolio of product and market interests. It based on the idea that market share in mature markets is highly correlated with profitability and that is relatively less expensive and less risky to attempt to win share in the growth stage of the market.

Relative market share High

High
10X
1X

Low

Rate of market growth

Stars

Question marks

Cash cows
Low

Dogs

The Boston Consulting Group matrix

BCG Matrix: Cash cows

Cash cows: A product with a high market

share in a low-growth market is normally both profitable and a generator of cash.

Profits from this product can be used to support

other products that are in their development phase, milked on an on going basis.
Standard strategy would be to manage

conservatively, but to defend strongly against competitors.

BCG Matrix: Dogs

Dogs: A product that has a low market share in

a low-growth market is termed a dog in that it is typically not very profitable.

Once a dog has been identified as part of a

portfolio, it is often discontinued or disposed of.

More creatively, a small share product can be

used to price aggressively against a very large competitor as it is expensive for the large competitor to follow suit.

BCG Matrix: Stars

Stars have a high share of a rapidly growing

market and therefore rapidly growing sales.

It is the sales managers dream, but the accounts

nightmare.
It is often necessary to spend heavily on advertising

and product improvement so that when the market slows these products become cash flow.
If market share is lost, the product will eventually

become a dog when the market stops growing.

BCG Matrix: Question marks

Question marks are aptly named they

create a dilemma.
They already have a foothold in a growing

market, but if market share cannot be improved they will become dogs.
Resources need to be devoted to winning

market share.

Limitation of the BCG Matrix

There are many relevant aspects relating

to products that are not taken into account.

The imprecise nature of its four categories

and the difficulties inherent in predicting future market growth.

Global activity may add extra dimension

to the process of portfolio analysis.