3- Internal Analysis

Resources

• Resources: are organization’s assets, they are the main building block of the organization

• They can be tangible or intangible.

➢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.

Capabilities
• Capabilities: the organization ability to exploit resources.
• A capability is a functionally based and is resident in a particular function
• Thus there is a marketing capability, manufacturing capability, HR management capability.

Competencies
• A competency is a cross-functional integration and coordination of capabilities
• Example: a competency in a new product development is the result of integration of
information system capability, marketing capability, R&D capability and production
capability.

Core Competency
• Activities and processes through which resources are deployed in such a way to achieve
competitive advantage in ways that other competitors can’t copy or obtain.
• FedEx has a core competency of application of information technology to all its
operations
• Avon has a core competency of its expertise in door -to-door selling.
 Competitive Advantages

• An advantage over competitors gained by offering greater customer value, either through
lower prices or by providing more benefits that justify higher prices.
• Competencies or Skills : Are the activities and processes through which an organization deploy
it’s resources effectively.
 Core Competency

• To be in the whole company and not in a single individual who can leave the
organization
• It has to be applied in many segments i.e. the experience in one area help in
another. (Honda engines).
• To be difficult for competitors to imitate.
• Contribute significantly to key competencies within market segment.
• Must deliver perceived value added to the Customer.
 Core Competency
• A skill must meet three tests to be considered as a core competence:
1. Customer value.
2. Competitor differentiation
3. Extendibility.

• An organizational core competency is an organization's strategic strength.

• It is what the organization does best.
• what it should never outsource.

Core Competency examples

• Honda 
Gasoline powered engines.
• Black & Decker 
small electric motors.
• NEC semiconductors
• Microsoft 
developing user-friendly software.
• PepsiCo bottling and distribution.
• Apple innovative design and technology

Core Competences/Distinctive Capabilities

➢Kay (1993) identified four potential sources of Core competences:
➢Reputation
➢Architecture (i.e., internal and external relationship)
➢Innovation
➢Strategic assets
 Value Chain Analysis

➢Value chain analysis is a technique developed by Porter (1985) for understanding an

organization’s value-adding activities and relationship between them.

The Value Chain and the Value Network

• The Value Chain: describes the activities within and around an organization which
together create a product or service.

• The Value Network: is the set of inter-organizational links and relationships that are necessary
to create product or service.

Organization Generic value chain

• Value Chain Analysis helped identify a firm's core competencies and distinguish those
activities that drive competitive advantage.

• To understand how goods and services moves through the organization and how value is
added to them.

Porter Value Chain Model

Customer
• the organization is able to deliver a product or service for which the customer is willing to pay
more than the sum of the costs of all activities in the value chain.

Value Chain
• It is the COST of these value activities and the VALUE that they deliver that determines
whether or not best value products or services are developed.
• Managers can be able to see if there is a cluster of activities providing benefit to
customers located within particular areas of the value chain.

• Each of the company’s product lines has it’s own distinctive value chain.
• Because most companies make several different products or services, we have to analyze
different value chains of different products.
• Systemic examination of individual value activities can lead to a better understanding of
the company’s strengths and weaknesses
• According to Porter differences among competitor value chains are key sources of
competitive advantage.

Primary activities:
1. inbound logistics: materials handling, warehousing, inventory control, transportation.
2. operations: machine operating, assembly, packaging, testing and maintenance.
3. outbound logistics: order processing, warehousing, transportation and distribution.
4. marketing and sales: advertising, promotion, selling, pricing, channel management.
5. service: installation, servicing, spare part management.

Support activities:

6 firm infrastructure: general management, planning, finance, legal, investor relations.

7. human resource management: recruitment, education, promotion, reward systems.
8. technology development: research & development, IT, product and process development.
9. procurement: purchasing raw materials, lease properties, supplier contract negotiations.
 Who gets what from $ 100 Shoe

NIKE Value Chain

• In the 1980s, Nike learned that manufacturing had become a commodity that could be
outsourced for less cost and better quality than Nike could achieve with its internal
resources.
• Nike realized that its core competences were in product development and marketing,
and so management grew the company around a strategy of designing innovative
products that met evolving customer needs.
• The value chain in Exhibit shows a simplified view of the athletic-shoe industry.
• Nike owns and controls just three elements: product development, marketing and
its branded retail stores.
 Product Life-Cycle Strategies

• After launching the new product, management wants the product to enjoy a long and healthy life.
• The company wants to earn a decent profit to cover all the effort and risk that went into
launching it.
• Management is aware that each product will have a life cycle.

Product Life Cycle (PLC)

• The course of a product's sales and profits over its lifetime. It involves five distinct stages:
1. Product development
2. Introduction
3. Growth
4. Maturity
5. Decline.
Allocating various PS Products on the PLC curve

Product Life Cycle (PLC)

1. Produce development begins when the company finds and develops a new-product idea.
During product development, sales are zero and the company's investment costs mount.

2. Introduction is a period of slow sales growth as the product is being introduced in the market,
Profits are non-existent in this stage because of the heavy expenses of product introduction.

3. Growth is a period of rapid market acceptance and increasing profits.

4. Maturity is a period of slowdown in sales growth because the product has achieved
acceptance by most potential buyers. Profits level off or decline because of increased
marketing outlays to defend the product against competition.

5. Decline is the period when sales fall off and profits drop.

New Product Planning

• Companies need to continuously examine alternative product and marketing
development strategies.
• The Ansoff Model is a very useful tool Old Product New Product

Market Product
Old Market Penetration development

New Market MarketMarket MarketProduct

Development Diversification
 Local Example: El Rashidi El Mizan
Old New
Product
Market Penetration Product
Product development

Old

Market Development Product Diversification

New

North America ,South America

Eastern Europe, Africa ,Mid East
Eastern Asia, Western Europe

Ansoff Model Application Starbucks

Old Product New Product

Market Penetration Product Development

➢Company growth by increasing sales to
current customers without changing the
original products
Old 1. Adding new stores in current market areas
Market 2. Improve advertising, prices, services, menu
selection, store design, remodeling store.
Market Development
New ➢ Company growth by identifying and
Market developing new markets for its current
products
1. New demographic markets(seniors)
2. new geographic markets (non US markets)
➢Company growth by offering modified or new
products to current market segments
1. Via instant coffee and Tazo tea, fitting home
brewers
2. Lighter roast coffee (blonde) meeting the taste
of 40% Americans
3. Energy drinks Starbucks Refreshers
Combining fresh juice and coffee
Diversification
➢ Company growth through starting up or
acquiring business outside the company’s
current products and markets
1. Starbucks acquired Evolution Fresh providing
super premium fresh-squeezed juices
 The BCG Matrix
(Boston Consultancy Group)

• Market Share/ Market Growth Matrix:

• A marketing planning tool that classifies a firm’s SBU’s or products
according to industry growth rates and market shares relative to
competing products

• Stars
• Cas Cows
• Dogs
• Question Marks
BCG Matrix benefits
• The model provides guidance for resource allocation.
• A company with a product portfolio requires different strategies to compete effectively and
efficiently according to their cash usage and generation.
• It is not a question of one strategy fits all SBUs since the likelihood for each of them experiencing
the same market growth rate, industry-threats and leverage is very slim.

Cash Cows:
These products are said to have high profitability, and require low investment for the fact that
they are market leaders in a low-growth market.

Stars:
They tend to/should generate large amounts of cash but also use a lot of cash because of growth
market conditions.

Question Marks
Question Marks have not achieved a dominant market position, and hence do not generate
much cash. They tend to use a lot of cash because of growth market conditions.

Dogs
Dogs often have little future and are big cash drainers on the company as they generate
very little cash by virtue of their low market share in a highly low growth market.

➢ surplus cash from cash cow products should be channeled into Stars and Questions in order
to create the future Cash Cows
• A unit’s relative competitive position is defined
as its market share in the industry divided by
that of the largest other competitor.
• By this calculation, a relative market share
above 1.0 belongs to the market leader.
• The line separating areas of high and low relative
competitive position is set at 1.5 times.

• A product line or business unit must have relative strengths of this magnitude to ensure that it
will have the dominant position needed to be a “star” or “cash cow.”
• On the other hand, a product line or unit having a relative competitive position less than 1.0 has
“dog” status.
• Each product or unit is represented by a circle. The area of the circle represents the relative
significance of each business unit or product line to the corporation in terms of assets used or
sales generated.

We get the Internal Analysis S&W From :

➢ Identifying key core competencies.

➢ Identifying critical competitive advantages.
➢Utilize the Porter Value Chain to help identifying the key competitive advantages of your company.
➢From the BCG matrix we can find cash cows as sources of financing for new product.