Unit I Analyzing Organizational Goals and Objectives

Unit IIAnalyzingthe Organization’s External Environment

UNIT III ANALYZING THE ORGANIZATION’S INTERNAL
ENVIRONMENT

BA 27- Strategic Management

Prof. Margarita G. Hilario, Faculty

CBEA, Business Administration Department
mghilario@mmsu.edu.ph
Unit IV Internal Analysis: Assessing the activities, resources and
capabilities of the firm
A. What is internal analysis?
B. Why the need to conduct internal analysis?
C. Frameworks of Internal Analysis
1. SW Analysis
2. Value Chain Analysis
3. Resource-Based View of the Firm
At the end of the unit, the students must have:
1. familiarized the frameworks used in assessing the internal resources, activities and capabilities
of an organization using SW Analysis, Value Chain Analysis and Resourced-based View;
2. appreciated how value chain analysis help managers in creating value by investigating the
relationships of activities within the firm and its customers and suppliers;
3. learned resource-based view and the different types of tangible and intangible resources, as
well as organizational activities;;
4. internalized the four criteria that a firm’ resources must possess to maintain a sustainable
advantage;
 Introduction
What is internal analysis? Why the need to conduct an internal analysis?

Internal analysis is a tool used to The ultimate purpose of internal analysis is to identify the
assess the organization's strengths and strategic strengths (where the firm excels ) and weaknesses
weaknesses, capabilities, resources, (where it may be lacking relative to competitors) around which a
and activities. firm’s future strategy is built.

There are several frameworks but the

most notable ones are: SW Analysis,
Resource-based View and Value-
chain Analysis
Why the need for internal analysis?

It provides information needed in

choosing what strategies to adopt that will
enable the organization to attain sustained
competitive advantage (SCA).
Why the need for internal analysis?

Internal analysis enables a firm to develop company profile.

Company profile is the determination of a firm’s strategic

competencies and weaknesses. This is usually accomplished by
identifying and evaluating strategic internal factors whether they
are strengths or weaknesses.
Note: Two or more firms in the same industry have many
strengths in a variety of functional areas: marketing,
production, human resources, operations, logistics etc.
However, one firm may outperform the others by a wide margin
over a long period of time. How can this be so?
We will explore more in this chapter…
1. SW Analysis
2. Value Chain Analysis
3. Resource-Based View of the Firm
 SW OT Analysis is the most basic technique for analyzing firm and industry
conditions
SW deals with the strengths and weakness (internal aspect of the organization) and
evaluating the impact whether strength or weakness along the basic areas of management:
Human Resources, Marketing, Production/Operations, Research & Development,
Organization and Management and Information and Communication Technology.
Note: To develop or revise strategy, managers must identify the key factors in which success will most likely depend.

SW Analysis is conducted using two steps:

1. Identification of Strategic Internal Factors Strategic internal factors are the firm’s
basic capabilities, limitations and characteristics.
2. Evaluation of Internal Strategic Factors It involves internal analysis of the key areas to
determine strengths and weaknesses.
1. MARKETING
Brand image
Quality of the firm’s products/services
Product breadth/product line
Ability to gather needed information about markets
Product/service image, reputation
Imaginative, efficient, and effective sales promotion and
advertising
Well-established distribution channels
2. Finance and Accounting
Ability to raise short term/long-term capital
Cost of capital relative to industry and competitors
Relations with owners, investors and stockholders
Cost of entry and barriers to entry
Effective cost control: ability to reduce cost
Efficient and effective accounting system
3. PRODUCTION/OPERATIONS
Raw materials cost and availability/ supplier relationship
Inventory control systems: inventory turnover
Location of facilities, layout and utilization of facilities
Economies of scale
Degree of vertical integration
Efficiency and cost/benefit equipment
Effective operation control procedures: design, scheduling, purchasing,
quality control and efficiency
Research and development/technology/innovation
Patents, trademarks and similar legal protection
4. HUMAN RESOURCES

Employee skill and morale

Efficient use of incentives to motivate performance
Efficient and effective personnel policies
Low employee turn-over and absenteeism
High performing employees and leaders
5. ORGANIZATION and MANAGEMENT
Organizational structure
Corporate image
Firms record to achieving objectives
Organization of communication system
Organizational climate: culture
Use of systematic procedures and techniques in decision making
Top management skill, capabilities and interest
Strategy planning system
 How should strategists evaluate key internal factor as strength or weakness?

There are four (4) basic perspectives:

1. Comparison with competitors Firms in the same industry often have a different
marketing skills, financial resources, operating facilities and location, technical
know-how, brand image, levels of integration, managerial talent and so on.

2. Comparison with performance It involves use the historical experience of the

firm as a basis for evaluating internal factors.
3. Stages in Product Life Cycle
4. Success factors in the industry Use of industry-level analysis to evaluate a firm’s
capacity for success
Value-Chain Analysis

Value chain analysis (VCA) is a process where a firm

identifies its primary and support activities that add value to
its final product and then analyze these activities to reduce
costs or increase differentiation.
Value chain represents the internal activities a firm engages
when transforming inputs into outputs.
 Value-Chain Analysis

- a strategic analysis of an organization that uses value-

creating activities
- - it is useful in understanding the building blocks of
competitive advantage
 VALUE CHAIN

- is a set of activities that an organization carries out to create

value for its customers: the primary and support Activities

• Value is measured by total revenue, a reflection of the price a

firm’s product commands and the quantity it can sell.
Activities that
add value by
themselves or
add value
through
important
relationships
with both
primary
activities and
other support
activities

Sequential activities of the value chain that refer to the physical creation of the
product or service, it sales and transfer to the buyer, and its services after the sales
 Primary Activities
relate directly to the physical creation, sale,
maintenance and support of a product or
service.
 Primary activities consists of the following:
1. Inbound logistics refers to the processes related to receiving, storing,
and distributing inputs internally. Supplier relationships is a key
factor in creating value here. e.g. Just-in-time (JIT) inventory system designed by
Toyota to achieve efficient inbound logistics. Parts arrive at the assembly plants only hours before
they are needed.

2. Operations are the transformation activities that transform inputs into

outputs/finished products. Here, your operational systems create value.
- Creating environmental-friendly; adopt state-of-the-art facilities.
3. Outbound logistics is associated with activities with collecting, storing,
and distributing the product or service to buyers. These activities include finished
goods, warehousing – Wilcon Depot, Ace Hardware, IKEA, Handyman), material handling, delivery
operation, order processing, and scheduling.
Primary activities consist of the following:

4. Marketing and sales – These are the processes used to persuade

clients to purchase from your product instead of your competitors. The
benefits you offer, and how well you communicate (IMC) them, are
sources of value here.

5. Service – These are the activities related to maintaining the value of

your product or service to your customers, once it's been purchased
(after-sale service).
Exhibit 3.2. Inbound Logistics
The Value - Location of distribution facilities to minimize shipping times (near to customers/market-
Chain: Some Ikea/Wilcon)
Factors to - Warehouse layout and designs to increase the efficiency of operations for incoming materials
Consider in
Operations
Assessing a
Firm’s Primary - Efficient plant operations to minimize costs.
Activities - Efficient plant layout and workflow design.
- Incorporation of appropriate process technology.
Outbound logistics
- Effective shipping processes to provide quick delivery and minimize damages
- Shipping goods in large size to minimize transportation costs
Marketing and Sales
- Innovative approaches to promoting and advertising.
- Proper identification of customer segments and needs
Service
- Quick response to customer needs and emergencies
- Quality of service personnel and ongoing training
Support activities are those that add value through important
relationships with both primary activities and other support activities.
 Procurement refers to the function of purchasing inputs used
in the firm’s value chain, including raw materials, supplies, and
other consumable items as well as assets such as machinery,
laboratory equipment, office, and buildings. For example,

Microsoft improved its procurement processes by providing a

formal review of its suppliers.
Technological development are activities associated with the development
of new knowledge that is applied to the firm’s operations.

These activities relate to managing and processing information, as

well as protecting a company's knowledge base.

Note: Minimizing information technology costs, staying current with technological

advances, and maintaining technical excellence are sources of value creation.
3. Human resource management consists of activities involved in
recruiting, hiring, training, development, and compensation of all
types of personnel.

People are a significant source of value, so businesses can create a

clear advantage with good HR practices.
General administration consists of activities that support the
entire value chain such as general management, planning,
finance, accounting, legal and government affairs, quality
management and information systems;
Exhibit 3.2. The General administration
Value Chain: - Effective planning system to attain overall goals and objectives
Some Factors to
Consider in - Excellent relationships with diverse stakeholders groups.
Assessing a Firm’s - Effective information technology to integrate value-creating activities.
Support Activities Human Resource Management
- Effective recruiting, development and retention mechanisms for employees

- Quality relations with trade unions.

- Reward and incentive programs to motivate employees.
Technology Development
- Effective R&D activities for process and product initiatives
- Positive collaborative relationships between R&D and other departments

- Excellent professional qualifications of personnel.

 RESOURCE-BASED View (RBV)

RESOURCE-BASED View is helpful in developing strategies

for an organization by revealing how resources exploit new
opportunities.

Resources includes all assets, capabilities, organizational

processes, information, knowledge and others controlled by a
firm that enables it to develop and implement value-creating
strategies.
 Types of Resources
Tangible resources are organizational assets that are relatively easy to
identify. It includes the physical and financial assets that an organization uses
to create value to its customers.

Intangible resources are organizational assets that are difficult to identify

And account for and are typically embedded in unique routines and
practices, including human resources, innovation resources and
reputable resources.

Organizational Capabilities are the competencies or skills that a firm

employs to transform inputs to outputs.
Tangible Resources
Financial resources Firm’s cash account and cash equivalents
Firm’s borrowing capacityGet in Touch
Firm’s capacity to raise equity
With Us
Send us a message or
Physical Resources Modern plant facilities visit us
Favourable manufacturingCitylocations
of Batac, Ilocos Norte,
Philippines
State-of the-art machinery and equipment
(63) 77-600-0459
op@mmsu.edu.ph
Technological Trade secrets
Follow us for updates
Innovative production processes
Patents, copyrights, trademarks
facebook.com/MMSUofficial
www.mmsu.edu.ph

Organizational capabilities Effective strategic planning processes

Excellent evaluation and control systems
Intangible Resources

Human Resources Get of

Experience and capabilities in employees.
Touch
Trust. Social capital With Us
Managerial Skills Send us a message or
visit us
Firm’s specific practice and procedures
City of Batac, Ilocos Norte,
Philippines
Innovation and Technical and scientific(63) 77-600-0459
skills
op@mmsu.edu.ph
creativity Innovation capacities
Follow us for updates
Reputational Brand name facebook.com/MMSUofficial
Reputation with customerswww.mmsu.edu.ph
for quality and reliability
Reputation with suppliers for fairness, non-zero sum
relationships.
Organizational Capabilities
- Firm competencies or skills the firm employ to transform inputs to outputs
- Capacity to combine tangible and tangible resources, using organizational
processes to attain desired end
Examples:
- Outstanding customer service
- Excellent product development capabilities
- Innovativeness of products and services
- Ability to hire, motivate and retain human capital
 Criteria in Building Sustainable Competitive Advantage:
1. Valuable A resource is valuable if
- it exploits some environmental opportunities and neutralizes threats
in the firm’s environment;
- when they help the organization implement its strategy effectively;
- if it enables a firm to formulate and implement strategies that
improve efficiency and effectiveness
2. Rare. Resources are rare if few current and potential competitors
posses it
- If competitors cannot merely duplicate them; hard to copy often lead
to market innovation and market leadership. Ex. Physically unique;
 c. Inimitability. Difficulty in imitating is the key to value creation
because it constraints competitors.

Three factors that make it a firm difficult to copy each other’s skills and resources:

a. Physical uniqueness is the first source of inimitability. Unique historical condition- born
with mission and vision
b. Causal ambiguity – would-be competitors may be thwarted because it is impossible to
disentangle the cause
c. Social complexity – integral relation to managers, customers, suppliers, social network (trust,
interpersonal relationship, culture, reputation)

d. Difficult to substitute/Non Substitutable - resources that do not

have strategic equivalents
 RESOURCE-BASED View (RBV)
Sustained competitive advantage (SCA) is created when a firm
possess and employ resources that are:
1. Valuable
2. Rare/unique
3. Costly to Copy
4. Difficult to substitute

To learn more about Resource based View, click the link: https://www.youtube.com/watch?v=RMlbCpcpSt8
Author of Resource-based View
(1985)
 Performance Tasks
1. Group Performance Task. Conduct an internal analysis of the firm under study
using any of the following frameworks: SW Analysis, Value Chain Analysis or
Resource-based View (RBV). If you adopt RBV, use the scale of 1-5 (1 is the
lowest and 5 is the highest) in assessing whether the firm’s tangible/intangible
resources are rare, valuable, inimitable, and difficult to substitute. Make an
analysis.

2. Individual Performance Task Self-Assessment: Using the Resource-based View

or Value Chain Analysis, make an assessment of yourself and your career aspiration
by describing your strengths and weaknesses and the activity/ies you need to
perform/attend to, in order to enhance your profile as a student and as a future
employee.

NOTE: Supplement with facts.

• Power point presentation “ Unit III Analyzing the Organization’s Internal
Environment
• Book:
• Dess, Gregory G., et al. (2016). Strategic Management: Text and Cases, 8th Ed. Mc Graw-
Hill Education, New York 10121.
Thank you very much!

• For more information and/or clarification on the

assessment activity,
• Feel free to contact me:
• Email: mghilario@mmsu.edu.ph
• Mobile: 0933-8292252