Strategic

Planning
Module 2:
The Internal Assessment
 The Emergence of Competitive Advantage

• Competitive Advantage
– When two or more companies compete within the same
market, competitive advantage is a condition that enables
a company to operate in a more efficient or responsive
manner than its competitors, and which results in higher
potential to earn a persistently higher rate of profit
– It (CA) results from the value the organization can create
for its customers through the strategic application of its
core competencies
– An organization gains competitive advantage when it
outperforms its competitors in attracting customers

…..Robert Grant

2
 Core Competencies

• In order to build competitive advantage, organizations need to

identify:
– What are we best at?
– What capabilities do we possess for competing against our rivals?

• Competence is the product of learning and experience that

represents real proficiency in performing an internal activity

• Competitive capability is a competence that is appreciated by

customers and distinguishes the organization from its rivals

3
 Organizational Competencies

Distinctiv
Core e

Activities that an Something a company

organization performs
better than its other
internal activities and that
are most critical to
competitiveness and
profitability
does well relative to its
rivals. An internal strength
resulting in competitive
advantage

4
 Developing Core Competencies

• What core competencies the organization develops will reflect

the specific stakeholders on which the company has chosen to
focus, the resources available to develop core competencies
and the key success factors for the industry in which the
company operates.

• An organization’s chosen direction will determine what

competencies it will require

5
 National Competitive Advantage

• National Competitive Advantage:

– The features of the local environment that provide a competitive
advantage for organizations located there.
– These factors are critical for the success of business in the global arena
– Companies often establish concentrated locations to gain access to
advantages that exist there such as: manufacturing industry zones in
China, technology precincts in Silicon Valley, CA and free trade zones in
the Middle East, Asia and South America
– Concentrated locations help protect those industries from competition
located in other countries.

6
 Competitor Analysis and Framework

How will competitors Do their goals provide satisfaction Accuracy of competitor assumptions
respond to your strategy? with their present position? can pose a threat or opportunity

Competitor Competitor Competitor

Response Future Goals Assumptions

Competitor Competitor
Strategies Capabilities
Are they strategically defensive, What are their strengths and
offensive, leaders, or followers weaknesses? Can this be leveraged?

7
 Porter’s Three Grand Competitive Strategies

Providing unique
products/services
Cost leadership
through lower price
Differentiation valued by buyers

Cost
Focus
Leadership

Porter’s 3 Targeting a specific

segment of a market to
Grand develop a niche
Strategies

8
 Differentiation and Segmentation

• How a company competes

• Ways it offers uniqueness to customers
Differentiation • Uniqueness includes consistency, reliability,
status, quality, innovation
• Strategic choice by a company

• Where a company competes in terms of

customer groups, localities, product types
• A partitioned market according to
Segmentation characteristics of customers and their
demand
• A feature driven by market structure not
©Allan Gardner, 2018
Al Rights Reserved

company strategic choice

Allan Gardner, November 2018

9
All Rights Reserved
 Costs and Differentiation

• A company can achieve a higher rate of profit over a rival in

one of two ways:
– Supply an identical product or service at lower cost (Cost Advantage)
– Supply a product or service that is differentiated in such a way that the
customer is willing to pay a premium that exceeds the cost of the
differentiation (Differentiation Advantage)

10
 Product/Service Offerings

• Market Segmentation is the process that divides people with

similar needs into identifiable groups
• Market Segments are the groups of customers with similar
criteria for buying decisions and/or similar buying behaviors
• Positioning is the process of focusing an organization’s
business system to satisfy certain needs of a targeted market
segment of customers to distinguish the organization from its
competitors. This may be done by:

• Price • Availability
• Product features • Image
• Quality • Bundling

11
 Factors of Market Segmentation
Age and income

Demographic
Perceived benefits factors Family life cycle
and social class
Perceptual Socioeconomi
factors c factors
Market
Segmentatio
n Factors National & regional
Regular, moderate,
occasional users differences
Consumption Geographic
patterns factors

Psychological
factors
Lifestyle & personality
Allan Gardner, November 2018
12
All Rights Reserved END
 Blue and Red Ocean Market Strategies
• All the industries not in existence today
• Highest growth opportunities for business
• Demand is created rather than fought over
• Ample opportunity for growth that is both
profitable and rapid
• Competition is irrelevant because the rules of
the game are waiting to be set

• Represents all the industries in existence today

• Decreasing options for business
• Industry boundaries are defined and accepted
• Competitive rules of the game are known
• Prospects for profits and growth are reduced

Allan Gardner, November 2015

13
All Rights Reserved
Blue Ocean Strategy – Professor Stanley Ridgley, Drexel University
Strategic thinking is a powerful and invaluable skill, one that leads to greater chances of success in whatever professional and
personal projects you're involved in. It involves setting goals, developing long-range plans, anticipating the unexpected,
analyzing your environment, and even cooperating with your competitors.
 Resources of the Company
More valuable than tangible
Largely invisible – Includes:
Brand names, reputation, technology,
Intangible intellectual property

Tangible Human

Easiest to identify: Expertise, KSAs, and effort of

• Financial resources employees
• Physical assets Company
Resources

15
 Resource Based Theory

Competitive Advantage is
gained through control of
resources that are rare,
non-tradable, non-
substitutable, valued by the
market, and difficult or
impossible to imitate

Allan Gardner, November 2018

16
All Rights Reserved
 VRIO Framework

• A tool used to analyze an organization’s internal resources and

capabilities to discover if they can be a source of sustained
competitive advantage

• VRIO analysis considers the following elements of resources:

– Valuable: Is the firm able to exploit an opportunity or neutralize an
external threat with the resource/capability?
– Rare: Is control of the resource/capability in the hands of a relative
few?
– Imitability: Is it difficult to imitate, and will there be significant cost
disadvantage to a firm trying to obtain, develop, or duplicate the
resource/capability?
– Organization: Is the firm organized, ready, and able to exploit the
resource/capability?

17
VRIO Framework Analysis Process

18
 Value Chain Analysis

• Value chain is a template that identifies the activities of a

company from raw materials to customer, the value added by
each activity and the cost of each activity, and that facilitates
implementation of business-level strategy
……..Robert Grant
• The internal processes or activities a company performs to
design, produce, market, deliver and support its product
……..Michael
Porter
• A high-level model of how businesses receive raw materials as
input, add value to the raw materials through various
processes, and sell finished products to customers
…..Investopedia

19
 The Value Chain

Inputs Throughputs Outputs

Suppliers Internal Process Customers

20
 Value Chain Primary and Support Activities

• Primary activities are actions directly associated with

production, delivery, sales, and service:
– Inbound logistics
– Operations
– Outbound logistics
• Support activities are actions that enable primary activities to
take place, including:
– Human Resource Management
– Procurement
– Technology development
– Support of infrastructure

21
 Porter’s Value Chain
Organizational Infrastructure

Human Resource Management

Support Technology Development

Activities
Procurement

Marketing & Sales

Service
Operations

Outbound
Logistics

Logistics
Inbound

Primary Activities
22
 Hierarchy in Organizational Design
• A hierarchy is a system composed of interrelated subsystems.
• Typically, in a hierarchical business structure, the chain of
command looks like a pyramid, with a large base of workers,
who are directly supervised by the smaller level above them,
who are in turn supervised by the level above them,
continuing on to the top ranking officer such as the company
President or CEO.
• Two key advantages to hierarchical structures:
– Economizing on coordination – as an organization increases in size and
complexity, so the communication/economizing benefits of
hierarchically arranged modules increase
– Adaptability – hierarchical, modular systems are able to
evolve more rapidly than unitary systems that are not
organized into subsystems
23
 Types of Hierarchies

Mechanistic Organic
Rigid & highly Flexible & broader
specialized tasks defined tasks

Mutual adjustment &

Rules &directives
common culture
vertically imposed

Vertical & horizontal

Vertical communication communication

Centralized knowledge Dispersed knowledge

Loyalty to immediate Loyalty to organization

superior & its goals

24
 Different Organization Structures

Standard model for

small businesses .
Owner or manager Work divided into
exercises control over a departments specializing
few subordinates. in operational functions
Simple Functional

Establishes formal linking

roles between functions
Multi-divisional structure
and products. Employees Multi-
have 2 sets of superiors, Matrix defined by product or
one for product or service, Divisional service, market or
geography
one with functional
responsibilities

Allan Gardner, November 2018

25
All Rights Reserved
 Simple Structure

Owner/General Manager

Finance Operations Sales

Manager Manager Manager

Allan Gardner, November 2018

26
All Rights Reserved
 Functional Structure

• Most common structure found in organizations

• Departments defined by services they provide to organization’s
mission

Allan Gardner, November 2018

27
All Rights Reserved
 Multi-Divisional Structure

Allan Gardner, November 2018

28
All Rights Reserved
 Matrix Structure

Functional Chain of Command

Business Unit Chain of Command
Allan Gardner, November 2018
29
All Rights Reserved
 Organizational Structural Design Concepts

TECHNOLOGY

SUPPORTS BOTH CONCEPTS

Integration & Control Flexibility & responsiveness

Centralization Decentralization

Many levels of management Fewer levels of management

Decision-making at the top Delegates authority to lower
Narrow spans of control levels
Very hierarchical (Tall) Wide spans of control
Has a “flatter” shape
Allan Gardner, November 2018
30
All Rights Reserved
 Span of Control

The number of individuals in a group under one

supervisor.

Span of control: Number

Narrow Span Wide Span

(Fewer Employees) (Many Employees)

Allan Gardner, November 2018

31
All Rights Reserved