SMMGT Chap.4

Chap-4
Internal Analysis
Chap-4 -Internal Analysis ( Dr Getie Andualem )
8/23/2021 1
Learning Objectives
Upon completion of this chapter, a student will be able to:
 Describe the purpose of internal analysis
 Explain organizational capabilities and assets
 Discuss the nature and purpose of BCG growth
share matrix and the GE models
 Discuss the purpose of SWOT analysis and
describe its inherent limitations
Chap-4 -Internal Analysis ( Dr Getie Andualem ) 8/23/2021 2

An Internal Analysis defined
 An internal analysis is the thorough examination of a company's internal
components, both tangible and intangible, such as resources, assets and

processes.
 An internal analysis helps the company decision-makers accurately identify
areas for growth or revision to form a practical business strategy or business

plan.
 An internal analysis is an exploration of your organization's competency, cost
position and competitive viability in the marketplace. ...
 The data generated by an internal analysis is important because you can use it
to develop strategic planning objectives to sustain and grow your business.

Internal Analysis

Definition of A Business Self-analysis
 A business self-analysis is similar to a competitor analysis, but

it has a greater focus on performance assessment and is much
richer and deeper.
 It is more detailed because of its importance to strategy, and

because much more information is available.
 The analysis is based on detailed current information on sales,

profits, costs, organizational structure, management style, and
other factors.

 Just as strategy can be developed at the level of a firm, a group of

strategic business units (SBUs), an SBU, or a business area within an
SBU, self-analysis can be conducted at each of these levels.
 Of course, such analyses will differ from each other in emphasis and
content, but their structure and thrust will be the same.
 The common goal is to identify organizational strengths,

weaknesses, constraints, and, ultimately, responsive strategies, either
exploiting strengths or correcting or compensating for weaknesses.

 Self-analysis begins by examining the financial

performance of a business, its profitability and sales.
 Indications of unsatisfactory or deteriorating performance
might stimulate strategy change.
 In contrast, the conclusion that current or future

performance is acceptable can suggest the old adage, “If it
isn't broke don’t fix it.”

 Of course, something that is not broken may still

need some maintenance, refurbishing, or vitalization.
 Performance analysis is especially relevant to the
strategic decision of how much to invest in or

disinvest from a business.

Organizational Capabilities

 Resources are defined as all the Assets and Competencies to which the
organization has access.
 Assets are given a broad definition to include both the tangible and
intangible capital of the organization.
 Competencies are the skills that are contained within the

organization.
 The application of these skills to deploy the available assets

effectively delivers the organization’s strategic capabilities in the
market.

Organizational Assets
 Corporate capabilities are therefore defined as the combination of
assets and competencies that denote the organization’s

competitive capacity.
 Organizational Assets are the accumulated capital, both

financial and non-financial, that a company has at its
disposal.
 These assets are both tangible and intangible (Hooley et

al., 1998) and include:

 Financial Assets– such as working capital, or access/availability of
investment finance, and creditworthiness.
 Physical Assets – ownership or control of facilities and property.
 In the retail sector ownership of an outlet in a prime
location could be a significant asset.
 Operational Assets – production plant, machinery and process
technologies.

 People Assets – the quantity of human resources available to the
organization and the quality of this resource in terms of their

background and abilities.
 Legally Enforceable Assets – ownership of copyrights and patents,
franchise and licensing agreements.
 Systems – management information systems and databases and
the general infrastructure for supporting decision-making

activities.

 Marketing Assets:- of particular concern in the development

of marketing strategy are of course marketing assets.
These Marketing Assets fall into four main categories:

1) Customer Based Assets
2) Internally-Based Assets
3) Distribution-Based Assets
4) Alliance-Based Assets

1) Customer-Based Assets:
 These are assets that the customer perceives as
being important such as:
a) Image and Reputation.
 These relate to the company and

the recognition of its corporate
identity.

b) Brand Franchises.
 These are important because of the time and investment required in
building them.
 Once established effective brands have
 High levels of customer loyalty,
 Create competitive positions that are defendable and
 Obtain higher margins because customers feel a higher price is
merited by the added value that the brand provides for them.
 Weak brands of course show the opposite characteristics.

c) Market Leadership.
 A strong brand may not be the market

leader but a brand leader enjoys distinct
advantages such as:-
 Excellent market coverage,
 Distribution and beneficial shelf positions in

retail outlets.

d) Country of Origin.
 Consumer’s associate particular attributes with different
countries; these then become associated with an organization

or a brand that derives from that particular state.
 So for instance Germany is associated with efficiency and
quality. Products like Mercedes and BMW benefit from this

perception of their country of origin and it reinforces their
quality positioning in the market.

e) Unique Products And Services.
These are key assets.

 Their distinctiveness in the market can be built on a
number of attributes such as:
 Price,
 Quality,
 Design or
 Level of innovation.

2) Distribution-Based Assets
 Distributing a product or service successfully
into the market is a critical marketing activity.
 Therefore a number of potential assets lie in this
area such as:

 Size and quality of the distribution network.
 Level of control over distribution channels.

a) The size and quality of the distribution network.
 The size of the distribution network should be seen in terms not only of
geographic spread but also of the intensity of that coverage on the ground.
 An organization may only distribute over a specific geographic region of a
national market, but has built up a strong presence in that area and is
locally dominant.
 Quality should be seen in terms of fitness for purpose.
 There are a range of factors that could be used to judge quality, such
as ability to guarantee supply, lead times, or ability to react quickly.

b ) Level of Control Over Distribution Channels.
 An organization that can exert control over the main channels of
distribution in a market is at a huge advantage, making control a key
marketing asset.
 For example, Irn-Bru is the market leader in the soft drinks market in
Scotland.
 However Coca-Cola successfully stopped Irn- Bru being distributed
through McDonald’s fast food restaurants in favor of Coca-Cola.
 Coke was able to apply control over that channel of distribution due to
their global relationship with McDonald’s.

3) Internally-Based Assets
 There are a number of internal organizational assets that lie outside the
marketing function but can be deployed to give advantages to marketing
activities.
 It is important to identify the underlying asset rather than just the
activity.
 It is the asset that has the potential to be deployed in new ways to create
additional advantages.
 There is a range of organizational assets that may give advantages to
marketing activities:

a) Cost Structure.
 The organization may be able to achieve lower costs than
competitors through higher capacity utilization, better

economies of scale, or by applying newer or more innovatory
technology.
 This could allow marketing to set lower prices for their products
and services than the competition.
 The asset is the manufacturing cost base; this can be deployed to
give advantage to the marketing activity of pricing.

b) Information Systems.
 These can be applied to marketing research activities to collect
and analyze customer, competitor and market information.
 These systems could also be used to create customer databases, a
marketing asset that can be exploited.
 There are also some organizational competencies that lie
outside the marketing function that can be used to create

advantages in marketing activities such as:

c) Innovatory Culture.
 The ability to be able to create and maintain a culture for
innovation is an important competence.
 This competence facilitates activities such as :
 New product development,
 Customer service through empowering front-line staff to
develop creative solutions to customers’ problems, and
 Advertising through a willingness to adopt creative ideas.

d) Production Skills.
These may allow an organization’s production

to have :
 More flexibility,
 Higher quality or
 Shorter lead times, all of which can be used to advantage
by the marketing function.

4) Alliance-Based Assets
 There are a number of areas where the asset is linked
to a formal, or informal, external relationship.
 These agreements with third parties can allow an
organization to gain:
 Access to markets – through local distributors that
the organization could not cover with its existing

resource base.

Organizational Competencies
 Management Expertise – from outside agencies not

available within the company.
 Access to technological developments or processes – through
licensing or joint ventures.
 Exclusive Agreements – with third parties, such as Coca-

Cola and McDonald’s already mentioned above, that effectively
exclude competitors.

 Organizational Competencies are the abilities
and skills available to the company to marshal

the effective exploitation of the company’s
assets.
 The combination of assets and these skills
allows an organization to undertake specific

activities.
 Activities such as producing innovative products
are a capability that arises out of the underlying

assets and competencies of the organization.
 These competencies can lie at the three decision-making tiers:
strategic, functional and operational; and at three levels in the

organizations Structure: corporate, team and individual (Hooley et
al., 1998):

i) Strategic Competencies.
 These relate to the management skills, the drive
and the strategic direction of the organization.
 Skills should be assessed in a range of areas,
including ability to create strategic vision,

communicate, motivate, implement strategy, assess
changing circumstances, learn and innovate.

ii) Functional Competencies.

 These refer to the skills available to the organization to
manage its activities in the various functional areas such as
finance, operations and marketing.
 The marketing function should be assessed on its skills such as
 Handling customer relationships,
 Channel management,
 Product management,
 Product innovation and new product development.

iii) Operational Competencies

 These skills are necessary to run the day to- day operations across the functional
areas of the organization.
 As An Example,
 In the marketing function these would include s
 Skills of co-coordinating and implementing sales force

activities,
 Promotional campaigns,
 Public relations activities,
 Special offers and discounts,

 Updating product packaging and labeling.
 Where these activities are subcontracted to third parties such as PR agencies, the
skills that need to be assessed are the abilities of co-coordinating and controlling
these external relationships.

i) Individual Competencies
 These are the abilities and skills that lie with
individuals in the organization.
 These competencies are based not on:-
 Individuals’ skills in isolation, but on whether
individuals have the required skills to execute the tasks
they face in their area of responsibility, whether at
strategic, functional or operational level.

ii) Team Competencies.
 It is necessary for individuals in organizations to work together
in teams.
 These may be teams formed on a formal or informal basis.
 Despite the specific skill base of the individuals involved, a
group also requires the skills necessary to work together as a

team.
 A key element of successful project management relies on these
team competencies.

iii) Corporate-level competencies.

 These are the skills, that apply to the
organization in its entirety, to execute tasks at:-
 Strategic,
 Functional
 Operational level.

 This could relate to :-
 The ability to foster innovation throughout the organization, or
 The ability to exploit and continually update the organizational
knowledge base, by effective communication of critical learning

throughout the business.
 Once the assets and competencies of an organization have been identified
there are likely to be some assets that are more important than others.
 The relationship between these assets and competencies can be mapped to
uncover the key relationships.

Performance Measures Long-term Profitability

Customer satisfaction/
Brand Loyalty
Long-
Product/Service Quality
Term
Assets
Brand/Firm Associations or
Profits
Skills
Relative Cost
New Product Activity
Manager/Employee
Capability & Performance
Figure 3.1 Performance Measures Reflecting Long-term Profitability

1) Customer satisfaction/ Brand Loyalty

Guidelines For Measuring Satisfaction and Loyalty includes the following :
1) First, problems & cause of satisfaction that may motivate

customers to change brands or firms should be identified.
2) Second, often the most sensitive and insightful information
comes from those who have decided to leave a brand or firm.
 Thus, exit interviews “for customers who have abandoned
a brand can be very productive.

3) Third, there is a big difference between a brand or firm being liked and the
absence of dissatisfaction.
3) The size and intensity of the customer group
that truly “likes” a brand or firm should be

known.
4) Fourth, measures should be tracked over time and compared with those of
competitors. Relative comparisons and changes are most

important.

3) Brand/Firm Associations
 An often overlooked asset of a brand or firm is
what customers think of it.

 What are its associations?
 What is its perceived quality?
 Perceived quality, of course, can be very different
form actual quality.

 It can be based on based on experience with past
products or services and on quality cues such as retailer

types, pricing strategies, packaging, advertising, and
typical customers.
 Is a brand or firm regarded as expert in a product or technology area?
Innovative? Expensive?
 Is it associated with a country, a user type, or an application area (like

racing)? Such associations can be key strategic assets for a brand or firm.

4) Relative Cost
 A careful cost analysis of a product (or service) and its components,
which can be critical when a strategy is dependent on achieving cost

advantage or cost parity, involve tearing down competitors’ products
and analyzing their systems in detail.
 The Japanese consultant, Ohmae, suggested that such an analysis,
when coupled with performance analysis, can lead to one of the four
situations shown in Figure below.

More Expensive
1) Change 2)Value Analysis

-Design Raise Price
Manufacturing/system Promote Cost reduction
Vendor Ignore .
Superior
Inferior Our Component Is
3)Value analysis
4) Value Analysis
 De-emphasis Less Expensive
 Upgrade -
Emphasize/Promote
Leave it alone
Figure 3.2 Relative Cost Vs. Relative Performance-strategic Implications

1) If a component such as the braking system in a car or a bank’s teller
operation is both more expensive and inferior to that of the competition, a

strategic problem requiring change may exist. An analysis could show;
however, that the component is such a small item both in terms of cost and
customer impacts that it should be ignored.
2) If the component is competitively superior, however, a cost-reduction
program may not be the only appropriate strategy. A value analysis, in

which the component’s value to the customer is quantified, may suggest that
the point of superiority could support a price increase or promotion
campaign.

3) If, on the other hand, a component is less expensive than that of the
competition, but inferior, a value analysis might suggest that it be de-
emphasized.
 Thus, for a car with a cost advantage but handling disadvantage, a

company might de-emphasize its driving performance and position it as
an economy car.
 An alternative is to upgrade the relative rating with respect to this

component.
3) Conversely, if a component is both less expensive and Superior, a value

analysis may suggest that the component be emphasized, perhaps playing a
key role in positioning and promotion strategies.

5) Sources of Cost Advantage

 The many routes to cost advantage include:
 Economies of scale,
 the experience curve,
 product design innovations, and
 the use of a no-frills product offering.
 Each provides a different perspective to the concept of
competing on the basis of a cost advantage.

6) New Product Activity
 Does the R&D operation generate a stream of new
product concepts?
 Is the process from product concept to new product
introduction well managed?
 Is there a track record of successful new products
that have affected the product performance profile

and market position?

7) Manager/Employee Capability and Performance

 Also key to a firm’s long-term prospects are the people who
must implement strategies.
 Are the human resources in place to support current and future
strategies?
 Do those who are added to the organization match its needs in
terms of types and quality? Or are there gaps that are not being
filled?

Determinations of Strategic Options

 Another perspective on self-analysis is to consider the determinants
of strategic options.
 What characteristics of a business make some options
infeasible without a major organizational change?
 What characteristic will be pivotal in making a choice
between strategic options?
 Again, the answers to these questions will depend on the
situation.

Determinations of Strategic Options includes the following:

1) Past and Current Strategies
2) Strategic Problems
3) Organizational Capabilities /Constraints
4) Financial Resources and Constraints
5) Organizational Strengths and Weakness

1) Past and Current Strategies

 To understand the bases of past performance and attempt to sort out new
options, it is important to be able to make an accurate profile of past and
current strategies.
 Sometimes the strategy has evolved into something very different from what
was assumed.
 For example, a firm positioned itself as an innovator and spent heavily on R&D
to repeat its early break through innovation.
 However, an honest analysis of its operations over the past two decades
indicated that its success was based on manufacturing strengths and scale
economies.

2) Strategic Problems
 Another relevant and helpful construct is the strategic problem, a
problem with strategic implications, such as a delay in bringing a
computer-based ordering system online.
 A strategic problem differs from a weakness or liability, which is the

absence of an asset (e.g., good location) or skill (e.g., new product
introduction skills).
 A business copes over time with a weakness or liability by adjusting

strategies.
 Strategic problems, in contrast, need to be addressed and corrected even

if the fix is difficult and expensive.

3) Organizational Capabilities /Constraints

 The internal organization of a company, structure, systems,
people, and culture-can be an important source of both strengths
and weaknesses.
 The flexible, entrepreneurial organizational structure in which
new business teams and divisions are continually spun off, is a
key to its growth.
 Internal organization can affect the cost and even the possibility of
some strategies.
 There must be a fit between a strategy and the elements of an
organization.

4) Financial Resources and Constraints

 Ultimately, judgments need to be made about whether or not to invest in an SBU or withdraw
cash from it.
 A similar decision needs to be made about the aggregate of SBUs.
 Should a firm increase its net investment or decrease it by holding liquid assets or returning
cash to shareholders or debt holders?
 A basic consideration is the firm’s ability to supply investment resources.
 A financial analysis to determine probable, actual, and potential sources and uses of funds can
help provide an estimate of this ability.
 A cash flow analysis projects the cash that will be available from operations and depreciation
and other assets.
 In addition funds may be obtained either by debt or equity financing.

5) Organizational Strengths and Weakness

 A key step in self-analysis is to identify the strengths and
weaknesses of an organization that are based on its assets and
skills.
 In fact, much of self-analysis is motivated by the need to detect

strengths and weaknesses.
 There are, of course, many possible sources of strengths and

weaknesses.

From Analysis To Strategy

 In self-analysis, organizational strengths and weaknesses need to be not only
identified but also related to competitors and the market.
 Strategic market management, has three interrelated elements.
a) The first is to determine areas in which to invest or disinvest.
 Investment could go to growth areas such as new product markets or programs
designed to create new strength areas or to support existing ones.
b) The second is the specification and implementation of functional area strategies involving
product policy, manufacturing strategy, distribution choices, and so on.
c) The third element of strategic market management is to develop assets and skills, bases
of sustainable competitive advantage in the product markets where a firm competes.

Organizational Strengths And

Weaknesses Competitor Strengths
And Weaknesses
 Strategic Decision
 Strategic Investment
 Functional Area Strategies
 Sustainable Competitive Advantage
Market Needs , Attractiveness

And Key Success Factors
Structuring Strategic Decisions

The core of any strategic decision should be based on

three types of assessments.
a) The first concerns organizational strengths and
weaknesses.
b) The second evaluates competitor strengths, weakness, and
strategies, because an organization’s strength is of less value

if it is neutralized by a competitor’s strength or strategy.

c) The third assesses the competitive context, the customers

and their needs, the market, and the market environment.
 These assessments focus on determining how attractive
the selected market will be, given the strategy selected.
 The goal is to develop a strategy that exploits business strengths and
competitor weaknesses and neutralizes business weaknesses and
competitor strengths.
 The ideal is to compete in a healthy growing industry with a strategy based

on strengths that are unlikely to be acquired or neutralized by competitors.

Product Portfolio Analysis

 A Product Portfolio is the collection of all the products or services offered by a

company.
 Product portfolio analysis is used to assist in planning product development and strategy by:
analyzing an existing portfolio to decide which products should receive more or less investment,
and. adding new products to the portfolio or deciding which products and businesses should be
eliminated.
 Strategic portfolio analysis involves identification and evaluation of all products

or service groups offered by company on the market (so called product mix) and
preparing specific strategies for every group according to its relative market
share and actual or projected sales growth rate.

 A very useful part of self-analysis is a product portfolio analysis in which
the various business units are examined to determine the attractiveness of
the market involved, the strength of the firm’s position in that market, and
whether or not the businesses have been generating or using cash.
 The analysis then suggests some strategies for deciding how the various businesses
should be treated-whether cash should be invested into or withdrawn from them.
 Product portfolio analysis uses several well developed models and techniques.
 Some of the product portfolio models are based on experience curve theories.

Portfolio Analysis
 A key element of self-analysis is the assessment of the strength of a

business position in the market.
 Portfolio analysis which has had a rich and colorful history

management extends strength assessment in three directions.
 First, portfolio analysis combines the assessment of business position with a
market attractiveness evaluation, which emerges from external analysis in
general and market analysis in particular.
 One output of portfolio analysis is thus a compact summary

representation of the two most important assessment of any business.

Portfolio Analysis
 Second portfolio analysis include multiple strategic business

units(SBUs) in the same analysis and addresses the SBU investment
decision which organization units should receive resources which should
have resources withheld and which should have resource generators.
 The basic resource allocation problem is created as follows.
 A firm has a variety of SBUs each needing cash and each able to generate
cash.
 In a decentralized organization, it is natural for the manager of a cash-

generating SBU to control the available SBU cash.

Portfolio Analysis
 Third, portfolio analysis offers baseline recommendations

concerning the investment strategies for each SBU based
on an assessment of business possession and market
attractiveness.
 These baseline recommendations can serve to introduce
strategic options that might not otherwise be considered.

Portfolio Analysis
 The basic incentive of an SBU manager, after all, is profitable growth, and any SBU
manager will have ready investment opportunities that will stimulate growth for his or
her SBU.
 However, the result is that a fast-growing SBU, which may have low profit or even
losses but enormous potential, with a huge need for cash, will often be starved of
needed cash.
 The problem is the decentralization policy that requires or encourages SBUs to fund
their own growth.
 SBUs involving mature products may have inferior investment alternatives but
because cash flow is plentiful in these SBUs, their investments still get funded.
 The net effect is to channel available cash to low-potential areas and to withhold it
from the most attractive areas.

The BCG Growth-share Matrix
 The BCG concept of the experience curve evolved during the 1960s into
a highly visible portfolio model termed the growth-share matrix.
 The BCG growth-share matrix, being both simple and easily quantifiable
is often a useful first step in portfolio analysis.
 It suggests that the desirability of the market can best be expressed by the
market growth rate, and that the best summary indication of a firm’s
strength in a market is its relative market share.
 Thus, the growth-share matrix positions the various SBUs with in a
firm in terms of these two dimensions,

The methodology used involves three principal steps given by

Hill & Jones (1989) as:
1) Dividing the company into Strategic Business
Units(SBUs) and assessing the long-term prospects of
each;
2) Comparing the SBUs against each other by means of a
matrix that indicates the relative prospects of each; and,
3) Developing strategic objectives with respect to each
SBU (p.186).
To visually display an organization’s portfolio, the

BCG developed a 2x2 (4 cells) matrix in which the
SBUs are positioned in these cells, each, indicating
revenue and cash utilization propensity. (See the
figure below.


 On the vertical axis is market growth rate in the current
year and indicates the attractiveness of the market for the

business unit (Byers et al, 1996l).
 The market share for a given year is calculated thus:

i) The Growth Dimensions

 Of all the characteristics of a market, why select growth as the single
indicator of its desirability?
 The reasons include the following:
a) Growth is perhaps the best measure of the product life cycle, a key strategic
consideration.
b) Market share is assumed to be more easily gained in a growth context when
new users with no developed loyalties are attracted to the product class.
c) Furthermore, competitors may react less aggressively to the loss of new
customers than to the loss of their base of existing customers.

4) A market position in a growth market will be worth more in the

future as the market growth, if we assume the position can be
retained.
 It is normally easier to retain market share than to gain it.
5) In a growth market, demand often exceeds supply; excess demand
will support premium prices and profit levels.
6) By aggressively entering in to a growth market and establishing a
sustainable competitive advantage, a firm can discourage
competitors from entering the market.

ii) The Market-Share Dimension

 The second dimension of the growth-share matrix is market share.
 Relative market share is selected as the single indicator of a firm’s position for several
reasons:
 The largest-share firm will very likely enjoy advantages of size such as economies of scale, high brand
recognition, channel dominance, and the strongest bargaining position with customers and suppliers.
 The market leader is the best position to exploit the experience curve because it will accumulate
experience faster than competitors.
 The experience curve model suggests that cumulative production experience will result in lower unit costs
because of learning effects, technological improvements in production/operations, and product redesign.
 Empirical evidence indicates that market share is related to profitability.

1) Stars
 The upper left quadrant contains the high-share SBUs operating in high-growth markets.
 Because they are in growth contexts, the model predicts that they will have a heavy need for cash to
support that growth.
 However, because they are in strong competitive possession (they are, in fact, the highest-share
competitors), it is assumed they will be farthest down the experience curve, and should therefore have
high margins and be generating high amount of cash.
 Thus, they will be both users and providers of large cash flows.
 On balance they should generally be self-supporting with respect to their cash needs. If cash is required
for a star to maintain its share position, however, then it should be provided.
 Any temptation to net out large amounts of cash, sacrificing position should be resisted.

2) Cash Cows
 Cash cows are high-share SPUs operating in a low-growth
market. because of their market position, their cash generation
should be high.
 Because the market is mature, the cash investment needs

should be small and these businesses should therefore be a
source of substantial amount of cash that can be channeled to
other areas.

3) Dog’s
 Low share SBUs that are in low-growth markets are called dogs.
 Because of their weak share, it is assumed that their progress on the

experience curve is slow and thus their profits will be low or
nonexistent.
 Furthermore, because growth is low, expansion of share is assumed to

be very costly.
 Dogs are often cash users and possibly even “cash trap”---products that
perpetuate absorb cash, in part because of the investment required to
maintain position.

4) Problem Children.
 Low-share business in high-growth markets, problem children (sometimes called question
markets or wildcats) are assumed to have cash needs because, although they need to fund
growth, they generate little cash because they are not far down the experience curve.
 If a problem children’s market share cannot be changed it will continue to absorb cash and
as it matures it will become cash absorbing dog.
 If market share can be adequately improved, however, a question mark can be converted
into a star.
 Usually such a strategy will require heavy influxes of cash during the short run.
 Improved position should eventually enable it to generate cash, become a star, and then,
ultimately, a cash cow.

 The dogs, usually the most prevalent category, present a challenge, several alternatives
are available.
 First, a dog can sometimes become very profitable through the pursuit of a
“focus” segmentation strategy, on which the business specializes in a small
niche where it can dominate. In effect, it would then be the star or cash cow of
the redefined market.
 Second, investment can withheld and the business milked or harvested of

whatever cash is forthcoming until the business dies.
 Third, the business can be sold or simply liquidated.
 Manager’s should be wary of “turn-around” plans for dogs,

particularly when there is no fundamental change in the market or
environment.

Strategy Implications
 The general strategy is to take cash from the cash cows to fund R&D, the source
of future SBUs, and those problem children that have the potential to gain share
to achieve star status.
 The cash cows should receive a maintenance investment level, but any tendency
to automatically reinvest the cash they are generating should be avoided.
 Stars, on the other hand, should be managed to maintain share, current

profitability should be lesser concern.
 Give that the stars are adequately financed, a limited number of the most
promising problem children can be selected for investment to try to improve
their shares.
 The other problem children should not receive investment.
 They should be hold, abandoned, or milked for whatever cash they can produce.

The Market Attractiveness-business Position Matrix
 GE planners, in reacting to the limitations of the BCG model, developed the market
attractiveness-business position matrix, drawing on portfolio approaches used by the
consulting firm, McKinsey.
 Consider first market attractiveness, the horizontal axis. Instead of being based only
on market growth, it is based on as many relevant factors as are appropriate in a
given context.
 The managers involved need to select the most appropriate factors weight them as to
relative importance in terms of context, evaluate a market on each factor, and then
combine the evaluation into a summary measure.
 Thus, the analysis has the potential of being richer and more valid than one using
only growth.




 Evaluating the Ability to compete : Size; Growth ; Share by
segment; Customer loyalty; Margins; Distribution; Technology
skills; Patents; Marketing; Flexibility & Organization.
 Evaluating Market Attractiveness: Size; Growth; Customer Satisfaction Levels;
Competition; quantity,types,effectiveness; Commitment; Price levels; Profitability;
Technology; Governmental regulations & Sensitivity to economic trends.

Applying The Matrix
 The market attractiveness-business position matrix is a formal, structured way to

attempt to match a firm’s strengths with market opportunities.
 It is therefore similar to the ideas presented about developing strategy to reflect

firm strengths and weaknesses, competitor strengths and weaknesses, and market
attractiveness.
 In this context, the competitors’ strengths and weaknesses are make a part of the
market attractiveness assessment.
 One implication is that when both firm position and market attractiveness are positive, as in
the boxes marked 1 in Figure 3.6, then a firm should probably invest and attempt to grow.
 When the assessment is more negative, as in the boxes marked 3, however, the nominal
recommendation would be to either harvest or divest.
 For the three boxes marked 2, an investment decision would be made only selectively, when
there was a specific reason to believe the investment would be profitable.

Market Attractiveness
In structuring strategies, the following are among the logical alternatives:

 Invest to hold. Attempt to stop erosion in position by investing enough to compensate for
environmental and competitive forces.
 Invest To Penetrate. Aggressively attempt to move the position up, even at the sacrifice of
earnings.
 Invest to rebuild. Attempt to regain a previously help position that has been lost by a milking
strategy that, for whatever reason, is no longer appropriate.
 Selective investment. Attempt to strengthen position in some segments and let position
weaken in other segments.
 Low investment. Attempt to harvest the business, drawing cash out and cutting investment to a
minimum.
 Divestiture. Sell or liquidate the business.

Market Attractiveness
Limitations
 Although the market attractiveness-business position matrix is indeed much
richer and more broadly applicable than the BCG growth-share matrix, its
measures can also be more subjective and ambiguous, especially across business
units.
 The selection and weighting of factors and the subsequent development of both a
firm’s position and market attractiveness are highly subjective processes.
 They can be unduly influenced by historical perspectives and performance and

by individual biases and backgrounds.
 The final evaluating are bound to be somewhat unreliable in that different people
will obtain different evaluations.

SWOT Analysis

SWOT Analysis
 The SWOT (strengths, weaknesses, opportunities and threats) analysis is another tool that is
commonly used during the auditing process.
 The SWOT draws together the key strengths, weaknesses, opportunities and threats from
the audit.
 This tool should be used to distil the critical factors that have been identified during the
auditing process.

SWOT Analysis
 It is a summary of the audit not a replacement.
 The strengths and weaknesses of the organization have to be judged in
relation to the opportunities and threats identified in the external

environment.
 The list should therefore be limited rather than extensive.
 The aim of the SWOT is to highlight the critical issues in order to focus
attention on them during the strategy development.

The Opportunity Matrix

The Threats Matrix

Opportunity and Threat Matrix

The TOWS Matrix (Adapted From Weihrich, 1982)

The TOWS Matrix

TOWS Analysis

The TOWS Matrix (Adapted From Weihrich, 1982
Application of the TOWS matrix to Volkswagen.

SWOT Analysis

Putting Together Opportunities And Threats
 It can be seen that by putting together a picture of the major opportunities
and threats facing the business the marketing planner is attempting to

arrive at a measure of the market’s overall attractiveness.
 In essence, four possibilities exist:
 An ideal business, which is characterized by numerous opportunities

but few (if any) threats
 A speculative business, which is high both in opportunities and threats
 A Mature Business, which is low both in opportunities and threats
 A troubled business, which is low in opportunities but high in threats.


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Chap-4

Chap-4 -Internal Analysis ( Dr Getie Andualem )

Upon completion of this chapter, a student will be able to:

 Describe the purpose of internal analysis

 Explain organizational capabilities and assets

 Discuss the nature and purpose of BCG growth

share matrix and the GE models

 Discuss the purpose of SWOT analysis and

describe its inherent limitations

Chap-4 -Internal Analysis ( Dr Getie Andualem ) 8/23/2021 2

 An internal analysis is the thorough examination of a company's internal

components, both tangible and intangible, such as resources, assets and

 An internal analysis helps the company decision-makers accurately identify

areas for growth or revision to form a practical business strategy or business

 An internal analysis is an exploration of your organization's competency, cost

position and competitive viability in the marketplace. ...

to develop strategic planning objectives to sustain and grow your business.

Chap-4 -Internal Analysis ( Dr Getie Andualem ) 8/23/2021 3

Chap-4 -Internal Analysis ( Dr Getie Andualem ) 8/23/2021 4

 A business self-analysis is similar to a competitor analysis, but

 It is more detailed because of its importance to strategy, and

 The analysis is based on detailed current information on sales,

Chap-4 -Internal Analysis ( Dr Getie Andualem ) 8/23/2021 5

 Just as strategy can be developed at the level of a firm, a group of

 The common goal is to identify organizational strengths,

Chap-4 -Internal Analysis ( Dr Getie Andualem ) 8/23/2021 6

 Self-analysis begins by examining the financial

 Indications of unsatisfactory or deteriorating performance

might stimulate strategy change.

 In contrast, the conclusion that current or future

Chap-4 -Internal Analysis ( Dr Getie Andualem ) 8/23/2021 7

 Of course, something that is not broken may still

 Performance analysis is especially relevant to the

strategic decision of how much to invest in or

Chap-4 -Internal Analysis ( Dr Getie Andualem ) 8/23/2021 8

Chap-4 -Internal Analysis ( Dr Getie Andualem ) 8/23/2021 9

organization has access.

intangible capital of the organization.

 Competencies are the skills that are contained within the

 The application of these skills to deploy the available assets

Chap-4 -Internal Analysis ( Dr Getie Andualem ) 8/23/2021 10

 Corporate capabilities are therefore defined as the combination of

assets and competencies that denote the organization’s

 Organizational Assets are the accumulated capital, both

 These assets are both tangible and intangible (Hooley et

Chap-4 -Internal Analysis ( Dr Getie Andualem ) 8/23/2021 11

 Financial Assets– such as working capital, or access/availability of

investment finance, and creditworthiness.

 Physical Assets – ownership or control of facilities and property.

 In the retail sector ownership of an outlet in a prime

location could be a significant asset.

 Operational Assets – production plant, machinery and process

Chap-4 -Internal Analysis ( Dr Getie Andualem ) 8/23/2021 12

 People Assets – the quantity of human resources available to the

organization and the quality of this resource in terms of their

 Legally Enforceable Assets – ownership of copyrights and patents,

franchise and licensing agreements.

 Systems – management information systems and databases and