Professional Documents
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Assessing Strengths and Weaknesses: Internal Analysis
Assessing Strengths and Weaknesses: Internal Analysis
Assessing Strengths and Weaknesses: Internal Analysis
• Organizational capabilities/competencies
– The complex and coordinated network of company
routines and processes that determines how
efficiently and effectively the organization
transforms its resources into products (goods &
services)
– Involves complex pattern of coordination between
people, & between people and resources
– It’s an internal activity that a company performs
better than other internal activities
Organizational Capabilities
• Organizational routines & processes:
• Regular, predictable, and sequential patterns of work
activity by organizational members
• Sustainable Competitive Advantage (CA):
• The prolonged maintenance of competitive advantage
• Capabilities that are capable of leading to CA today may
not continue to do so as conditions & rivals change
• Dynamic capabilities
• An organization’s ability to build, integrate and reconfigure
capabilities to address rapidly changing environments over
time.
Core Competencies
• Core competencies
– A well-performed internal activity that is central, not
peripheral, to a company’s strategy,
competitiveness, and profitability
– Major value-creating skills and capabilities that
• are shared across multiple product lines or multiple
businesses
• Results from the collaboration among different parts of an
organization
– Gives a company a potentially valuable competitive
capability
Core Competencies
• Types of Capabilities/Core Competencies
– Skills in manufacturing a high quality product
– System to fill customer orders accurately and swiftly
– Fast development of new products
– Better after-sale service capability
– Superior know-how in selecting good retail locations
– Innovativeness in developing popular product features
– Merchandising and product display skills
– Expertise in an important technology
– Expertise in integrating multiple technologies to create
whole families of new products
From Core Competencies to
Distinctive Capabilities
• Distinctive Capabilities
– Special and unique capabilities that distinguish the
organization from its competitors
– A competitively valuable activity that a company
performs better than its rivals
– Allow a company to develop a sustainable
competitive advantage and outperform its
competition
From Core Competencies to
Distinctive Capabilities
• Characteristics of distinctive capabilities:
(1) Contribute to superior customer value and
offers real benefits to customers
(2) Difficult for competitors to imitate
(3) Allow the organization to use that capability in a
variety of ways
• What’s the relationship between
organizational capabilities, core competencies
and distinctive capabilities?
Examples of Distinctive Capabilities
• Sharp Corporation
– Expertise in flat-panel display technology
• Toyota
– Low-cost, high-quality manufacturing capability and
short design-to-market cycles
• Intel Corporation
– Ability to design and manufacture ever more
powerful microprocessors for PCs
• Motorola
– Defect-free manufacture (six-sigma quality) of cell
phones
Strengths and Weaknesses
• Strengths
– Resources that an organization possesses and
capabilities that the organization has
developed
– Both can be exploited and developed into a
sustainable competitive advantage
• Weaknesses
– Resources and capabilities that are lacking or
deficient; and that
– Prevents an organization from developing a
sustainable competitive advantage
How to Do an Internal Analysis
Approaches to internal analysis
(1) Value Chain Analysis
(2) Competitive Strength Assessment
(3) An Internal Audit
(4) Internal Environmental Analysis Process
(5) Capabilities Assessment Profile
(1) Value Chain Analysis
Internally
Activities,
Performed Costs, &
Activities, Activities, Margins of
Costs, & Buyer/User
Costs, & Forward
Margins of Value
Margins Channel
Suppliers Chains
Allies &
Strategic
Partners
Examples of Key Value Chain
Activities
• Soft Drinks Industry
Processing of basic ingredients
Syrup manufacture
Bottling & can filling
Wholesale distribution
Retailing
• Computer Software Industry
Programming
Disk Loading
Marketing
Distribution
The Value Chain System
• A company’s cost competitiveness depends
on how well it manages its value chain
relative to competitors
• Three areas contribute to cost differences
1. Suppliers’ activities
2. The company’s own internal activities
3. Forward channel activities
The Value Chain System
• Assessing a company’s cost competitiveness
involves comparing costs along the industry’s value
chain
• Suppliers’ value chains are relevant because
– Costs, quality, and performance of inputs provided by
suppliers influence a firm’s own costs and product
performance
• Forward channel allies’ value chains are relevant
because
– Forward channel allies’ costs and margins are part of price
paid by ultimate end-user
– Activities performed affect end-user satisfaction
Strategic Options for Correcting Costs
Competitiveness
• Supplier-related costs disadvantages:
– Negotiate more favorable prices with suppliers
– Work with suppliers to achieve lower costs
– Integrate backward
– Use lower-priced substitute inputs
– Do a better job of managing linkages between
suppliers’ value chains and firm’s own chain
– Make up difference by initiating cost savings in other
areas of value chain
Strategic Options for Correcting Costs
Competitiveness
• Quality/product performance
• Reputation/image
• Manufacturing capability
• Technological skills
• Dealer network/Distribution channels
• New product innovation
• Financial resources
• Relative cost position
• Customer service capability
Assessing Organization’s
Competitive Strength
• What does a high competitive strength rating relative to
rivals mean?
– Strong competitive position & possession of competitive
advantages
– Opportunity for company to improve its long-term market
position
• Good strategy entails
– Looking for opportunities to leverage company strengths into
competitive advantage
– Using company strengths to attack the competitive
weaknesses of rivals
Why Do a Competitive Strength
Assessment?
• Reveals strength of firm’s competitive position
• Shows how firm stacks up against rivals, measure-
by-measure -- pinpoints the company’s
competitive strengths and competitive
weaknesses
• Indicates whether firm is at a competitive
advantage / disadvantage against each rival
• Identifies possible offensive attacks (pit company
strengths against rivals’ weaknesses)
• Identifies possible defensive actions (a need to
correct competitive weaknesses)
(3) Using an Internal Audit
• Internal Audit
– A thorough assessment of an organization’s
various internal functional areas
– Strategic decision makers use the internal audit to
assess the organization’s resources and
capabilities from the perspectives of its different
functions
Using an Internal Audit
• Six primary functional areas
– Production-operations
– Marketing
– Research & development
– Financial and accounting
– Management, including HRM
– Information System
• Depending on products, markets, and industries,
individual organizational structures may vary and,
therefore, may emphasize different sets of functional
areas
(4) Using an Internal Environmental
Analysis Process
• Assesses an organization’s internal activities
– Step 1: Survey strengths and weaknesses
– Step 2: Categorize these strengths & weaknesses
(S&W) in terms of resources & capabilities
– Step 3: Investigate the potential of strengths to lead
to competitive advantage
– Step 4: Evaluate the ability of these competitively
resources & capabilities to serve as the basis for an
appropriate competitive strategy
(5) Capabilities Assessment Profile