INTERNAL

ENVIRONMENT
ANALYSIS

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“Analysis is the critical starting
point of strategic thinking.”

Kenichi Ohmae
“Quote”

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 Strategic Management Model

Environmental Strategy Strategy Evaluation

Scanning Formulation Implementation and Control
Mission
External
Reason for
Societal
existence
Environment Objectives
General Forces
What results
to
Task Strategies
accomplish
Environment
by when Plan to
Industry Analysis
achieve the
Policies
mission &
Internal objectives Broad
guidelines for Programs
Structure decision Process
Chain of Command making Activities to monitor
needed to performance
Culture Budgets and take
accomplish
Beliefs, Expectations, a plan corrective
Cost of the
Values action
programs
Procedures
Resources
Sequence
Assets, Skills
of steps
Competencies,
needed to
Knowledge do the job Performance

Feedback/Learning
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Internal Scanning: Organizational Analysis
Organizational Analysis
1. A Resource- Based Approach to Organizational Analysis
Evaluate the firms key resources in terms of strength and weakness and the
sustainability of competitive advantages

2. Value-Chain Analysis
Views a firm as a chain of value creating activities from obtaining raw materials
input through sales and follow up services to the end user.
Value chain approach breaks activities down within two broad categories:
primary activities and support activities

3. Scanning Functional Resources

Attempt to gauge internal capabilities, strengths and weaknesses, by systematically
examining the basic or core business functions within the company.

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 A Resource- Based Approach to
Organizational Analysis

A resource is an asset, competency, process, skill or knowledge

controlled by the corporation. A resource could be a Strength or a
Weakness;

A resource is a Strength if it provide the company with

competitive advantage;
A resource is a Weakness if it something the corporation does
poorly or doesn’t have the capacity to do although the competitor
have that capacity.

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 A Resource- Based Approach to
Organizational Analysis

Evaluating Key Resources

VIRO frame work of Analysis
• Value: Does it provide competitive advantage?
• Rareness: Do other competitors possess it?
• Imitate ability: Is it costly for other to imitate?
• Organization: Is the firm organize to exploit the resource?

If the answer to these questions is “yes” for a particular resource,

that resource is considered a strength and a distinctive
competence. 6
 A Resource- Based Approach to
Organizational Analysis
5 - Step of Resource Based Approach to Strategy Analysis:

• Identify and classify the firm’s resources in term of strengths

and weaknesses
• Combine the firm’s strengths into specific capabilities.
• Core competencies or;
• Distinctive competencies
• Appraise the profit potential of these resources and capabilities
• Sustainable competitive advantage

• Select the strategy that best exploits the firm’s resources and
capabilities
• Exploits firm’s resources relative to external opportunities 7
 A Resource- Based Approach to
Organizational Analysis
Determining the Sustainability of an advantage
• Durability: Will the underlying resources last, or become
obsolete?
• Imitate ability: Can others do it also?

Core Competencies: is what a firm can do exceedingly well

Imitability of core competencies determined by:

• Transparency : Can others find out how it is done? (Gillette
razors)
• Transferability: Can it be done else where? (French
Wine)
• Replace ability: Duplicate resources and capabilities?
(Procter& Gamble) 8
A Resource- Based Approach to
Organizational Analysis

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 Value-Chain Analysis
• Views a firm as a chain of value creating activities from obtaining raw materials
input through sales and follow up services to the end user.

Example of a Typical Value Chain for a Manufactured Product

Raw Primary Fabrication Product Distributor Retailer

Materials Manufacturing producer

Industry Value-Chain Analysis

Upstream Downstream

Exploration Transportation Refining Gasoline

& Production retailing

Plastic bag Supermarket

Petrochemical industry chain Ethylene Polyethylene PE film
producer
cracking manufacturing producer

Vertical Integration: Participation in several chain links by a firm

Center of gravity: The part that is most important to the company; where the core
competencies are. 10
Value-Chain Analysis

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 Value-Chain Analysis

Systematic examination of individual value activities can lead to a better

understanding of a corporation’s strengths and weaknesses.

Corporate -Value Chain analysis; involving the following steps:

• Examine each product line’s value chain.
• Which activity can be considered strengths or weaknesses. Core competencies
& core deficiencies

• Examine the “linkages” within each product line’s value chain

• Connections between the way one value activity is performed and the cost of
performance of another activity

• Examine the synergies among the value chains of different product lines or
business units
• Economies of scope – which result when two separate product or services are
sharing activities., such as marketing or manufacturing facility.
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Organizational Analysis - Functional Issues
Marketing is the process of exchanging the company’s products
for monetary value
The marketing manager is the firm’s primary link to the customer
and Competition

Strategic Marketing Issues

• Market Segmentation: Niches, new product development.

• Market Position: “Who are our customers?”

• Marketing Mix: Combination of key variables under the

corporation’s control used to
affect demand and gain competitive advantage.
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Organizational Analysis - Functional Issues
Strategic Marketing Issues : Product life cycle
Product sales tend to follow a certain pattern and enable the marketing department to
examine the product mix in terms of its position in its life cycle

Product Life cycle

Sales

Introduction Growth* Maturity Decline

Time
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Organizational Analysis - Functional Issues
Strategic Operations Issues-”Production and Logistics”
Operations = Manufacturing valuable product.

Production Technologies:
• Small -batch technology: is used to produce small quantities of customized, one of
kind products (custom -built cars, aircraft, ships etc…)
• Mass -production technology: is based on the use of automated machines that
perform repetitive tasks. (lamps, TV's, wash machines etc..)
• Continues -process technology: Non stop production, almost totally mechanized
(chemical plants, oil refineries, etc.…)
• Strategic implication: Economies of scale

The Experience Curve

The observation that production costs typically decrease with cumulative production.
Roughly 20 - 30% each time cumulative doubles.
• Strategic implication: Protecting incumbents; pricing strategies 15
Organizational Analysis - Functional Issues
Strategic Operations Issues-”Production and Logistics”
Strategic Operations Issues
• Facilities and Equipment
• Facility location, size and layout
• Equipment selection and process design
• Maintenance orientation (prevention)

• Purchasing
• Sourcing policy (make or buy)
• Number of sources needed
• Relation with suppliers
• JIT deliveries

• Operations Planning and Control

• Capacity and order planning
• Production is demand oriented or inventory oriented
• Inventory levels and control method(FIFO/LIFO)
• Key control efforts (quality, labor cost, downtime, others)

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Organizational Analysis - Functional Issues

Finance : Raising and allocating capital for different use.

Strategic Financial Issues
• Capital Acquisition
• Cost of capital
• Balance between internal and external funds
• Balance between short- tern and long- term debt

• Capital Allocation (Budgeting)

• Priorities for capital allocation projects.
• Criteria for project selections

• Dividend and Working Capital Management

• Dividend portion
• Cash flow requirements
• Payments terms and collection procedures

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Organizational Analysis - Functional Issues
Human Resources Management: Matching Individuals and Jobs
Strategic HRM Issues
• Recruitment, Selection, and Orientation
• Human resources needed to support the strategy
• Selection process and procedure
• Introduction of new employees
• Career Development and Training
• Future human resource needs
• Prepare the current employee to meet these needs
• Career development plans
• Compensation
• Payment levels
• Motivation of employees
• Incentive policy
• Evaluation, Discipline, and Control
• Frequency of performance evaluation
• Disciplinary steps in case of poor performance
• Labor Relation and Equal Opportunity Requirements
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 Internal factor analysis summary - IFAS
Synthesis of Internal Factors
To summarize the internal factors into generally accepted categories of strengths and
weaknesses the so called IFAS table can be established.
Internal Factor Analysis Summary (IFAS): Maytag Corporation

Internal Factors Weight Rating Weighted Comments

Score
1 2 3 4 5
Strengths

Weaknesses

Total Score 1.0 19