Internal Environment

(3)
Internal Scanning:
Organizational
Analysis
1
 Contents
1. A resource-based Approach to organizational analysis
a. Core and Distinctive Competencies
b. Using Resources to gain competitive advantage
c. Determining the sustainability of an advantage
2. Business Models
3. Value-Chain Analysis
a. Industry Value-Chain Analysis
b. Corporate Value-Chain Analysis
4. Scanning Functional Resources and Capabilities
a. Basic Organization Structures
b. Corporate Culture: The Company Way

2
 A Resource-Based Approach
to Organizational Analysis
Scanning and analyzing the external environment for:
opportunities and threats, is not enough to provide an organization a competitive
advantage.
We must look into the organization itself (internal environment) to identify internal strategic
factors – those critical:
strengths and weaknesses, that are likely to determine if the firm will be able to take
advantage of opportunities while avoiding threats. This internal scanning is referred to as:


Organizational analysis
concerned with identifying and developing an organization’s resources and
competencies

Refer to P. 136 ch.5 (Tata motors example of strategy)

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 Core and Distinctive Competencies

 Resources (are an organization’s assets)

 Assets, competency, process, skill, or knowledge
controlled by the corporation.
 tangible, intangible
 Capabilities
 a corporation’s ability to exploit (use) its resources
 consist of business processes and routines that
manage the interaction among resources to turn
inputs into outputs

Exploit = to use something in a way that helps =‫استغال ل‬ 5-4

Core and Distinctive Competencies

Core competency
 a collection of competencies that cross divisional
boundaries, is wide-spread throughout the
corporation and is something the corporation
does exceedingly well
Distinctive competency
 core competencies that are superior to those of
the competition

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 VRIO Framework of Analysis
To Evaluate the Firm’s Competencies

1. Value: Does it provide customer value and

competitive advantage?
2. Rareness: Do no other competitors possess
it?
3. Imitability: Is it costly for others to imitate?
4. Organization: Is the firm organized to exploit
the resource?

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 Using Resources to Gain Competitive
Advantage
1. Identify and classify resources in terms of strengths and
weaknesses
2. Combine the firm’s strengths into specific capabilities and
core competencies
3. Appraise profit potential—Are there any distinctive
competencies?
4. Select the strategy that best exploits the firm’s capabilities
and competencies relative to external opportunities
5. Identify resource gaps and invest in upgrading
weaknesses.

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Access to a Distinctive Competency
Where does a distinctive competency come from?
 Asset endowment
Such as a key patent coming from the founding of the company.
 Acquired from someone else
It may be acquired from someone else, as when Whirlpool bought a
worldwide distribution system when it purchased Philips’ appliance
division.
 Shared with another business
It may be shared with another business unit or alliance partner.
 Built and accumulated within the company
It may be carefully built or accumulated over time within the company.

Endowment = money that is given to a college, hospital in order to provide it with an income
 Business Models

Business model
 a company’s method for making money in the
current business environment
 includes the key structural and operational
characteristics of a firm—how it earns revenue
and makes a profit
 See word document

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 Business Models

A business model is usually composed of five

elements:
 Who it serves
 What it provides
 How it makes money
 How it differentiates and sustains competitive
advantage
 How it provides its product/service

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 Business Models

Some of the many possible business models are:

 Customer solutions model
 Profit pyramid model
 Multi-component system/installed model
 Advertising model
 Switchboard model

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 Business Models

 Customer solutions model: IBM uses this model to

make money, not by selling IBM products, but by selling
its expertise to improve its customers’ operations. This
is a consulting model
 Profit pyramid model: General motors offers a full line
of cars in order to close out any niches where a
competitor might find a position.

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 Value-Chain Analysis

Value chain
 a linked set of value-creating activities that begin
with basic raw materials coming from suppliers,
moving on to a series of value-added activities
involved in producing and marketing a product or
service and ending with distributors getting the
final goods into the hands of the ultimate consumer

Figure 5-1

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 Value-Chain Analysis
Very few corporations include a product’s entire value chain. Ford Motor
Company did when it was managed by its founder, Henry Ford I. During the
1920s and 1930s, the company owned its own iron mines, ore-carrying ships,
and a small rail line to bring ore to its mile-long plant in Detroit.

Figure 5-1

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 Industry Value Chain Analysis

Value chain segments include:

Upstream
Downstream
Center of gravity
 the part of the chain that is most important to the
company and the point where its core
competencies lie

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 Industry Value Chain Analysis
In the Petroleum industry, for example, upstream refers to oil
exploration, drilling, and moving the crude oil to the refinery,
and downstream refers to refining the oil plus transporting and
marketing gasoline and refined oil to distributors and gas station
retailers.

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 Industry Value Chain Analysis
Even though most large oil companies are completely integrated,
each company often has more expertise at a specific part of the
value chain. Amoco, for example, had strong expertise
downstream in marketing & retailing. BP, in contrast, was more
dominant in upstream activities like exploration. That’s the main
reason the two companies merged to form BP Amoco in 1998.

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Corporate Value Chain Analysis

Primary activities Support activities

 Inbound logistics Procurement
 Operations Technology
 Outbound logistics development
Human resource
management
Firm infrastructure

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A Corporation’s Value Chain

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 Corporate Value Chain Analysis
1. Examine each product line’s value chain in terms
of the various activities involved in producing
the product or service
2. Examine the linkages within each product line’s
value chain
3. Examine the potential synergies among the
value chains of different product lines or
business units

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Basic Organizational Structures

Simple Functional Divisional

Strategic
Business Conglomerate
Units

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Basic Organizational Structures

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 Basic Organizational Structures
 Simple Structure:
 has no functional or product categories.
 Is appropriate for a small privately-owned business.
 Employees tend to be generalists.

 Functional Structure:
 Is appropriate for a medium-sized firm with several product
lines in one industry.
 Employees tend to be specialists in the business functions,
such as marketing, finance, manufacturing & HR.

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 Basic Organizational Structures
 Divisional Structure:
 Appropriate for a large corporation with many product lines in
several related industries.
 employees tend to be functional specialists organized
according to product/market distinctions.
 Strategic business units (SBUs): are a modification of the
divisional structure.

 Conglomerate structure: a variant of the divisional structure,

sometimes called the “Holding Co.”, is an assemblage of legally
independent firms operating under one umbrella.

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 Corporate Culture:
The Company Way

Corporate culture
 the collection of beliefs, expectations and values
learned and shared by a corporation’s members
and transmitted from one generation of
employees to another.

Corporate culture shapes the behavior of people in a

corporation, thus affecting corporate performance.

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 Corporate Culture
Organizational (Corporate) Culture has been described as:

 A system of shared meanings and common beliefs held by organizational

members that determines, in a large degree, how they act towards each other.

 The shared values, principles, traditions, and ways of doing things that influence
the way organizational members act.

“The way we do things around here”

Implications:
 Culture is a perception
 Culture is shared
 Culture is descriptive
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 7 Dimensions of Organizational Culture

There are seven dimensions that describe an organization’s culture.

These dimensions range from low to high, meaning it is not very typical
of the culture (low) or is very typical of the culture (high).

The 7 Dimensions are:

1. Attention to detail
2. Outcome orientation
3. People orientation
4. Team orientation
5. Aggressiveness
6. Stability
7. Innovation & Risk Taking
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7 Dimensions of Organization Culture

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7 Dimensions of Culture

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 Functions of Corporate Culture

1. Conveys a sense of identity for employees

2. Generates employee commitment
3. Adds to the stability of the organization as a
social system
4. Serves as a frame of reference for employees
to understand organizational activities and as
a guide for behavior

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 Corporate Culture:
The Company Way

Cultural intensity
 the degree of which members of a unit accept the
norms, values and other cultural content associated
with the unit
 shows the culture’s depth
Cultural integration
 the extent of which units throughout the
organization share a common culture
 culture’s breadth

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 Strategic Information Systems/Technology
Issues

Supply chain management

 the forming of networks for sourcing raw
materials, manufacturing products or creating
services, storing and distributing the goods and
delivering them to customers and consumers

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