Unit II

Strategic Analysis of Company’s Internal

and External Environment
Dr. Kunal Gaurav
Professor
 Agenda
• 2.1 Analysing Company’s Resources and Competitive Position - Organizational Capability
Profile – Strategic Advantage Profile – Core Competence - Distinctive competitiveness.
• 2.2 Environmental appraisal – Scenario planning – Preparing an Environmental Threat and
Opportunity Profile (ETOP) – Industry Analysis - Porter’s Five Forces Model of
competition.
• 2.3 Analysing Company’s Internal Environment: Capabilities and Competencies,
Resources, Core competencies, Capability Factors
• 2.4 Corporate Portfolio Analysis: Business Portfolio Analysis - Synergy and De-synergy -
BCG Matrix – GE 9 Cell Model.
Analysing Company’s Resources and
Competitive Position
 Threshold Capabilities and Core Competencies

• The term "competence" refers to the activities and processes an organisation uses to deploy
its resources effectively. In understanding strategic capability it is thus important to consider
resources and how they are used.
• As with resources, we can distinguish between two levels of competencies:
• Threshold competencies are those actions and processes that you must be good at just to be
considered as a potential supplier to a customer. If these are not satisfied, you will not even
get a chance to be considered by the buyer. These are 'the order qualifiers'.
• Core competencies are things that you are able to do that are very difficult for your
competitors to emulate. They form the basis for competitive advantage and they are referred
to by Johnson & Scholes as 'the order winners'.
Threshold Capabilities and Core Competencies
 Characteristics of a core competency

Prahalad and Hamel, in that HBR article, list the following three primary
conditions a business activity must satisfy to be considered a core
competency:
• It must provide superior value (e.g., benefits) to the customer or
consumer.
• It should provide potential access to a wide variety of markets.
• It should not be easy to replicate or imitate.
 Sources of core competencies

People Capital

Brand
 Organizational Capability Profile
(OCP)

An organizational capability profile describes the skills,

knowledge and resources that enable your company to provide
quality products or services to customers. The profile provides
useful background information for your marketing and corporate
communications.
 Organizational Capability Profile (OCP)

Financial Capability Profile

(a) Sources of funds

(b) Usage of funds
(c) Management of funds
Marketing Capability Profile
(d) Product related
(e) Price related
(f) Promotion related
(g) Integrative & Systematic
Operations Capability Factor
(a) Production system
(b) Operation & Control system
(c) R&D system

Personnel Capability Factor

(d) Personnel system
(e) Organization & employee characteristics
(f) Industrial Relations

General Management Capability

(g) General Management Systems
(h) External Relations
(i) Organization climate
 Environmental Appraisal

• According to Abell : "Environmental appraisal is the identification, measurement,

and assessment of environmental impacts".
• There are numerous factors that affect the organisation and its operations. These
factors can influence the organisation in both positive as well as negative ways.
• In order to identify the factors in external environment, an appraisal process of the
industry's environment is necessary.
• Environmental appraisal facilitates the managers with the ability to study the
competitive structure and competitive position of the organisation along with the
position of its competitors.
 Environmental Appraisal
• It is well-known that business environment never remains stable rather keeps on
changing rapidly.
• As the businesses grows and expands, the changes in external environment
compels the organisations to make efficient strategies to deal with the contingency
situations.
• Environmental appraisal also allows an organisation to study the steps taken by
competitors in the market.
• By appraising the external environment the companies can improve their internal
capabilities and strengths for adapting to the changes in the external. environment.
Levels/Components of Environmental Appraisal

Environmental Appraisal
Environmental Scanning

Industry Analysis

Competitive Analysis
Process of Environmental Appraisal
 SWOT Analysis
• SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework
used to evaluate a company's competitive position and to develop strategic
planning. SWOT analysis assesses internal and external factors, as well as current
and future potential.
• A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at
the strengths and weaknesses of an organization, initiatives, or within its industry.
• The organization needs to keep the analysis accurate by avoiding pre-conceived
beliefs or gray areas and instead focusing on real-life contexts. Companies should
use it as a guide and not necessarily as a prescription.
 SWOT Analysis
• SWOT analysis is a technique for assessing the performance, competition, risk,
and potential of a business, as well as part of a business such as a product line
or division, an industry, or other entity.
• Using internal and external data, the technique can guide businesses toward
strategies more likely to be successful, and away from those in which they have
been, or are likely to be, less successful.
• Independent SWOT analysts, investors, or competitors can also guide them on
whether a company, product line, or industry might be strong or weak and why.
 Benefits of SWOT Analysis

• A SWOT analysis makes complex problems more manageable

• A SWOT analysis requires external consideration
• A SWOT analysis can be applied to almost every business question
• A SWOT analysis leverages different data sources
• A SWOT analysis may not be overly costly to prepare
 Michael Porter’s Five Forces Analysis
• The Five Forces Model was created by Harvard Business School professor, Michael Porter and was
first published in 1979.
• The model has since become one of the most popular business strategy tools that organizations can
use to understand more about the main competitive forces at work in their industry.
• Porter's Five Forces include: Competitive Rivalry, Supplier Power, Buyer Power, Threat of
Substitution, and Threat of New Entry.
• The model encourages organizations to look beyond direct competitors and, instead, consider broader
environmental forces.
• By understanding these forces, organizations can make more informed decisions, identify areas for
improvement, and enhance their strategy to enhance their competitive position in the market, as well
as their profits.
 Synergy
• Synergy is the concept that the combined value and performance of two
companies will be greater than the sum of the separate individual parts.
• Synergy is a term that is most commonly used in the context of mergers
and acquisitions (M&A).
• Synergy, or the potential financial benefit achieved through the combining
of companies, is often a driving force behind a merger.
 BCG Matrix
• The growth share matrix is, put simply, a portfolio management
framework that helps companies decide how to prioritize their different
businesses.
• It is a table, split into four quadrants, each with its own unique symbol
that represents a certain degree of profitability: question marks, stars, pets
(often represented by a dog), and cash cows.
• By assigning each business to one of these four categories, executives
could then decide where to focus their resources and capital to generate
the most value, as well as where to cut their losses.
 How Does the Growth Share Matrix Work?

• Low Growth, High Share. Companies should milk these “cash cows” for
cash to reinvest.
• High Growth, High Share. Companies should significantly invest in
these “stars” as they have high future potential.
• High Growth, Low Share. Companies should invest in or discard these
“question marks,” depending on their chances of becoming stars.
• Low Share, Low Growth. Companies should liquidate, divest, or
reposition these “pets.”
 Strategies for SBUs
• Cash Cows: Harvest
• Stars: Invest & Harvest
• Question Mark: Wait & Watch
• Pet / Dog: Divest
 GE Matrix
• The GE Matrix is a strategic framework that helps multi-business corporations manage
portfolios and prioritize investments across products and SBUs (Strategic Business Units).
• The GE Matrix looks at two factors: the competitive strength of an SBU and the
attractiveness of the market in which it operates.
• Based on where the SBU sits within the 3x3 GE Matrix, portfolio managers can quickly
answer three strategic questions:
• How to allocate capital throughout the organization’s portfolio of companies?
• What products or additional SBUs are needed in their portfolio?
• Which SBUs should be divested?
 How To Use GE Matrix?

• Determine the industry attractiveness of each SBU

• Determine the competitive strength of each SBU
• Plot the information on the GE Matrix
• Identify the future direction of each SBU
• Choose where to invest and focus your attention
• Turn insights into results