Internal Scanning:

Organizational Analysis
Internal Audit

Parallel process with external audit

•Information from:
•Management
•Marketing
•Finance/accounting
•Production/operations
•Research & Development
•Management information Systems
Organizational analysis

Internal strategic factors – those critical

strengths and weakness that are likely to
determine if the firm will be able to take
advantage of opportunities while avoiding
threats

Internal resources are more important

than external factors
Core and Distinctive Competences

Resources are an organization’s assets and are

thus the basic building blocks of the organization.
Capabilities refer to corporation’s ability to
exploit its resources.
A competency is a cross-functional integration
and coordination of capabilities.
Core and Distinctive Competences

A core competency is a collection of

competencies that crosses divisional boundaries,
is widespread within the corporation, and is
something that the corporation can do
exceedingly well.

When core competencies are superior to those of

the competition, they are called distinctive
competences.
VRIO framework of analysis:
1. Value: Does it provide competitive
advantage?
2. Rareness: Do other competitors possess it?
3. Imitability: Is it cost for others to imitate?
4. Organization: Is the firm organized to exploit
the resource?
If answer is yes for a particular competency, it
is considered to be a strength and thus a
distinctive competence.
Applying the VRIO Framework
The Question of Value

in theory: Does the resource enable the firm

to exploit an external opportunity or neutralize
an external threat?

the practical: Does the resource result in an increase in

revenues, a decrease in costs, or some
combination of the two?
(Levi’s reputation allows it to charge a premium for its
Docker’s pants)
Applying the VRIO Framework
The Question of Rarity
• if a resource is not rare, then perfect competition
dynamics are likely to be observed

• a resource must be rare enough that perfect

competition has not set in

• thus, there may be other firms that possess the

resource, but still few enough that there is scarcity

Several pharmaceuticals sell cholesterol-lowering

drugs, but the drugs are still scarce—look at prices
Applying the VRIO Framework
The Question of Imitability
• the temporary competitive advantage of valuable and
rare resources can be sustained only if competitors
face a cost disadvantage in imitating the resource

• intangible resources are usually more

costly to imitate than tangible resources
and bundles of resources are more costly than
single resources

Harley-Davidson’s styles may be easily imitated,

but its reputation cannot
 Applying the VRIO Framework
The Question of Organization
• a firm’s structure and control mechanisms must be
aligned so as to give people ability and incentive to exploit
the firm’s resources

• examples: formal and informal reporting structures,

management controls, compensation policies,
relationships, etc.

• these structure and control mechanisms complement

other firm resources—taken together, they can help a
firm achieve sustained competitive advantage

3M Company – rewards innovation and risk-taking

Mobilizing Company Resources to
Produce Competitive Advantage

Competitive
Advantage
Strategic Assets and
Market
Achievements
Core and Distinctive
Competencies

Competitive Capabilities

Company Resources
Competitive Advantage

Competitive advantage
• A firm’s profitability is greater than the average
profitability for all firms in its industry

Sustained Competitive Advantage

• A firm maintains above average and superior profitability
and profit growth for a number of years

The Primary Objective of Strategy

is to achieve a
Sustained Competitive Advantage
with turn results in
Superior Profit and Profit Growth
Determining the Competitive
Value of a Company Resource
To qualify as the basis for sustainable
competitive advantage, a “resource” must
pass 4 tests:
1. Is the resource hard to copy ?
2. Does the resource have staying power -- is
it durable ?
3. Is the resource really competitively
superior ?
4. Can the resource be trumped by the
different capabilities of rivals ?
Grant’s five-step, resource-based
approach to strategy analysis:
1. Identify and classify the firm’s resources in terms
of strengths and weaknesses
2. Combine the firm’s strengths into corporate
capabilities – core competences.
3. Appraise the profit potential of these resources
and capabilities in terms of their potential for
sustainable competitive advantage.
4. Select the strategy that best exploits the firm’s
resources and capabilities relative to external
opportunities.
5. Identify resource gaps and invest in upgrading
weaknesses.
Value Chain Analysis

A value chain is a linked set of value-

creating activities beginning with basic raw
materials coming from suppliers, moving
on to series of value-added activities
involved in producing and marketing a
product or service, and ending with
distributors getting final goods into the
hands of the ultimate consumer.
 Value Chain Analysis

Typical Value Chain for a Manufactured Product

Raw Primary Product

Fabrication Distributor Retailer
Materials Manufacturing Producer
 Corporate Value Chain Analysis
Primary Activities and Costs

Purchased
Distribution
Supplies
And Sales and Profit
and Operations Service
Outbound Marketing Margin
Inbound
Logistics Logistics

Product R&D, Technology, Systems Development

Human Resources Management Support

Activities
General Administration and Costs
Value Chain Analysis is a three-step process:

 Activity Analysis: you identify the activities

you undertake to deliver your product or
service;
 Value Analysis: for each activity, you think
through what you would do to add the greatest
value for your customer;
 Evaluation and Planning: you evaluate
whether it is worth making changes, and then
plan for action.
 An Unweighted
Competitive Strength Assessment
KSF/Strength Measure ABC Co. Rival 1 Rival 2 Rival 3 Rival 4

Quality/product performance 8 5 10 1 6

Reputation/image 8 7 10 1 6

Manufacturing capability 2 10 4 5 1

Technological skills 10 1 7 3 8

Dealer network/distribution 9 4 10 5 1

New product innovation 9 4 10 5 1

Financial resources 5 10 7 3 1

Relative cost position 5 10 3 1 4

Customer service capability 5 7 10 1 4

Overall strength rating 61 58 71 25 32

Rating Scale: 1 = very weak; 5 = average; 10 = very strong

A Weighted
Competitive Strength Assessment
ABC
KSF/Strength Measure Weight
Co.
Rival 1 Rival 2 Rival 3 Rival 4

Quality/product performance 0.10 8/0.80 5/0.50 10/1.00 1/0.10 6/0.60

Reputation/image 0.10 8/0.80 7/0.70 10/1.00 1/0.10 6/0.60
Manufacturing capability 0.10 2/0.20 10/1.00 4/0.40 5/0.50 1/0.10
Technological skills 0.05 10/0.50 1/0.05 7/0.35 3/0.15 8/0.40
Dealer network/distribution 0.05 9/0.45 4/0.20 10/0.50 5/0.25 1/0.05
New product innovation 0.05 9/0.45 4/0.20 10/0.50 5/0.25 1/0.05
Financial resources 0.10 5/0.50 10/1.00 7/0.70 3/0.30 1/0.10
Relative cost position 0.35 5/1.75 10/3.50 3/1.05 1/0.35 4/1.40
Customer service capability 0.15 5/0.75 7/1.05 10/1.50 1/0.15 4/1.60
Sum of weights 1.00

Overall strength rating 6.20 8.20 7.00 2.10 2.90

Rating Scale: 1 = very weak; 5 = average; 10 = very strong

Scanning Functional Resources

Basic Organizational Structures

 Simple structure
 Functional structure
 Divisional structure
 Strategic business units (SBUs)
 Conglomerate structure
 Basic Organizational Structures
Simple Structure
Owner-Manager

Workers
Functional Structure
Top management

Manufacturing Sales Finance Personnel

Divisional Structure
Top management

Product division A Product division B

Manufacturing Finance Manufacturing Finance

Sales Personnel Sales Personnel

Integrating Strategy & Culture

Corporate Culture

Pattern of behavior developed by an

organization as it learns to cope with its
problem of external adaptation and
internal integration…is considered valid
and taught to new members
Corporate Culture

A change in mission, objectives,

strategies, or policies is not likely to
be successful if it is in opposition to
the accepted culture of the firm.
Like structure, if an organization’s
culture is compatible with a new
strategy, it is internal strength. In
opposite – it is a serious weakness.
Integrating Strategy & Culture

Values

Legends Beliefs

Cultural
Heroes Rites
Products

Symbols Rituals
Myths
Strategic Marketing Issues

Customer Needs/Wants for Products/Services

1. Market position: who are our customers?

2. Market segmentation: what niches to seek,
which new types of products to develop?

3. Marketing Mix refers to the particular combination

of key variables (product, place, promotion, and price)

4. Product Life Cycle is a graph showing time

plotted against the dollar sales of a product as it
moves from introduction through growth and maturity
to decline
Strategic Financial Issues

1. Financial Leverage (the ratio of total debt to

total assets) is helpful in describing how debt
is used to increase the earnings available to
common shareholders.
2. Capital budgeting is the analyzing and
ranking of possible investments in fixed
assets such as land, buildings, and
equipment in terms of additional outlays
which will result from each investment.
Strategic Research & Development
Issues

 Development of new products before

competitors
 Improving product quality
 Improving manufacturing processes to
reduce costs
Strategic Operations Issues

Production/Operations Functions

 Process
 Capacity
 Inventory
 Workforce
 Quality
Strategic Human Resource
Management Issues

The primary task of HRM is to improve the match

between individuals and jobs.

 Self-managing work teams

 Cross-functional cross teams
 Concurrent engineering
Management
Stage When Most
Function Important
Planning Strategy Formulation

Organizing Strategy Implementation

Motivating Strategy Implementation

Staffing Strategy Implementation

Controlling Strategy Evaluation

Management Information Systems
MIS are used

 to automate back-office processes

 to automate individual tasks
 to provide sufficient data for analysis
 to enhance key business functions (marketing &
operations)
 to provide customer support and help in distribution and
logistics
 to develop competitive advantage

Internet
Intranet
Extranet
Synthesis of Internal Factors: IFAS
IFAS– Maytag (1995)
Key Internal Factors Weight Rating Wtd
Score

Strengths
1. Quality Maytag culture 0.15 5.0 0.75

2. Experienced top management 0.05 4.2 0.21

3. Vertical integration 0.10 3.9 0.39

4. Employee relations 0.05 3.0 0.15

5. Hoover’s international orientation 0.15 2.8 0.42

 IFAS– Maytag (1995)
Key Internal Factors Weight Rating Wtd
Score

Weaknesses
1. Process-oriented R&D 0.05 2.2 0.11

2. Distribution channels 0.05 2.0 0.10

3. Financial position 0.15 2.0 0.30

4. Global positioning 0.20 2.1 0.42

5. Manufacturing facilities 0.05 4.0 0.20

TOTAL 1.00 3.05

Internal Factors Analysis Summary IFAS

The Maytag’s total weight is 3.05 means

that the corporation was about average
compared to the strengths and weaknesses
of others in the major home appliance
industry in 1995.