Internal Scanning

Organizational Analysis
(1) A Resource-Based Approach to Organizational Analysis
1. Scanning and analyzing the external environment for opportunities and
threats is not enough to provide an organization a competitive advantage.
2. Analysts must also look within the corporation itself to identify the
Internal Strategic Factors “those critical strengths and weaknesses that are
likely to determine if the firm will be able to take advantage of opportunities
and avoid threats”.
3. this internal scanning is often referred to as Organizational Analysis
“Concerned with identifying and developing an organization’s resources”
4. a resource is “ an asset, competency, process, skill, or knowledge
controlled by the corporation” .
5.
a resource is a strength if

 It provides the company with a competitive advantage

 It something the firm does or has the potential to do particularly well
relative to the abilities of existing or potential competitors.
6.
a resource is a weakness if

 It is something that the corporation does poorly or doesn’t have to capacity

to do although its competitors have that capacity.

7. VRIO framework of analysis proposes four questions to evaluate each of a

firm’s key resources:-
a) Value: Does it provide competitive advantage?
b) Rareness: Do other competitors possess it?
c) Imitability: Is it costly for other to imitate?
d) Organization: Is the firm organized to exploit the resources?
If the answer to these questions is “yes” for a particular resource, that
resource is considered strength and a distinctive competence.

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8. Evaluate the importance of these resources to find out if they are internal
strategic factors. This can be done by comparing measures of these resources
with measures of:-
a) The company’s past performance
b) The company’s key competitors
c) The industry as whole
To the extent that a resource is significantly different form the firm’s own
past, its key competitors, the industry average, the resource is likely to be
strategic factor and should be considered in strategic decisions.

(1-1) Using Resources to Gain Competitive Advantage

Proposing that a company’s sustained competitive advantage is determined
by its resource endowments, grant proposes a five-step 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 specific capabilities. corporate
capabilities or core competencies “the things that a corporation can do
exceedingly well”.
“When these competencies/ capabilities are superior to those of
competitors”, they are often called distinctive competencies
3) Appraise the profit potential of these resources and capabilities in term
of their potential for sustainable competitive advantage and the ability to
harvest the profits resulting form the use of these resources and
capabilities.
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.

(2-1) determining the sustainability of an advantage

A firm can use its resources and capabilities to develop a competitive
advantage, but it doesn’t mean that it will be able to sustain it. Two
characteristics determine the sustainability of a firm’s distinctive
competency(ies):-

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 1. Durability: the rate at which a firm’s underlying resources and
capabilities (core competencies) depreciate or become obsolete. As
new technology can make a company’s core competency obsolete or
irrelevant.
2. Imitability: the rate at which a firm’s underlying resources and
capabilities (core competencies) can be duplicated by others. To the
extent that a firm’s distinctive competency gives it competitive
advantage in the marketplace, competitors will do what they can to
learn and imitate that set of capabilities.

Competitors’
Efforts May Range
From

Reverse engineering
“taking apart a
competitor’s product Hiring employees Outright patent
in order to find out from the competitor infringement
how it works”

A core competency can be easily imitated to the extent it is Transparent,

Transferable, Replicable
Transparency Transferability Replicability
The speed with which other The ability of competitors to The ability of the
firms can understand the gather the resources and competitors to use
relationship of resources capabilities necessary to duplicated resources and
and capabilities supporting support a competitive capabilities to imitate the
a successful strategy. challenge. other firm’s success.
Ex: Gillette razor Ex: French wine Ex: Wal-Mart

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 Explicit Knowledge Tacit Knowledge
 Knowledge that can be easily  Knowledge that is not easy
articulated and communicated. communicated because it is deeply
 This is the type of knowledge that rooted in employee experience or in
competitive intelligence activities a corporation’s culture.
can quickly identify and  It is more valuable and lead to a
communicate. sustainable competitive advantage
than explicit knowledge, because it
is much harder for competitors to
imitate.
 The knowledge may be complex
and combined with other types of
knowledge in an unclear fashion that
even management cannot explain the
competency.

An organization’s resources and capabilities can be placed on a continuum.

Continuum of resource sustainability “at one extreme are slow-cycle
resources, which are sustainable because they are protected by patents,
geography, strong brand names, or tacit knowledge. These resources and
capabilities are distinctive competencies because they provide a
sustainable competitive advantage. The other extreme includes fast-cycle
resources, which face the highest imitation pressures because they are
based on concept or technology that can be easily duplicated, the primary
way for firm to compete in such case is through increased speed from lab
to market place otherwise it has no real sustainable competitive
advantage”

(2) Value Chain Analysis

1. A good way to begin an organizational analysis is to determine where a
firm’s products are located in the overall value chain.
2. A value chain “a linked set of value-creating activities beginning 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”.

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 3. Very few corporations include a product’s entire value chain.
(1-2) industry value chain analysis
1. The value chains of most industries can be split into two segments:
upstream and downstream halves.
2. In the petroleum industry, upstream refers to oil exploration, drilling,
and moving crude oil to the refinery, and downstream refers to refining oil
plus the transporting and marketing of gasoline and refined oil to
distributors and gas station retailers.
3. In analyzing the complete value chain of a product, it is noticeable that
even if a firm operates up and down the entire industry chain, it usually has
an area of primary expertise where its primary activities lie.
4. a company’s center or gravity “ the part of the chain that is most
important to the company and the point where its greatest expertise and
capabilities lie- its core competencies “.
5. A company center of gravity is usually the point which the company
started. After a firm successfully establish itself at this point by obtaining a
competitive advantage, one of its strategic moves is to move forward of
backward along the value chain in order to reduce costs, guarantee access
to key raw materials or to guarantee distribution. This is called vertical
integration.

(2-2) corporate value chain analysis

1. Each corporation has its own internal value chain of activities.
2.
Primary activities Support activities

Begin with Inbound Logistics (raw Include Procurement (purchasing),

materials handling and warehousing), go
through an Operation Process in which a
product is manufactured, and continue
on to outbound logistics (warehousing
and distribution), Marketing And Sales,
and finally to Service (installation, repair
and sale of parts).
Technology Development (R&D),
Human Resource Management, and
Firm Infrastructure (accounting,
finance, strategic planning, ensure
that the primary value-chain
activities operate effectively and
efficiently.

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3. Each of a company’s product lines has its own distinctive value chain.
Because most corporations make several different products or services, an
internal analysis of the firm involves analyzing a series of different value
chains.
4. Corporate value chain analysis involves the following three steps:
 Examine each product line’s value chain in terms of the various
activities involved in producing that product or service. Which activities
can be considered strengths (core competencies) or weaknesses (core
deficiencies)? Do any of the strengths provide competitive advantage
and could be labeled as core competencies?
 Examine the “linkages” within each product line value chain. Linkages
“the connection between the way one value activity is performed and
the cost of performance of another activity.
 Examine the potential synergy among value chains of different product
line or business units. Economies of scope “ result when the value
chains of two separate products or services share activities such as
the same marketing channels of manufacturing facilities”

(3) Scanning Functional Resources

1. The simplest way to begin an analysis of a corporation’s value chain is
by examining its traditional functional areas for potential strengths and
weaknesses.
2. functional resources:
 “Not only the financial, physical, and human assets in each area, but
also the ability of the people in each area to formulate and implement
the necessary functional objectives, strategies, police.
 The resources include the knowledge of analytical concepts and
procedural techniques common to each area as well as the ability of the
people in each area to use them effectively.
 If used properly, these resources serve as strengths to carry out
value-added activities and support strategic decisions.
3. In addition to the usual business functions of marketing, finance, HR,
information systems, we will discuss also the structure and culture as key
parts of a corporation’s value chain.

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 (1-3) basic organizational structures

(1) Simple Structure

 Has no functional or product categories
 Appropriate for a small, entrepreneur-dominated company with one or two product
lines that operate in a reasonably, easily identifiable market niche.
 Employees tend to be generalists and jacks-of-all-trades.
(2) Functional Structure
 Appropriate for medium sized firm with several related product lines in one industry.
 Employees tend to be specialists in the business functions important to that industry,
such as finance, manufacturing, marketing, and HR.
(3) 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.

 Management tends to find some synergy among divisional activities through the use of
committees and horizontal linkages.

(4) Strategic Business Unit

 It is the recent development to the divisional structure.
 SBUs are divisions or groups of divisions composed of independent product-market
segments that are given primary responsibility and authority for the management of
their own functional areas.
 An SBUs may be of any size or level, but it must have:-
1. A unique mission
2. Identifiable competitors
3. An external market focus
4. Control of its business functions
 The idea is to decentralize on the basis of strategic elements rather than on size,
product characteristics, or span of control and to create horizontal linkages among units
previously kept separate.

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 (5) conglomerate structure
 Appropriate for large corporations with many product lines in several unrelated
industries.
 A variant of the divisional structure, the conglomerate structure (holding company) is
an assemblage of legally independent firms under one corporate umbrella but
controlled through the subsidiaries’ board of directors.
 The unrelated nature of the subsidiaries prevents any attempt at gaining synergy among
them.

(2-3) Corporate Culture: The Company Way

1. Corporate Culture is “the collection of beliefs, expectations, and values

learned and shared by a corporation’s members and transmitted form one
generation of employees to another”.
2. There are three ways to do any job:
 The right way.
 The wrong way.
 The company way.
3. The corporate culture generally reflects the values of the founder(s) and
the mission of the firm.
4. corporate culture has two distinct attributes

Cultural intensity Cultural integrity

1. The degree to which members of a
unit accept the norms, values, or other
culture content associated with the unit.
(Depth).
2. Organizations with strong norms
promoting a particular value have
intensive cultures, whereas new firms
or firms at transition have weaker, less
intensive cultures. Employees in an
intensive culture tend to exhibit
1. The extent to which units throughout
an organization share a common culture.
(Breadth).
2. Organizations with pervasive dominant
culture may be hierarchically controlled
and power oriented, such as military unit,
and has highly integrated cultures. In
contrast a company that is structured into
units or divisions usually exhibits some
strong subcultures and a less integrated

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consistent behavior over time culture.

5. Importance of corporate culture:

 Conveys sense of identity for employees.
 Generates employee commitment to something greater than themselves.
 Adds to organizational stability as a social system.
 Serves as a frame of reference for employees to use to make sense out of
organizational activities and to use as a guide for appropriate behavior.

6. A change in mission, objectives, strategies, or polices is not likely to be

successful if it is in opposition to the accepted culture of the firm.

7. If an organization’s culture is compatible with a new strategy, it is an

internal strength. But if not it is a serious weakness.