SC3 Strategic Management

Module 3

The Internal Analysis

Introduction
Recall the names of at least three organisations whose product / service
you have used and are very happy with. For example you may have flown
Emirates or South West Airlines or Air Asia and have been impressed by
the service. Ask yourself what was it that impressed you- punctuality,
cleanliness, and courteous staff, on time schedule or something else. How
was the courtesy or punctuality attained? What are the resources that
would have created the kind of experience you enjoyed? In this unit we
will learn about those factors that create the unique advantage for an
organisation and enable it to compete profitably in the marketplace. The
different frameworks that have been used to explain the competitiveness
of the organisation include the value chain analysis, the McKinsey 7S
framework and the Balanced Scorecard. What is apparent from these
approaches is that the strengths may lie in a specific activity/ function or
division it is their cross functional leveraging that makes them
distinguishable and a source of enduring advantage.

Upon completion of this module you will be able to:

 differentiate between the building blocks of competitive

advantage.
 explain the value chain concept.
 explain the concept of competitive advantage.
Outcomes
 apply the value chain concept.
 define the Balanced Scorecard.
 explain the McKinsey 7S Framework.
 conduct an internal appraisal based on given data.

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Competencies: Cross functional integration mechanisms

developed by the organisations.

Cross functional Those competencies that are an outcome of

competences: cooperation between different functions.
Terminology
Resource A resource which cannot be copied easily is an
inimitability: inimitable resource.

Superordinate Goals that provide the overall value framework for

goals: the organisations decisions. They imply this is
what we stand for beyond products/ services.

Resources, competencies and capabilities

The experience that made you happy, or in other words created a value
that you cherished in the above cited instances, is the outcome of
deployment of a combination of resources. The resources have been
deployed to create a competitive advantage. The qualitatively superior
flying experience that the organisation has created is based on the
configuration of an organisation’s resources, capabilities and competence
– which are its strengths. If there are many other flyers who feel that the
airline has created a value worth paying for repeatedly, isn’t the airline
ahead of competitors? Strengths are the “Competitive assets” of the
organisation and weaknesses are the “Competitive liabilities” of the
organisation (Thompson & Strickland,1999, p107). Knowing about its
strengths and weaknesses enables an organisation to:
 Leverage them for strategic choice.
 Improvise those vulnerable areas that impact its profitability
adversely and
 Develop areas that enhance its profitability.
The strengths and weaknesses of the organisation are rooted across the
organisation in the different functions it performs, the routines,
processes, mind-sets, leadership, structure, digitisation, culture, resources,
intellectual capital, strategic thinking, cross functional coordination,
beliefs and systems. The different factors that create the strengths and
weakness are created by the strategic history of the organisation,
deliberate infusions, or are an outcome of functional decisions (for
example, location of a hotel). The strengths and weaknesses are
embedded in the resources, capabilities and competencies of the
organisation.

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Resources
Resource connotes the cumulative sum of all tangible and intangible
assets that an organisation has. The tangibles include people, money,
material, land, inventory, and distribution network. The intangibles
include technology, skills, tactical and strategic advantages, brand name,
reputation, intellectual property, knowledge, processes, corporate culture
and experience. Resources create a “value” that exceeds the value created
by the competitors and in the long term leads to higher profitability.
Resources play an important role in the choice of strategy. Their
availability or non-availability may preclude or include some options. To
make the best of the resources possessed the managers need to have:
 The knowledge about the resource spread within an organisation.
Unless the resources are mapped in a systemic manner such
knowledge may be dispersed but not available at the click of a
button. A resource inventory can allow managers to pool
resources across different demarcations in the organisation
otherwise there will be wasteful creation of multiple resources
without commensurate results.
 Knowledge about value and distinctiveness of the resources. The
resource must be qualitatively and competitively superior.
 The ability to develop resources constantly and consistently.
Resources have contextual relevance. There has to be inherent
flexibility in leveraging resources either to make the best of an
opportunity or in some case even to make the opportunity
“happen”.

Activity 3.1
Identify three intangible and three intangible resources for a restaurant
chain, furniture store and a telephone company. Which do think makes
uniqueness difficult?

Type of Tangible In tangible Difficult to

Activity Organisations assets assets copy

Restaurant chain

Furniture store

Telephone company

Capabilities
Capability is the ability to make the best of the available resources. The
business process and work routines within different functions create the

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capabilities. An organisation has marketing, manufacturing and financial

capabilities. For example, an organisation may have the capability to
manufacture and fit the lowest cost prosthesis in the world, as well as
continually train and improvise on that, giving it an unassailable position
in the prosthetics market where almost 70 per cent of the users are poor
and depend on philanthropy for fitting. Similarly another organisation
may have the capability to develop a fixed menu of “fast food items”
made available in the minimum possible time across all outlets world
over. Capabilities enable the organisation to tide over environment
uncertainties. Capabilities are applicable across markets time and
customers. Capabilities are not static they evolve continuously. Coca
Cola has a unique capability to market its product even in the remotest
areas. It is available in the remote mountainous regions of India through
the summer months when tourist traffic is at its peak. To get it there
would require months of advance logistics planning.
Competences
Competences are the cross-functional integration mechanisms developed
by the organisation. The efficiency and the effectiveness of the
organisation depends on this cross-functional coordination for it leads to
advantages such as lean manufacturing, reduced cycle time, reduced lab
to market time and so on. Leveraged further with other cross-functional
advantages, these outcomes enhance the competitiveness of the
organisation.
If the organisation is able to translate the transcendence of the divisional
and functional boundaries across some key areas of its business and do so
better than the competitors the organisation has an advantage over the
competitors that is difficult to copy. These difficult to copy competencies
are called as Core Competences. Core competence as discussed by C.K
Prahalad and Gary Hamel (1990, pp. 79-91) implies:
 a competence unique to the organisation (it should also be
durable)
 a competence that is difficult to imitate and
 access to new markets.

According to them, the primary role of senior management is to develop

the “strategic architecture” to guide the organisation in creating and
acquiring core competencies through internal development or external
acquisitions and alliances. The strategic architecture is a “road map” of
the future that identifies which core competencies to build and their
constituent technologies.” Figure 3.1 shows the application of the
competences Honda (Japan) has in engine technology, manufacturing and
branding to different products for different markets.

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 SC3 Strategic Management

Motorcycles

Lawnmowers Cars

Honda

Power Snow
Generators mobiles

 Engine Technology
Competitive  Quality Control
Advantage  Branding

Figure 3.1: Honda Competencies

Competences are the outcomes of decisions taken at different levels to

coordinate, integrate, learn, share, create teams, assign tasks, and develop
cross functional outcomes. Each organisation would do so in its own
unique way. Can the organisation make the unique way the basis of its
strategic moves? For that the competence must be replicable along
different businesses (as in the Honda example cited by Hamel and
Prahalad shows). The organisation sharpens its competences and
consistently seeks to enlarge the scope of its sustainable competitiveness.
Determining the value, rarity, inimitability and the organisation
preparedness (Miller, 1998) to exploit the competence enables an
organisation to know if it can be the bedrock of any strategic choice.
Some other criteria that can be used to classify competences and
resources and check for their distinctiveness are given in the box below.

Is the resource scarce? Water for Coca Cola and Pepsi in India is one
such resource.
Are the resources/ competences mobile? Buildings can be sold and
acquired, key people can be lured by competitors but culture cannot be
moved from one organisation to another or from one owner to another.
Is the competence inimitable? Branding, patenting, scale deterrence etc
make a resource difficult to copy.
Is the resource/ competence durable? How long will it last.
How appropriable are the advantages? Will the first mover advantages
last?
How superior are the resources / competences compared to the
competitors’ similar or different competences?

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Activity 3.2
Given below is a list of some advantages cited by organisations. Sort the
advantages listed below in terms of rare, valuable or inimitable. Explain
why you think it is an advantage to be rare or valuable or inimitable in the
logic column.
List of advantages access to minerals in form of captive mines, process
Activity
patents, goodwill, low cost equipment, least lab to market time in the
industry, high research and development budget, employee skills, training
programmes, activity grids, low overheads on production and
procurement, low cost assembling operations, low employee turnover, in
time assembling, access to low cost technology and proprietary
technology. Present your assessment as per the table below.

Competence Rare Valuable Imitable Logic

Competitive advantage
Resources, competencies and capabilities are developed and configured
to enable superior performance over the competitors. Competitive
advantage lies in some parts of the organisation but its value as an
advantage emerges only if the superiority of that factor is leveraged
across the organisation and the other functions and activities support the
superiority. Competitive advantage is embedded in the configuration of
functions and discrete activities that an organisation performs to
manufacture, market, and service its offering. However, the function-wise
analysis alone does not reveal the interconnectedness among the different
functions and activities that create competitive advantage. Competitive
advantage enables a superior position not by superiority in a major

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function but the complementarily that is built cross functionally. Broadly,

the internal factors (and sub-factors that derive from these) which
contribute to competitive advantage are structural, cultural, resources,
processes and governance. Each of these factors can be mapped and
measured through chosen sub-factors in qualitative and quantitative
terms. For example , process can be measured through profitability,
liquidity, activity ratios, relative market share, batting ratio, sales
turnover ratio, employee turnover ratio, energy saving per manufacturing
cycle, wastage reduced per cycle, number of defects per cycle/ customer
complaints attended/ most frequent complaints energy efficiency, and so
on. Structure can be mapped in terms of span of control, distance
between the key operations managers and the front line employees,
number of cross-functional teams with mandates, and frequently used
communication networks. The culture can be mapped through
measurement of attrition rate, absenteeism, performance system, extent to
which employees know of and practice the organisation’s core values;
percentage of women in the work force, and employee grievance
redresses systems. Governance can be mapped in terms is the board
broad-based, is our compliance of statutory provisions exemplary, are the
people motivated, do we attract the best talent, do we do enough to
promote ecologic balance? Resources can be mapped by measuring the
nature of critical resource, the availability, the skill set of the manpower,
the cost of capital, the age and quality of its equipment and strategic
natural resources. Governance has been added here because good
governance adds value to the organisation’s standing and is leveraged in
many ways. After the 2008 meltdown governance has become an
important measure of the organisation’s health. It is the interrelationships
among them that create superior endowments for the organisation. These
inter relationships can be visualised by the Figure 3.2.

Structure

Governance Culture

Resource Process

Figure 3.2 Inter-relationships and Competitive Advantage

The Key Internal Strength Determinants

Let us suppose a manufacturing organisation has been able to record a
zero defect manufacturing situation. This situation has been developed by
cross functional factors as shown in the Table 3.1. To scale up or
replicate these factors in other production units the performance
indicators can be derived from this experience and in a given time the

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entire production can be defect free. The intersection of all the factors
embodies the competitive advantage.

Objective: Zero Defect Manufacturing

Quality Material Procurement (P)

Sourcing in Time Procurement (P)

Machine Maintenance and Operations (O)

Preventive Break-Down
Learning Effects Operations (O)
Quality Standard Specification Marketing (M)
Work Performance HR (H)

P
M

Competitive Advantage

Table 3.1: Cross Functional Competence

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Refer to any one organisation you are familiar with and about whom
information is available. Read about it at length and identify five factors
respectively as strengths and weakness. The sample presentation is given
for you. Discuss the findings among your peers.
Discussion

Sample presentation
I have studied the organisation ABC from the following sources (name
the sources). On the basis of this study the strength- weakness analysis is
conducted. The analysis does not/does have weights assigned for the
analysis.
Competitive Assessment of Organisation ABC
(Weighted/ Non-weighted)
Rating Scale 1 to 5; 1 is the lowest and 5 the highest.

Factor Measure Closest Explanation

Competitor

Culture

Structure

Resources

Governance

Processes

Summary report on
Comparative Strengths
and Weaknesses

Action Plan based on

analysis to retain/
develop
Key Strengths.

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Analysing organisational activity

Having looked at the broad framework within which reference is made to
organisations’ strengths and weakness we will now discuss a few
frameworks which enable us to disaggregate information about the
organisation’s activities. It can be done by using the Value Chain analysis
(developed by Michael Porter), the Balanced Scorecard (developed by
Norton and Kaplan) and the McKinsey 7S framework (developed by the
consultancy firm, McKinsey).
Value chain analysis
The value chain is based on the premise that creation of customer value is
the route to sustained competitive advantage. The value is created by
interplay of activities and not functional profiles and lies in either the
ability to be low cost producer or a differentiator. There is a set of
activities that are core to the value chain and a set of activities that are
supportive to the core ones.
The generic primary or core activities according to Michael Porter (1985)
are – the inbound logistics, outbound logistics, operations, and
marketing and sales and service. Table 3.2 shows the primary
activities, the key tasks and the implication of those for strategy.

Primary Activities Key Tasks Implications for

Strategy

Inbound Logistics Procure, sort, label, Differentiation

transport assemble, advantage of superior
Vendor relationships
load on production etc. input at low cost or its
inventory
scarcity appeal.
management.
Quality inputs and
Warehousing. quality output.

Operations Manufacturing, Quality based

machining, tooling differentiation.
Productivity
assembling, testing etc.
automation of Cost advantage with
production, plant automation, or
layout work flow synergy among
design material different businesses
handling. for production, or
common use of
facilities.

Outbound Logistics Management of Reduce intermediaries

Supply to the intermediaries, for cost advantage.
customer through managing efficiency in
Superior value
intermediaries supply to customers,
creation by
finished goods timeliness of supplies.
intermediaries such as
dispatch warehousing.
cold chains.

Marketing and Sales Managing the product Differentiate on basis

life cycle, price point of quality, exclusivity.
Marketing research

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promotion, determination, Gain market share by

advertising, branding, managing the sales aggressive promotion
channel management force, administering for cost advantage.
innovation in selling. the marketing mix.

Service Develop the sales Differentiation

force, build customer advantage.
Replacement,
relationship policies,
guarantee warranty Unique service
train for performance
attention to customer management with
seek continuous
complaints. differentiated
improvement.
inimitable skill set.

Table 3.2: Primary Activities

The support activities create the ground for primary activities. These
include firm infrastructure, human resource management, and technology
development and procurement. For each of the support activity the key
factors are enlisted in Table 3.3.

Firm infrastructure
 Information system support.
 Coordination and support of value chain activities.
 Planning and control. Ability to access resources at lower rates
including capital.
 Quality of the strategic planning system.
 Public image and corporate citizenship.
 Ability to spot opportunities and threats.
Human Resource management
 Efficiency of procedures for recruitment selection and training.
 Reward and recognition systems.
 Extent and level of employee motivation.
 The nature of the work environment to reduce absenteeism and
turnover.
Technology Development
 Extent of the development of research and development.
 Quality of research facilities.
 Seamlessness between the technology development and transfer.
 Type of working relationship among the technology development
department.
 Rate of success of the technology development initiatives
leading to product or process innovations or improvements.

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Procurement
 Capacity to minimise the dependence on dominant suppliers.
 Relationship with the different vendors to procure in emergent
circumstances, to negotiate lowest prices, to enter into long term
contracts at low rates, to enforce quality standards in supplies.
 Appropriateness of procedures to order capital intensive items.
 Development of criteria for lease/hire of property/equipment.
 Goodwill and amicable relationship with lead suppliers.

Table 3.3: Support Activities in Value Chain

Porter (1985) developed and studied the value chain as the basis of
creating either cost-based or differentiation advantages. Customer
value is created by lower price, superior product performance or
outstanding customer service. The purpose of the value chain analysis is
to identify those key activities that improve the efficiency and the
efficacy of the generic production system by either lowering the cost or
adding value to those activities. Every business that interfaces with many
other businesses to buy, sell, transport, insure, deliver, store or support
has its own value chain. Understanding the value chain of that key
business which contributes to our competitive advantage can help in
aligning the activities better and attaining greater immunity from
copying.

Firm Infrastructure

M
Human Resource Management

AR
GI
N
Technology Development

Procurement
M

Inbound Operations Outbound Marketing

A

Service
R

Logistics Logistics and

GI
N

Sales

Figure 3.3: The Generic Value Chain

Source: Adapted from Porter, Michael (1985). Competitive Advantage: Creating and
Sustaining Superior Performance. The Free Press; New York pp 37.

To understand this let us take the example of a manufacturer whose

products have a low-cost advantage. What is important for the
manufacturer is that the low-cost advantage is not restricted to any one

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core activity such as a low-cost supplier. That advantage is imitable and

the competitive position will be weakened sooner than later. The low cost
must also derive from combination of operations and outbound logistics,
inbound logistics in a manner that is specifically unique and cannot be
copied easily. Such a configuration would imply that the organisation
captures the cost of the value of cost advantage rather than the supplier or
intermediaries. In case the organisation’s internal process activities do not
support its main competitive thrust then the competitive position is also
weakened. Consider the case of a retail chain which claims a customer-
centric replacement policy. It is worthwhile for the organisation to
examine if the activities necessary to create the hassle-free replacement
experience are in place. Can the customer get a replacement from any
counter at any time? Has the organisation done a dummy drill on how
much time and movement it takes to get a replacement? Are the activities
centred on the ease of the customer or the financial audit needs of the
organisation? Apple Computers and Marks and Spencer have customer-
centric replacement activities. Figure 3.4 shows the overlap of two value
chains to deliver customer experience. The bold line portion of the figure
represents the superior experience created by three intervening variables.
Such an advantage is inimitable.

SIMPLIFY

Marketing Requisition
Procure Assess Process Replace
and Sales Replacement

DIGITISE

Marketing and Sales Value Chain Supply Value Chain

Overlap for Superior experience

Figure 3.4: Value Chain for Customer Friendly Replacement

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The balanced scorecard approach to internal appraisal

Organisations are interlinked and their strengths derive from that inter-
linkage more than they do from standalone activity. There is a linkage
between the results the organisation seeks for its shareholders, the
strategy it adopts and the various activities it carries out as part of its day-
to-day operation. The creation or loss of value occurs if the organisation
is casual about those linkages and fails to capture the learning that occurs
every day to improvise and strengthen its operations. Measurement is the
central theme in the balanced scorecard developed by Norton and Kaplan
(1996). The balanced scorecard considers four interlinked internal
perspectives – the financial, customer, operations and organisational to
develop and define value. The scorecard was initially used as a
performance improvement tool but later it became popular as a strategy
implementation tool as it emphasises measurement. The BSC emphasises
“what cannot be measured cannot be improved” and the scorecard either
measures quantitatively or qualitatively. If profitability is the result of
increased sales and lowered operating costs and investments then the
organisation should be able to translate the implication of lowered costs
of operations and investments into marketing, sales, procurement, and
maintenance targets for the front line. Lowered costs of production
translate into lower prices. The strategy sought to be attained for
shareholders must be translated across the functional areas so as to be
discernible to those who perform the daily operations. The strategy is not
fully realised if the description of strategy in terms what it wants to do for
customers, the position it wishes to occupy in the market, is not converted
into specific attainable and measurable targets for the lowest-level
employee. Balanced scorecard considers four internal perspectives – the
financial, customer, operations and organisational perspective to develop
and define value.
If McDonald’s has to attain position of the low cost and quality producer
of fast food and earn a return on investment of say 11 per cent, it must be
able to translate its financial targets for strategy into customer specific
targets (time to be taken to deliver the food), operations targets (batch of
fries to be obtained in one even, machine maintenance periodicity and
organisational targets (transferring learning from the Hamburger
University to the outlets). The monitoring for that must be put in place so
that any detraction from operational efficiency is addressed. The
organisation efficiency that is created is enduring for the organisation.
Figure 3.5 gives some measures for each of the four aspects.

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ROI

Financial ROA

Growth

Response

Delivery
Customer
Cost

Product Developers

Operations Demand Management

Cycle Time

Transference of Learning

Organisational Leadership

Motivation

Figure 3.5: The Balanced Scorecard

Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a
Strategic Management System,” Harvard Business Review (January-February 1996): 76.

To use the Balanced Scorecard as a tool for internal analysis the key
managers can do a retrospective analysis for the strategy being pursued
and a prospective analysis of factors that need to developed for success of
future strategy. Generally it has been seen that it is not the shortfall of
practices that leads to the erosion in the organisation it is the continuation
of practices whose usefulness must be questioned but has not been for
historical or emotional reasons.

The McKinsey 7S Framework

The 7S model developed out of the practice of the consulting firm
McKinsey. The organisation’s effectiveness is determined by seven
factors whose nomenclature begins with the alphabetic “s” therefore the
name 7S. The seven factors are- super ordinate goals, strategy, staff,
skills, structure, system, shared values, and style. The framework
gives equal weight to each of the seven factors and emphasises the
interrelatedness and the “fit” among them. Figure 3.6 is the
diagrammatic representation of the framework. If the structure does not

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support the strategy or if the skills are not in consonance with the strategy
the fit is reduced and so the effectiveness of the organisation. The 7S
framework was a prescriptive framework. It can be used as a tool of
internal analysis by drawing up the indicative factors for each of the
seven framework elements. The indicative factors are detailed below.

Strategy: Strategy is the plan to develop long-term advantages.

Competitive advantage derives from meeting customer expectation. The
organisation examines if the strategy is appropriate and the organisation
competitive in terms of meeting those expectations.

Structure: Structure embodies the reporting and the accountability

relationships within an organisation. The structure must support the
strategy. The Strategy for electronic retail cannot be met with a
functional command and control-based structure. The organisation
examines the extent to which the structure facilitates the coordination and
cooperation and extent of centralisation and decentralisation among the
different parts of the organisation.

System : System refers to the routines, procedures activities necessary to

carry out the operations of the organisation. Every organisation derives its
strength from some key systems: marketing, finance, production,
procurement, human resources, and so on. The other systems perform a
strengthening role. Given the centrality of the system in creating
advantage, are the rules, procedures and controls adequate?

Shared values or super-ordinate goals: The super ordinate goals or

shared values signify what we stand for and are the glue that holds the
organisation together. They direct the culture of the organisation in terms
of its work and value ethic. The farther down the organisation these are
disseminated the greater is the sense of belongingness created among its
members. It is similar to the strategic intent.

Style: The leadership can be exercised in the organisation in many ways.

Style refers to the leadership pattern in the organisation. Does it motivate
and inspire? Are the expectations from the employees and the rewards to
them balanced? Does the leadership and the overall climate foster team
working? The style can either reinforce or reduce cross functional
learning and sharing among the organisation members.

Staff: The people and their capabilities create the advantages for the
organisation. A talent pool and qualitatively superior competencies are
the intangible assets on which strategy rides. A highly specialised
competency is difficult to emulate. The organisation must consistently
seek to find out if the staff is compatible with the changes and if there are
any competency gaps.

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Skill: The teams and the personnel have some unique sets of skills. The
extent to which those skills can be leveraged and the extent to which they
are differentiated from competitors are critical. For example, a Nobel
laureate as a faculty member adds tremendous value to a university’s
research programme.

Structure

Skills Style

Super ordinate
Goals

Staff Systems

Strategy

Figure 3.6: The McKinsey 7S Framework

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Disaggregation of internal context factors: Comparison of three

approaches
The three approaches listed above provide an indicative approach for
those factors that the organisation may consider. Table 3.4 enlists the
salient features of each for a quick review.

Porter’s Value Balanced Scorecard McKinsey 7S

Chain Framework

Linked to competitive Linked to the grand Focused on

strategy. strategy. effectiveness.

Focus on activities Focus on developing Focus on the overall

that lead to cost or measures for the four effectiveness. Different
differentiation factors that enable advantages are rooted in
advantage. strategy execution. the seven factors of the
framework.

Use of qualitative and Measurement is the Quantification is

quantitative measures key and all the four possible after the broad
is possible. factors are defined in factors has been sub-
a manner that classified.
quantitative and
qualitative
measurement is
possible.

Academic in Is practice oriented. Broad based developed

orientation. from practice.

Inside out Inside out Outside in perspective.

perspective. perspective.

Focus on hard aspects Focus on the hard Equal focus on the hard
more than on the and the soft aspects and the soft aspect as
people aspects. in the form of leaning well as on their
and sharing. complementarities.

Table 3.4

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The function-based approach to internal analysis

The organisation’s functions marketing, financing, accounting,
administering, producing, researching along with managing, and
coordinating, are the primary units of analysis for internal appraisal.
Organisations can either use them as part of a framework (as discussed
above) or make use of them by defining the specific success factors (key
success factor). The key success factors are organisation and industry-
contingent. For example, in a country the government may heavily
subsidise development of energy-efficient technologies. An organisation
which has a good research and development base can take up the subsidy
and develop cost-efficient solar panels. The subsidy is the industry
component and the research and development competence is the
organisational component. In a given industry the set of key success
factors are important for all the organisations. The KSF’s can be in the
functional competence (research and development in this case) product
service attributes, resource access, or specific strategy elements. For
strategy-specific uses the key success factors are more broadly based and
can include location advantages and short-term temporal factors. For
strategy-based appraisal the key success factors can be defined and
comparison among the competition organisations can be made.
Simplistically, non weighted scores can be used but preferably weighted
scores should be used. The box below explains the use of key success
factors in internal appraisal (Thompson et al, 1999). The weighted
averages can be derived from the experience of managers and
information from competitors is obtained from secondary sources or
competitive intelligence.
Sometimes organisations conduct the internal appraisal as a part or
prelude to organisation development initiatives also. For OD based
interventions, more emphasis is placed on the appraisal of people and
culture-related issues. The gaps and deficiencies identified in such
appraisals are addressed through climate-building interventions.
Corporate strategy can be developed in common with such initiatives.
From the above discussion it is clear that there are many ways in which
organisations can conduct the internal analysis. There are theoretical
approaches such as the value chain concept as well as indicative
parameters on the basis of which the organisation can conduct the internal
appraisal. In the conduct of the appraisal the organisation should be
careful to underpin the objective of its analysis. The organisation should
focus on the interrelationships and cross-functionality in determining the
analysis. The interrelatedness is a far more enduring source of advantage
than a singular functional attribute.

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Module summary
In this module you learned that internal appraisal is crucial for strategy
formulation. The organisation’s configuration of resources, capabilities
and competencies is evaluated to assess the competitive advantage.
Competitive advantage results from cross functionality, innovation and
Summary managerial capability. There are many ways in which the competitive
advantage can be adjudged. The three approaches discussed in the
module are the Value Chain analysis, The Balanced Scorecard and the
McKinsey Framework. Each approach opts for different aspects to study
but they are embedded in the organisation’s functional profile and the
Key Success Factors. It is the interrelatedness that creates an enduring
advantage. An organisation can have a broad as well as a context-specific
appraisal. The knowledge and perspective about the means to conduct the
analysis is sufficient to guide managers to develop a system which meets
their need of internal analysis.

Assignment
Conduct the internal appraisal of the PETRONAS Corporation based on
the last three years’ financial statements, chairman’s speech, public
announcement of policy and other similar resources. The resources that
are used to develop the strength/weakness analysis should be from a
verifiable source using the key success factor frame work.
Assignment

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Assessment
Read the following table and answer the questions given at the end.

Illustrations of Unweighted and Weighted Competitive

Assessment Strength Assessments
A. Sample of an Unweighted Competitive Strength Assessment
Rating scale: 1 = Very weak; 10= Very strong
Key Success Factor/ ABC Rival1 Rival2 Rival3 Rival4
Strength Measure Co.
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
capability
New product innovation
9 4 10 5 1
capability
Financial resources 5 10 7 3 1
Relative cost position 5 10 3 1 4
Customer service
5 7 10 1 4
capabilities
Unweighted overall
61 58 71 25 32
strength rating

B. Sample of a Weighted Competitive Strength Assessment

Rating scale: 1 = Very weak; 10= Very strong
Key Success Factor/ Weig ABC Rival1 Rival2 Rival3 Rival4
Strength Measure ht Co.
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
capability
New product innovation
0.05 9/0.45 4/0.20 10/0.50 5/0.25 1/0.05
capability
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
0.15 5/0.75 7/1.05 10/1.50 1/0.15 4/1.60
capabilities
Sum of weights 1.00
Weighted overall strength
6.20 8.20 7.00 2.15 4.90
rating

Source:Thompson, Arthur and A.J Strickland (1999). Strategic Management: Concept

and Cases (11th Edition). Irwin-McGraw Hill, Boston, pp128.

Questions
Compare and contrast the competitive position which emerges from both
the weighted and un-weighted analysis. What are the drawbacks with the
un-weighted analysis?
On the basis of the weighted analysis which organisation has the superior
competitive position?

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References
Kaplan, R.S. & Norton, D. P. (1996.) The Balanced Scorecard:
Translating Strategy into Action. Boston, Mass: Harvard
Business School Press.

Reading Miller, A. (1998.) Strategic Management. Boston, Mass: Irving McGraw

Hill.

Porter, M. (1985) Competitive Advantage: Creating and Sustaining

Superior Performance. New York: The Free Press.

Prahalad, C.K. & Hamel, G. (1990). “The Core Competence of the

Corporation”, Harvard Business Review (pp 79-91).

Thompson, A. & Strickland, A.J. (1999). Strategic Management:

Concept and Cases (11th ed). Boston, Mass: Irwin-McGraw Hill.

Further Reading
www.anderson.ucla.edu/faculty_pages/dick.rumult/docs/HONDApdf

www.jordanbaize.com/jb/Jordan

Reading www.anderson.ucla.edu/faculty pages/rumult/../WhatisCA-03.pdf

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