UNIT 2

Assessing the
Internal Environment
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Learning Outcomes:
By the end of this Study Unit you should be
able to:
1. Give examples of an organizations Strengths
and Weaknesses
2. Analyze an organizations Resources and
Capabilities
3. Appraise an organizations current offerings
and performance in the marketplace
4. Evaluate an organizations previous
performance
5. Describe an organizations business
relationships
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What is the I nternal Environment?
It consists of organizational
resources, capabilities and
competences which can be
manipulated by management to
achieve organizational objectives.

(Note that these are factors that are under the
direct control of management)
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Components of the Internal Environment
RESOURCES
Resources are the factors of production available to an
organization, to be used in providing products and services.
Types of resources include:
Tangible: Financial resources (borrowing capacity), Physical Resources
(facilities, locations), Human Resources, Organizational structure
(reporting structures),Technological (patents)

Intangible: Human resources (experience, training), Resources for
innovation (technical employees, facilities), Reputation, Information
COMPETENCES
The activities and processes through which an organization
deploys its resources efficiently and effectively. It may also refer
to any activity or process that the organization is good at, and
may potentially be a source of competitive advantage.

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STRATEGIC CAPABILITIES
This refers to the adequacy and suitability of the
resources and competences of an organization
for it to survive and prosper
Threshold Capabilities: Those capabilities essential for
the organization to survive, and to be able to compete in a
given market by satisfying customers minimum requirements
Competitive Advantage Capabilities: Unique
Resources those resources that others cannot easily imitate
or obtain. This only lasts for a period of time before it is
matched by competitors. Core Competences the activities
and processes through which resources are deployed in ways
that others cannot imitate or obtain. It is more likely to be a
source of competitive advantage.

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Competitive Advantage
Competitive advantage is what allows a firm
to gain an edge over its rivals in attracting
customers and defending against
competitive forces.
Key challenges of competitive advantage:
1. Build advantage
2. Extend advantage
3. Organise for advantage
4. Sustain and Renew advantage
Many routes to
Competitive Advantage
NPD
Quality
Superior customer service
Achieving lower costs
Better geographic location
Technical expertise
Supply chain management
Brand image / reputation
Gaining Competitive Advantage:
The Resource-based view vs. Market orientation
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Main differences between the resource-based
view and the market orientation view
Internal Appraisal Processes
Resource Audit: a professional, independent and methodical
examination and review of the quantity and nature of an
organizations resources availability, suitability?
Competence Analysis: What are they? Individual or
organizational? How easy is it to duplicate? How long will it last?
Cost Efficiencies: Economies-of-scale, Supply Costs, Efficient
production, Experience effects etc.
Comparative Analysis: Considering the history of the
organization to identify trends, comparing organizational performance
to industry norms, to identify its position relative to its competitors.
Assessing Performance: Historical Analysis, Comparison with
Industry Norms, Benchmarking, Financial Analysis, Balancing the
business etc.


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VALUE CHAIN ANALYSIS
The Value Chain describes the sequential process of value-
adding activities within and around the organization, which
together create a product or service. It helps to establish the
cost of these value-adding activities, as well as the value to
customers i.e. the difference between the perceived benefits
received by customers and the price they are willing to pay.
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Value Chain Based View
The concept of customer perceived value
Sources: Adapted from Anderson et al. (2007; 2008); McGrath and Keil (2007); and Smith and Nagle (2005)
Value Network:
The Organizations Business Relationships
A value system is a system of inter-organizational
links (e.g. partnerships and alliances) that a firm
creates to source, augment and deliver its offerings.
It includes:
Buyer-supplier Relationships: Cooperative, Balanced Power
or Protection, or Adversarial (see Porters 5-Forces)
Relationships with Complementors: Sharing expertise,
resources for mutual benefit etc. even with competitors
Relationships with Distributors: vital in ensuring availability,
helps with promotion, collecting and disseminating information
etc.
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PORTFOLIO ANALYSIS
Portfolio analysis is used to analyze and compare the
performance of different products/ SBUs, in order to
optimize the allocation of available resources among
strong and weak products, brands or business units.
The purpose is to spread organizational risk by
balancing the organizations portfolio. Tools include:
BCG Matrix
GE /Mc Kinsey Business Screen
Shell Directional Policy Matrix
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The BCG Growth Share Matrix
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Question marks are growing rapidly and thus consume
large amounts of cash, but because they have low market
shares they do not generate much cash. The result is a large
net cash consumption
Stars are units with a high market share in a fast-growing
industry. The hope is that stars become the next cash cows.
Sustaining the business unit's market leadership may require
extra cash, but this is worthwhile if that's what it takes for the
unit to remain a leader
Cash Cows are units with high market share in a slow-
growing industry. These units typically generate cash in
excess of the amount of cash needed to maintain the
business.
Dogs are units with low market share in a mature, slow-
growing industry. These units typically "break even",
generating barely enough cash to maintain the business's
market share.
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GE Business Screen
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GE Business Screen
Factors determining
Market Attractiveness

Market Size
Market growth
Market profitability
Pricing trends
Competitive intensity / rivalry
Overall risk of returns in the
industry
Opportunity to differentiate
products and services
Segmentation
Distribution structure (e.g.
retail, direct, wholesale
Factors determining
Competitive Strength

Strength of assets and
competencies
Relative brand strength
Market share
Customer loyalty
Relative cost position (cost
structure compared with
competitors)
Distribution strength
Record of technological or
other innovation
Access to financial and
other investment resources 19
Shell Directional Policy Matrix
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EXPERIENCE CURVES
Graph that depicts the 'experience effect' (increases
in productivity) as reflected in reduced average and
marginal costs. Unlike the learning curve, an
experience curve takes into account both fixed and
variable costs. It is closely linked with the Learning
Effect.
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BALANCED SCORECARD
A structured business performance measurement
and management system that analyzes
organizational success based on a mix of
financial and non-financial measures of
business performance. It is designed to translate
an organization's mission statement and overall
business strategy into specific, quantifiable goals
and to monitor the organization's performance in
terms of achieving these goals.
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Balanced Scorecard
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Student Activity
Place the 8 objectives and measures into the four balanced scorecard metric
categories of Finance, Customers, Business Processes and Learning and
Growth. Please note that objectives and measures (in the table below)
may not be related i.e. objective (1) and measure (a) do not belong
together. So first place the objectives, and then place the measures.

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OBJECTIVES MEASURES
1. To be the cost leader in our market by 20xx (a) Average time taken for customers to receive
complete orders
2. To reduce customer churn by 75% within 12 months (b) Customer retention rates
3. To lead the market in speedy delivery by 20xx (c) Return On Capital Employed (ROCE)
4. To build a sports and social club by March 20xx (d) Employee satisfaction rates
5. To increase profitability by 20% by 20xx (e) Statistical process control
6. To produce products that are right first time within 3
months
(f) Employee retention rates
7. To train and develop all team leaders by 20xx (g) Customer feedback or complaints
8. To achieve 99% customer satisfaction within 5 years (h) Unit cost
MARKETING AUDIT
Strategic tool used to review the effectiveness of a
marketing program. A marketing audit is a
comprehensive, systematic, periodic evaluation of a
company's marketing capabilities.
The audit examines the goals, policies, and strategies
of the marketing function as well as the methods of the
organization and the personnel who carry out the
goals, policies, and strategies of the marketing
function.
Marketing audits are performed on a regular basis by
an unbiased, independent company and are used to
improve a company's overall marketing performance
or to establish new marketing plans.
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Components of a
Marketing Audit
6 major components of a
marketing audit:
Marketing Environment
Audit
Marketing Strategy
Audit
Marketing Organization
Audit
Marketing Systems
Audit
Marketing Productivity
Audit
Marketing Function
Audit

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REVIEW FOR FURTHER DETAILS:
http://www.marketingteacher.com/lesson
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SWOT ANALYSIS
A situation analysis in which
internal strengths and
weaknesses of an organization,
and external opportunities and
threats faced by it are closely
examined to chart a strategy. It
summarizes the key issues
from the business environment
and the strategic capabilities of
the organization that are most
likely to impact on strategy
development.
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Any
Questions?
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