Internal Analysis

Four broad areas need to be considered for

internal analysis
The organization’s resources, capabilities
The way in which the organization
configures and co-ordinates its key value-
adding activities
The structure of the organization and the
characteristics of its culture
The performance of the organization as
measured by the strength of its products.
 Analysis of the
global business

Global value chain Resources,

Cultural and
analysis: configuration capabilities and
structural analysis
and co-ordination core competences

Global products and performance

Internal analysis
Resources are assets employed in the activities
and processes of the organization.
They can be tangible or intangible.
Human
Financial
Physical
Technological
Informational

An audit of resources would be likely to include

an evaluation of resources in terms of availability,
quantity and quality, extent of employment,
sources, control systems and performance.
General Competences/capabilities
They are assets like industry-specific skills,
relationships and organizational knowledge
which are largely intangible and invisible assets.
Competences and capabilities will often be
internally generated, but may be obtained by
collaboration with other organizations.
Certain competences are likely common to
competing businesses within a global industry or
strategic group.
Core Competences/Distinctive Capabilities
Core competences or distinctive capabilities
are combinations of resources and capabilities
which are unique to a specific organization and
which are responsible for generating its
competitive advantage.
Kay (1993) identified four potential sources of
Core competences:
Reputation
Architecture (i.e., internal and external
relationship)
Innovation
Strategic assets
 Criteria to evaluate Core Competences
Complexity: How elaborate is the bundle of resources
and capabilities which comprise the core competence?
Identifiability: How difficult is it to identify?
Imitability: How difficult is it to imitate?
Durability: How long does it be replaced by an
alternative competences?
Superiority: Is it clearly superior to the competences of
other organizations?
Adaptability: How easily can the competence be
leveraged or adapted?
Customer orientation: How is the competence perceived
by customers and how far is it linked to their needs?
 Resources: Capabilities: Core competence
human, financial, Industry-specific Distinctive and superior
physical, skills, relationships, skills, technology Perceived
technological, + organizational = relationships, customer
legal, informational knowledge knowledge and benefits/value
Intangible reputation of the firm added
Tangible and and invisible Unique, and
visible assets assets difficult to copy

Inputs to Integration of
the firm’s resources into
processes value-adding
activities
Not all capabilities are core Denotes feedback
competences – only those loop
that add greater value than denotes core competence
those of competitors development

The relationships between resources, capabilities and core competence

 Global Value Chain Analysis

Competitive advantage depends on the ability

of the organization to organize its resources
and value-adding activities in a way that is
superior to its competitors.

Value chain analysis is a technique developed

by Porter (1985) for understanding an
organization’s value-adding activities and
relationship between them.
Value can be added in two ways:
By producing products at a lower cost than
competitors
By producing products of greater
perceived value than those of competitors.

Porter extended value chain analysis to the

value system, analysis of the relationship
between the organization, its suppliers,
distribution channels and customers.
The Value Chain

The value chain is the chain of activities

which results in the final value of a
business’s products.
Value added, or margin is indicated by
sales revenue minus costs.
Porter divided internal parts of
organization into primary and support
activities
Value Chain by Porter
Certain activities or combinations of activities are likely
to relate closely to the organization’s core competences,
termed core activities.
They are:
Add the greatest value
Add more value than the same activities in
competitors’ value chains
Relate to and reinforce core competences
Other value chain activities relate to capabilities, but do not
add greater value than competitors and therefore do not
relate to core competence.
The value system is the chain of activities from
supply of resources through to final consumption of a
product.
The total value system, in addition to the
organization’s own value chain, can consists of
upstream linkages with suppliers and downstream
linkages with distributions and customers.
The value system is a similar concept to that of the
supply chain and illustrates the interactions between
an organization, its suppliers, distribution channels
and customers.
 Distribution
Supplier Competitor channel
Customers

Distribution
Supplier Organization Customers
channel

Distribution
Supplier Competitor channel
Customers

The Value System

The “Global” Value Chain
The configuration of an organization’s activities
relates to where and in how many nations each
activities in the value chain is performed.
Co-ordination is concerned with the management
of dispersed international activities and the linkages
between them.
Managers must examine the current configuration
of value-adding activities and the extent and
methods of co-ordination as part of their strategic
analysis, which may determine possibilities for
reconfiguration or improving co-ordination
A global business has two broad choices of
configuration:
Concentration of the activity in a limited number
of locations to take advantage of benefits offered
by those locations.
Dispersion of the activity to a large number of
locations.
Change in the business environment (e.g.,
technological change) may well lead to
changes over time in the configuration that
gives greatest competitive advantage.
Co-ordination is essentially about overseeing the
complexity of the organization’s configuration such
that all value-adding parts of the business act in
concert with each other to facilitate an effective
overall synergy.
Those business that overcome the potential
difficulties of co-ordination are those that sustain the
greatest competitive advantage.
Analysis of configuration and methods of co-
ordination assists in the process of understanding
current competences and identifying the potential for
strengthening and adding to them.
 Core
competences

Core
activities

Value
chain

Configuration Co-ordination

Internal External
Concentration Dispersion
co-ordination co-ordination
Internal External
Internal linkages linkages
activities
Value-adding Suppliers Channels
External activities Customers
activities
Value system

Managing the value system

Global Organizational Culture and Structure
A global business must have a culture and
structure which allow it to carry out its global
activities.
The structure of the business must allow it to
accomplish its objectives as effectively and as
efficiently as possible.
Culture is an important determinant of how
effectively the organization operates and has
important implications for employee
motivation.