Strategic Management

Internal scanning :

Organizational Analysis
Internal scanning : Organizational Analysis

 A resource – based approach to organizational

analysis
 Internal strategic factors
 Critical strengths and weaknesses that are likely to
determine if the firm will be able to take advantage
of opportunities while avoiding threats.
Internal scanning : Organizational Analysis

 A resource – based approach to

organizational analysis…(cont’d)
 Core and distinctive competencies
1. Resources
 Physical assets, plant, equipment, and location.

 Human assets, number of employees and their skills.

 Organizational assets, culture and reputation.

Internal scanning : Organizational Analysis

 A resource – based approach to organizational

analysis…(cont’d)
 Core and distinctive competencies
2. Capabilities
 Corporation’s ability to exploit its resources .

They consist of:

 Business processes and routines to turn inputs into outputs.

Example: marketing capability can be based on the interaction

among its marketing specialists, information technology and
financial resources.
Internal scanning : Organizational Analysis

 A resource – based approach to organizational

analysis…(cont’d)
 Core and distinctive competencies.

3. Competency
 Cross functional integration and coordination of capabilities.

Example: a competency in a new product development in one

division of a corporation may be the consequence of integrating
MIS capabilities, marketing capabilities, R&D capabilities and
production capabilities within the department.
Internal scanning : Organizational Analysis

 A resource – based approach to organizational

analysis…(cont’d)
 Core and distinctive competencies.
4. Core Competency
 Collection of competencies that crosses divisional boundaries, is
widespread within the corporation, and is something that the
corporation can do exceedingly well. A new product development
is a core competency if it goes beyond one division.

Example: FedEx has a core competency in its application of

Information Technology to all its operation.
Internal scanning : Organizational Analysis

 A resource – based approach to

organizational analysis…(cont’d)
 Core and distinctive competencies.
5. Distinctive Competency
 When core competencies are superior to those of the
competition, they are called distinctive competency.
Example: General Electric is well known for its distinctive
competency in a management development.
Internal scanning : Organizational Analysis

 A resource – based approach to organizational

analysis…(cont’d)
 Core and distinctive competencies.
 How to evaluate a firm’s competencies:
1. Value, does it provide customer value and competitive
advantage?
2. Rareness, do other competitors possess it?
3. Irritability, is it costly for others?
4. Organization, is the firm organized to exploit the resource?
If yes, for a particular competency, it is considered a strength and
thus a distinctive competence.
Internal scanning : Organizational Analysis

 A resource – based approach to

organizational analysis…(cont’d)
 Using resources to gain competitive advantage
5-Step approach to strategy analysis:

1. Identify and classify resources

2. Combine strengths into capabilities.

3. Appraise profit potential of capabilities.

4. Select strategy that best exploits.

5. Identify resource gaps invest in weaknesses.

Internal scanning : Organizational Analysis

 Determining the sustainability of an advantage

 Just because a firm is able to use its resources,
capabilities, and competencies to develop a
competitive advantage does not mean it will be able
to sustainability to a firm’s distinctive competencies:
Internal scanning : Organizational Analysis

 Determining the sustainability of an advantage…..

(Cont’d)
1. Durability
 Rate at which a firm’s underlying resources and
capabilities depreciate or become obsolete.
 New technology can make a company core
competency obsolete or irrelevant.
Internal scanning : Organizational Analysis

 Determining the sustainability of an advantage…..

(Cont’d)
2. Immutability
 Rate at which a firm’s underlying resources and
capabilities can be duplicated by others.
 Competitors will do what they can learn and imitate
skills and capabilities.
 Competitors’ efforts may range from reverse
engineering, (which involves making apart a
competitors’ product in order to find out how it
works).
Internal scanning : Organizational Analysis

 Determining the sustainability of an advantage…..

(Cont’d)

 An organization’s resources and capabilities can be placed

on a continuum to the extent that they are durable and can’t
be imitated (that is, aren’t transparent, transferable, or
replicable) by a firm.
This continuum of sustainability can be shown in the
following figure:
 Internal scanning : Organizational Analysis

 Determining the sustainability of an advantage…..(Cont’d)

Level of resource Sustainability
High Low
(Hard to imitate) Standard-Cycle (Easy to imitate)
Resources
Slow-Cycle Resources • Standardized mass Fast-Cycle Resources
• Strongly shielded production • Easily duplicated
• Patents/Brand name • Economics of scale • Idea driver
• Gilette, sensor razor • Complicated processes • Sony: walkman
• Chrysler: Minivan
Internal scanning : Organizational Analysis

 Business models
 A business model is a company's’ method for making money
in the current business environment. It includes the key
structural and operational characteristics of a firm-how it
earns revenue and makes a profit. A business model is
usually composed of five elements:
Internal scanning : Organizational Analysis

 Business models…..(Cont’d)
1.Who serves it?
2.What it provides?
3.How it makes money?
4.How it differentiates and sustains competitive advantage?
5.How it provides its product / service.
Internal scanning : Organizational Analysis

 Business models…..(Cont’d)

 Types of models:

1. Customer solutions model

 IBM uses this model to make money not by selling IBM
products, but selling its expertise to improve its
customers’ operations.

2. Profit pyramid model

 General motors offers a full line of automobiles in order to
close out any niches where a competitor might find a
competition.
Internal scanning : Organizational Analysis

 Business models…..(Cont’d)

3. Multi-component services / installed base model

 Gillette invented this classic to model tell razors at

break-even pricing in order to make money on higher-
margin razor blades. HP does the same with printers
and printer cartridges.
Internal scanning : Organizational Analysis

 Business models…..(Cont’d)

4. Advertising model

 This model offers its basic product free in order to make

money on advertising.
This was a key model of the dot.com boom when web
sites offered free services to users in order to expose
them to the advertising that paid the bills.
Internal scanning : Organizational Analysis

 Business models…..(Cont’d)

5. Switchboard model
 In this model a firm acts as an intermediary to connect
multiple sellers to multiple buyers (brokers, financial
planners)

6. Time model
 Product R&D and speed are the keys to success in the
time model. Being the first to market with a new
innovation allows a pioneer such as Sony to earn higher
market share.
Internal scanning : Organizational Analysis

 Business models…..(Cont’d)

7. Efficiency model
 In this model, a company waits until a product becomes
standardized and then enters the market with a low-
priced, low-margin product that appeals to the mass
market. This is used by DELL.
Internal scanning : Organizational Analysis

 Business models…..(Cont’d)

8. Blockbuster model
 In some industries, such as pharmaceutical profitability
is driven by a few key products.
The focus is on high investment in a few products, with
high potential payoffs-especially if they can be
protected by patents.
Internal scanning : Organizational Analysis

 Business models…..(Cont’d)

9. Entrepreneurial model
 In this model, a company offers specialized products /
services to market niches that are too small to be worth
while to large competitors but have the potential to
grow quickly. This model has been used by small high-
tech firms that develop innovative prototypes in order
to sell off the companies to Microsoft (for examples).
Internal scanning : Organizational Analysis

 Business models…..(Cont’d)

10.De facts standard model

 In this model, a company offers products free or at a
very low price in order to saturate the market and
become the industry standard.( Microsoft Internet
explorer).
Internal scanning : Organizational Analysis

 Value – Chain analysis

 A value chain is a linked set of value-creating
activities that begin with basic raw materials
coming from suppliers, move on to a series of
value-added activities involved in producing and
marketing a product or service, and end with
distributors getting the final goods into the hands
of the consumer.
 Internal scanning : Organizational Analysis

 Value – Chain analysis…..(Cont’d)

Raw Materials Primary Fabrication Distributor

Manufacturing

Retailer
Internal scanning : Organizational Analysis

 Value – Chain analysis…..(Cont’d)

 Industry value-chain analysis

 The value chains of most industries can split into two

segments:

1. Upstream, refers to oil exploration, drilling, and

moving of the crude oil to the refining.
2. Downstream, refers to refining the oil plus
transportation and marketing gasoline and refined oil
to distributors and gas station retailers.
Internal scanning : Organizational Analysis

 Value – Chain analysis…..(Cont’d)

 Industry value-chain analysis

 Center of gravity

 A company's center of gravity is 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.
Internal scanning : Organizational Analysis

 Value – Chain analysis…..(Cont’d)

 Industry value-chain analysis

 A company's center of gravity is usually the point at

which the company started. After a firm successfully
establishes itself at this point by obtaining a competitive
advantage, one of its first strategic moves is to move
forward or backward along the value chain in order to
reduce costs, guarantee access to key raw materials or
guarantee distribution. This process is called vertical
integration.
Internal scanning : Organizational Analysis

 Value – Chain analysis…..(Cont’d)

 Corporate value-chain analysis

 Each corporation has its own internal value chain of

activities. Porter proposes that a manufacturing firm’s
primary activities usually begin with inbound logistics
(raw materials handling and warehousing), go through an
operation which a product is manufactured, and continue
on to outbound logistics, to marketing and sales, and
finally to service.
Internal scanning : Organizational Analysis

 Value – Chain analysis…..(Cont’d)

 Corporate value-chain analysis

 Support activities, such as purchasing, technology

development, human resources management, and firm
infrastructure (accounting, finance, planning) ensure that
the primary value-chain activities operate effectively and
efficiently.
 Internal scanning : Organizational Analysis
 Value – Chain analysis…..(Cont’d)
 Corporate value-chain analysis

Firm Infrastructure
General management, accounting, finance, planning
Support
Activities Human resource management
Recruiting, training, development
Technology Development
R&D, Product and process improvement Profit
Margins
Procurement
Purchasing of raw materials, machines, supplies

Inbound Logistics Operations Outbound Logistics Marketing & Sales Service

New materials Machining, Warehousing and Advertising and Installation, repair,

handling and assembling, distribution of Promotion pricing, parts
warehousing testing finished product channel relations

Primary Activities
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities
 Basic organizational structures

1. Simple structure
 Has no functional or product categories.
 Appropriate for small companies.
 One or two product lines that operates in a
reasonably small, easily identifiable market niche.
 Employees tend to be generalists.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Basic organizational structures…...(cont’d)

1. Simple Structure

Owner - Manager

Workers
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Basic organizational structures…...(cont’d)

2. Functional structure
 Appropriate for a medium sized firm with several
product lines in one industry.
 Employees tend to be specialists in the business
functions such as manufacturing, marketing, finance
and human resources.
 Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Basic organizational structures…...(cont’d)

2. Functional structure

Top Management

Manufacturing Sales Finance Personnel

Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Basic organizational structures…...(cont’d)

3. Divisional structure
 Appropriate for a large corporation with many
product lines in several related industries.
 Employees to be functional specialists organized
according to product/market distinctions.
 Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Basic organizational structures…...(cont’d)

3. Divisional structure
Top Management

Product Division A Product Division B

Manufacturing Finance Manufacturing Finance

Sales Personnel Sales Personnel

Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Basic organizational structures…...(cont’d)

4. Strategic business units (SBUs)

 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 SBU may be of any size or
level, but it must have:
1. Unique mission.
2. Identifiable competitors.
3. External market focus.
4. Control of its business functions.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Basic organizational structures…...(cont’d)

5. Conglomerate structure
 Appropriate for a large corporation with many
product lines in several unrelated industries.
(Holding companies).
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Corporate culture: The Company Way

 Corporate culture is the collection of beliefs,

expectations, and values learned and shared by a
corporation’s members and transmitted from one
generation of employees to another.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic marketing issues.

 The marketing manager is a company’s primary link to the

customer and the competition. The marketing manager,
therefore, must be specially concerned with the following:
Internal scanning : Organizational Analysis

 Scanning functional resources and capabilities…..

(cont’d)
 Strategic marketing issues…..(cont’d)

1. Market position and segmentation

 Who are our customers?
 What markets to seek, which new types of products to
develop, and how to ensure that a company's’ many
products do not directly compete with one another.
2. Marketing mix, a combination of key variables.
 Product
 Place
 Promotion
 price
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic marketing issues…..(cont’d)
 Marketing mix variables:

Product Place Promotion Price

Quality Channels Advertising List Price
Features Coverage Personal Selling Discounts
Options Locations Sales promotion Allowances
Style Inventory Publicity Payment Period
Brand name Transport Credit Items
Packaging
Sizes
Services
Warranties
Internal scanning : Organizational Analysis

 Scanning functional resources and capabilities…..

(cont’d)

 Strategic marketing issues…..(cont’d)

3. Product life cycle
 Introduction
 Growth

Sales
 Maturity
 Decline

Introduction Growth Maturity Decline

Time
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic marketing issues…..(cont’d)
4. Brand and corporate reputation

 Corporate brand, the company’s name.

 Corporate reputation, the perception of a company
by the general public.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic financial issues

 A financial manager must ascertain the best sources of

funds, uses of funds, and control of funds.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic financial issues

1. Financial leverage
 The mix of externally generated short-term and long-term
funds in relationship to the amount and timing of internally
generated funds should be appropriate to corporate
objectives, strategies and policies.
The concept of financial leverage (the ratio of total debit to
total assets) is helpful in describing how the debit is used to
increase the earnings available to shareholders.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Financial leverage … (Cont’d)

 When a company finances its activities by sales of bonds

instead of through stock, the earnings per share are boosted.

2. Capital budgeting.
 It is the analyzing and ranking of possible investments
in fixed assets such as land, building and equipment.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic research and development (R&D) issues

1. R&D intensity, technological competence, and

technology transfer.
 A company must make available the resources
necessary for effective research and development.
A company’s R&D intensity (that is, its spending
on R&D as a percentage of its sales revenue) is a
principal means of gaining market share in global
competition.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)

2. R&D Mix
 Product R&D concentrates on marketing and is concerned
with product and product packaging improvements. The
best measurements of ability in this area are the number
of successful new products introduced and the percentage
of total sales and profits coming from products within the
past five years.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Engineering (or process) R&D is concerned with engineering,
concentrating on quality control and development of design
specifications and improved production equipment.

The balance of these types of research is known as

the R&D mix.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
3. Impact of technological discontinuity on strategy
Product performance

Mature
technology
S S New
technology

Research Efforts/Expenditure
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Richard Foster of Mckinsey and Co. states that the
displacement of one technology by another (technological
discontinuity) is a frequent and strategically important
phenomenon. Such a discontinuity occurs then a new
technology cannot simply be used to enhance the current
technology but actually substitutes for that technology to
yield better performance. For each technology within a given
field or industry, according Foster, the plotting of product
performance against research effort/expenditures on a graph
results in an S shaped curve.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic human resource management issues

 The primary task of a manager of human resources, is to

improve the match between individuals and jobs. Research
indicates that companies with good HRM practices have
higher profits and a better survival rates than do firms
without these practices.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic human resource management issues

1. Increasing use of teams:

 Autonomous work teams, in which a group of people work
together with a supervisor to plan, coordinate, and evaluate
their work.
 Cross-functional work teams, companies are tearing down
the traditional walls separating the departments so that
people from each discipline can get involved in projects
early on.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic human resource management issues

 Concurrent engineering, specialists now work side by side and

compare notes constantly in an effort to design cost-effective
products with features customers want.
 Virtual teams, groups of geographically and/or organizationally
dispersed co-workers that are assembled using a combination
of telecommunications and information technologies to
accomplish an organizational task.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic human resource management issues

 The use of virtual teams to replace traditional face-to-face

work groups is being driven by five trends:
1. Flatter organizational.
2. Turbulent environments.
3. Increasing employee autonomy
4. Higher knowledge.
5. Increasing globalization.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic human resource management issues

2. Union relations:
 If a corporation is unionized, a good human
resource manager should be able to work
closely with the union.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic human resource management issues

3. A knowledgeable human resource manager, should

be able to improve a corporation’s quality of work
life by:
1. Introducing participative problem solving.
2. Restructuring work.
3. Introducing innovative reward system
4. Improving the work environment.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Strategic human resource management issues

4. Human diversity, refers to the mix in the workplace of

people form different races, cultures and
backgrounds.
Internal scanning : Organizational Analysis

 Scanning functional resources and

capabilities…..(cont’d)
 Synthesis of internal Factors

 After strategists have scanned the internal organizational

environment and identified factors for their particular
corporation, they may want to summarize their analysis
of these factors by using a form such as:
Internal Factors Analysis Summary (IFAS).
Internal Factors Weight Rating Weighted Score Comments
Strengths 1 2 3 4 5

Quality Maylag culture 0.15 5.0 0.75 Quality key to success

Experienced top management 0.05 4.2 0.21 Know appliances

Vertical integration 0.10 3.9 0.39 Dedicated factories

Employer relations 0.05 3.0 0.15 Good, but deteriorating

Hoovers international
0.15 2.8 0.42 Hoover name in cleaners
orientation
Weaknesses
R&D 0.05 2.2 0.11 Slow in products

Distribution channels 0.05 2.0 0.1 super stores replacing small dealers

Financial position 0.15 2.0 0.3 High debit load

Global positioning 0.20 2.1 0.42 Hoover weak outside the UK and Australia

Manufacturing facilities 0.05 4.0 0.2 Investing now

1.00 3.05
Thank you