Internal Environment

obnoxiouspotpieManagement

Nov 8, 2013 (3 years and 9 months ago)

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Internal
Environment

3rd

Lecture

MSc Agricultural
Economics and
Management

External

and Internal Analyses

General

Environment

Sociocultural

Technological

Industry

Environment

Competitor

Environment

By studying the external
environment, firms identify
what they
might choose to
do

Opportunities and
threats

By studying the internal
environment, firms identify
what they
can do

Unique resources,
capabilities, and core
competencies

(sustainable
competitive
advantage)

External and
Internal


Analyses

Challenge of Internal Analysis


How do we effectively manage current
core competencies while simultaneously
developing new ones?


How do we assemble bundles of
resources, capabilities and core
competencies to create value for
customers?


How do we learn to change rapidly?

Conditions Affecting Managerial Decisions
About Resources, Capabilities, and Core
Competencies


Uncertainty

regarding characteristics of the
general and the industry environments,
competitors’ actions, and customers’ preferences


Complexity

regarding the interrelated causes
shaping a firm’s environments and perceptions of
the environments


Intraorganizational Conflicts

among
people making managerial decisions and those
affected by them

Choosing the right tools

for internal analysis


Start with simple techniques


Consider all tools and identify those likely to be useful


Define the competitive capabilities the enterprise needs


Identify the subsystems which support these
capabilities


Identify core competence relative to competitive
capabilities


Determine changes to enhance/improve core
competence


Take a systemic view


Adjust the methods of analysis in the light of what is
found

Some commonly used techniques

f
or internal analysis

Single Businesses

Resource Audit

Analysis of cost and profit

Benchmarking

Value Chain Analysis

Supply Chain Analysis

Multiple Businesses

Portfolio Analysis

Both Single and Multiple Businesses

Core Competencies

Shareholder Value Analysis

Resource Audit


Resources


Physical


Human


Financial


Other


Quality and Quantity


Unique resources


A good initial analysis

Internal Audit

Information from:



Management



Marketing



Finance/accounting



Production/operations



Research & Development



Management information Systems

Parallels process of external audit

Marketing

Marketing Functions


Customer analysis


Selling products/services


Product & service planning


Pricing


Distribution


Marketing research


Opportunity analysis

Finance/Accounting

Finance/Accounting Functions


Investment decision (Capital
budgeting)


Financing decision


Dividend decision

Production/Operations

Production/Operations Functions


Process


Capacity


Inventory


Workforce


Quality

Research & Development

Research & Development Functions


Development of new products
before

competitors


Improving product quality


Improving manufacturing
processes to reduce costs

Management Information
Systems


Information Systems


Security


User
-
friendly


E
-
commerce


Analysis of Costs and Profit


Current sources of profits and trends


Recast standard reporting to give new insights


Pragmatic approach to get value from time and
effort spent


A good initial analysis

Single Businesses

Resource Audit

Analysis of cost and profit

Benchmarking

Value Chain Analysis

Supply Chain Analysis

Benchmarking


Objective comparison with best in class


Simple in theory
-

Hard in practice


Observed differences in performance may be due
to differences in parameters


Qualitative observations may be more valuable
than quantitative


Level of

benchmarking

Through

Examples of measures

Resources

Resource audit

Quantity of resources,

e.g.



revenue/employee



capital intensity

Quality of resources,

e.g.



qualifications of

employees



age of machinery



uniqueness (e.g.

patents)

Competences in

separate activities

Analysing activities

Sales calls/sales person

Output/ employee

Materials wastage

Competences

through

managing linkages

Analysing overall

performance

Market share

Profitability

Productivity

Benchmarking
-

at three levels

Value Chain Analysis


Basic Value chain


Elegant in theory


Time
-
consuming in practice


Revised value chain to reflect power of people
and knowledge

Value Creation

Service

Marketing & Sales

Outbound Logistics

Operations

Inbound Logistics

Firm Infrastructure

Human Resource Mgmt.

Technological Development

Procurement

Primary Activities

Support Activities

The Basic

Value Chain

To capitalize on the usefulness of the
Value Chain

concept...

it is important to recognize that...

Value Chains are part of a

Total Value System

Supplier Value Chain

Firm Value Chain

Channel Value Chain

Buyer Value Chain

Firm Value Chain

Channel Value Chain

Buyer Value Chain

Supplier Value Chain

Upstream Value

Perform valuable activities
that
complement

the firm’s
activities

Value Chains are part of a

Total Value System

Supplier Value Chain

Firm Value Chain

Buyer Value Chain

Upstream
Value

Perform valuable activities
that complement the firm’s
activities

Channel Value Chain

Each firm must eventually find a
way to become a part of
some

buyer’s value chain

Value Chains are part of a

Total Value System

Supplier Value Chain

Firm Value Chain

Channel Value Chain

Upstream Value

Perform valuable activities that
complement the firm’s activities

Buyer Value Chain

Ultimate basis for differentiation is
the ability to play a role in a buyer’s

value chain

This creates

VALUE!!

Each firm
must
eventually
find a way to become a part
of
some

buyer’s value chain

Value Chains are part of a

Total Value System

Supplier Value Chain

Firm Value Chain

Channel Value Chain

Upstream
Value

Perform valuable activities
that
complement

the firm’s
activities

Buyer Value Chain

Each firm must eventually find a way to
become a part of
some

buyer’s value
chain

Ultimate basis for differentiation is
the ability to play a role in a buyer’s
value chain

This creates VALUE!!

Value chains vary for firms in an industry,
reflecting each firm’s unique qualities:


History


Strategy


Success at Implementation

Value Chains are part of a

Total Value System

Primary Activities

Support Activities

Outsourcing

Outsourcing is the
purchase of some
or all of a value
-
creating activity
from an external
supplier

Usually this is
because the
specialty supplier
can provide these
functions more
efficiently

Service

Marketing & Sales

Outbound Logistics

Operations

Inbound Logistics

Firm Infrastructure

Human Resource Mgmt
.

Technological Development

Procurement

Strategic Rationales for
Outsourcing


Improve Business Focus


lets company focus on broader business issues by
having outside experts handle various operational
details


Provide Access to World
-
Class Capabilities


the specialized resources of outsourcing providers
makes world
-
class capabilities available to firms in
a wide range of applications

Strategic Rationales for
Outsourcing


Accelerate Business Re
-
Engineering Benefits


achieves re
-
engineering benefits more quickly by
having outsiders
--
who have already achieved
world
-
class standards
--
take over process


Share Risks


reduces investment requirements and makes firm
more flexible, dynamic and better able to adapt to
changing opportunities

Strategic Rationales for
Outsourcing


Free Resources for Other Purposes


permits firm to redirect efforts from non
-
core
activities toward those that serve customers more
effectively

Outsourcing Issues


Greatest Value


outsource only to firms possessing a core competence
in terms of performing the primary or support activity
being outsourced


Evaluating Resources and Capabilities


don’t outsource activities in which the firm itself can
create and capture value


Environmental Threats and Ongoing Tasks


do not outsource primary and support activities that
are used to neutralize environmental threats or
complete necessary ongoing organizational tasks


Outsourcing Issues


Nonstrategic Team of Resources


do not outsource capabilities that are critical to
their success, even though the capabilities are
not actual sources of competitive advantage


Firm’s Knowledge Base


do not outsource activities that stimulate the
development of new capabilities and
competencies

Revised Value Chain


PRIMARY

ACTIVITIES

revenue,

profit,

market


share,

Firm’s infrastructure

Technology trapping and commercialisation

Strategic Management

SUPPORT

ACTIVITIES

core

competence

INFORMATION SYSTEMS & KNOWLEDGE MANAGEMENT

HUMAN RESOURCE MANAGEMENT

basic skills,

know
-
how,

technologies

strategic

assets

price,

place,

promotion

product

service

technical,

management,

marketing,

sales,

production

customer

satisfaction,

loyalty

PROCUREMENT AND SUPPLIER MANAGEMENT











Stars

Question


marks

Cash

cows

Dogs

High

Low

High


Low

RELATIVE
MARKET SHARE

MARKET

GROWTH

(a) The original Boston Consulting

Group Matrix (BCG)

INDUSTRY

ATTRACTIVENESS

High

Med

Low

Strong Average Weak

COMPETITIVE POSITION

(b) Attractiveness matrix*

Product portfolio matrices

(c) Product/market evolution matrix

COMPETITIVE POSITION

Strong Average Weak

Development


Growth


Shake
-
out

Maturity


STAGE OF

PRODUCT/

MARKET

EVOLUTION


Decline

(d) Public sector portfolio matrix


ABILITY TO SERVE

EFFECTIVELY

PUBLIC NEED

AND

SUPPORT +

FUNDING

ATTRACTIVENESS

Golden

fleece


Back

drawer

issue


High


Low

High

Low


Public
-

sector

star


Political

hot box


Product portfolio matrices

Portfolio Analyses

Over
-
coming some pitfalls
:


Defining `high’ and `low’ (growth or share)
can be difficult


`Plot’ SBU’s not products


Apply to market segments not whole markets


Assess the `role’ of each SBU


Consider wider resource implications
-

not just
cash


Dogs may have a positive role

Components of

Internal Analysis

Discovering Core

Competencies

Resources


Tangible


Intangible

Capabilities

Core

Competencies

Competitive

Advantage

Value Creation

Four Criteria

of Sustainable

Advantages


Valuable


Rare


Costly to Imitate


Nonsubstitutable

Value

Chain

Analysis


Outsource

Resources, Capabilities and Core
Competencies


Capabilities


Are the firm’s capacity to deploy
resources that have been
purposely integrated to achieve a
desired end state


Emerge over time through
complex interactions among
tangible and intangible resources


Often are based on developing,
carrying and exchanging
information and knowledge
through the firm’s human capital

Resources, Capabilities and Core
Competencies


Capabilities


The foundation of many
capabilities lies in:


The unique skills and
knowledge of a firm’s
employees


The functional expertise of
those employees


Capabilities are often
developed in specific
functional areas or as part of
a functional area

Resources, Capabilities and Core
Competencies


Core Competencies


Resources and capabilities that
serve as a source of a firm’s
competitive advantage:


Distinguish a company
competitively and reflect its
personality


Emerge over time through an
organizational process of
accumulating and learning how to
deploy different resources and
capabilities

Resources, Capabilities and Core
Competencies


Core Competencies


Activities that a firm performs
especially well compared to
competitors


Activities through which the firm
adds unique value to its goods or
services over a long period of
time

Building Sustainable Competitive
Advantage


Four Criteria of
Sustainable Competitive
Advantage


Valuable


Rare


Costly to imitate


Nonsubstituable

Building Sustainable Competitive
Advantage


Valuable capabilities


Help a firm neutralize
threats or exploit
opportunities


Rare capabilities


Are not possessed by
many others

Building Sustainable Competitive
Advantage


Costly
-
to
-
Imitate
Capabilities


Historical


A unique and a valuable
organizational culture or
brand name


Ambiguous cause


The causes and uses of a
competence are unclear


Social complexity


Interpersonal relationships,
trust, and friendship among
managers, suppliers, and
customers

Building Sustainable Competitive
Advantage


Nonsubstitutable Capabilities


No strategic equivalent

Core Competence as a Strategic
Capability

Resources


Inputs to a firm’s


production process

Capability


A nonstrategic


team or resource

Core Competence



A strategic



capability

The source of

Does it satisfy the
criteria of
sustainable
competitive
advantage?

Yes

No

Capability


An integration of a


team of resources

Sustainability

of Competitive Advantage


Sustainability of competitive advantage is a
function of:


the rate of core
-
competence obsolescence due to
environmental changes


the availability of substitutes for the core competence


the imitability of the core competence

Performance Implications

Competitive

Consequences

Performance

Implications

No

No

No

No

Competitive

Disadvantage

Below Average

Returns

Yes

No

No

Yes/

No

Competitive

Parity

Average Returns

Yes

Yes

No

Yes/

No

Temporary Com
-

petitive Advantage

Above Average to
Average Returns

Yes

Yes

Yes

Yes

Sustainable Com
-

petitive Advantage

Above Average
Returns

Core Competencies:

Cautions and Reminders


Never take for granted that core competencies
will continue to provide a source of competitive
advantage


All core competencies have the potential to
become
core rigidities


Core rigidities are former core competencies that
now generate inertia and stifle innovation

The SWOT diagram may

summarise the results of analyses

Strengths

Weaknesses

Opportunities

Threats

Internal

Analyses

External

Analyses

Strategic Assessment

of a business as a whole

Questions


What business are we really in?


What real customer needs do we satisfy?


What problem do we solve for our
customers?