(4) Internal Scanning, Organizational Analysis

Internal scanning and Internal scanning and organization analysisorganization analysis

A resource based approach to A resource based approach to organizational analysisorganizational analysis

Business modelsBusiness models Value-chain analysisValue-chain analysis Scanning functional resources and Scanning functional resources and

capabilitiescapabilities

A resource based approach to A resource based approach to organizational analysisorganizational analysis

Core and distinctive competenciesCore and distinctive competencies Using resources to gain competitive Using resources to gain competitive

advantageadvantage Determining the sustainability of an Determining the sustainability of an

advantageadvantage

Core Competencies and Core Competencies and Distinctive CompetenciesDistinctive Competencies

Core CompetenciesCore Competencies Things a corporation can do Things a corporation can do

exceedingly wellexceedingly well

Distinctive CompetenciesDistinctive Competencies Core competencies that are superior Core competencies that are superior

to those of competitorsto those of competitors

4.2 Core Competencies and Distinctive Competencies

Resources: VRIO FrameworkResources: VRIO Framework

1. Values : does it provide competitive 1. Values : does it provide competitive advantage?advantage?

2. Rareness : do other competitors 2. Rareness : do other competitors possess it?possess it?

3. Imitability : is it costly for others to 3. Imitability : is it costly for others to imitate?imitate?

4. Organization : is the firm organized 4. Organization : is the firm organized to exploit the resource?to exploit the resource?

Factors Determining Factors Determining Sustainability of a Distinctive Sustainability of a Distinctive

CompetencyCompetency Durability : the rate at which a firm’s Durability : the rate at which a firm’s

resource or core competency depreciates resource or core competency depreciates or becomes obsoleteor becomes obsolete

Imitability : the rate at which a firm’s Imitability : the rate at which a firm’s resource or core competency can be resource or core competency can be duplicated by othersduplicated by others TransparencyTransparency TransferabilityTransferability ReplicabilityReplicability

4.3 Sustainability of Distinctive Competency

Transparency : the speed at which other firms Transparency : the speed at which other firms can understand the relationship of resources can understand the relationship of resources and capabilities supporting a successful and capabilities supporting a successful firm’s strategyfirm’s strategy

Transferability : ability of competitors to Transferability : ability of competitors to gather the resources and capabilities gather the resources and capabilities necessary to support a competitive necessary to support a competitive advantageadvantage

Replicability : the ability of competitors to use Replicability : the ability of competitors to use duplicated resources and capabilities to duplicated resources and capabilities to imitate the other firm’s successimitate the other firm’s success

It is easier to imitate another It is easier to imitate another company’s core competency if it company’s core competency if it comes from explicit knowledgecomes from explicit knowledge

Tacit knowledge is more valuable Tacit knowledge is more valuable and more likely to lead to a and more likely to lead to a sustainable competitive advantage sustainable competitive advantage than is explicit knowledgethan is explicit knowledge

P. 154, fig. 4.2P. 154, fig. 4.2

Low (Easy to Imitate)

Level of Resource Sustainability

Slow-Cycle Resources

Standard-Cycle Resources

Fast-Cycle Resources

Strongly shielded Patents, brand name Gillette: Sensor razor

Easily duplicated Idea driven Sony: Walkman

Standardized mass production Economies of scale Complicated processes Chrysler: Mini-van

Continuum of Resources Continuum of Resources SustainabilitySustainability

Source: Suggested by J. R. Wiliams, “How Sustainable Is Your Competitive Advantage?” California Management Review (Spring 1992), p. 33.

HighHard to imitate

Business ModelsBusiness Models

A company method for making money in the A company method for making money in the current business environment. It should current business environment. It should include include

Who it servesWho it serves What it providesWhat it provides How it makes moneyHow it makes money How it differentiates and sustains How it differentiates and sustains

competitive advantagecompetitive advantage How it provides its product/serviceHow it provides its product/service

Examples of business Examples of business modelsmodels

Customer solutions model (IBM)Customer solutions model (IBM) Profit pyramid model (GM)Profit pyramid model (GM) Multi-component system (Gilette)Multi-component system (Gilette) Advertising model Advertising model Switchboard modelSwitchboard model Time modelTime model Efficiency modelEfficiency model Blockbuster modelBlockbuster model Profit multiplier modelProfit multiplier model Entrepreneurial modelEntrepreneurial model De facto standard modelDe facto standard model

Industry value chain Industry value chain analysisanalysis

Upstream (ex. Oil exploration, drilling and Upstream (ex. Oil exploration, drilling and moving crude oil to refinery)moving crude oil to refinery)

Downstream (refining, transporting and Downstream (refining, transporting and marketing gasoline to distributors and gas marketing gasoline to distributors and gas station retailers)station retailers)

A company’s center of gravity is the part A company’s center of gravity is the part of the chain that is most important to the of the chain that is most important to the company and the point where it has the company and the point where it has the greatest expertise and capabilitiesgreatest expertise and capabilities

Typical Value Chain for a Typical Value Chain for a Manufactured ProductManufactured Product

Product Producer

Fabrication Distributor RetailerRaw Materials

Primary Manufacturing

Source: Suggested by J. R. Galbraith, “Strategy and Organization Planning,” in The Strategy Process: Concepts, Contexts, Cases, 2nd ed., edited by H. Mintzberg and J. B. Quinn (Englewood Cliffs, N.J.: Prentice Hall, 1991), p. 316.

Corporate Value Chain Corporate Value Chain

Support Activities

Primary Activities

Profit Margin

Firm Infrastructure (general management, accounting, finance, strategic planning)

Human Resource Management (recruiting, training, development)

Technology Development (R&D, product and process improvement)

Procurement (purchasing of raw materials, machines, supplies)

Inbound Logistics (raw materials handling and warehousing)

Operations (machining, assembling, testing)

Outbound Logistics (warehousing and distribution of finished product)

Marketing and Sales (advertising, promotion, pricing, channel relations)

Service (installation, repair, parts)

Source: Adapted/reprinted with the permission of the The Free Press, an imprint of Simon & Schuster, from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter, p. 37. Copyright © 1985 by Michael E. Porter.

Corporate Value Chain Corporate Value Chain AnalysisAnalysis

1.1. Examine each product line’s value chain in Examine each product line’s value chain in terms of the various activities involved in terms of the various activities involved in producing that product or service (strengths, producing that product or service (strengths, weaknesses)weaknesses)

2.2. Examine the linkages within each product Examine the linkages within each product line’s value chainline’s value chain

3.3. Examine the potential synergies among the Examine the potential synergies among the value chains of different product lines or value chains of different product lines or business units (economies of scale, economies business units (economies of scale, economies of scope)of scope)

Scanning Functional Resources Scanning Functional Resources and Capabilitiesand Capabilities

Basic organizational Structures:Basic organizational Structures: Simple structureSimple structure Functional structureFunctional structure Divisional structureDivisional structure Strategic business unitStrategic business unit Conglomerate structureConglomerate structure

Basic Structures of Basic Structures of Corporations: Simple and Corporations: Simple and

FunctionalFunctionalI. Simple Structure

II. Functional Structure

Owner-Manager

Workers

Top Management

Manufacturing Sales Finance Personnel

Basic Structures of Basic Structures of Corporations: DivisionalCorporations: Divisional

4.7b Basic Structures of Corporations: Divisional (Fig. 4.4)

III. Divisional Structure*

Manufacturing Finance Manufacturing Finance

Top Management

Product Division A Product Division B

*Conglomerate structure is a variant of the division structure.

Sales Personnel Sales Personnel

Strategic Business UnitStrategic Business Unit

Independent product-market unit with:Independent product-market unit with:

1. Unique mission1. Unique mission

2. Identifiable competitors2. Identifiable competitors

3. External market focus3. External market focus

4. Control of its business functions4. Control of its business functions

4.8 Strategic Business Unit

Conglomerate StructureConglomerate Structure

Appropriate for a large corporation Appropriate for a large corporation with many product lines in several with many product lines in several unrelated industriesunrelated industries

Called holding company structureCalled holding company structure

Corporate Culture : the Corporate Culture : the company waycompany way

Is the collection of beliefs, expectations, and Is the collection of beliefs, expectations, and values learned and shared by a corporations’ values learned and shared by a corporations’ members and transmitted from one members and transmitted from one generation of employees to anothergeneration of employees to another

It gives a company a sense of identity It gives a company a sense of identity The culture includes the dominant The culture includes the dominant

orientation of the companyorientation of the company It can include informal work rules or work It can include informal work rules or work

practices that become part of the company’s practices that become part of the company’s traditiontradition

Attributes of Corporate Attributes of Corporate CultureCulture

Intensity : the degree to which Intensity : the degree to which members of a unit accept the norms, members of a unit accept the norms, values, or other content of the unit values, or other content of the unit culture, which lead to consistent culture, which lead to consistent behaviorbehavior

Integration : the degree to which units Integration : the degree to which units throughout the organization share a throughout the organization share a common culture (culture breadth)common culture (culture breadth)

4.9 Attributes of Corporate Culture

Functions of Corporate Functions of Corporate CultureCulture

1. Conveys sense of identity1. Conveys sense of identity

2. Generates employee commitment2. Generates employee commitment

3. Adds to organizational stability3. Adds to organizational stability

4. Serves as a frame of reference4. Serves as a frame of reference

4.10 Functions of Corporate Culture

Strategic Marketing IssuesStrategic Marketing Issues

Market position and segmentationMarket position and segmentation Marketing MixMarketing Mix Product life cycleProduct life cycle Brand and corporate ReputationBrand and corporate Reputation

Marketing Mix VariablesMarketing Mix VariablesProduct Place Promotion Price

Quality Channels Advertising List price

Features Coverage Personal selling Discounts

Options Locations Sales promotion Allowances

Style Inventory Publicity Payment periods

Brand name Transport Credit terms

Packaging

Sizes

Services

Warranties

Returns

Source: Philip Kotler, Marketing Management: Analysis, Planning, and Control, 4th ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1980), p. 89. Copyright © 1980. Reprinted by permission of Prentice-Hall, Inc.

The Product Life CycleThe Product Life Cycle

Introduction Growth* Maturity Decline

Time

Sal

es

*The right end of the Growth stage is often called Competitive Turbulence because of price and distribution competition that shakes out the weaker competitors. For further information, see C. R. Wasson, Dynamic Competitive Strategy and Product Life Cycles, 3rd ed. (Austin, Tex.: Austin Press, 1978).

Strategic Financial IssuesStrategic Financial Issues

Financial leverage (the ratio of total Financial leverage (the ratio of total debt to total assets)debt to total assets)

Capital budgeting : the analyzing and Capital budgeting : the analyzing and ranking of possible investments in ranking of possible investments in fixed assetsfixed assets

Strategic R& D IssuesStrategic R& D Issues

R& D intensity (spending percentage R& D intensity (spending percentage from total sales)from total sales)

technological competence (use of technological competence (use of innovative technology)innovative technology)

technology transfer (from lab to technology transfer (from lab to market place)market place)

R&D MixR&D Mix

Basic R&D Basic R&D Product R&DProduct R&D Process (Engineering) R&DProcess (Engineering) R&D

4.13R&D Mix

Impact of Technological Impact of Technological Discontinuity on StrategyDiscontinuity on Strategy

Displacement of one technology by Displacement of one technology by anotheranother

Occurs when a technology cannot be Occurs when a technology cannot be used to enhance the current technologyused to enhance the current technology

S shaped curve: the key to S shaped curve: the key to competitiveness is to determine when competitiveness is to determine when to shift resources to a technology that to shift resources to a technology that has more potentialhas more potential

Technological DiscontinuityTechnological DiscontinuityWhat the S-Curves Reveal

Research Effort/Expenditure

In the corporate planning process, it is generally assumed that incremental progress in technology will occur. But past developments in a given technology cannot be extrapolated into the future, because every technology has its limits. The key to competitiveness is to determine when to shift re-sources to a technology with more potential.

Mature Technology

New Technology

Source: P. Pascarella, “Are You Investing in the Wrong Technology?” Industry Week (July 25, 1983), p. 38. Copyright © 1983 Penton/IPC. All rights reserved. Reprinted by permission.

Pro

du

ct P

erfo

rman

ce

Strategic Operations IssuesStrategic Operations Issues

Intermittent systems (job shops) where the item Intermittent systems (job shops) where the item is normally processed sequentially, but the work is normally processed sequentially, but the work and sequence of the process vary (ex. An auto and sequence of the process vary (ex. An auto body repair shop)body repair shop)

Continuous systems : where products are Continuous systems : where products are continuously assembled or processed on line )ex. continuously assembled or processed on line )ex. Automobile assembly line)Automobile assembly line)

Experience curveExperience curve Flexible manufacturing for mass customizationFlexible manufacturing for mass customization Economies of scale versus economies of scopeEconomies of scale versus economies of scope

Strategic Human Resources Strategic Human Resources ManagementManagement

Use of teams : autonomous, self Use of teams : autonomous, self managing work teams, cross-functional managing work teams, cross-functional work teams, concurrent engineering work teams, concurrent engineering (designing features that customers want)(designing features that customers want)

Union relations and temporary workersUnion relations and temporary workers Quality of work life (improving the human Quality of work life (improving the human

dimension of work)dimension of work) Human diversityHuman diversity

Strategic Information Strategic Information Systems/Technology IssuesSystems/Technology Issues

InternetInternet IntranetIntranet ExtranetExtranet

Supply chain ManagementSupply chain Management

The forming of networks for sourcing The forming of networks for sourcing raw materials, manufacturing raw materials, manufacturing products or creating services, storing products or creating services, storing and distributing goods, and and distributing goods, and delivering goods to customers and delivering goods to customers and consumersconsumers

Internal Factor Analysis Internal Factor Analysis Summary (IFAS)Summary (IFAS)

Internal Factors Weight RatingWeighted Score Comments

1 2 3 4 5

1.00

Strengths

Weaknesses

Total Weighted Score

Notes: 1. List strengths and weaknesses (5–10 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the company is responding to the strategic factors in its internal environment.Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and Hunger Associates. Reprinted by permission.

IFE– Gateway Computers (2003)

Key Internal Factors Weight Rating Wtd Score

Strengths

1. Several new senior executive with world-class skills and leadership experience

0.05 4 0.40

2. Continuous decline in operating costs and cost of goods sold

0.05 3 0.15

3. Well-known brand name 0.05 3 0.15

4. Consumer Reports (Sept 2002) recommended Gateway 500X as #1

0.10 4 0.40

5. As a direct seller, Gateway holds high brand recognition

0.05 3 0.15

IFE– Gateway Computers (2003)

Key Internal Factors Weight Rating Wtd Score

Strengths (cont’d)

6. Gateway is diversifying into non-PC products 0.10 3 0.30

7. Good relationship with its suppliers. 0.05 4 0.20

8. Economies of scale, the 6th largest PC maker I the world

0.05 4 0.20

9. Gateway retails stores excellent 0.05 3 0.15

IFE– Gateway Computers (2003)

Key Internal Factors Weight Rating Wtd Score

Weaknesses

1. High operating expense (22% of revenue vs. 10% for Dell)

0.05 3 0.15

2. Almost no budget for R&D vs. Dell’s 18% of revenue

0.10 1 0.05

3. Low return on assets ratio 0.025 1 0.10

4. No niche market 0.025 2 0.05

IFE– Gateway Computers (2003)

Key Internal Factors Weight Rating Wtd Score

Weaknesses (cont’d)

5. Shortage of cash due to successive losses 0.10 2 0.20

6. Limited number Gateway stores 0.05 2 0.10

7. Weak performance in overseas market 0.10 2 0.20

TOTAL 1.00   2.85

Internal Factor Analysis Internal Factor Analysis Summary (IFAS):Summary (IFAS):

Maytag as ExampleMaytag as ExampleInternal Factors Weight RatingWeighted Score Comments

1 2 3 4 5

1.00

Strengths• Quality Maytag culture

• Experienced top management

• Vertical integration

• Employee relations

• Hoover’s international orientation

Weaknesses• Process-oriented R&D

• Distribution channels

• Financial position

• Global positioning

• Manufacturing facilities

Total Weighted Score

Quality key to success

Know appliances

Dedicated factories

Good, but deteriorating

Hoover name in cleaners

Slow on new products

Superstores replacing small dealers

High debt load

Hoover weak outside the United Kingdom and Australia

Investing now

3.05

.15

.05

.10

.05

.15

.05

.05

.15

.20

.05

5

4

4

3

3

2

2

2

2

4

.75

.20

.40

.15

.45

.10

.10

.30

.40

.20