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Internal Environment
Internal Environmental analysis is the
process of reviewing organizational
resources, scanning organizationalactivities and linking them with the
organization and identifying the strengths
and capabilities.
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Significance of Internal Analysis
Helps to know where the firm stands in terms ofstrengths and weaknesses.
Helps to select the opportunities to be tapped in
line with its capacity.Helps in matching of its objectives to its
capacity.
Helps in assessing the capacity-gap and takes
steps to overcome it.Helps in selecting the specific lines in which the
firm can grow, using its potential.
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Dynamics of Internal Environment
Organizational Resources
Organizational Behavior
Strengths and WeaknessesSynergy Effects
Competencies
Organizational Capabilities
Strategic Advantage
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Organizational Resources
A firm is a bundle of resources tangible or
intangible includes all physical, human and
organizational resources, includes all assets,
capabilities, processes, information, knowledge,equipment, intelligence and so on.
The resources can lead to strategic advantage if
they are VALUABLE,RARE, COSTLY TO
IMITATE, NON-SUBSTITUTABLE.
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Organizational Behavior
It is the influence of various forces and
influences operating in the environment
that create the ability or place constraintsin the usage of resources.
Important forces in OB are quality of
leadership, mgt. philosophy, values and
culture, work environment, quality of work
environment, org. politics etc.
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Strengths and Weaknesses
Strengths Inherent capability that the
organization can use to gain strategic
advantage e.g. low cost of capital, efficientuse of funds etc.
Weaknesses Inherent limitation that can
create a strategic disadvantage for an
organization obsolete plant andmachinery, lack of skilled manpower etc.
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Synergy
Synergy is the idea that the whole is
greater than the sum of its parts.
Also expressed as the two-plus-two-is-equal-to-five effect.
It gives an idea that resources and
behavior do not exist in isolation but
combine in number of ways.
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Example ofSynergy
In marketing, synergistic effects may occur
when the product, pricing, promotion and
distribution support each other, resulting in
high level of marketing synergy ultimately
leading to operational synergies.
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Competencies
The special qualities possessed by an org.that make them withstand pressures ofcompetition in the marketplace.
When an organization uses itscompetencies exceedingly well, over a
period of time, it turns them into corecompetencies.
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Examples of Competencies
Good Technology
Surplus Cash Inflow
Skilled Sales Force Research and Development
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Distinctive Competence
When a specific quality is possessed by
org. exclusively or relatively in a large
measure, it is called a distinctive
competence.
It is any advantage a company has over its
competitors because it can do something
which they cannot or it can do somethingbetter than they can.
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Examples ofDistinctive
Competence Superior product quality on a particular
attribute, e.g. a two-wheeler which is more
fuel efficient than its competitor products.
Creation of marketing niche by supplying
highly specialized products to a particular
market segment.
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Tests to Identify Core
CompetenciesAccording to C.K. Prahalad and Gary Hamel,
three tests are there:
It should be able to provide potential access to a
wide variety of markets.
It should make significant contribution to the
perceived customer benefits of the end products.
It should be difficult for competitors to imitate.
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Organizational Capability
Organizational capability is the inherent capacity orpotential of an organization to use its strengths andovercome its weaknesses in order to exploitopportunities and face threats in its external
environment.
It is a measurable attribute, so it can be compared.
It can be regarded as the sum total of resources andbehavior, strengths and weaknesses, synergisticeffects and competencies of any org.
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Reasons for the study of
Organizational CapabilitiesTo know what capacity exists within the
organization to exploit opportunities or
face threats.
To know what potentials should be
developed in the org. so that better
prospects could be availed in future.
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Strategic Advantage
They are the result of organizational
activities leading to rewards in terms of
financial parameters (high profits) or non-
financial parameters (Market share,
reputation).
These are measurable in absolute terms.
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Organizational Capability Factors
These are the strategic strengths and
weaknesses existing in different functional
areas within an organization which are of
crucial importance to strategy formulation
and implementation.
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Organizational Capability Factors
Financial Capability
Marketing Capability
Operations CapabilityPersonnel Capability
Information Management Capability
General Management Capability
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Financial Capability
These factors relate to availability, usage, andmanagement of funds and all other relatedaspects.
Factors related to sources of funds capitalstructure, working capital, borrowings reserves &surplus etc.
Factors related to usage of funds capital inv.
Fixed assets, current assets etc. Factors related to management of funds
MCS, budgeting, financial analysis etc.
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Typical Strengths supporting
Financial Capability
Access to financial resources
High level of credit worthiness
Efficient capital budgeting system Low cost of capital
Tax benefits due to various govt. policies
Relations with financial institutions
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Marketing Capability
Relate to the pricing, promotion and distribution ofproducts or services and all other related factors.
Product related factors variety, quality, position,packaging etc.
Price related factors Pricing obj., policies, strategiesetc.
Place related factors Distribution, transportation and
logistics channels etc. Promotion related factors Tools, sales promotion, adv.,
public relations etc.
Integrative factors Marketing mix, MIS etc.
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Strengths that support Marketing
Capability
Wide variety of products
Good customer service
Effective sales promotionLow prices as compared in the market
Effective distribution system
Favorable company and product imageHigh profile advertising
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Operations Capability
Relates to the production of goods or services, the useof material resources and all other aspects.
Factors related to production system capacity, location,layout, degree of automation, product design etc.
Factors related to operations and control systems Prod. planning, cost and quality control, inventorycontrols, maintenance systems etc.
Factors related to R&DSystem patent rights, productdevelopment, level of technology used, technologicalcollaborations etc.
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Strengths that Support Operations
capability
High level of capacity utilization
Favorable plant location
Existence of good inventory controlsystems
Available of qualified R&D personnel
Technical collaboration with reputed firmsabroad
Reliable sources of supply
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Personnel Capability
Relate to the existence and use of humanresources, their skills and all other relatedaspects.
Personnel System Relating to manpowerplanning, selection, development, compensationetc.
Org. and Employees Characteristics qualityof mgt., staff and workers, working conditions,
etc. Industrial Relations safety, welfare and
security, collective bargaining, employeesatisfaction and morale etc.
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Typical Strengths that support
Personnel Capability
Efficient and effective personnel systems
Excellent training opportunities and
facilitiesCongenial work environment
High level of loyalty
Low absenteeismSatisfied and motivated workforce
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Information Management Capability
Relate to the design and mgt. of the flow
of information from outside as well as from
within the org. to facilitate decision-making
and all other related aspects.
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Factors affecting Information
CapabilityAcquisition and retention of Information Sources,
security, quantity, quality and capacity of retention.
Processing and analysis DBMS, computer systems,software capability etc.
Retrieval and usage Appropriate information formats,capacity to use information.
Transmission and dissemination -Speed, coverage,acceptability of information.
Integrative and Supportive factors IT infrastructure, upgradation facilities, professionals support etc.
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Typical Strengths that Support IM
Capability
Extent of use of computerized information
system
Positive attitude of information sharing
Existence of foolproof security systems
High-tech equipment available and
operate able Easy access to information sources
Support of top mgt. and It professionals
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General Management Capability
Relates to the integration, coordination
and direction of functional capabilities
towards common goals and all other
related aspects.
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Factors related to GM Capability
General Managers Their orientation, values,competence, personal goals, track record,experience etc.
GM System Strategic mgt. system, intent,formulation, implementation, evaluation, MIS,corporate planning system etc.
External Relationships with govt. financial
institutions, public relations, social responsibilityOrg. Climate culture, use of power, mgt. of
change, nature of org. structure and control etc.
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Typical Strengths that Support GM
Capability
Effective system of Corporate Planning
Good control and reward system
Development-oriented org. culture Effective system of org. change
Favorable corporate image
Commonly being perceived as a good org.to work for.
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Competitive Advantage
For an organization, it means discovering
the needs of the customers and then
satisfying and even exceeding their
expectations for the purpose of achieving
the goals of the organization.
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Preparation of OC Profile
Factors
Capability Factor Rating
Weakness (-5) Neutral (0) Strength (5)
Financial
Capability
Marketing
Capability
Operations
Capability
PersonnelCapability
IM Capability
Factors
GM Capability
Factors
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What is Strategic Advantage
Profile (SAP)? SAP is the technique of analyzing the
internal factors of the organization by
preparing a critical picture of different
capacity factors.
It is a relative strength of the company
over its competitors.
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Strategic Advantage Profile (SAP)
Functional Area Core Factors (+) or (-)
Production &
Operations
Good Prod. Facilities (+)
Old plant &machinery (-)
PersonnelFactors
Young & MotivatedForce
(+)
Poor union relations (-)
Finance and
Accounting
Tax holiday (+)
Costly finance (-)
Marketing
Operations
Effective comm. Mix (+)
Costly employees (-)
Rich experience in mkt. (+)
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SAP
R & D and
Engineering
No design protection (-)
Well-developed
laboratory(+)
Highly qualified
research staff(+)
Organization
System
High-tech MIS (+)
Effective delegation
and decentralization(+)
No Mgt. by exception (-)