module 2(3)interanl analysis

8/8/2019 Module 2(3)Interanl analysis

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Chapter 3Chapter 3

The Internal Environment:The Internal Environment:

Resources, Capabilities andResources, Capabilities andCore CompetenciesCore Competencies

Michael A. HittMichael A. Hitt

R. Duane IrelandR. Duane Ireland

Robert E. HoskissonRobert E. Hoskisson

Michael A. HittMichael A. Hitt

R. Duane IrelandR. Duane Ireland

Robert E. HoskissonRobert E. Hoskisson

2000 South-Western College Publishing2000 South-Western College Publishing


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Chapter 2Chapter 2

External EnvironmentExternal EnvironmentWhat the FirmMightDoWhat the FirmMightDo

Chapter 3Chapter 3

Internal EnvironmentInternal Environment

What the Firm Can DoWhat the Firm Can Do

SustainableSustainable

CompetitiveCompetitive

AdvantageAdvantage


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SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats


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The purpose of SWOT Analysis

It is an easy-to-use tool for developing

an overview of a companys strategic

situation It forms a basis for matching your

companys strategy to its situation


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Strengths

A STRENGTH is something a companyis good at doing or a characteristic thatgives it an important capability.

Possible Strengths: Name recognition

Proprietary technology

Cost advantages

Skilled employees

Loyal Customers


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Weaknesses

A WEAKNESS is something a company lacks

or does poorly (in comparison to others) or a

condition that places it at a disadvantage

Possible Weaknesses:

Poor market image

Obsolete facilities

Internal operating problems

Poor marketing skills


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Strengths and Weakness form a

basis for INTERNAL analysis By examining strengths, you can

discover untapped potential or identifydistinct competencies that helped you

succeed in the past.

By examining weaknesses, you can

identify gaps in performance,

vulnerabilities, and erroneous

assumptions about existing strategies.


8/38Ch

ResourcesResources

** TangibleTangible

** IntangibleIntangible

CapabilitiesCapabilities

Teams ofResourcesTeams ofResources

Sources ofSources of

CoreCore

CompetenciesCompetencies

CompetitiveCompetitiveAdvantageAdvantage

StrategicStrategicCompetitivenessCompetitiveness

Above-AverageAbove-AverageReturnsReturns


Gained throughGained throughCore CompetenciesCore Competencies

DiscoveringDiscoveringCoreCore


Discovering Core

Competencies

Discovering Core

Competencies

Criteria of

SustainableAdvantages

Value

ChainAnalysis

Valuable

Rare

Costly to ImitateNonsubstitutable

*

*

**

* Outsource


9/38Ch

ResourcesResources

** TangibleTangible


Discovering Core

Competencies

Discovering Core

Competencies


10/38Ch3-

What a firm has to work with:What a firm has to work with:

itsits assetsassets, including its, including its peoplepeople andand

the value of itsthe value of its brand namebrand name

What a firmWhat a firmHasHas......ResourcesResources


11/38Ch3-

Resources representResources represent inputs into ainputs into afirms production processfirms production process......

such as capital equipment, skills ofsuch as capital equipment, skills of

employees, brand names, financesemployees, brand names, financesand talented managersand talented managers

What a firmWhat a firmHasHas......

What a firm has to work with:What a firm has to work with:

its assets, including its peopleits assets, including its people

and the value of its brand nameand the value of its brand name

ResourcesResources


12/38Ch3-

Tangible ResourcesTangible Resources

FinancialFinancial**

PhysicalPhysical**

Human ResourcesHuman Resources**OrganizationalOrganizational**

What a firm Has...

What a firm has to work with:

its assets, including its people

and the value of its brand name

Resources represent inputs into a

firms production process...such as capital equipment, skills

of employees, brand names,

finances and talented managersIntangible ResourcesIntangible Resources

TechnologicalTechnological**

InnovationInnovation**

ReputationReputation**

ResourcesResources


13/38Ch3-

ResourcesResources

** TangibleTangible




Discovering Core

Competencies

Discovering Core

Competencies


14/38Ch3-

What a firmDoes...

Capabilities represent:Capabilities represent:the firms capacity or ability tothe firms capacity or ability to integrateintegrate

individual firm resourcesindividual firm resources to achieve a desiredto achieve a desired

objective.objective.



15/38Ch3-

What a firmDoes...

Capabilities develop over time as a result of complexinteractions that take advantage of the interrelationships

between a firms tangible and intangible resources that

are based on the development, transmission and

exchange or sharing of information and knowledge ascarried out by the firm's employees.

Capabilities develop over time as a result ofcomplexinteractions that take advantage of the interrelationships

between a firms tangible and intangible resources that

are based on the development, transmission and

exchange or sharing of information and knowledge ascarried out by the firm's employees.



16/38Ch3-

What a firmDoes...

Capabilities become important when they are combinedCapabilities become important when they are combined

inin unique combinationsunique combinations which create core competencieswhich create core competencieswhich havewhich have strategic valuestrategic value and can lead toand can lead to competitivecompetitive

advantageadvantage..



17/38Ch3-

ResourcesResources

** TangibleTangible




Discovering Core

Competencies

Discovering Core

Competencies


CoreCore






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What a firmDoes...

that is Strategically

Valuable

are the essence of what makes an organizationare the essence of what makes an organization

unique in its ability to provide value tounique in its ability to provide value to

customers.customers.

McKinsey & Co. recommends identifying three to fourMcKinsey & Co. recommends identifying three to four

competencies to use in framing strategic actions.competencies to use in framing strategic actions.

Core CompetenciesCore Competencies


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ResourcesResources

** TangibleTangible





CoreCore





Criteria of


Valuable

Rare


*

*

**

Discovering Core

Competencies

Discovering Core

Competencies

* Outsource


20/38Ch3-

For a strategic capability to be aFor a strategic capability to be a

Core Competency, it must be:Core Competency, it must be:


ValuableValuable

RareRare

Costly to ImitateCostly to Imitate

NonsubstitutableNonsubstitutable

What a firmDoes...that is Strategically

Valuable

C C iC C t i


21/38Ch3-

Core Competencies must be:

NonsubstitutableNonsubstitutableCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationshipsCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships

What a firmDoes...that is Strategically

Valuable


ValuableValuable

RareRare

Costly to ImitateCostly to Imitate

Capabilities that other firms cannot develop easily, usually due tounique historical conditions, causal ambiguity or social complexityCapabilities that other firms cannot develop easily, usually due tounique historical conditions, causal ambiguity or social complexity

Capabilities that are possessed by few, if any, current or potentialcompetitorsCapabilities that are possessed by few, if any, current or potentialcompetitors

Capabilities that either help a firm to exploit opportunities tocreate value for customers or to neutralize threats in theenvironment

Capabilities that either help a firm to exploit opportunities tocreate value for customers or to neutralize threats in theenvironment


22/38Ch3-

ResourcesResources

** TangibleTangible





CoreCoreCompetenciesCompetencies




Value

ChainAnalysis

* Outsource

Valuable

Rare


*

*

**

Criteria of


Discovering Core

Competencies

Discovering Core

Competencies


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Ch3-

Support

Activities

Primary Activities

Value Chain AnalysisValue Chain AnalysisIdentifying Resources and Capabilities That Can Add Value


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Ch3-

Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis t

ics

Logis

tics



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Ch3-

Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis t

ics

Logis

tics

Oper

ations

Operation

s



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Ch3-

Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis t

ics

Logis

tics

Oper

ations

Operation

s

Outb o

und

Outbound

Logist

ics

Logis

tics



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Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis t

ics

Logis

tics

Oper

ations

Operation

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark

eting

Marketing

&Sales

&Sa

les


V l Ch i A l i


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Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis t

ics

Logis

tics

Oper

ations

Operation

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark

eting

Marketing

&Sales

&Sa

les

Se

rvi c

e

Se

rvice


C i A iV l Ch i A l i


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Ch3-

Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis t

ics

Logis

tics

Oper

ations

Operation

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark

eting

Marketing

&Sales

&Sa

les

Se

rvice

Se

rvi c

e

ProcurementProcurement


V l Ch i A l iV l Ch i A l i


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Ch3-

Support

Activities

Primary Activities

Inbou

nd

Inbound

Logis

tics

Logis

tics

Oper

ations

Operation

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark

eting

Marketing

&Sales

&Sa

les

Se

rvice

Se

rvi c

e


Technological DevelopmentTechnological Development




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Support

Activities

Primary Activities



Inbou

nd

Inbound

Logis

tics

Logis

tics

Oper

ations

Operat

ion

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark e

ting

Marketing

&Sales

&Sa

les

Se

rvice

Se

rvi c

e

Human Resource ManagementHuman Resource Management




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Support

Activities

Primary Activities


Human Resource ManagementHuman Resource ManagementFirm InfrastructureFirm Infrastructure


Inbou

nd

Inbound

Logis

tics

Logis

tics

Oper

ations

Operat

ion

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark e

ting

Marketing

&Sales

&Sa

les

Se

rvice

Se

rvi c

e




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Support

Activities

Primary Activities


Human Resource ManagementHuman Resource ManagementFirm InfrastructureFirm Infrastructure


Inbou

nd

Inbound

Logis

tics

Logis

tics

Oper

ations

Operat

ion

s

Outbound

Outb o

und

Logis t

ics

Logistics

Mark e

ting

Marketing

&Sales

&Sa

les

Se

rvice

Se

rvi c

e

MARG

IN

MARG

IN

MARGIN

MARGIN



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Value-creating Potential of Primary Activities

Inbounded Logistics

Activities, such as materials handling, warehousing and

inventory control, used to receive, store and disseminate

inputs to a product

Operations

Activities necessary to convert the inputs provided byinbound logistics into final product form. Machining,

packaging, assembly, and equipment maintenance are

examples of operations activities.

Outbound Logistics Activities involved with collecting, storing and physically

distributing the final product to customers. Examples of these

activities include finished-goods warehousing, material

handling and order processing.


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Marketing and Sales

Activities completed to provide means through which

customers can purchase products and to induce them to do

so. To effectively market and sell products, firm developadvertising and promotional campaigns, select appropriate

distribution channels and select develop and support their

sales force.

Service Activities designed to enhance or maintain a products value.

Firms engaged in a range of service-related activities,

including installation, repair, training and adjustment.


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Ch3-

Value-Creating Potential of Support Activities

Procurement

Activities completed to purchase the inputs needed to

produce a firms products. Purchase inputs include items

fully consumed during the manufacture of products (e.g. raw

materials and supplies as well as fixed assets machinery,

laboratory equipment, office equipment and buildings).

Technological Development

Activities complete to improve a firms product and the

processes used to manufacture it. Technological

development takes many forms, such as process equipment,

basic research and product design and servicing procedures.


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Ch3-

Human Resource Management

Activities involved with recruiting, hiring, training, developing,

and compensating all personnel.

Firm Infrastructure

Firm infrastructure includes activities such as general

management, planning, finance, accounting, legal support

and governmental relations that are required to support the

work of the entire value chain. Through its infrastructure, the

firm strives to effectively and consistently identify external

opportunities and threats, identify resources and capabilities

and support core competencies.

C C t i C ti d R i dC C t i C ti d R i d


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Core Competencies--Cautions and RemindersCore Competencies--Cautions and Reminders

Never take for granted that core competencies will

continue to provide a source of competitive advantage

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

All core competencies have the potential to become

Core Rigidities

Core Rigidities are former core competencies that sow

the seeds of organizational inertia and prevent the firm

from responding appropriately to changes in the

external environment

Core Rigidities are former core competencies that sow

the seeds of organizational inertia and prevent the firm

from responding appropriately to changes in the

external environmentStrategic myopia and inflexibility can strangle the firms

ability to grow and adapt to environmental change or

competitive threats

Strategic myopia and inflexibility can strangle the firms

ability to grow and adapt to environmental change or

competitive threats

module 2(3)interanl analysis

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