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3 Assessing Strengths and Weaknesses:

Doing An Internal Analysis

Strategic Management

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Learning Outline

o What is an internal analysis?• Define internal analysis.• Describe the relationship between organizational resources,

organizational capabilities, core competencies, and distinctive capabilities.

• Explain what organizational strengths and weaknesses are.

o How to do an internal analysis• Describe the primary and support activities on the value chain.• Explain what an internal audit is and how it can be used for

internal analysis.• Describe the steps in a capabilities assessment profile.

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Learning Outline (contd.)

o Why do an internal analysis?• Explain the criteria that could be used to assess an

organization’s strengths and weaknesses.• Discuss why an internal analysis is important.

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What is an Internal Analysis?

Internal Analysis Identifies and evaluates resources,

capabilities, and core competencies Looks at the organization’s

o Current visiono Missiono Strategic objectiveso Strategies

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A Quick Review of Organizational Resources

Organizational Resources (assets)

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Financial resources

Physical assets

Human resources

Intangible resources

Structural-cultural resources

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The Strategic Role of Organizational Resources and Organizational Capabilities

OrganizationalResources

Financial assetsPhysical assetsHuman resourcesIntangible assetsStructural-cultural

assets

OrganizationalCapabilities

Organizational processes and routines

Accumulated knowledgeActual work activities

CoreCompetencies

Distinctive OrganizationalCapabilities

Competitive Advantage

Performance Results

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From Capabilities toDistinctive Capabilities & Core Competencies

OrganizationalCapabilities

Organizational Capabilities •Org. capabilities come first •Fundamental building block for

developing core competencies •Organizational processes and

routines to get the work done

CoreCompetencies

Core Competencies •Not a source of competitive advantage •Develop distinctive organizational capabilities • Improve and enhance organizational capabilities •Fundamental skills and capabilities •Exploitable by organization •Major value-creating skills and capabilities

Distinctive OrganizationalCapabilities

DistinctiveOrganizational Capabilities •Special and unique capabilities •Distinguish from competitors •Sustainable competitive advantage •Outperform competition

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Characteristics of Distinctive Organizational Capabilities

DistinctiveOrganizational

Capabilities

•Contributes toSuperior CustomerValue

•Can Be Usedin a Varietyof Ways

• Is Difficultfor Competitorsto Imitate

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From Capabilities toDistinctive Capabilities & Core Competencies

OrganizationalCapabilities

Organizational Capabilities •Org. capabilities come first •Fundamental building block for

developing core competencies •Organizational processes and

routines to get the work done

CoreCompetencies

Core Competencies •Not a source of competitive advantage •Develop distinctive organizational capabilities • Improve and enhance organizational capabilities •Fundamental skills and capabilities •Exploitable by organization •Major value-creating skills and capabilities

Distinctive OrganizationalCapabilities

DistinctiveOrganizational Capabilities •Special and unique capabilities •Distinguish from competitors •Sustainable competitive advantage •Outperform competition

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The Role of Strengths and Weaknesses

Strengths: Resources that an organization possesses and capabilities that an organization has developed. Both can be exploited and developed into a sustainable competitive advantage

Weaknesses: Resources and capabilities that are lacking or deficient. Prevent an organization from developing a sustainable competitive advantage

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Value Chain Analysis

The premise behind value chain analysis is that customers demand value from goods and services they obtain

Customer value Product is unique and different Product is low priced Quick response to specific or distinctive customer needs

A value chain is a systematic way of examining organization’s functional activities

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Primary and Support Activities in the Value Chain

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Technological Development

Human Resource Management

Firm Infrastructure

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Value Chain AnalysisAssessing the PRIMARY Activities in the Value Chain

Inbound LogisticsInbound Logistics•••

Materials control systemInventory control systemRaw material handling and warehousing

OperationsOperations••••

Equipment comparison to competitorsPlant layoutProduction control systemLevel of automation in production processes

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Value Chain AnalysisAssessing the PRIMARY Activities in the Value Chain (continued)

Outbound LogisticsOutbound Logistics••

Timeliness and efficiency of finished products deliveryWarehousing of finished products

Marketing and SalesMarketing and Sales••••••••

Marketing researchSales promotions and advertisingAlternative distribution channelsCompetency and motivation of sales forceOrganization’s image of qualityOrganization’s reputationBrand loyalty of customersDomination of various market segments

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Value Chain AnalysisAssessing the PRIMARY Activities in the Value Chain (continued)

Customer ServiceCustomer Service•••••

Customer input for product improvementsHandling of customer complaintsWarranty and guarantee policiesEmployee training in customer education & service issuesReplacement parts and services

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Value Chain AnalysisAssessing the SUPPORT Activities in the Value Chain

ProcurementProcurement•••••

Alternate sources for obtaining needed resourcesTimeliness of resources procurementProcurement of large capital expenditure resourcesLease-versus-purchase decisionsLong-term relationships with reliable suppliers

Technological DevelopmentTechnological Development••••••

R&D activities in product and process innovationsRelationship between R&D and other departmentsMeeting deadlines in technological development activitiesQuality of labs and other research facilitiesQualifications of lab technicians and scientistsCreativity and innovation in organizational culture

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Value Chain AnalysisAssessing the SUPPORT Activities in the Value Chain (continued)

Human Resource ManagementHuman Resource Management•••••••

Recruiting, selecting, orienting, and training employeesEmployee promotion policiesReward systems to motivate and challenge employeesAbsenteeism and turnoverUnion-organization relationsEmployee participation in professional organizationsEmployee motivation, job commitment, and satisfaction

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Value Chain AnalysisAssessing the SUPPORT Activities in the Value Chain (continued)

Firm InfrastructureFirm Infrastructure•••••••

Identification of external opportunities and threatsAccomplishing goals with strategic planning systemCoordination and integration of value chain activitiesLow-cost capital expenditures & working capital fundsIS support for strategic and operational decisionsRelationships with stakeholdersPublic image as a responsible corporate citizen

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Using an Internal Audit

An internal audit thoroughly assessesan organization's various internal functional areas

Six Primary Functional Areas

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Productions-Operations

Marketing

Research and Development

Financial and Accounting

Management (including HRM)

Information Systems

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Capabilities Assessment Profile

Complex Analysis of Capabilities Not as easily identifiable as organizational functions Hard for competitors to imitate

Two-phased Capability Assessment Phase I: Identify distinctive capabilities Phase II: Develop and leverage these distinctive

capabilities

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Identifying Distinctive Organizational Capabilities

Step 1

Step 2

Step 3

Step 4

Step 5

Prepare current product-market profile.

Identify sources of competitiveadvantage and disadvantage inthe main product-market segments.

Describe all the organizationalcapabilities and competencies.

Sort the core capabilities andcompetencies according tostrategic importance.

Identify and agree onthe key capabilitiesand competencies.

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Criteria to Judge Organizational Strengths and Weaknesses

Are organizational resources and capabilitiesstrengths or weaknesses?

Past Performance Trends

Specific Goals or Targets

Comparison Against Competitors

Personal Opinions of StrategicDecision Makers or Consultants

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Why Do an Internal Analysis?

1. It is the only way to identify an organization’s strengths and weaknesses

2. It’s needed for making good strategic decisions

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Chapter Three

Developing and exploiting distinctive competencies

Three approaches to internal analysis Know the What, How and Why