Internal Resource Analysis UNIT IV

W HAT I S AN I NTERNAL A NALYSIS ? Internal Analysis Identifies and evaluates resources, capabilities, and core competencies Looks at the organization's Current vision Mission(s) Strategic objectives Strategies

A Quick Review of Organizational Resources Organizational Resources (assets) Financial resources Physical assets Human resources Intangible resources Structural-cultural resources

Core Competencies -- A Valuable Company Resource A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability Often, a core competence results from collaboration among different parts of a company Typically, core competencies reside in a company’s people, not in assets or the balance sheet A core competence gives a company a potentially valuable competitive capability and represents a definite competitive asset

Examples: Core Competencies Expertise in integrating multiple technologies to create families of new products Know-how in creating operating systems for cost efficient supply chain management Speeding new/next-generation products to market Better after-sale service capability Skills in manufacturing a high quality product System to fill customer orders accurately and swiftly

Distinctive Competence -- A Competitively Superior Resource # 1 A distinctive competence is a competitively significant activity that a company performs better than its competitors  A distinctive competence ä Represents a competitively valuable capability rivals do not have ä Presents attractive potential for being a cornerstone of strategy ä Can provide a competitive edge in the marketplace—because it represents a competitively superior resource strength

Examples: Competencies Toyota, Honda, Nissan Low-cost, high-quality manufacturing capability and short design-to-market cycles Intel Design of complex chips for personal computers Sony Superb marketing-distribution skills and R&D capabilities

Test to Identify Core Competence Prahlad and Hamel gave three test to identify the core competence: - 1.Provide access to wide variety of markets 2.Contribute significantly to end-product benefits 3.Be difficult for competitors to imitate

COMPETITIVE ADVANTAGE Competitive advantage is a firm’s ability to outperform its competitors (earn higher profits). It could consist of superior quality, service or technical assistance, a strong brand name, a unique or innovative product or service. Sustained competitive advantage comes from maintaining higher profits than competitors over long periods of time. Core competencies serve as a source of CA.

Distinctive Competencies, Resources, and Capabilities The roots of competitive advantage:

SYNERGY Strategic Advantages in business area do not yield requisite benefits automatically unless all parts work together smoothly. Synergy is an economic efect in which the different parts of the firm contribute a unique source of heightened value to the firm when managed as a single unified entity. Effect of synergy: > 5

Value Chain Analysis A tool developed by Dr. Michael Porter of Harvard Business School Can be used to examine the various activities of the firm and how they interact in order to provide a source of competitive advantage by: - Performing these activities better or - At a lower cost than the competitors

Value Chain Analysis

Assessing the PRIMARY Activities in the Value Chain ( from Table 4-1) Inbound Logistics Materials control system Inventory control system Raw material handling and warehousing Operations Equipment comparison to competitors Plant layout Production control system Level of automation in production processes

Value Chain Analysis Assessing the PRIMARY Activities in the Value Chain ( continued ) ( from Table 4-1) Outbound Logistics Timeliness and efficiency of finished products delivery Warehousing of finished products Marketing and Sales Marketing research Sales promotions and advertising Alternative distribution channels Competency and motivation of sales force Organization’s image of quality Organization’s reputation Brand loyalty of customers Domination of various market segments

Value Chain Analysis Assessing the PRIMARY Activities in the Value Chain ( continued ) ( from Table 4-1) Customer Service Customer input for product improvements Handling of customer complaints Warranty and guarantee policies Employee training in customer education & service issues Replacement parts and services

Value Chain Analysis Assessing the SUPPORT Activities in the Value Chain ( from Table 4-2) Procurement Alternate sources for obtaining needed resources Timeliness of resources procurement Procurement of large capital expenditure resources Lease-versus-purchase decisions Long-term relationships with reliable suppliers Technological Development R&D activities in product and process innovations Relationship between R&D and other departments Meeting deadlines in technological development activities Quality of labs and other research facilities Qualifications of lab technicians and scientists Creativity and innovation in organizational culture

Value Chain Analysis Assessing the SUPPORT Activities in the Value Chain ( continued ) ( from Table 4-2) Human Resource Management Recruiting, selecting, orienting, and training employees Employee promotion policies Reward systems to motivate and challenge employees Absenteeism and turnover Union-organization relations Employee participation in professional organizations Employee motivation, job commitment, and satisfaction

Value Chain Analysis Assessing the SUPPORT Activities in the Value Chain ( continued ) ( from Table 4-2) Firm Infrastructure Identification of external opportunities and threats Accomplishing goals with strategic planning system Coordination and integration of value chain activities Low-cost capital expenditures & working capital funds IS support for strategic and operational decisions Relationships with stakeholders Public image as a responsible corporate citizen

Value chain Analysis helps in defining a firm’s core competencies and the activities in which it can pursue a competitive advantage as follows: - - Cost Advantage – by better understanding cost and squeezing them out of the value-adding activities - Differentiation – by focusing on those activities associated with core competencies and capabilities in order to perform them better than the competitors do.

Example: Key Value Chain Activities Timber farming Logging Pulp mills Papermaking Pulp & Paper Industry

Parts and components manufacture Assembly Wholesale distribution Retail sales Home Appliance Industry Example: Key Value Chain Activities

Processing of basic ingredients Syrup manufacture Bottling and can filling Wholesale distribution Advertising Retailing Soft-Drink Industry Example: Key Value Chain Activities

Programming Disk loading Marketing Distribution Computer Software Industry Example: Key Value Chain Activities

STRATEGIC ADVANTAGE PROFILE (SAP) A picture of the more critical areas which can have a relationship of the strategic posture of the firm in the future. Capability Factor Competitive strengths/Weaknesses FinanceHigh cost of capital, reserves & surplus MarketingFierce competition, company position secure OperationalP&M - excellent - parts & components available

STRATEGIC ADVANTAGE PROFILE (SAP) Capability Factor Competitive strengths / Weakness Personnel Quality of management & personnel par with competition General High Quality experienced top management - take proactive stance