Prentice Hall, Inc. © STRATEGIC MANAGEMENT & BUSINESS POLICY 10 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 5 Internal Scanning: Organizational Analysis

Prentice Hall, Inc. © Resource-Based Approach to Organizational Analysis Internal strategic factors -- –Critical strengths and weaknesses that are likely to determine if the firm will be able to take advantage of opportunities while avoiding threats

Prentice Hall, Inc. © Resource-Based Approach to Organizational Analysis Core and Distinctive Competencies Resources – physical, human and organizational Capabilities – functional business processes Competency – integration/coordination of capabilities Core competency – something that the company does well. Distinctive competency – core competency done better than competitors

Prentice Hall, Inc. © Core and Distinctive Competencies VRIO Framework – (Barney) for defining Distinctive Competencies –Value – To the Customer/Competitive Adv. –Rareness – Do others do it? –Imitability – Costly to imitate? –Organization – Can firm exploit the resource?

Prentice Hall, Inc. © Resource-Based Approach to Organizational Analysis 5-Step Resource Approach to Strategy Analysis – (Grant) 1.Identify and classify resources 2.Combine strengths into capabilities 3.Appraise profit potential of capabilities 4.Select strategy that best exploits strengths 5.Identify resource gaps invest in weaknesses

Prentice Hall, Inc. © Sustainability of Advantage Sustainability of an Advantage Durability – Rate at which a firm’s underlying resources and capabilities depreciate or become obsolete Imitability – Rate at which a firm’s underlying resources and capabilities can be duplicated by others –Transparency –Transferability –Replicability Explicit versus Tacit Knowledge

Prentice Hall, Inc. © Continuum of Sustainability

Prentice Hall, Inc. © Business Models Business Model Company’s method for making money in the current business environment. Who it serves? What it provides? How it makes money? How it differentiates itself? How it provides products/services?

Prentice Hall, Inc. © Business Models Types of Models -- –Customer Solutions Model – Systems Integrator –Profit Pyramid Model – Entry Level to High Profit –Multi-Component System/Installed Base Model –Advertising Model – Internet Crash –Switchboard Model – Many Buyers & Sellers –Time Model – 1 st to Market –Efficiency Model – Mature Product/Low Price –Blockbuster Model – Proprietary Product –Profit Multiplier Model – Multi-Product/Spinoff –Entrepreneurial Model – Specialized Niche –De Facto Standard Model – Free Product

Prentice Hall, Inc. © Value-Chain Analysis Value Chain Linked set of value-creating activities beginning with basic raw material and ending with distributors getting final goods into hands of customers

Prentice Hall, Inc. © Value-Chain Analysis Typical Value Chain for a Manufactured Product “Center of Gravity” (Distinctive/Core Competency)

Prentice Hall, Inc. © Corporate Value-Chain Analysis Corporate Value Chain Analysis 1.Examine each product line’s value chain in terms of activities involved. 2.Examine the linkages within each product’s value chain. 3.Examine the potential synergies among the value chains of different product lines.

Prentice Hall, Inc. © Corporation’s Value Chain

Prentice Hall, Inc. © Scanning Functional Resources & Capabilities Basic Organizational Structures -- –Simple structure – few products/small firm –Functional structure – functional specialists –Divisional structure – many product lines –Strategic business units (SBU’s) –Conglomerate structure (Holding Co.)

Strategic business units (SBU’s) 1.a unique mission. 2.identifiable competitors 3.an external market focus 4.control of it’s business functions Prentice Hall, Inc. © Scanning Functional Resources & Capabilities

Prentice Hall, Inc. © Basic Organizational Structures

Prentice Hall, Inc. © Corporate Culture Collection of beliefs, expectations, and values learned and shared by a corporation’s members and transmitted from one generation of employees to another Attributes Intensity – degree of acceptance Integration – shared values

Functions of Corporate Culture 1.Convey a sense of identity for employees 2.Generate employee commitment to the organization 3.Adds to the stability of the organization social system 4.Serves as a frame of reference for employees to make sense of organizational activities and as a guide for behavior Prentice Hall, Inc. © Corporate Culture

Prentice Hall, Inc. © Strategic Marketing Issues –Market Position & Segmentation –Marketing Mix –Product Life Cycle –Brand & Corporate Reputation

ProductPlacePromotionPrice QualityChannelsAdvertisingList FeaturesCoveragePersonal SellingDiscount OptionsLocationsSales promotionAllowances StyleInventoryPublicityPayment Period Brand NameTransportationCredit Terms Packaging Sizes Services Waranties Prentice Hall, Inc. © Strategic Marketing Issues Marketing Mix Variables

Prentice Hall, Inc. © Product Life Cycle

1Coca-Cola 2Microsoft 3IBM 4GE 5Intel 6Disney 7McDonalds 8Nokia 9Toyota 10Marlboro Prentice Hall, Inc. © Strategic Marketing Issues Top 10 Brands for 2004

Prentice Hall, Inc. © Strategic Financial Issues –Financial leverage Ratio of total debt to total assets –Capital budgeting Analysis and ranking of investments in fixed assets based on a hurdle rate

Prentice Hall, Inc. © Strategic Research & Development Issues –R&D Intensity Spending as a % of sales –Technological Competence Ability to develop and innovate –Technology Transfer Ability to move products from research to the market

R & D Mix Basic theoretical research leading to patents and publication Product product and packaging development focused on sales and profit increase Engineering/Process concentrating on manufacturing quality and efficiency Prentice Hall, Inc. © Strategic Research & Development Issues

Prentice Hall, Inc. © Technological Discontinuity

Manufacturing Systems –Intermittent (Job Shop) High variable costs Profit/unit is low above break-even Can operate at relatively low production rates –Continuous (Automated/Assembly Lines) High fixed cost/Small labor force Breakeven is relatively high Profitability is at higher levels of production Prentice Hall, Inc. © Strategic Operations Issues

Experience Curve Production costs decline by 20 – 30% every time production doubles. Prentice Hall, Inc. © Strategic Operations Issues

Prentice Hall, Inc. © Strategic Human Resource Management Issues HRM – –Increasing use of teams –Union relations –Temporary workers –Quality of work life –Human diversity

Information Systems Impact of Corporate Performance 1.Automation of back office systems (1970’s - Mainframes) 2.Automate the individual’s tasks (1980’s - PC) 3.Enhance key business functions (1990’s - Business Process Software) 4.Create a competitive advantage (2000’s – Internet/Intranet/Extranets) Prentice Hall, Inc. © Strategic Information Systems Issues

Prentice Hall, Inc. © Internal Factor Analysis Summary Table

Prentice Hall, Inc. © STRATEGIC MANAGEMENT & BUSINESS POLICY 10 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 5 Internal Scanning: Organizational Analysis