Strategic Management Searching for strengths & weaknesses 1 Session 5 Internal Scanning: Organizational Analysis A search for strengths & weaknesses  ETS Field test signups  Write a S, W, O, of T for Dell 2003 on the board One per student Must be unique from others on the board  Three Approaches to internal scanning: organizational analysis

Strategic ManagementSearching for strengths & weaknesses 2 Industry Competitors Rivalry Among Existing Firms Potential Entrants Suppliers Other Stakeholders Buyers Substitutes Threat of Substitute Products or Services Bargaining Power Of Buyers Threat of New Entrants Relative Power of Unions, Government, Etc. Bargaining Power Of Suppliers Industry Analysis (Porter)

Strategic ManagementSearching for strengths & weaknesses 3 Identifying Opportunities and Threats using Porter’s industry analysis model What opportunities & threats does relative power of Porter’s forces lead to?  Buyers power  Suppliers power  Other stakeholders power  Substitutes—alternative ways to satisfy need  Rivalry among existing firms  Potential new entrants  Opportunities  Threats Wrapping up from last session

Strategic ManagementSearching for strengths & weaknesses 4 Session 5: Internal Scanning: Organizational Analysis A search for strengths & weaknesses  Development of Opportunities and Threats Environmental analysis  Areas of concern  Issues and priorities  O & T Industry analysis (Porter model)  Areas of concern  O & T  Development of Strengths & Weaknesses Competencies and resource-based analysis  S & W Value chain analysis  S & W Scanning internal resources & capabilities  S & W  Analyzing strategic factors  Generating alternative strategies  Selecting & implementing chosen strategy

Strategic ManagementSearching for strengths & weaknesses 5 Competencies—a path to competitive advantage  Core competencies: things the organization can do exceedingly well  Distinctive competencies: core competencies that are superior to the competition  Sustainability of distinctive competencies depends on Durability Imitability: transparency, transferability, and replicability

Strategic ManagementSearching for strengths & weaknesses 6 Resource-based analysis  Identify resources/capabilities in terms of strengths & weaknesses  Identify core competencies, things they can do very well  Identify distinctive competencies, things they do better than competition (competitive edge) Assess sustainability:  durability  imitability (transparency, transferability, replicability) Identify capability/resource gaps  Define strategies  Define plans to address resource/capability gaps Apply the resource-based approach to determine the firm’s competitive advantage. What strengths and weaknesses are revealed by this analysis?

Strategic ManagementSearching for strengths & weaknesses 7 Value chains (external)  Industry value chain (Fig. 4.2)—show activity flow from raw materials to consumer  Corporate value chain—examines How inputs are converted to outputs Processes by which value is added ” Differences among competitor value chains are a key source of competitive advantage.” Porter

Strategic ManagementSearching for strengths & weaknesses 8 Corporate value chain analysis (internal)  Examines internal operations to understand which parts add value Only value-adding parts contribute to above average returns (profits) Seeks to identify multiple means to implement chosen business strategy See Nordstrom’s example

Strategic ManagementSearching for strengths & weaknesses 9 Margin The corporate (internal) value chain Primary Activities Support Activities Procurement Serv- ice Technology Development Human resource management Firm infrastructure Inbound Logistics Opera- tions Out- bound Logistics Market- ing and sales Which cells are strong? Which are weak? Which offer competitive opportunities? Which cells are strong? Which are weak? Which offer competitive opportunities? What issues, strengths, and weaknesses are revealed by this analysis?

Strategic ManagementSearching for strengths & weaknesses 10 Functional strategy  The approach a function takes to support business strategy & achieve objectives  The path chosen to define and assure effectiveness of the function

Strategic ManagementSearching for strengths & weaknesses 11 STRENGTHS – SWEAKNESSES - W OPPORTUNITIES – O SO STRATEGIES WO STRATEGIES THREATS - T ST STRATEGIESWT STRATEGIES Internal External SWOT analysis & Alternative Strategies Word and PowerPoint versions of this form are available on Assignments and Forms web page See description of each cell in H&W Figure 5.2

Strategic ManagementSearching for strengths & weaknesses 12 Assignment for next time: Developing Strategic Alternatives  Study H&W Ch 5, Section 5.4 Business Strategies Readings in Vista on:  Netflix, Southwest Airlines, Dell 2003, Dell 2005, and Dell 2006  Value chain analysis  Illustrate the development of each strategy cell, e.g., SO, WO, ST, WT (Reference H&W, Fig 5.2). (TOWS forms are available from the course web site in Assignments and Forms section.) One entry per strategy cell is sufficient. a. State S and O b. State SO strategy that follows from the S and O c. Include results in a SWOT or TOWS slide  Repeat above steps for WO, ST, and WT. A different firm can be used for each, but be sure to identify the firm.  Submit a paper copy at the beginning of class.  Be prepared to use the value chain model and distinctive competency concepts to justify each strategy presented.

Strategic ManagementSearching for strengths & weaknesses 13 Checklist for stating alternative strategies  Begin with an action verb--which helps us keep an present  future focus  Build on intersecting internal/external forces  Apply learned concepts  Assure strategy has value  Consider if strategy is feasible and realistic  Consider if strategy will give a good return on resources required

Strategic ManagementSearching for strengths & weaknesses 14 Analysis concepts  Strategy: purpose, formulation vs. implementation & elements of each; generic types  Strategic Management: process & sub tasks, strategic decision making, top management’s role  Hierarchy of strategy: corporate, business, functional  Organizational effectiveness: goal, RB, IP, stakeholders  Objectives vs. goals: criteria to distinguish; requirements of objectives  Analyzing external environment: societal & task; how to do it, Porter model,  Analyzing internal environment Resource-based: core & distinctive competencies, elements of sustainability Value chain Scanning internal resources: structure, culture, functional capabilities  Strategic audit (appendix 11C)  SWOT and building a TOWS matrix of alternative strategies  Corporate strategy: directional (growth, stability, retrenchment), portfolio analysis, parenting  Functional strategies: outsourcing, marketing, finance, R&D, operations, HR, IT  3 tests of distinctive competency  Financial performance and condition  Implementing strategy: role of programs, budgets, procedures

Strategic ManagementSearching for strengths & weaknesses 15 Generating strategic alternatives  Analyze your S W O T  To set strategies SO WO ST WT S STRENGTHS W WEAKNESSES O OPPORTU- NITIIES SO STRATEGIES WO STRATEGIES T THREATS ST STRATEGIES WT STRATEGIES H&W Fig. 5.4 describes cell contents