Strategic Management Chapter 4 “Internal Analysis” Diana Perkins Ashley Gonzenbach Brian Byrne Amanda Long

What Will Be Covered What is an internal analysis How to do an internal analysis Why an internal analysis is important

What an Internal Analysis Is The process of evaluating an organization’s resources and capabilities. Provides information on organization’s assets, skills, and work activities. What is good? What is lacking? Most Important- Evaluating resources, capabilities, and core competencies

Organizational Resources Info On Resources Comparison to Companies Assets for doing business Inputs needed to perform work What it has Financial, physical, human, intangible, structural, cultural Important in producing capabilities and core competencies Can lead to a competitive advantage Kraft- size, people, knowledge of the industry, companies within Cirque du Soleil- performers, producers, sets Apple- human capital, market share, partners, knowlege

Organizational Capabilities Info on Capabilities Comparisons to Companies Various routines and processes that transform inputs into outputs Organizational routines and processes- regular, predictable, sequential work activities done by organizations and its members Interaction between people and resources Some never get the hang of it Capabilities change Dynamic Capabilities- ability to build and integrate capabilities to address rapidly changing environments Kraft- Produce food, markets food, deliver products Cirque du Soleil- Best performances and venues Apple- Provide leading technology to the masses

Distinctive Organizational Capabilities Special unique capabilities that distinguish an organization from its competitors Three Characteristics: Contributes to superior customer value and offers real benefits to customers Difficult for competitors to imitate The capability should be usable in a variety of ways

Organizational Core Competencies Info on Core Competencies Comparison to Companies Any major value-creating capabilities that are essential to business Capabilities are the building blocks of core competencies Any core competencies are created out of routines, processes, knowledge, work activities (resources & capabilities) Kraft-largest confectionery, food, and beverage corporation headquartered in the US. Markets brands in more than 155 countries. Cirque du Soleil- The performance itself Apple- Customer service, Apple experience

In Simpler Words Internal Analysis assesses: What an organization has/doesn’t have What an organization can/cannot do Strengths- resources an organization possesses & capabilities it has developed Weaknesses- resources and capabilities the organization lacks or are deficient

Gaining a Competitive Advantage Resources, capabilities, and core competencies all link together Can’t have one without the other How strengths and weaknesses are managed changes an organization Members at all levels deal with these strategic decisions

How to Do an Internal Analysis Three approaches to Internal Analysis Value Chain Analysis Views the organization’s work Internal Audit Used to examine and asses all internal areas of an organization. Capabilities Assessment Profile Develops a profile on the organization’s capabilities.

How to Do an Internal Analysis Value Chain Analysis A systematic way of examining all the organization’s functional activities and how they create customer value. Comes from 3 categories Unique product Low prices Meets the needs of a specific group of customers quickly and efficient

How to Do an Internal Analysis Value Chain Analysis Primary activities Activities that create customer value Support activities Support the primary activities

How to Do an Internal Analysis Internal Audit A thorough assessment of an organization’s internal areas. Six organizational functional areas: Production-operations Marketing Research and development Financial-accounting Management Information systems

How to Do an Internal Analysis Capabilities Assessment Profile - evaluation of an organization’s capabilities Two Phases 1. Identifying distinctive capabilities (5 steps) 2. Developing and leveraging distinctive capabilities

Phase 1: Identifying distinctive capabilities How to Do an Internal Analysis Phase 1: Identifying distinctive capabilities 1. Prepare current product-market profile 2. Identify sources of competitive advantage and disadvantage in the main product –market segments 3. Describe all the organizational capabilities and competencies 4. Sort the core capabilities and competencies according to strategic importance 5. Identify and agree on the key capabilities and competencies

How to Do an Internal Analysis Phase 2: Determining Strengths and Weaknesses Are organizational resources and capabilities strengths or weaknesses? Criteria to measure against - Past performance trends - Specific goals or targets - Comparison against competitors - Personal opinions of strategic decision makers or consultants

Why an Internal Analysis is Important Two Reasons: 1. Identifies an organization’s strengths and weaknesses 2. Needed for making good strategic decisions

Why an Internal Analysis is Important Identifies Strengths and Weaknesses Outcome from Internal Analysis is information about resources, skills, work routines, and processes What strengths and weaknesses do we have because of our specific resources and capabilities? -Kraft Foods go Global No Internal Analysis = No critical strategic information

Why an Internal Analysis is Important Used to Make Good Strategic Decisions Use this critical strategic information for decision making Determine current competitive advantages, discover potential advantages, and what is preventing competitive advantages from being developed Provides basis for which strategic actions are necessary for sustainable competitive advantage - Kraft Foods invests in “Power Brands”

Three Takeaways What an Internal Analysis is - Process of evaluating an organization’s resources and capabilities - Resources are inputs and capabilities transform inputs into outputs How to Do an Internal Analysis - Value chain—examines functional activities that create customer value - Internal Audit—assessment of internal functional areas - Capabilities Assessment Profile—evaluates organization’s capabilities Why an Internal Analysis is Important - Identifies strengths and weaknesses - Needed for making good strategic decisions