Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 1 Internal Scanning: Organizational Analysis

تحديد مجموعات التخطيط الاستراتيجي يتم تسمية مؤسسة للتخطيط الاستراتيجي مع تحديد اسماء اعضاء فرق العمل في كل مجموعة. يجب ان تكون مؤسسة حقيقية من مؤسسات الطلبة. Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 2

Homework CASE 11: McAfee 2005: Anti-virus and Anti-spyware questions: 1.Conduct SWOT analysis. Prepare EFA and IFA Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 3

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 4 A Comprehensive Strategic Management Model Develop Mission statement Establish long term objectives Generate, Evaluate, and select strategies Establish policies and annual objectives Allocate resources Measure and evaluate performance Perform external audit Perform internal audit Feedback Formulation Implementation Evaluation

Prof. Dr. Majed El-Farra 6-5 Situational Analysis SWOT -- –Internal Strengths/Weaknesses –External Opportunities/Threats Chapter 4 Wheelen/Hunger

Prof. Dr. Majed El-Farra 6-6 TOWS Matrix Chapter 4 Wheelen/Hunger

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 7 Resource-Based Approach Internal strategic factors: Scanning and analyzing the external environment for O and T is not enough to provide an organization a competitive advantage. Analysts must also look within the corporation it self to identify 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.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 8 Resource-Based Approach Resource: An asset, competency, process, skill, or knowledge controlled by the corporation.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 9 Evaluating Key Resources VRIO Framework How to identify the key resources? Base on four criteria: 1.Value: Does it provide competitive advantage? 2.Rareness: Do other competitors possess it? 3.Imitability: Is it costly for others to imitate? 4.Organization: Is the firm organized to exploit the resource? If the answer is use to all it is considered distinctive competence.

Core and distinctive competencies Capabilities: organization ability to utilize its resources. Its business process and routine. Competency: cross-functional integration and coordination of capabilities. E.g., new product development. Core-competency: collection of competencies that crosses divisional boundaries. E.g., new product development is a core-competency if it goes beyond one division. Distinctive competencies: when core- competencies are superior to those of the competitions. Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 10

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 11 Keys of Strategic Outsourcing Success 1- Understand the bus core competencies. ‘What it gives competitive Differentiation’ Core comp. Is the integration of technologies, constituent skills and collective learning which makes healthy bus. 2- Mapping out the work of bus. 3- Requires trust between parties 4- Understand the type of work of bus.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 12 Competitive advantage analysis Analyzing competences and core competences: The analysis here determines how resources are deployed Competitive advantage is built on the uniqueness of resources or on the core competences.

Outsourcing Definition One can define Outsourcing Services as a process of purchasing non essential resources (non-core activity) from others through long term contracts instead of being made within the company. To remain competitive, many companies outsource as a way to reduce costs, increase efficiencies, and refocus critical resources. TO focus on operating it in the most optimal way to achieve transformational cost savings (30% - 60%) and transformational revenue growth The term of outsourcing has been created from the words outside – resource-using Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 13

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 14 Strategic Outsourcing for Competitive Advantage Used mainly for downsizing and cost reductions at corporations. Usually corps outsourcing non-essential work, why? To free valuable resources and focus on its areas of competitive advantage. To do this org. must know its core competences.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 15 Why some nations are more competitive than others? M. Porter in his diamond, suggests that there are inherited reasons why some nations are more competitive, and there organizations are as well, than others. Porter believes that national home base of an organization influence the global success of organization.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 16 Porter’s Determinants of National Advantage There are four forces: 1- The conditions of the nation, availability of skills, infrastructure. 2- Home country’s demand for products. 3- The presence or absence of supporting industries. 4- The firm’s strategy, structure, rivalry, establishment process..

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 17 Four Nation’s Distinct Strategies S-O, or maxi-maxi S-T, or maxi-mini W-O, or mini-maxi W-T, or mini-mini

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 18 Resource-Based Approach 5-Step approach to strategy analysis: 1- Identify & classify firm’s resources What are the Strengths & weaknesses 2- Combine firm’s strengths into capabilities Core competencies Distinctive competencies

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 19 Resource-Based Approach 5-Step approach to strategy analysis: 3- Appraise the Profit potential of resources\capabilities. - Identify the competitive advantages. - Sustainable competitive advantage 4- Select strategy Exploits firm’s resources relative to external opportunities 5- Identify resource gaps Invest in upgrading weaknesses

Determining the Sustainability of an Advantage Two characteristics determine the sustainability of a firms’ distinctive competency: durability and limitability. Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 20

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 21 Determining the Sustainability of an Advantage Durability: Rate at which a firm’s underlying\basic resources and capabilities (core competencies) depreciate or become obsolete. E.g., new technology can make the company core competency irrelevant.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 22 Sustainability of an Advantage Imitability: Rate at which a firm’s underlying resources and capabilities (core competencies) can be duplicated by others?. Competitors will do what they can to learn and imitate that set of skills and capabilities.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 23 Core Competencies Imitability of core competencies determined by: 1.Transparency/clearly understood. Gillette’s razor design is very difficult to copy; complicated manufacturing equipment. 2.Transferability. Ability of competitors to gather necessary resources and capabilities to support a competitive challenge. 3.Replicability/ do it exactly by the competitors :imitate other firms’ success.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 24 Core Competencies Is it easy to imitate another company’s core competency? Depends if it comes from: Explicit Knowledge: –Knowledge that can be easily articulated and communicated. Tacit/unexpressed Knowledge: –Knowledge that is not easily communicated because it is deeply rooted in employee experience or in a corporation’s culture.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 25 Resource Sustainability

Business models How firms earn revenue and make profit. This is based on business model used which is usually composed of 5 elements: 1.Who it serves 2.What it provides 3.How it makes money 4.How it differentiates and sustains competitive advantage. 5.How it provides its products. Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 26

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 27 Competitive advantage analysis Steps of analyzing competences: 1- Value chain analysis: describes the activities within and around the organization, and relates them to an analysis of the competitive strength of the organization. 2- the bases of core competences.

Value-Chain Analysis A value chain is a linked set of value - creating that being with basic raw materials coming from suppliers, move on to a series of value-added activities involved in producing and marketing a product or services, and end with distributors getting the final goods into the hands of the ultimate consumer. Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 28

Corporate Value Chain Analysis Each corporation has its own internal value chain of activates. Porter proposes that a manufacturing firms primary activities usually being with inbound logistics (raw materials handling and warehousing), go through an operations process in which a product is manufactured, and continue on to outbound logistics (warehousing and distribution), to marketing and sales, finally to service (installation, repair, and sale of parts) Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 29

Corporate Value Chain Analysis Several support activities, such as (purchasing), technology development(R&D), human resources management, and firm infrastructure (accounting, finance, strategic planning), ensure that the primary value-chain activities operate effectively and efficiently, each of a company’s product lines has its own distinctive value chain. Because most corporations make several different products or services. An internal analysis of the firm involves analyzing a series of different value chain. Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 30

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 31 Corporate Value Chain

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 32 Corporate Value Chain Analysis steps: The systematic examination of individual value chain activities can lead to a better understanding of corporation’s strengths and weaknesses. According to Porter, “Differences among competitor value chains are a key source of different value chain” Corporate value-chain analysis involves the following three steps: Examine each product line’s value chain in terms of the various activities involved in producing that product or service. Which activities can be considered strengths (core competencies) or weakness (core deficiencies)? Do any of the strengths provide competitive advantage, and can they thus be labeled distinctive competencies?

Corporate Value Chain Analysis steps: Examine the “linkages” within each product line’s value chain. Linkages are the connections between the way one value activity (for example, marketing) is performed and the cost of performance of another activity (for example, quality control). In seeking ways for corporation to gain competitive advantage in the market place, the same function can be performed in different ways with different results. For example, quality inspection of 100% of output by the workers themselves instead of the usual 10% by quality control inspectors might increase production costs, but that increase could be more than offset by the savings obtained from reducing the number of repair people needed to fix defective products and increasing the amount of salespeople’s time devoted to selling instead of exchanging already-sold but defective products. Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 33

Corporate Value Chain Analysis steps: Examine the synergies among the value chains of different product lines or business units. Each value element, such as advertising and manufacturing, has an inherent economy of scale in which activities are conducted at their lowest possible cost per unit of output. If a particular product is not being produced at a high enough level to reach economies scale in distribution, another product could be used to share the same distribution channel. This is an example of economies of scope, which result when the value chains of two separate products or services share activities, such as the same marketing channels or manufacturing facilities. For example, the cost of joint production of multiple products can be lower than the cost of separate production. Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 34

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 35 Value Chain قدمها مايكل بورتر في كتابة الميزة التنافسية. تقوم على تحليل سلسة الأنشطة التي تؤديها الشركة ومن خلالها يمكن تحديد مصادر الميزة التنافسية للشركة. وتقوم فكرة التحليل على المقارنة مع أكبر المنافسين قسم بوتر الأنشطة إلى مجموعتين: 1- الأنشطة الأولية 2- الأنشطة المساعدة

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 36 Value Chain 1- الأنشطة الأولية: الامدادات الداخلية- العمليات التشغيل والتصنيع- المخرجات من المنتجات- التسويق والمبيعات- الخدمة 2- الأنشطة المساعدة: البنية الأساسية للشركة مثل محاسبة- إدارة الموارد البشرية- التطور التكنولوجي والبحوث- عملية شراء المدخلات

How can value chain analysis help identify a company's strengths and weaknesses? The systematic examination of individual value activities can lead to a better understanding of a corporation's strengths and weaknesses. Its advantage over other methods of analyzing a firm's internal environment is its ability to visualize a company in terms of strings of product value chains. Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 37

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 38 Competitive advantages When competitive advantage is materialized? When a firm earns persistently higher rate of profit over its rivals. Determinants of profit level 1- Value of company products in customers’ eyes. 2- Company production cost.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 39 Competitive advantage It can be created in certain industrial field, through the adoption of low-cost- differentiation strategy.. M. Porter

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 40 Bases of establishing competitive advantages 1- الكفاءة Efficiency: output/input إن إنتاجية الموظف هي أهم مكونات الكفاءة. 2- الجودة: Quality التي تزيد من قيمة المنتج في اعين المستهلكين. 3- التجديد Innovation : أي شىء جديد يتعلق بادارة الشركة ومنتجاتها. 4- الاستجابة لحاجات العميل : وهذا يتطلب القدرة على معرفة حاجات العميل واشباعها بشكل متميز.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 41 What is the success strategy The strategy which enables organizations developing new advantages, or maintaining the existing advantages.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 42 Market segmentation analysis It aims to identify similarities and differences between groups of customers or users. Not all customers are the same. Some criteria for market segmentation: 1.Characteristics of customers (e.g., income, gender), 2. Purchase situation (e.g., behavior, its size, importance), 3.Users needs and preferences for product characteristics (e.g., quality, price, brand).

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 43 Assessing Effectiveness Value added Customer requirements Product traits Service expectations Price sensitivity Degree of Matching Value-added features Product features Service performance communication

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 44 What is efficiency and effectiveness? Management (cont.) elements of definition Efficiency - getting the most output from the least amount of inputs “doing things right” concerned with means Effectiveness - completing activities so that organizational goals are attained “doing the right things” concerned with ends 1-44

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 45 Boston Consulting Group Matrix It portrays differences among divisions in terms of relative market share position and industry growth rate. The matrix allows multidivisional corp. to manage its portfolio of business effectively.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 46 Boston Consulting Group Matrex مصفوفه بوستن Question mark ? النجمة ٍStar الفخ النقدي Cash Trap البقرة النقدية Cash Cow Relative market share الحصة السوقية low high low Industrial Growth Rate معدل نمو الصناعة %

9 -47 Benchmarking.Benchmarking is the search for the best practices among competitors or non-competitors that lead to their superior performance. The benchmarking process typically follows four steps. a.A benchmarking planning team is formed. The team’s initial task is to identify what is to be benchmarked, identify comparative organizations, and determine data collection methods. b.The team collects internal and external data. c.The data is analyzed to identify performance gaps and to determine the cause of the difference. d.An action plan is prepared and implemented.

Steps In Benchmarking Form a benchmarking planning team Prepare and implement action plan Gather internal and external data Analyze data to identify performance gaps Best Practices © Prentice Hall, 9-48

9 -49 Suggestions for improving benchmarking 1.Link benchmarking efforts with strategic objectives. 2.Have the right size team -6-8 persons. 3.Involve those people who will be directly affected by the benchmarking. 4.Focus on specific targeted issues rather than broad. 5.Set realistic timetable.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 50 Goals & Objectives Defined Goals: The desired general ends towards which efforts are directed e.g., expand firm size. Objectives: are specific quantified, e.g., increase sales by 10% each year. “We may derive a number of objectives from a goal”

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 51 Long-Term Objectives Objectives: Specific results an organization seeks to achieve in pursuing its basic mission. Long-term objective: More than 3 years. Objectives should be: challenging, measurable, consistent, reasonable and clear. Ex. Our objective is to achieve 20% return on equity.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 52 Annual Objectives Short-term that the organization must achieve to reach long-term objectives. Objectives Characteristics: Measurable, quantitative, challenging, realistic, consistent and prioritized. Annual objectives are important for strategy implementation, whereas, long-term objectives are important for strategy formulating.

Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 53 Objectives We must avoid generalities e.g.: maximize profits reduce costs become more efficient increase sales

Review How to use the "resource-based" approach in environmental analysis? Is it a tool for internal or external evaluation? How can we benefit from resource-based approach in enhancing the competitive advantages of business? Draw an example in your answer? Prof. Dr. Majed El-FarraChapter 4 Wheelen/Hunger 54