1. Foundations of Strategy PSU MGMT #511
Week # 3 –Internal Analysis
Dave Garten
4/17/2017

2. Internal Analysis – Key Points
Internal analysis is never really just internal
Relative performance
Economic performance ~ competitive advantage
Internal analysis – “S” and “W” in SWOT
Accurate view of oneself is hard…
Underestimate vs. overestimate
Short term bias
4/17/2017
Dave Garten- Business Strategy

3. VRIO “Internal” Analysis
Critical analysis of the value chain
Competitive advantage from where?
Valuable?
Rare?
Costly to imitate?
Exploited by Organization?
Advantage?
Research
Development
Manufacturing
Marketing
Sales/Channel
Service
Sustainable advantage
Temporary advantage
Parity
Disadvantage
Source: derived from Gaining & Sustaining Competitive Advantage, by Jay Barney
4/17/2017
Dave Garten- Business Strategy

4. VRIO – Barney 5.2/5.3 Valuable? Rare? Costly to Imitate? Strength/
Valuable?
Rare?
Costly to Imitate?
Strength/
Weakness
Competitive Implication
Economic Performance 1 N
Dis-advantage
Below normal 2 Y
Strength
Parity
Normal 3
Strength & distinctive competence
Temporary advantage
Above 4
Strength & sustainable distinctive competence
Sustained advantage
4/17/2017
Dave Garten- Business Strategy

5. Dave Garten- Business Strategy
Core Competence
collective learning that coalesce around individuals who coordinate a comprehensive set of diverse skills & integrate multiple streams of know-how
Defined:
What can a company do w/its core competence?
Examples: Canon, HDTV, 3M, Honda
Source: derived from The Core Competence of the Corporation, by C.K. Prahalad and Gary Hammel, HBS, c X
4/17/2017
Dave Garten- Business Strategy

6. Dave Garten- Business Strategy
Core Competence
Distinguish between core capability, core components, core products
To gain competitive advantage, must be distinctive competencies as well…
Outsourcing a core only works for a while – ultimately position/profitability will erode.
Core competency -> a few, perhaps 2-5
Mgmt: SBU vs. core competence
“Benefits of competency, like the benefits of money supply, depend upon their velocity of their circulation.”
-The Core Competence of the Corporation by C.K. Prahald and Gary Hammel, 1990
4/17/2017
Dave Garten- Business Strategy

7. Dave Garten- Business Strategy
3 measures of CC
“provides potential access to a variety of markets”
“makes a significant contribution to the perceived customer benefits of the end product”
“should be difficult for competitors to imitate”
Source: The Core Competence of the Corporation, by C.K. Prahalad and Gary Hammel, HBS, c
4/17/2017
Dave Garten- Business Strategy

8. Dave Garten- Business Strategy
Core Competence
Low
High
Relative Strength
Strategic Importance
Core
Competency
Superfluous
Strengths
Transform Up
Away
Zone of
Irrelevance
Key
Weakness
4/17/2017
Dave Garten- Business Strategy

9. Core Competency and Growth
Step 1
(38%)
Step 2 (26%)
Step 3 (7%)
Diversification (<1%)
Source: Bain, October 2003
4/17/2017
Dave Garten- Business Strategy

10. Ambidextrous qualities
Ambidexterity
“Contextual”
Part of the job Incremental
Distributed
Less defined
More generalists
“Structural”
Separate units/teams More specialists Exploratory
Radical/disruptive
Clearly defined VS
Ambidextrous qualities
Initiative: alert to opportunities beyond 4 walls
Cooperative: seek to combine effort w/others
Brokers: looking to build linkages
Multi-taskers: comfortable wearing multiple hats
4/17/2017
Dave Garten- Business Strategy

11. Dave Garten- Business Strategy
Ambidexterity .
4/17/2017
Dave Garten- Business Strategy

12. Internal Evaluation Tools
Internal Alignment
Low
High
Importance to Strategy
Cultural Compatibility
Risk
4/17/2017
Dave Garten- Business Strategy

13. Internal Evaluation Tools
Internal Alignment
Highest
Over-
investment
Allocation Plans
Resource
Under-
investment
Lowest
Lowest
Highest
Investment Priorities
4/17/2017
Dave Garten- Business Strategy

14. Dave Garten- Business Strategy
Week #3 Case Write-up
Objective: analyze a company’s strengths and weaknesses and how they relate to core competency
Learnings:
The game changes as the industry structure changes. Successful companies must adapt to take advantage of opportunities and mitigate the threats.
Apple’s competencies provide a point of strength for Apple to pursue a consumer brand business.
The changes to the PC industry have a huge affect on the winners and losers.
4/17/2017
Dave Garten- Business Strategy

15. Dave Garten- Business Strategy
Apple
4/17/2017
Dave Garten- Business Strategy

16. Strategy Evaluation Tools
SWOT & Strategy Development
Opportunities (O)
Threats (T)
Strengths (S)
Weaknesses (W)
SO Strategies
ST Strategies
WO Strategies
WT Strategies
Use strengths to take advantage of opportunities
Use strengths to avoid threats
Overcome weaknesses by taking advantage of opportunities
Minimize weaknesses and avoid threats 1. 2. .
Source: Strategic management by Fred R. David
4/17/2017
Dave Garten- Business Strategy