Internal Analysis

1
Internal Analysis
Session
2
Company Situation AnalysisThe Key Questions

• 1. How well is the companyspresent strategy
  working?
• 2. What are the companys resourcestrengths and
  weaknesses and itsexternal opportunities and
  threats?
• 3. Are the companys prices andcosts
  competitive?
• 4. Is the company competitively strongeror
  weaker than key rivals?
• 5. What strategic issues meritfront-burner
  managerial attention?

3
Identifying the Components of a
Single-Business Companys Strategy
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Identifying Resource Strengthsand Competitive
Capabilities

• A strength is something a firm does well or an
  attribute that enhances its competitiveness
• Valuable competencies or know-how
• Valuable physical assets
• Valuable human assets
• Valuable organizational assets
• Valuable intangible assets
• Important competitive capabilities
• An attribute that places a company in a position
  of market advantage
• Alliances or cooperative ventures with partners

Resource strengths and competitivecapabilities
are competitive assets!
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Competencies vs. Core Competencies vs.
Distinctive Competencies

• A competence is the product of organizational
  learning and experience and represents real
  proficiency in performing an internal activity
• A core competence is a well-performedinternal
  activity central (not peripheral or
  incidental)to a companys competitiveness and
  profitability
• A distinctive competence is a competitively
  valuable activity a company performs better than
  its rivals

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Company Competenciesand Capabilities

• Stem from skills, expertise, and experience
  usually representing an
• Accumulation of learning over time and
• Gradual buildup of real proficiency in
  performing an activity
• Involve deliberate efforts to develop the ability
  to do something, often entailing
• Selecting people with requisite knowledge and
  skills
• Upgrading or expanding individual abilities
• Molding work products of individuals into a
  cooperative effort to create organizational
  ability
• A conscious effort to create intellectual capital

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Core Competencies -- AValuable Company
Resource

• A competence becomes a core competence when the
  well-performed activity is central to a companys
  competitiveness and profitability
• Often, a core competence results from
  collaboration among different parts of a company
• Typically, core competencies reside in a
  companys people, not in assets on a balance
  sheet
• A core competence gives a company apotentially
  valuable competitive capabilityand represents a
  definite competitive asset

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Examples Core Competencies

• Expertise in integrating multiple technologiesto
  create families of new products
• Know-how in creating operating systemsfor cost
  efficient supply chain management
• Speeding new/next-generation products to market
• Better after-sale service capability
• Skills in manufacturing a high quality product
• System to fill customer orders accurately and
  swiftly

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Distinctive Competence -- ACompetitively
Superior Resource

• A distinctive competence is a competitively
  significant activity that a company performs
  better than its competitors
• A distinctive competence
• Represents a competitively valuablecapability
  rivals do not have
• Presents attractive potential for being a
  cornerstone of strategy
• Can provide a competitive edge in the marketplace
  because it represents a competitively superior
  resource strength

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Examples Distinctive Competencies

• Sharp Corporation
• Expertise in flat-panel display technology
• Toyota and Honda
• Low-cost, high-quality manufacturingcapability
  and short design-to-market cycles
• Intel
• Ability to design and manufactureever more
  powerful microprocessors for PCs
• Wal-Mart
• Low-cost distribution and use ofstate-of-the-art
  retail technology

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Determining the CompetitiveValue of a
Company Resource

• To qualify as competitively valuable or to be the
  basis for sustainable competitive advantage, a
  resource must pass 4 tests
• 1. Is the resource hard to copy?
• 2. Does the resource have staying power is it
  durable?
• 3. Is the resource really competitively
  superior?
• 4. Can the resource be trumped by the different
  capabilities of rivals?

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Identifying Resource Weaknessesand
Competitive Deficiencies

• A weakness is something a firm lacks, does
  poorly, or a condition placing it at a
  disadvantage
• Resource weaknesses relate to
• Inferior or unproven skills,expertise, or
  intellectual capital
• Lack of important physical,organizational, or
  intangible assets
• Missing capabilities in key areas

Resource weaknesses and deficienciesare
competitive liabilities!
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Are the CompanysPrices and Costs
Competitive?

• Assessing whether a firms costs are competitive
  with those of rivals is a crucial part of company
  analysis
• Key analytical tools
• Value chain analysis
• Benchmarking

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The Concept of aCompany Value Chain

• A companys business consists of all activities
  undertaken in designing, producing, marketing,
  delivering, and supporting its product or service
  
• A companys value chain consists of a linked set
  of value-creating activities performed internally
  
• The value chain contains two types of activities
• Primary activities where most ofthe value for
  customers is created
• Support activities facilitateperformance of
  the primary activities

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RepresentativeCompany Value Chain
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Characteristics of Value Chain Analysis

• Combined costs of all activities in a companys
  value chain define the companys internal cost
  structure
• Compares a firms costs activityby activity
  against costs of key rivals
• From raw materials purchase to
• Price paid by ultimate customer
• Pinpoints which internal activities are asource
  of cost advantage or disadvantage

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Why Do ValueChains of Rivals Differ?

• Several factors can cause differencesin value
  chains of rival companies
• Internal operations
• Strategy
• Approaches used in execution of the strategy
• Underlying economics of the activities
• Differences complicate task of assessingrivals
  relative cost positions

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The Value Chain Systemfor an Entire
Industry

• Assessing a companys cost competitiveness
  involves comparing costs all along the industrys
  value chain
• Suppliers value chains are relevant because
• Costs, performance features, and quality of
  inputsprovided by suppliers influence a firms
  own costsand product performance
• Forward channel allies value chains are relevant
  because
• Costs and margins are part of price paidby
  ultimate end-user
• Activities performed affect end-user satisfaction

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Example Value Chain Activities
Pulp Paper Industry

• Timber farming
• Logging
• Pulp mills
• Papermaking
• Distribution

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Example Value Chain Activities
Home Appliance Industry

• Parts and components manufacture
• Assembly
• Wholesale distribution
• Retail sales

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Example Value Chain Activities
Soft Drink Industry

• Processing of basic ingredients
• Syrup manufacture
• Bottling and can filling
• Wholesale distribution
• Advertising
• Retailing

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Example Value Chain Activities
Software Computer Industry

• Programming
• Disk loading
• Marketing
• Distribution

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Benchmarking Costs ofKey Value Chain
Activities

• Focuses on cross-company comparisons of how
  certain activities are performed and costs
  associated with these activities
• Purchase of materials
• Payment of suppliers
• Management of inventories
• Getting new products to market
• Performance of quality control
• Filling and shipping of customer orders
• Training of employees
• Processing of payrolls

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Objectives of Benchmarking

• Identify best practices in performing an activity
• Understand the best practices in performingan
  activity learn what is the best wayto do a
  particular activity from thosedemonstrating they
  are best-in-world
• Learn how other firms achieve lower costs
• Take action to improve companys cost
  competitiveness

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Case Discussion

• How well is the companys present strategy
  working?
• Apple has only 3 of global PC market share. Is
  it okay?
• Why do Apple succeed in MP3 market but not PC
  market?
• What are major strengths of Apple?
• What are major weaknesses of Apple?
• What strategic issues Apple is facing?
• What is your recommendation to Apples MP3
  business?
• What is your recommendation to Apples PC
  business?

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Assignment

• Read Thompson Textbook
• Perform Internal Analysis for Travel Magazine
  industry
• Resource-based approach
• Value chain approach
• Benchmarking approach
• Conclude into Strengths and Weaknesses
• Submit report next week (Strengths Weaknesses)
• Prepare 10 minutes presentation (to be selected
  randomly)