Strategic Management Chapter 4 “Internal Analysis”

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

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

3. 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

4. Comparison to Companies Organizational Resources Info On Resources 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

5. Comparisons to Companies Organizational Capabilities Info on Capabilities 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

6. 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

7. Comparison to Companies Organizational Core Competencies Info on Core Competencies 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

8. 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

9. 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

10. 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.

11. Value Chain Analysis How to Do an Internal 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

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

13. 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

14. 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

15. 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

16. 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

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

18. 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

19. 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”

20. 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