CHAPTER 5 Internal Scanning Organizational Analysis STRATEGIC MANAGEMENT

CHAPTER 5 Internal Scanning: Organizational Analysis STRATEGIC MANAGEMENT & BUSINESS POLICY 10 TH EDITION THOMAS L. WHEELEN Prentice Hall, Inc. © 2006 J. DAVID HUNGER 5 -1

Resource-Based Approach to Organizational Analysis 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 Prentice Hall, Inc. © 2006 5 -2

Resource-Based Approach to Organizational Analysis Core and Distinctive Competencies • Resources – physical, human and organizational • Capabilities – functional business processes • Competency – integration/coordination of capabilities • Core competency – something that the company does well. • Distinctive competency – core competency done better than competitors Prentice Hall, Inc. © 2006 5 -3

Core and Distinctive Competencies VRIO Framework – (Barney) for defining Distinctive Competencies –Value – To the Customer/Competitive Adv. –Rareness – Do others do it? –Imitability – Costly to imitate? –Organization – Can firm exploit the resource? Prentice Hall, Inc. © 2006 5 -4

Resource-Based Approach to Organizational Analysis 5 -Step Resource Approach to Strategy Analysis – (Grant) 1. 2. 3. 4. 5. Identify and classify resources Combine strengths into capabilities Appraise profit potential of capabilities Select strategy that best exploits strengths Identify resource gaps invest in weaknesses Prentice Hall, Inc. © 2006 5 -5

Sustainability of Advantage Sustainability of an Advantage Durability – Rate at which a firm’s underlying resources and capabilities depreciate or become obsolete Imitability – Rate at which a firm’s underlying resources and capabilities can be duplicated by others –Transparency –Transferability –Replicability Explicit versus Tacit Knowledge Prentice Hall, Inc. © 2006 5 -6

Continuum of Sustainability Prentice Hall, Inc. © 2006 5 -7

Business Models Business Model Company’s method for making money in the current business environment. • Who it serves? • What it provides? • How it makes money? • How it differentiates itself? • How it provides products/services? Prentice Hall, Inc. © 2006 5 -8

Business Models Types of Models -–Customer Solutions Model – Systems Integrator –Profit Pyramid Model – Entry Level to High Profit –Multi-Component System/Installed Base Model –Advertising Model – Internet Crash –Switchboard Model – Many Buyers & Sellers –Time Model – 1 st to Market –Efficiency Model – Mature Product/Low Price –Blockbuster Model – Proprietary Product –Profit Multiplier Model – Multi-Product/Spinoff –Entrepreneurial Model – Specialized Niche –De Facto Standard Model – Free Product Prentice Hall, Inc. © 2006 5 -9

Value-Chain Analysis Value Chain Linked set of value-creating activities beginning with basic raw material and ending with distributors getting final goods into hands of customers Prentice Hall, Inc. © 2006 5 -10

Value-Chain Analysis Typical Value Chain for a Manufactured Product “Center of Gravity” (Distinctive/Core Competency) Prentice Hall, Inc. © 2006 5 -11

Corporate Value-Chain Analysis Corporate Value Chain Analysis 1. 2. 3. Examine each product line’s value chain in terms of activities involved. Examine the linkages within each product’s value chain. Examine the potential synergies among the value chains of different product lines. Prentice Hall, Inc. © 2006 5 -12

Corporation’s Value Chain Prentice Hall, Inc. © 2006 5 -13

Scanning Functional Resources & Capabilities Basic Organizational Structures -–Simple structure – few products/small firm –Functional structure – functional specialists –Divisional structure – many product lines –Strategic business units (SBU’s) –Conglomerate structure (Holding Co. ) Prentice Hall, Inc. © 2006 5 -14

Scanning Functional Resources & Capabilities Strategic business units (SBU’s) 1. 2. 3. 4. a unique mission. identifiable competitors an external market focus control of it’s business functions Prentice Hall, Inc. © 2006 5 -15

Basic Organizational Structures Prentice Hall, Inc. © 2006 5 -16

Corporate Culture Collection of beliefs, expectations, and values learned and shared by a corporation’s members and transmitted from one generation of employees to another Attributes • Intensity – degree of acceptance • Integration – shared values Prentice Hall, Inc. © 2006 5 -17

Corporate Culture Functions of Corporate Culture 1. 2. 3. 4. Convey a sense of identity for employees Generate employee commitment to the organization Adds to the stability of the organization social system Serves as a frame of reference for employees to make sense of organizational activities and as a guide for behavior Prentice Hall, Inc. © 2006 5 -18

Strategic Marketing Issues –Market Position & Segmentation –Marketing Mix –Product Life Cycle –Brand & Corporate Reputation Prentice Hall, Inc. © 2006 5 -19

Strategic Marketing Issues Marketing Mix Variables Product Place Promotion Price Quality Channels Advertising List Features Coverage Personal Selling Discount Options Locations Sales promotion Allowances Style Inventory Publicity Payment Period Brand Name Transportation Credit Terms Packaging Sizes Services Waranties Prentice Hall, Inc. © 2006 5 -20

Product Life Cycle Prentice Hall, Inc. © 2006 5 -21

Strategic Marketing Issues Top 10 Brands for 2004 1 Coca-Cola 2 Microsoft 3 IBM 4 GE 5 Intel 6 Disney 7 Mc. Donalds 8 Nokia 9 Toyota 10 Marlboro Prentice Hall, Inc. © 2006 5 -22

Strategic Financial Issues –Financial leverage Ratio of total debt to total assets –Capital budgeting Analysis and ranking of investments in fixed assets based on a hurdle rate Prentice Hall, Inc. © 2006 5 -23

Strategic Research & Development Issues –R&D Intensity Spending as a % of sales –Technological Competence Ability to develop and innovate –Technology Transfer Ability to move products from research to the market Prentice Hall, Inc. © 2006 5 -24

Strategic Research & Development Issues R & D Mix Basic theoretical research leading to patents and publication Product product and packaging development focused on sales and profit increase Engineering/Process concentrating on manufacturing quality and efficiency Prentice Hall, Inc. © 2006 5 -25

Technological Discontinuity Prentice Hall, Inc. © 2006 5 -26

Strategic Operations Issues Manufacturing Systems – Intermittent (Job Shop) • High variable costs • Profit/unit is low above break-even • Can operate at relatively low production rates – Continuous (Automated/Assembly Lines) • High fixed cost/Small labor force • Breakeven is relatively high • Profitability is at higher levels of production Prentice Hall, Inc. © 2006 5 -27

Strategic Operations Issues Experience Curve Production costs decline by 20 – 30% every time production doubles. Prentice Hall, Inc. © 2006 5 -28

Strategic Human Resource Management Issues HRM – –Increasing use of teams –Union relations –Temporary workers –Quality of work life –Human diversity Prentice Hall, Inc. © 2006 5 -29

Strategic Information Systems Issues Information Systems Impact of Corporate Performance 1. Automation of back office systems (1970’s - Mainframes) 2. Automate the individual’s tasks (1980’s - PC) 3. Enhance key business functions (1990’s - Business Process Software) 4. Create a competitive advantage (2000’s – Internet/Intranet/Extranets) Prentice Hall, Inc. © 2006 5 -30

Internal Factor Analysis Summary Table Prentice Hall, Inc. © 2006 5 -31

CHAPTER 5 Internal Scanning: Organizational Analysis STRATEGIC MANAGEMENT & BUSINESS POLICY 10 TH EDITION THOMAS L. WHEELEN Prentice Hall, Inc. © 2006 J. DAVID HUNGER 5 -32