Internal Scanning Organizational Analysis Chapter 5 Learning Objectives

Internal Scanning: Organizational Analysis Chapter 5

Learning Objectives ª Apply the resource-based view of the firm to determine core and distinctive competencies ª Use the VRIO framework and the value chain to assess an organization’s competitive advantage and how it can be sustained ª Understand a company’s business model and how it could be imitated Copyright © 2015 Pearson Education, Inc. 5 -2

Learning Objectives ª Assess a company’s corporate culture and how it might affect a proposed strategy ª Scan functional resources to determine their fit with a firm’s strategy ª Construct an IFAS Table that summarizes internal factors Copyright © 2015 Pearson Education, Inc. 5 -3

A Resource-Based Approach to Organizational Analysis ªOrganizational analysis 9 concerned with identifying and developing an organization’s resources and competencies Copyright © 2015 Pearson Education, Inc. 5 -4

Core and Distinctive Competencies ªResources 9 an organization’s assets and are thus the basic building blocks of the organization 9 tangible, intangible ªCapabilities 9 refer to a corporation’s ability to exploit its resources 9 consist of business processes and routines that manage the interaction among resources to turn inputs into outputs Copyright © 2015 Pearson Education, Inc. 5 -5

Core and Distinctive Competencies ªCore competency 9 a collection of competencies that cross divisional boundaries, is wide-spread throughout the corporation and is something the corporation does exceedingly well ªDistinctive competency 9 core competencies that are superior to those of the competition Copyright © 2015 Pearson Education, Inc. 5 -6

VRIO Framework of Analysis 1. Value: Does it provide customer value and competitive advantage? 2. Rareness: Do no other competitors possess it? 3. Imitability: Is it costly for others to imitate? 4. Organization: Is the firm organized to exploit the resource? Copyright © 2015 Pearson Education, Inc. 5 -7

Using Resources to Gain Competitive Advantage 1. 2. 3. 4. 5. Identify and classify resources in terms of strengths and weaknesses Combine the firm’s strengths into specific capabilities and core competencies Appraise profit potential—Are there any distinctive competencies? Select the strategy that best exploits the firm’s capabilities and competencies relative to external opportunities Identify resource gaps and invest in upgrading weaknesses Copyright © 2015 Pearson Education, Inc. 5 -8

Access to a Distinctive Competency ªAsset endowment ªAcquired from someone else ªShared with another

Access to a Distinctive Competency ªClusters 9 geographic concentrations of interconnected companies and industries ªAccess to: 9 Employees 9 Suppliers 9 Specialized information 9 Complementary products Copyright © 2015 Pearson Education, Inc. 5 -10

Determining the Sustainability of an Advantage ªDurability 9 the rate at which a firm’s underlying resources, capabilities or core competencies depreciate or become obsolete ªImitability 9 the rate at which a firm’s underlying resources, capabilities or core competencies can be duplicated by others Copyright © 2015 Pearson Education, Inc. 5 -11

Determining the Sustainability of an Advantage ª Transparency 9 the speed at which other firms under the relationship of resources and capabilities support a successful strategy ª Transferability 9 the ability of competitors to gather the resources and capabilities necessary to support a competitive challenge ª Replicability 9 the ability of competitors to use duplicated resources and capabilities to imitate the other firm’s success Copyright © 2015 Pearson Education, Inc. 5 -12

Determining the Sustainability of an Advantage ªExplicit knowledge 9 knowledge that can be easily articulated and communicated ªTacit knowledge 9 knowledge that is not easily communicated because it is deeply rooted in employee experience or in the company’s culture Copyright © 2015 Pearson Education, Inc. 5 -13

Business Models ªBusiness model 9 a company’s method for making money in the current business environment 9 includes the key structural and operational characteristics of a firm—how it earns revenue and makes a profit Copyright © 2015 Pearson Education, Inc. 5 -14

Business Models A business model is usually composed of five elements: ª Who it serves ª What it provides ª How it makes money ª How it differentiates and sustains competitive advantage ª How it provides its product/service Copyright © 2015 Pearson Education, Inc. 5 -15

Business Models Some of the many possible business models are: ª Customer solutions model ª Profit pyramid model ª Multi-component system/installed model ª Advertising model ª Switchboard model Copyright © 2015 Pearson Education, Inc. 5 -16

Business Models Some other possible business models are: ª Efficiency model ª Blockbuster model ª Profit multiplier model ª Entrepreneurial model ª De Facto industry standard model Copyright © 2015 Pearson Education, Inc. 5 -17

Value-Chain Analysis ªValue chain 9 a linked set of value-creating activities that begin with basic raw materials coming from suppliers, moving on to a series of value-added activities involved in producing and marketing a product or service and ending with distributors getting the final goods into the hands of the ultimate consumer Figure 5 -1 Copyright © 2015 Pearson Education, Inc. 5 -18

Industry Value Chain Analysis Value chain segments include: ªUpstream ªDownstream ªCenter of gravity 9 the part of the chain that is most important to the company and the point where its core competencies lie Copyright © 2015 Pearson Education, Inc. 5 -19

Corporate Value Chain Analysis Primary activities ª ª ª Inbound logistics Operations Outbound logistics Support activities ªProcurement ªTechnology development ªHuman resource management ªFirm infrastructure Copyright © 2015 Pearson Education, Inc. 5 -20

A Corporation’s Value Chain Copyright © 2015 Pearson Education, Inc. 5 -21

Corporate Value Chain Analysis 1. 2. 3. Examine each product line’s value chain in terms of the various activities involved in producing the product or service Examine the linkages within each product line’s value chain Examine the potential synergies among the value chains of different product lines or business units Copyright © 2015 Pearson Education, Inc. 5 -22

Basic Organizational Structures Simple Functional Strategic Business Units Divisional Conglomerate Copyright © 2015 Pearson

Basic Organizational Structures Copyright © 2015 Pearson Education, Inc. 5 -24

Corporate Culture: The Company Way ªCorporate culture 9 the collection of beliefs, expectations and values learned and shared by a corporation’s members and transmitted from one generation of employees to another. Copyright © 2015 Pearson Education, Inc. 5 -25

Functions of Corporate Culture 1. Conveys a sense of identity for employees 2. Generates employee commitment 3. Adds to the stability of the organization as a 4. social system Serves as a frame of reference for employees to understand organizational activities and as a guide for behavior Copyright © 2015 Pearson Education, Inc. 5 -26

Corporate Culture: The Company Way ªCultural intensity 9 the degree of which members of a unit accept the norms, values and other cultural content associated with the unit 9 shows the culture’s depth ªCultural integration 9 the extent of which units throughout the organization share a common culture 9 culture’s breadth Copyright © 2015 Pearson Education, Inc. 5 -27

Strategic Marketing Issues ªMarket position 9 refers to the selection of specific areas for marketing concentration and can be expressed in terms of market, product and geographic locations ªMarketing mix 9 the particular combination of key variables under a corporation’s control that can be used to affect demand to gain competitive advantage Copyright © 2015 Pearson Education, Inc. 5 -28

Marketing Mix Variables Copyright © 2015 Pearson Education, Inc. 5 -29

Product Life Cycle ª Product life cycle 9 a graph showing time plotted against the sales of a product as it moves from introduction through growth and maturity to decline Copyright © 2015 Pearson Education, Inc. 5 -30

Brand Corporate Reputation ªBrand 9 a name given to a company’s product which identifies that item in the mind of the consumer ªCorporate brand 9 a type of brand in which the company’s name serves as the brand Copyright © 2015 Pearson Education, Inc. 5 -31

Brand Corporate Reputation ªCorporate reputation 9 a widely held perception of a company by the general public Consists of two attributes: ª Stakeholders’ perceptions of quality ª Corporation’s prominence in the minds of stakeholders Copyright © 2015 Pearson Education, Inc. 5 -32

Strategic Financial Issues ªFinancial leverage 9 ratio of total debt to total assets 9 describes how debt is used to increase earnings available to common shareholders ªCapital budgeting 9 the analyzing and ranking of possible investments in fixed assets in terms of additional outlays and receipts that will result from each investment 9 Hurdle point Copyright © 2015 Pearson Education, Inc. 5 -33

Strategic Research and Development Issues ªR&D intensity 9 spending on R&D as a percentage of sales revenue 9 principal means of gaining market share in global competition ªTechnology transfer 9 the process of taking new technology from the laboratory to the marketplace Copyright © 2015 Pearson Education, Inc. 5 -34

R&D Mix ª Basic R&D 9 focuses on theoretical problems ª Product R&D 9 concentrates on marketing and is concerned with product or product packaging improvements ª Engineering R&D 9 concerned with engineering, concentrating on quality control and the development of design specifications and improved production equipment Copyright © 2015 Pearson Education, Inc. 5 -35

Impact of Technological Discontinuity on Strategy ªTechnology discontinuity 9 when a new technology cannot be used to enhance current technology, but substitutes for the technology to yield better performance Copyright © 2015 Pearson Education, Inc. 5 -36

Strategic Operations Issues ªIntermittent systems 9 item is normally processed sequentially, but the work and sequence of the process vary ªContinuous systems 9 work is laid out in lines on which products can be continuously assembled or processed ªOperating leverage 9 impact of a specific change in sales volume on net operation income Copyright © 2015 Pearson Education, Inc. 5 -37

Experience Curve ªExperience curve 9 unit production costs decline by some fixed percentage each time the total accumulated volume of production units doubles Copyright © 2015 Pearson Education, Inc. 5 -38

Increasing Use of Teams ª Autonomous (self-managed) 9 a group of people work together without a supervisor to plan, coordinate and evaluate their work ª Cross-functional work teams 9 various disciplines are involved in a project from the beginning ª Concurrent engineering 9 specialists work side-by-side and compare notes constantly to design cost-effective products with features customers want Copyright © 2015 Pearson Education, Inc. 5 -39

Increasing Use of Teams ªVirtual teams 9 groups of geographically and/or organizationally dispersed co-workers that are assembled using a combination of telecommunications and information technologies to accomplish an organizational task Copyright © 2015 Pearson Education, Inc. 5 -40

Trends Driving Virtual Teams ªFlatter organizational structures ªTurbulent environments ªIncreased employee autonomy ªHigher knowledge requirements ªIncreased globalization Copyright © 2015 Pearson Education, Inc. 5 -41

Quality of Work Life and Human Diversity Quality of work life includes improvements in: ª Introducing participative problem solving ª Restructuring work ª Introducing innovative reward systems ª Improving the work environment Copyright © 2015 Pearson Education, Inc. 5 -42

Quality of Work Life and Human Diversity ªHuman diversity 9 the mix in the workplace of people from different races, cultures and backgrounds 9 provides a competitive advantage Copyright © 2015 Pearson Education, Inc. 5 -43

Strategic Information Systems/Technology Issues Information systems/technology contributions to performance: ª Automation of back office processes ª Automation of individual tasks ª Enhancement of key business functions ª Development of a competitive advantage Copyright © 2015 Pearson Education, Inc. 5 -44

Strategic Information Systems/Technology Issues ªWeb 2. 0 9 the use of wikis, blogs, RSS (Really Simple Syndication), social networks (e. g. , Linked. In and Facebook), podcasts and mash-ups through company Web sites to forge tighter links with customers and suppliers and to engage employees more successfully Copyright © 2015 Pearson Education, Inc. 5 -45

Strategic Information Systems/Technology Issues ªSupply chain management 9 the forming of networks for sourcing raw materials, manufacturing products or creating services, storing and distributing the goods and delivering them to customers and consumers Copyright © 2015 Pearson Education, Inc. 5 -46