Internal Scanning: Organizational Analysis

Scanning external environment- not enough

Identify internal strategic factors Internal scanning is therefore

organizational scanning

What is a resource?

An asset, competency, process, skill or knowledge controlled by the organization

A strength, if it provides the firm a competitive advantage

VRIO framework

Barney proposes 4 questions to evaluate firm’s key resources:

Value- does it provide competitive advantage?

Rareness: do competitors possess it? Imitability: is it costly for others to

imitate? Organization: is the firm organized to

exploit the resource?

Using resources to gain competitive advantage

5-step resource based approach to strategy analysis, proposed by Grant:

Identify/classify firm’s resources in terms of strengths/weaknesses

Combine firm’s strength into corporate capabilities/core competencies- if these are superior to competitors they become distinctive competencies

Using resources to gain competitive advantage

Evaluate the profit potential of these resources & capabilities

Select the strategy that best exploits the firms resources/capabilities

Identify resource gaps & invest in upgrading weaknesses

How to sustain firm’s distinctive competencies

2 characteristics determine the sustainability of a firm's distinctive competencies:

Durability- rate at which a firm’s underlying resources & capabilities become obsolete, and

Imitability- rate at which a firm’s underlying resources & capabilities can be duplicated by others

A core competency can be easily imitated to the extent that it is:

Transparent Transferable and Replicable

Value Chain Analysis

A linked set of value creating activities starting with raw material coming from suppliers, moving on to a series of value added activities involved in producing & marketing a product/service, & ending with the ultimate consumer getting the final product from the distributors

Value Chain Analysis

Very few corporations include a product’s entire value chain

In 1920-30s, Ford Motor Company had its own iron mines, ore-carrying ships, railway line, plant, dealers & trucks for delivery of cars to dealers

Industry Value Chain Analysis

Value chain of most industries- split in 2 segments: upstream & downstream halves

Petroleum industry: Upstream – oil exploration, drilling,

moving crude oil to refinery Downstream – oil refining, transporting,

marketing

Industry Value Chain Analysis

ONGC- expertise in upstream activities- exploration etc

Indian Oil Corporation- expertise in downstream activities- marketing, retailing etc

An industry can be analyzed in terms of profit margin available at any one point along the value chain

Industry Value Chain Analysis

Even if a firm operates up & down the entire chain, it usually has an area of primary expertise where its primary activities lie

This is firm’s centre of gravity- the point where its greatest expertise & capabilities lie- its core competencies

Corporate Value Chain Analysis

Each firm has its own internal value chain of activities

Porter proposes that a manufacturing firm’s primary activities begin with inbound logistics (raw material handling & warehousing), go through an operations process in which a product is manufactured, continue to outbound logistics (warehousing & distribution), marketing & sales & finally to service (installation, repair, spares)

Corporate Value Chain Analysis

Various support activities such as: procurement, R & D, HRM & infrastructure (accounting, finance, strategic planning),

ensure that the primary value-chain activities operate effectively & efficiently

Each of a firm’s product lines has its own distinctive value chain

Scanning Functional Resources

Apart from the financial, physical & human assets, functional resources also include :

Ability to formulate/implement the necessary functional objectives/strategies/policies

Knowledge of analytical concepts Marketing, Finance, R & D, Operations,

Human resources, Information systems Corporate Culture

Basic Organizational Structures

basic 5-types of structure: Simple structure- no

functional/product categories, suitable for a small, entrepreneur dominated firm with 1 or 2 product lines that operate in a reasonably small easily identifiable market niche, employees tend to be generalists & jack of all trades

Basic Organizational Structures

Functional structure- suitable for medium sized firm with several related product lines in one industry, employees tend to be specialists

Divisional structure- suitable for large firms with many product lines in several related industries-ITC Limited

Basic Organizational Structures Strategic Business Units (SBUs)

Divisions/ Groups of divisions Composed of independent product

market segments Given primary responsibility & authority

for the management of their own functional areas

Basic Organizational Structures Strategic Business Units (SBUs)

May be of any size or level, but must have: a unique mission, identifiable competitors, an external market focus & control of its business functions- Asian Paints

Basic Organizational Structures Conglomerate Structure

Suitable for a large corporation with many product lines in several unrelated industries

Also known as Holding Company Legally independent firms (subsidiaries)

operating under one company but controlled through subsidiaries’ board of directors

Unrelated nature of subsidiaries prevents synergy among them

Strategic Audit

A checklist for organizational analysis Helps to ascertain a firm’s strengths &

weaknesses Examines resources in terms of functional

areas of marketing, finance, R & D, operations, human resources & information systems

Also examines corporate structure, culture & resources

Synthesis of Internal Factors

IFAS- Internal Factor Analysis Summary Organize the internal factors into

strengths & weaknesses How well is the firm responding to these

factors- use VRIO framework IFAS table constructed in the same way

as EFAS table