STRATEGIC

MANAGEMENT
LECTURE 5

Dr. Mahmoud El Damaty

Consultant Surgeon
AUC & AASTMT Instructor
Lecture Five
• Internal Environment Analysis

• Reference: Strategic Management and

Business Policy, Thomas L. Wheelan & J.
David Hunger

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Organizational Analysis
• Scanning and analyzing the external environment for opportunities and threats is
not enough to provide an organization a competitive advantage.
• Analysts must also look within the corporation itself to identify internal strategic
factors—critical strengths and weaknesses that are likely to determine whether a
firm will be able to take advantage of opportunities while avoiding threats.
• This internal scanning, often referred to as organizational analysis, is concerned with
identifying and developing an organization’s resources and competencies.

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1) Core And Distinctive
Competencies
Resources are an organization’s assets and are thus the basic building blocks of the
organization. They include:
• Tangible assets, such as its plant, equipment, finances, and location,
• Human assets, in terms of the number of employees, their skills, and motivation,
and
• Intangible assets, such as its technology (patents and copyrights), culture, and
reputation.

Capabilities refer to a corporation’s ability to exploit its resources.

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Using Resources To Gain
Competitive Advantage
Where do these competencies come from? A corporation can gain access to a
distinctive competency in four ways:
• It may be an asset endowment, such as a key patent, coming from the founding of
the company. For example, Xerox grew on the basis of its original copying patent.
• It may be acquired from someone else. For example, Whirlpool bought a worldwide
distribution system when it purchased Philips’s appliance division.
• It may be shared with another business unit or alliance partner. For example, Apple
Computer worked with a design firm to create its personal computers and iPods.
• It may be carefully built and accumulated over time within the company. For
example, Honda carefully extended its expertise in small motor manufacturing from
motorcycles to autos.
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Determining The Sustainability
of An Advantage
• Just because a firm is able to use its resources, capabilities, and competencies to
develop a competitive advantage does not mean it will be able to sustain it.
• Two characteristics determine the sustainability of a firm’s distinctive competencies:
durability and imitability.

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Durability
• It is the rate at which a firm’s underlying resources, capabilities, or core
competencies depreciate or become obsolete.
• New technology can make a company’s core competency obsolete or irrelevant.

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Imitability
• It is the rate at which a firm’s underlying resources, capabilities, or core
competencies can be duplicated by others.
• To the extent that a firm’s distinctive competency gives it competitive advantage in
the marketplace, competitors will do what they can to learn and imitate that set of
skills and capabilities.

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Resource sustainability

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2) Value chain analysis
• A value chain is 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.

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3) Organizational
structure
Although there is an almost infinite variety of structural forms, certain basic types
predominate in modern complex organizations.
• Simple Structure
• Functional Structure
• Divisional Structure

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Main forms of
organizational structure

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Simple Structure
• It has no functional or product categories and is appropriate for a small,
entrepreneur-dominated company with one or two product lines that operates in a
reasonably small, easily identifiable market niche.
• Employees tend to be generalists and jacks of- all-trades.

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Functional Structure
• It is appropriate for a medium-sized firm with several product lines in one industry.
• Employees tend to be specialists in the business functions that are important to that
industry, such as manufacturing, marketing, finance, and human resources.

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Divisional Structure
• It is appropriate for a large corporation with many product lines in several related
industries.
• Employees tend to be functional specialists organized according to product/market
distinctions.
• General Motors, for example, groups its various auto lines into the separate
divisions of Saturn, Chevrolet, Buick, and Cadillac.

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4) Organizational culture
• Corporate culture is the collection of beliefs, expectations, and values learned and
shared by a corporation’s members and transmitted from one generation of
employees to another.
• The corporate culture generally reflects the values of the founder(s) and the mission
of the firm.
• It gives a company a sense of identity: “This is who we are. This is what we do. This
is what we stand for.”

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Functions of
organizational culture
• Conveys a sense of identity for employees.
• Helps generate employee commitment to something greater than themselves.
• Adds to the stability of the organization as a social system.
• Serves as a frame of reference for employees to use to make sense of organizational
activities and to use as a guide for appropriate behavior.

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Values
• Guiding Principles
• Help in establishing Culture
• Part of Preserving the Core
• Core Ideology

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Values Tree

Behavior = Hands

Attitudes = Heart

Values = Head
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Business ethics
• Principles of conduct within organizations that guide decision making and behavior.
• Good Business Ethics are prerequisite for good strategic management.
• Provides basis on which policies can be devised to guide daily behavior and
decisions in the workplace.

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5) Marketing issues
• The marketing manager is a company’s primary link to the customer and the
competition.
• The manager, therefore, must be especially concerned with the market position and
marketing mix of the firm as well as with the overall reputation of the company and
its brands.

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Market Position and Segmentation
• Market position deals with the question, “Who are our customers?” It refers to the
selection of specific areas for marketing concentration and can be expressed in
terms of market, product, and geographic locations.
• Through market research, corporations are able to practice market segmentation
with various products or services so that managers can discover what niches to
seek, which new types of products to develop, and how to ensure that a company’s
many products do not directly compete with one another.

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Marketing mix

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6) Financial issues
• A financial manager must ascertain the best sources of funds, uses of funds, and
control of funds.
• All strategic issues have financial implications. Cash must be raised from internal or
external (local and global) sources and allocated for different uses.
• The flow of funds in the operations of an organization must be monitored.
• To the extent that a corporation is involved in international activities, currency
fluctuations must be dealt with to ensure that profits aren’t wiped out by the rise or
fall of the domestic currency versus the dollar, yen, euro, or other currencies.

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7) Human resources issues
• The primary task of the manager of human resources is to improve the match
between individuals and jobs.
• A good HRM department should know how to use attitude surveys and other
feedback devices to assess employees’ satisfaction with their jobs and with the
corporation as a whole.
• HRM managers should also use job analysis to obtain job description information
about what each job needs to accomplish in terms of quality and quantity.

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8) Technology issues
• The primary task of the manager of information systems/technology is to design and
manage the flow of information in an organization in ways that improve productivity
and decision making.
• Information must be collected, stored, and synthesized in such a manner that it will
answer important operating and strategic questions.
• A corporation’s information system can be a strength or a weakness in multiple
areas of strategic management.

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Internal factors analysis
• After strategists have scanned the internal organizational environment and
identified factors for their particular corporation, they may want to summarize their
analysis of these factors.
• The firm would organize the internal factors into the generally accepted categories
of strengths and weaknesses as well as to analyze how well a particular company’s
management is responding to these specific factors in light of the perceived
importance of these factors to the company.

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Internal Factor Analysis Summary (IFAS)

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Internal Factor Analysis Summary (IFAS)
1. In Column 1 (Internal Factors), list the eight to ten most important strengths and
weaknesses facing the company.
2. In Column 2 (Weight), assign a weight to each factor from 1.0 (Most Important) to
0.0 (Not Important) based on that factor’s probable impact on a particular
company’s current strategic position. The higher the weight, the more important is
this factor to the current and future success of the company. All weights must sum
to 1.0 regardless of the number of factors.
3. In Column 3 (Rating), assign a rating to each factor from 5.0 (Outstanding) to 1.0
(Poor) based on management’s specific response to that particular factor. Each
rating is a judgment regarding how well the company’s management is currently
dealing with each specific internal factor.

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Internal Factor Analysis Summary (IFAS)
4. In Column 4 (Weighted Score), multiply the weight in Column 2 for each factor
times its rating in Column 3 to obtain that factor’s weighted score.
5. In Column 5 (Comments), note why a particular factor was selected and/or how its
weight and rating were estimated.
6. Finally, add the weighted scores for all the internal factors in Column 4 to
determine the total weighted score for that particular company. The total
weighted score indicates how well a particular company is responding to current
and expected factors in its internal environment. The total weighted score for an
average firm in an industry is always 3.0.

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THANK YOU
drdamaty@aucegypt.edu

Dr. Mahmoud Mohamed El Damaty

+201222850959