Strategic Management

4 Assessing Strengths
and Weaknesses:
Doing An Internal Analysis

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Learning Outline
o What is an internal analysis?
• Define internal analysis.
• Describe the relationship between organizational resources,
organizational capabilities, core competencies, and distinctive
capabilities.
• Explain what organizational strengths and weaknesses are.
o How to do an internal analysis
• Describe the primary and support activities on the value chain.
• Explain what an internal audit is and how it can be used for
internal analysis.
• Describe the steps in a capabilities assessment profile.

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Learning Outline (contd.)
o Why do an internal analysis?
• Explain the criteria that could be used to assess an
organization’s strengths and weaknesses.
• Discuss why an internal analysis is important.

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What is an Internal Analysis?

Internal Analysis
 Identifies and evaluates resources,
capabilities, and core competencies
 Looks at the organization’s
o Current vision
o Mission
o Strategic objectives
o Strategies
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A Quick Review of Organizational Resources

Organizational Resources (assets)

• Financial resources

• Physical assets

• Human resources

• Intangible resources

• Structural-cultural resources 5
The Strategic Role of Organizational Resources and
Organizational Capabilities
Performance Results

Competitive Advantage

Distinctive Organizational
Capabilities

Organizational Organizational Core

Resources Capabilities Competencies
Financial Organizational
assets processes and
Physical routines
assets Accumulated
Human knowledge
resources Actual work
Intangible activities 6
assets
Structural-
 From Capabilities to
Distinctive Capabilities & Core Competencies

Distinctive
Organizational Capabilities Distinctive Organizational
• Special and unique capabilities Capabilities
• Distinguish from competitors
• Sustainable competitive advantage
• Outperform competition Organizational Core
Capabilities Competencies

Organizational Capabilities Core Competencies

• Org. capabilities come first
• Fundamental building block for
developing core competencies
• Organizational processes and
routines to get the work done
• Not a source of competitive advantage
• Develop distinctive organizational capabilities
• Improve and enhance organizational capabilities
• Fundamental skills and capabilities
• Exploitable by organization
• Major value-creating skills and capabilities
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Characteristics of Distinctive Organizational
Capabilities
• Contributes to
Superior Customer
Value

Distinctive
Organizational
Capabilities
• Can Be Used • Is Difficult
in a Variety for Competitors
of Ways to Imitate

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 From Capabilities to
Distinctive Capabilities & Core Competencies

Distinctive
Distinctive Organizational
Organizational Capabilities Capabilities
• Special and unique capabilities
• Distinguish from competitors
• Sustainable competitive advantage Organizational Core
• Outperform competition Capabilities Competencies

Organizational Capabilities Core Competencies

• Org. capabilities come first
• Fundamental building block for
developing core competencies
• Organizational processes and
routines to get the work done
• Not a source of competitive advantage
• Develop distinctive organizational capabilities
• Improve and enhance organizational capabilities
• Fundamental skills and capabilities
• Exploitable by organization
• Major value-creating skills and capabilities
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 The Role of Strengths and Weaknesses
Strengths: Resources that an organization
possesses and capabilities that an organization has
developed. Both can be exploited and developed
into a sustainable competitive advantage

Weaknesses: Resources and capabilities that are

lacking or deficient. Prevent an organization
from developing a sustainable competitive
advantage

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Value Chain Analysis

 The premise behind value chain analysis is that

customers demand value from goods and
services they obtain
Customer value
 Product is unique and different
 Product is low priced
 Quick response to specific or distinctive customer
needs
 A value chain is a systematic way of examining
organization’s functional activities 11
 Primary and Support Activities in the Value Chain

{ Firm Infrastructure
Activities
Support

Human Resource Management

M
AR
Technological Development

G
IN
Procurement
Inbound Logistics

Operations

Service

IN
Marketing
Outbound

and Sales

G
Logistics

AR
M
{
Primary Activities
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 Value Chain Analysis
Assessing the PRIMARY Activities in the Value Chain ( from Table 4-1)
Inbound Logistics
• Materials control system
• Inventory control system
• Raw material handling and warehousing
Operations
• Equipment comparison to competitors
• Plant layout
• Production control system
• Level of automation in production processes

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 Value Chain Analysis
Assessing the PRIMARY Activities in the Value Chain (continued) ( from Table 4-1)
Outbound Logistics
• Timeliness and efficiency of finished products delivery
• Warehousing of finished products
Marketing and Sales
• Marketing research
• Sales promotions and advertising
• Alternative distribution channels
• Competency and motivation of sales force
• Organization’s image of quality
• Organization’s reputation
• Brand loyalty of customers
• Domination of various market segments

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 Value Chain Analysis
Assessing the PRIMARY Activities in the Value Chain (continued) ( from Table 4-1)
Customer Service
• Customer input for product improvements
• Handling of customer complaints
• Warranty and guarantee policies
• Employee training in customer education & service issues
• Replacement parts and services

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 Value Chain Analysis
Assessing the SUPPORT Activities in the Value Chain ( from Table 4-2)
Procurement
• Alternate sources for obtaining needed resources
• Timeliness of resources procurement
• Procurement of large capital expenditure resources
• Lease-versus-purchase decisions
• Long-term relationships with reliable suppliers
Technological Development
• R&D activities in product and process innovations
• Relationship between R&D and other departments
• Meeting deadlines in technological development activities
• Quality of labs and other research facilities
• Qualifications of lab technicians and scientists
• Creativity and innovation in organizational culture
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 Value Chain Analysis
Assessing the SUPPORT Activities in the Value Chain (continued) ( from Table 4-2)
Human Resource Management
• Recruiting, selecting, orienting, and training employees
• Employee promotion policies
• Reward systems to motivate and challenge employees
• Absenteeism and turnover
• Union-organization relations
• Employee participation in professional organizations
• Employee motivation, job commitment, and satisfaction

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 Value Chain Analysis
Assessing the SUPPORT Activities in the Value Chain (continued) ( from Table 4-2)
Firm Infrastructure
• Identification of external opportunities and threats
• Accomplishing goals with strategic planning system
• Coordination and integration of value chain activities
• Low-cost capital expenditures & working capital funds
• IS support for strategic and operational decisions
• Relationships with stakeholders
• Public image as a responsible corporate citizen

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 Using an Internal Audit

An internal audit thoroughly assesses

an organization's various internal functional areas
Six Primary Functional Areas
• Productions-Operations
• Marketing
• Research and Development
• Financial and Accounting
• Management (including HRM)
• Information Systems 19
Capabilities Assessment Profile

Complex Analysis of Capabilities

 Not as easily identifiable as organizational functions
 Hard for competitors to imitate

Two-phased Capability Assessment

 Phase I: Identify distinctive capabilities
 Phase II: Develop and leverage these distinctive
capabilities

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Identifying Distinctive Organizational
Capabilities
Step 1 Prepare current product-market profile.

Identify sources of competitive

Step 2 advantage and disadvantage in
the main product-market segments.

Describe all the organizational

Step 3 capabilities and competencies.

Sort the core capabilities and

Step 4 competencies according to
strategic importance.

Identify and agree on

Step 5 the key capabilities
and competencies.
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 Criteria to Judge Organizational Strengths and
Weaknesses

Past Performance Trends Comparison Against Competito

Are organizational
resources and capabilities
strengths or weaknesses?

Specific Goals or Targets Personal Opinions of

Strategic
Decision Makers or
Consultants
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Why Do an Internal Analysis?

1. It is the only way to identify an

organization’s strengths and weaknesses

3. It’s needed for making good strategic

decisions

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Chapter Four

 Developing and exploiting distinctive

competencies
 Three approaches to internal analysis
 Know the What, How and Why

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