Internal Analysis

Introduction
Strategic analysis of any Business enterprise
involves two stages: Internal and External
analysis.

Internal analysis is the systematic evaluation

of the key internal features of an
organization.
External analysis will be discussed later.

Four broad areas need to be considered for

internal analysis

The organizations resources, capabilities

The way in which the organization
configures and co-ordinates its key valueadding activities
The structure of the organization and the
characteristics of its culture
The performance of the organization as
measured by the strength of its products.

Analysis of the
global business

Global value chain

analysis: configuration
and co-ordination

Resources,
capabilities and
core competences

Cultural and
structural analysis

Global products and performance

Internal analysis

Resources
Resources are assets employed in the activities and
processes of the organization.

They can be tangible or intangible.

They can be obtained externally (organizationaddressable) or internally generated (organizationspecific).
They can be specific and non-specific:
Specific resources can only be used for highly
specialized purposes and are very important to the
organization in adding value to goods and services.
Assets that are less specific are less important in adding
value, but are more flexible.

Resources fall within several categories:

Human
Financial
Physical
Technological
Informational

An audit of resources would be likely to include

an evaluation of resources in terms of availability,
quantity and quality, extent of employment,
sources, control systems and performance.

General Competences/capabilities
They are assets like industry-specific skills,
relationships and organizational knowledge
which are largely intangible and invisible assets.
Competences and capabilities will often be
internally generated, but may be obtained by
collaboration with other organizations.
Certain competences are likely common to
competing businesses within a global industry
or strategic group.

Core Competences/Distinctive Capabilities

Core competences or distinctive capabilities
are combinations of resources and capabilities
which are unique to a specific organization and
which are responsible for generating its
competitive advantage.
Kay (1993) identified four potential sources of
Core competences:
Reputation
Architecture (i.e., internal and external relationship)
Innovation
Strategic assets

Criteria to evaluate Core Competences

Complexity: How elaborate is the bundle of resources
and capabilities which comprise the core competence?
Identifiability: How difficult is it to identify?
Imitability: How difficult is it to imitate?
Durability: How long does it be replaced by an
alternative competences?
Superiority: Is it clearly superior to the competences of
other organizations?
Adaptability: How easily can the competence be
leveraged or adapted?
Customer orientation: How is the competence perceived
by customers and how far is it linked to their needs?

Resources:
Capabilities:
Core competence
human, financial,
Industry-specific Distinctive and superior
physical,
skills, relationships,
skills, technology
technological, + organizational
relationships,
=
legal, informational
knowledge
knowledge and
Intangible
reputation of the firm
Tangible and
and invisible
Unique, and
visible assets
assets
difficult to copy

Inputs to
the firms
processes

Perceived
customer
benefits/value
added

Integration of
resources into
value-adding
activities

Not all capabilities are core

competences only those
that add greater value than
those of competitors

Denotes feedback
loop
denotes core competence
development

The relationships between resources, capabilities and core competence

Global Value Chain Analysis

Competitive advantage depends on the ability
of the organization to organize its resources
and value-adding activities in a way that is
superior to its competitors.
Value chain analysis is a technique developed
by Porter (1985) for understanding an
organizations value-adding activities and
relationship between them.

Value can be added in two ways:

By producing products at a lower cost than
competitors
By producing products of greater
perceived value than those of competitors.

Porter extended value chain analysis to the

value system, analysis of the relationship
between the organization, its suppliers,
distribution channels and customers.

The Value Chain

The value chain is the chain of activities
which results in the final value of a
businesss products.
Value added, or margin is indicated by
sales revenue minus costs.
Porter divided internal parts of
organization into primary and support
activities

Primary activities are those that

directly contribute to production of
good or services and organizations
provision to customer
Support activities are those that aid
primary activities, but do not
themselves add value

The Firm as a Value Chain

Support Activities
Materials Management
Human Resources
Information Systems
Company Infrastructure

R&D

Production

Marketing & Sales

Primary Activities

Service

 Certain activities or combinations of activities are

likely to relate closely to the organizations core

competences, termed core activities. They are:
Add the greatest value
Add more value than the same activities in
competitors value chains

Relate to and reinforce core competences

Other value chain activities relate to capabilities,

but do not add greater value than competitors

and therefore do not relate to core competence.

The Value System

The value chain of an individual organization
provide an incomplete picture of its ability to
add value.
Many value-adding activities are shared
between organizations often in the form of a
collaborative network.
As organizations identify and concentrate on
their core competences and core activities, they
increasingly outsource activities to other
business for whom such activities are core.

The value system is the chain of activities from

supply of resources through to final consumption of
a product.
The total value system, in addition to the
organizations own value chain, can consists of
upstream linkages with suppliers and downstream
linkages with distributions and customers.
The value system is a similar concept to that of the
supply chain and illustrates the interactions
between an organization, its suppliers, distribution
channels and customers.

Distribution
channel

Supplier

Competitor

Supplier

Organization

Distribution
channel

Customers

Supplier

Competitor

Distribution
channel

Customers

The Value System

Customers

The Global Value Chain

The configuration of an organizations activities
relates to where and in how many nations each
activities in the value chain is performed.
Co-ordination is concerned with the management
of dispersed international activities and the
linkages between them.
Managers must examine the current configuration
of value-adding activities and the extent and
methods of co-ordination as part of their strategic
analysis, which may determine possibilities for
reconfiguration or improving co-ordination

A global business has two broad choices of

configuration:
Concentration of the activity in a limited
number of locations to take advantage of benefits
offered by those locations.
Dispersion of the activity to a large number of
locations.

Change in the business environment (e.g.,

technological change) may well lead to
changes over time in the configuration that
gives greatest competitive advantage.

Co-ordination is essentially about overseeing the

complexity of the organizations configuration such
that all value-adding parts of the business act in
concert with each other to facilitate an effective
overall synergy.
Those business that overcome the potential
difficulties of co-ordination are those that sustain the
greatest competitive advantage.
Analysis of configuration and methods of coordination assists in the process of understanding
current competences and identifying the potential
for strengthening and adding to them.

Core
competences
Core
activities
Value
chain

Co-ordination

Configuration
Concentration

Dispersion

Internal
activities
External
activities

Internal
co-ordination

External
co-ordination

Internal
linkages

External
linkages

Value-adding
activities

Suppliers Channels
Customers

Value system

Managing the value system

Global Organizational Culture and Structure

A global business must have a culture and
structure which allow it to carry out its global
activities.
The structure of the business must allow it to
accomplish its objectives as effectively and as
efficiently as possible.
Culture is an important determinant of how
effectively the organization operates and has
important implications for employee
motivation.

Portfolio Analysis
A key concept with regard to successful product
or subsidiary strategy is that of portfolio.
Portfolio analysis is used in evaluating the
balance of an organizations range of products.
A broad portfolio can spread risk across more
than one market.
A narrow portfolio mean that the organalization
become more specialized in its knowledge of
fewer products and markets

The BCG Matrix

The Boston Consulting Group (BCG) growth-share
matrix is most often used by organizations in
multiproduct and multimarket situations.
BCG matrix offers a way of examining and making
sense of a companys portfolio of product and
market interests.
It based on the idea that market share in mature
markets is highly correlated with profitability and
that is relatively less expensive and less risky to
attempt to win share in the growth stage of the
market.

Relative market share

Low
1X

10X

Stars

Question marks

Cash cows

Dogs

Low

Rate of market growth

High

High

The Boston Consulting Group matrix

BCG Matrix: Cash cows

Cash cows: A product with a high market
share in a low-growth market is normally both
profitable and a generator of cash.
Profits from this product can be used to support
other products that are in their development
phase, milked on an on going basis.
Standard strategy would be to manage
conservatively, but to defend strongly against
competitors.

BCG Matrix: Dogs

Dogs: A product that has a low market share in
a low-growth market is termed a dog in that it is
typically not very profitable.
Once a dog has been identified as part of a
portfolio, it is often discontinued or disposed of.
More creatively, a small share product can be
used to price aggressively against a very large
competitor as it is expensive for the large
competitor to follow suit.

BCG Matrix: Stars

Stars have a high share of a rapidly growing
market and therefore rapidly growing sales.
It is the sales managers dream, but the accounts
nightmare.
It is often necessary to spend heavily on advertising
and product improvement so that when the market
slows these products become cash flow.

If market share is lost, the product will eventually

become a dog when the market stops growing.

BCG Matrix: Question marks

Question marks are aptly named they
create a dilemma.
They already have a foothold in a growing
market, but if market share cannot be
improved they will become dogs.

Resources need to be devoted to winning

market share.

Limitation of the BCG Matrix

There are many relevant aspects relating
to products that are not taken into account.
The imprecise nature of its four categories
and the difficulties inherent in predicting
future market growth.
Global activity may add extra dimension
to the process of portfolio analysis.