MG 114 STRATEGIC MANAGEMENT

BACHELOR OF SCIENCE IN ENTREPRENEURSHIP

MR. ROLLY TOLEDO NOARIN

MAP FACULTY
 CHAPTER 04 :
STRATEGIC MANAGEMENT | MR. ROLLY T. NOARIN

THE INTERNAL OPERATIONAL

ENVIRONMENT OF BUSINESS
OBJECTIVES: AFTER THE DISCUSSION, THE STUDENTS
WILL BE ABLE TO:

1. Develop strategies on how the firm will operate competitively in the market.
2. Understand how the firm will create value among its market.
3. Develop decision making strategies to capture the greater market potential.
4. Understand the firm’s internal capabilities to win competitive advantage.
5. State the criteria for sustainable market advantage.
6. Develop value chain analysis and know hoe to outsource materials
equipment.
INTERNAL BUSINESS ENVIRONMENT

The internal business environment is defined as the evaluation in terms of

respect, awareness and knowledge, and the emotional and affective
reactions of the various stakeholders. It is an intangible resource upon which
the firm can build capabilities and its core competencies.
The firm can develop intangible distinctions between itself from its rivals
within each reputational category. These resource assets could be the jump-
off point for the company to build perceptual measures that provide signals to
rivals and stakeholders for the competitive value of their image in the industry.
INTERNAL BUSINESS ENVIRONMENT

The internal management resources are the foundation for strategic actions
and these bundle of resources generate competitive advantage that leads to
wealth generation and profit. In the development of this competitive
advantage, the management must develop a new mindset to successfully
accomplish the desired objective. The rapid change in the conduct of
business and the global economic opportunities are challenges for a new
system of work values and forward thinking strategy.
INTERNAL BUSINESS ENVIRONMENT

In other words, the internal environment

refers to the culture, members, events and
factors within an organization that has the
ability to influence the decisions of the
organization, especially the behaviour of its
human resource. Here, members refer to all
those people which are directly or indirectly
related to the organization such as owner,
shareholders, managing director, board of
directors, employees, and so forth.
https://businessjargons.com/internal-environment.
html
INTERNAL BUSINESS ENVIRONMENT

 Value System: Value system consists of all those components that are a part of
regulatory frameworks, such as culture, climate, work processes, management
practices and norms of the organization. The employees should perform the activities
within the purview of this framework
 Vision, Mission and Objectives: The company’s vision describes its future position,
mission defines the company’s business and the reason for its existence and
objectives implies the ultimate aim of the company and the ways to reach those ends
 Organizational Structure: The structure of the organization determines the way in
which activities are directed in the organization so as to reach the ultimate goal.
These activities include the delegation of the task, coordination, the composition of
the board of directors, level of professionalization, and supervision. It can be matrix
structure, functional structure, divisional structure, bureaucratic structure, etc
INTERNAL BUSINESS ENVIRONMENT

 Corporate Culture: Corporate culture or otherwise called an organizational culture

refers to the values, beliefs and behaviour of the organization that ascertains the way
in which employees and management communicate and manage the external affairs.
 Human Resources: Human resource is the most valuable asset of the organization, as
the success or failure of an organization highly depends on the human resources of
the organization.
 Physical Resources and Technological Capabilities: Physical resources refers to the
tangible assets of the organization that play an important role in ascertaining the
competitive capability of the company. Further, technological capabilities imply the
technical know-how of the organization.
INTERNAL BUSINESS ENVIRONMENT

The company is made up of all people in the structural organizational set up.
The manpower resources are assets for competitive advantage. They must
not focus only on their area of operation but on the increasing demand to
view the entire operation. Rapid decision making that was based on
sustainable research findings must be made to cope with new challenges for
reforms, re-engineering and changes in the skills for new technology. The firm
must update its knowledge base as the foundation of competitive advantage.
CREATING CUSTOMER'S VALUE

Creating value is the source of the firm’s potential to earn the desired profit
objective. Customer value is created when they buy the product at reasonable
price and based on quality standards or high product differentiations. With the
various products available in the market, customer value is difficult to gain
but continuous improvement and strategic value formation and forward
planning Mill create new dimensions in customer value.
THE CHALLENGE OF INTERNAL ANALYSIS

The challenges to the implementation of strategic actions may appear to be

easy in the surface. Deeply the strategic action must be the result of careful
analysis of the business conditions and the competitor’s strategy. The firm’s
success is not rooted mainly in identifying the problems, developing
alternative strategies, and protecting the corporate resources but on how
effective the process of analysis and cooperative thinking done by all
managers in crafting the strategic action. Often times managers are
pressured to deliver the quarterly earnings and not on the underlying
competitive strategies to remain at the upper level in the years ahead.
MANAGERIAL DECISION MAKING FACTORS
1. Uncertainty. Decisions are uncertain about the conditions of the general industry
environment as it keep changing overtime. Any changes in the environment would need
new approach and new strategy. The competitor’s actions are keeping on wrapped and
intelligence network is needed to verify their market strategy. The consumer preference
change rapidly as new products and service may be available in the market before the
firms new product could reach the customers.
2. Complexity. The universe of decision making process is complex as the interrelated
environment is shaping so rapidly. Information gathering needs time and effort and
decisions needed sufficient data for analysis. The perceptions of the business
environment needs careful study to make valuable decisions that will generate better
return on investments.
3. Intra-Organizational Conflict. The structure of the organization is so designed that
managers are task with specific duties and responsibilities. Managers are working
closely with their responsibilities and would like to protect their own identity in the
organization. While horizontal and vertical working relationships exist, managers could
not avoid protecting their own personal interest.
RESOURCES OF THE INTERNAL ENVIRONMENT

Resources are the internal capabilities of

the firm which could in turn be the source of
corporate core competencies. It covers the
wide spectrum of individuals, social
structure and organizational system that
operate harmoniously in the direction of its
intent and mission. Corporate resources
could be tangible and intangible as they are
assets that can be used for competitive
advantage.
TANGIBLE ASSETS COULD BE CLASSIFIED AS;

Financial Resources
This refers to the firm’s cash flow assets that can be used in the operation of the business.
It is the capacity to barrow money from financial institutions and generates internal funds
to sustain the firm’s growth potential. It refers also to the wise use of money to finance
ongoing operation and sustainable development.
Organizational Resources
It refers to the organizational structure that plans, organize, directs and control the
operation of the business. The formal and informal relationships are put in place to guide
the corporate operational dimensions.
TANGIBLE ASSETS COULD BE CLASSIFIED AS;
Physical Resources
These are physical assets that are used in the operation of the business: This refers to
plant facilities, machinery and equipment and used to produce products. This may also
refer to tangible assets used in the delivery of goods and other assets which can be used
in other operations.
Technological Resources
It refers to the technology such as system and procedures, patents, corporate trademarks,
copyrights and trade secrets. This may also refer to new inventions and innovation
undertaken by the company to improve its products and services to its clients.
INTANGIBLE RESOURCES ARE CLASSIFIED INTO;

Human Resources
It is one of the most important assets that the company could depend on for competitive
advantage. It refers to skills and knowledge base of the workers to see and direct the
corporate activities towards the profit objective of the firm. It also refers to the managerial
ability to plan, organize, direct and control the organizational routine of the firm. The
organizational effectiveness of human resources could bring in the desire competitive
advantage.
INTANGIBLE RESOURCES ARE CLASSIFIED INTO;
Innovation Resources
It is the capacity to bring in new ideas and innovative strategies that would be necessary
in the change process. It refers also to scientific innovations in terms of pollution control
and wise use of material resources. While these refer to talents and skills of the human
resources, these tangible assets can be used for competitive advantage.
Reputational Resources
It refers to the reputation the firm has earned overtime with its customers and other
stakeholders. It refers to the perceptions about product quality, durability and reliability.
Reputation is also built with suppliers in terms of mutual and interactive relationships that
are both beneficial to both parties
THE FIRMS INTERNAL CAPABILITIES

Core competencies are internal and external resources and capabilities that serve as the
source of competitive advantage over rivals in the industry. It reflects the firm’s
personality among its Clients and stakeholders and emerged overtime through an
organizational process of accumulating and learning on how to deploy its resource? and
capabilities. Core competencies are the corporate crowning glory earned through
concerted effort and actions. The firm is known by its client and stakeholders to perform
especially well compared to competitors as they add value to its products and service.
Some tangible and intangible resources may stifle or prevent the development of core
competencies, thereby losing its competitive advantage. Some firms may have limited
financial resources to buy facilities and equipment necessary to compete in the
development of new products. The firm must therefore scout for external opportunities
rather than compete in the areas where they are weak.
THE CRITERIA FOR SUSTAINABLE ADVANTAGE

The firm achieves a sustained competency when the competitors failed to

duplicate the products or services that the firm produced or failed in entering
the firm’s market niche. Competitors Will always have an eye to copy the
products that sell in the market and will just be looking for the opportune time
when the firm slows down its operational strategy.
THE CRITERIA FOR SUSTAINABLE ADVANTAGE

The length of time a firm can retain its

competitive advantage is the function of how
quickly competitors can imitate the products of
the firm and overtake its attribute in terms of
quality and features. This could be the case
with the many electronic gadgets like cellular
phones that was dominated first by Nokia in the
Philippine market. Some electronic gadgets
were replaced in the market over a short period,
and innovation and imitation came into surface
in a matter of weeks. The competitors made
new and better products available and these
drive the first in the industry to either shift to
other ventures.
FOUR SUSTAINABLE CRITERIA FOR COMPETITIVE
ADVANTAGE

1. Valuable Capabilities
It refers to the state of how the firm can exploit opportunities and neutralize threats in the
external environment. It is also the creation of value among its customers and the
development of loyalty and patronage by sustaining the products’ quality and innovative
features. Customer needs and satisfaction is an important dimension in sustaining market
patronage.
Value capabilities are now challenged with the online purchasing through the internet. Many
would browse the web and look for product substitutes. It is therefore necessary for firms to
also use this medium to inform their clients that they still manifest superiority in the industry.
Marketing products and distributing the same to the customer have greatly changed the
landscape of purchasing strategy. Value capabilities in speed must be sustained to remain in
the market.
FOUR SUSTAINABLE CRITERIA FOR COMPETITIVE
ADVANTAGE

2. Rare Capabilities
Rare products are difficult to imitate. Rare capabilities are possessed by few (if any) by the
competitors. Competitive advantage results only When firms develop and exploit
capabilities that differ from those shared with competitors. Manila Electric Company
(MERALCO) has no competitor in the distribution 0f electricity in most part of the Luzon
grid. PLDT used to be the sole telephone company until competitors came into existence
but on a limited scale.
FOUR SUSTAINABLE CRITERIA FOR COMPETITIVE
ADVANTAGE

3. Imitation Cost Capabilities

Costly capabilities are corporate competencies that other firms cannot easily develop.
Huge investment in capital base could be one reason for other competitors to enter the
venture if they are not certain on their return of investments. Some firms are not certain
on their capabilities and expertise to enter a market where it is dominated by single
players that acquire the necessary managerial and operational stature.
THE COMBINATION OF ONE OR FOUR REASONS FOR
FIRMS TO COSTLY IMITATE ARE;

Unique Historical Condition

It refers to the historical development of the firm that comes at the right time and place in
history. These are firms that were established in the early period of development where they
acquired rights and franchise, and developed organizational culture in the early stage of
operation. An example, the Manila Electric Company (MERALCO) was developed at the time
energy power is needed by the country in its development stage. Penetration of the delivery
needs huge investment and at the same time, the firm has developed the organizational culture
that is quite difficult to imitate.
The Firm is Casually Ambiguous
It refers to the condition when the competitors cannot clearly understand how a firm uses its
capabilities as the foundation for competitive advantage. The value creating strategy of the
existing firm is unique in nature and competitors are uncertain to duplicate its capabilities and
earn the desired profit objective.
THE COMBINATION OF ONE OR FOUR REASONS FOR
FIRMS TO COSTLY IMITATE ARE;

Social Complexity
Social complexity means that the firm’s capabilities are the product of complex social
phenomenon. The internal personal relationship, trusts and friendships among managers and
employees are the firm’s reputation with suppliers and customers. Suppliers and customers
have competitive advantage when they are taken care of by the firm.
Political Complexity and Government Regulations
Political connection in business operation is a competitive advantage as the power to elect
officials is also dictated by the business community. Political connections also play a great
role for competitors to enter the market or the industry. Government regulations are also
factors in competitive advantage as some industries are controlled by the government for
efficient and effective delivery of service. Example of this industry is in the power generation
sector and the transportation business.
FOUR SUSTAINABLE CRITERIA FOR COMPETITIVE
ADVANTAGE

4. Non-substitutable Capabilities
This refers to condition where there is no strategic equivalent to the firm’s existing
capabilities. The existing firm has capabilities and resources where other firms cannot
imitate due its uniqueness. The firm’s strategic value of competitiveness increases as
they become more difficult to imitate or substitute.
The firm's specific knowledge and trust relationship among executives, managers and rank
and file personnel are capabilities that are hard to identify in which finding a substitute
poses challenges to competitors. This value creating strategy is the bundle of benefits
generated by the firm through time with the protection of the corporate knowledge base
and the creation of sustainable level of customer relationships
VALUE CHAIN ANALYSIS (VCA)

Is a process where a firm identifies its

primary and support activities that add
value to its final product and then
analyze these activities to reduce costs
or increase differentiation.
Value chain
represents the internal activities a firm
engages in when transforming inputs into
outputs.
UNDERSTANDING THE TOOL

Value chain analysis is a strategy tool used to analyze internal firm activities.
Its goal is to recognize, which activities are the most valuable (i.e. are the
source of cost or differentiation advantage) to the firm and which ones could be
improved to provide competitive advantage. In other words, by looking into
internal activities, the analysis reveals where a firm’s competitive advantages or
disadvantages are. The firm that competes through differentiation advantage
will try to perform its activities better than competitors would do. If it competes
through cost advantage, it will try to perform internal activities at lower costs
than competitors would do. When a company is capable of producing goods at
lower costs than the market price or to provide superior products, it earns
profits.
UNDERSTANDING THE TOOL
M. Porter introduced the generic value chain model in 1985. Value chain
represents all the internal activities a firm engages in to produce goods and
services. VC is formed of primary activities that add value to the final product
directly and support activities that add value indirectly.
Although, primary activities add value directly to the production process, they
are not necessarily more important than support activities. Nowadays,
competitive advantage mainly derives from technological improvements or
innovations in business models or processes. Therefore, such support activities
as ‘information systems’, ‘R&D’ or ‘general management’ are usually the most
important source of differentiation advantage. On the other hand, primary
activities are usually the source of cost advantage, where costs can be easily
identified for each activity and properly managed.
 4 TH
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