ORGANIZATIONAL

ANALYSIS
Understanding the
Internal
Environment
© Maris G. Martinsons
 Situation Analysis

Stakeholders
& their needs

Environmental Organizational
Critical
analysis analysis
issues
(external) (internal)

Key
Performance
indicators
 Organizational Analysis
compared to Environmental Analysis
• More important
“Being in the right industry matters, but
being good at what you do matters more” -
Richard Rumelt (1991 / SMJ), How much does industry matter?

• More difficult
– Requires critical self-analysis
– Difficult to be objective
– Benchmarking & Consultants are helpful
 Models/Frameworks for
Organizational Analysis
• McKinsey 7S
Tom Peters& Robert Waterman (1983)
In Search of Excellence

• Value Chain
Michael Porter (1985) Competitive Advantage

• Resource-Based View or “Theory”

Jay Barney (1991) Journal of Management & others
→ Competitive Advantage
→ Key Success Factors

To identify Strengths and Weaknesses

 The McKinsey 7S Framework

Strategy

Structure Systems

Shared
Values
(culture)

Skills Style

Staff
 “Game plan” or a pattern of actions
(deliberate or emergent)

Strategy A strategy is intended to

• realize a vision,
• achieve long-term objectives,
• gain or sustain competitive
advantage.
Strategy should follow from the choice and priority
of long-term objectives.
Objectives to improve competitiveness may relate to:
• Efficiency (to enable cost leadership)
• Uniqueness (real or perceived) in products or service
• Focus on the needs of specific types of customers
 Organization of people and work tasks
• Authority and responsibility
formalized?
Structure (de)centralized?
standardized?
• Organizational units
by function?
by product?
by geographic market?
• Reporting relationships
between individuals and groups

Standardization supports efficiency

Centralization or delegation to support adaptability
What structure supports a focus on specific customers?
 Work processes and data flows that integrate,
coordinate or standardize organizational activities
Standardized activities
Systems • planning and control - budgets
• core processes - production
• quality assurance/control
• communication/information systems
• knowledge management
• performance management
• compensation & benefits

Systems tend to increase efficiency

but they can inhibit flexibility
Explicit or implicit management philosophy
and the accompanying symbolic behaviour –
• autocratic or democratic
• task or people orientation
Style • rules or relationships
• directive or participative
decision making
• internal competition or
collaboration
• individual or team work
etc.

What management does

is more important than
What management says
Human resources
Staff
Employees in different
functional areas or process teams:
• numbers and demographics
• qualifications
• experience (turnover or wastage rates)

What is done to recruit, select, hire, motivate,

develop (train) and retain the right staff ?
How are employees rewarded?
• on seniority or on merit
• for conformity or for creativity
(are mistakes easily forgiven?)
• for effort or for outcome
Business-specific capabilities

These include: Skills

• know-how
• know-where
• know-who

Distinctive competences are

appropriate measures for this
multi-dimensional construct.
Values, beliefs and attitudes
that are widely shared by the Shared
members of the organization values
also known as
superordinate goals
• processes vs. results
• people vs. tasks Corporate Culture
• parochial vs. professional
• open (transparent /receptive)
vs. closed (secretive, in-group)
• pragmatic (follow the market)
vs. normative (follow the rules)
• tight vs. loose control
 McKinsey 7-S Framework
Alignment is a Strength

Strategy Strategy
A B
“to be innovative” “to be reliable”

Staff Staff
A B
creative thinkers direction followers
 McKinsey 7S: Alignment is a Strength
Strategy Be very different Be very efficient
Flat and flexible Tall and rigid
Structure Delegated authority Centralized authority
Customized and loose to Standardized and tight
Systems try out promising ideas for economies of scale
Democratic and Autocratic and trying
Style embracing uncertainty to avoid uncertainty
Creative thinkers “Direction followers
Staff rewarded for good ideas rewarded for conformity
Flexible and able to make Reliable and able to
Skills radical changes improve continuously
Shared Encourage many ideas, Scientific management
values implement the best ones principles
Metaphor Brain full of ideas Finely-tuned machine
 Value Chain Analysis in Practice
McKinsey & Co., etc. in the early 1980s

Technology
Development Product
-source Design Product
-sophistication -function
-appearance
Manufacture
-patents -place & people
-quality -materials
-process

Marketing
Distribution 4Ps
Service -channels
-channel (brand)
-cycle time
-warranty -inventory level
-response time -transport
-pricing
 Value Chain
Michael Porter (1985) Competitive Advantage Price
less Cost
Primary Activities 

Inbound Operations Outbound Marketing Customer Profit

Logistics (making, Logistics & Sales Service Margin
processing,
(materials) etc.) (distribution
of product)

Firm Infrastructure
Planning, Accounting & Finance, Legal, Safety & Security
Human Resource Management
Recruit, Select, Hire, Motivate, Appraise, Reward, Train, Retain, Lay off
Technology Development – Product & Process Innovation
R&D IS / KM TQM BPR
Procurement
Searching for, selecting and securing assorted inputs
Secondary Activities
 Extended Generic Value Chain
developed by a team of my former students
Research, Development and Engineering
Product Process Facilities
design design design
Operations/Production
Quality Make the Manage Inbound
control product inventory logistics
Marketing & Sales
Market Generate Take Fill
research sales orders orders
Distribution & After-sales Service
Customer Distribute
service the product
 Value Chain

Primary Activities
Inbound Outbound
Logistics Operations Logistics Marketing Customer
(making
(leather, shoes) (from factory & Sales Service
rubber, glue, to store)
etc.)
Firm Infrastructure
Planning, Accounting & Finance, Legal, Safety & Security
Human Resource Management
Recruit, Select, Hire, Motivate, Appraise, Reward, Train, Retain, Lay off
Tech Development - Product Design, not Process Design
R&D
Procurement
Searching for, selecting and securing assorted inputs
Secondary Activities
Supply Chain Management: Universities
Upstream Knowledge
Value Chains of Value
Suppliers Activities that Advancement
provide us Research
with key inputs
Inbound Logistics ↓
Operations Organization
of a Manufacturer Scholarship
or Processor
Outbound Logistics
↓
Marketing & Sales Dissemination
Customer Service Teaching
Downstream
Value Chains Value ↓
of Distributors Activities that Application
and/or Retailers add value to Consulting, etc.
our outputs
Service Industry Value Chains

Adapting Porter’s Value Chain for a Retail Bank

 Benchmarking
• Measure and compare VC activities / processes
• Internal – easy access and no security/secrecy concerns
• Competitive – look at what industry rivals are doing
More brands & factories, higher IT & accounting costs

• World-class – look beyond your industry

– Xerox looks beyond Fuji & Canon to: Apple & Amazon
innovation, Google HR, Samsung KM, etc.

• Study not only how activities are performed, but …

also how they are linked and evaluated

• Be humble enough to realize that others do some things better

• Be wise enough to learn from them
• Be flexible enough to adopt, adapt or discard as appropriate
 Herman Miller Adapts
Lean Manufacturing
• Highly-automated factory in Michigan (U.S.)
made filing cabinets in batches of 500
• Started to lose customers; they want higher quality,
smaller orders (20-100) & faster delivery
• Learned from the best in “lean manufacturing”
• Made filing cabinets a few at a time, not 500
• Assigned 20 people to one assembly line
• Shipped products in 2.5 hours, not 60
• Changeover for metal stamping machine
reduced from 4 hours to 15 minutes
• Robots can not make themselves better, only
people can improve quality & efficiency
• Essence of “lean” transferred throughout HM
 Resource-Based View (RBV)
2 Assumptions:
1. A business is a distinctive bundle of resources
2. Some resources are scarce or costly to copy
Resources are what you have or can access.
are inputs to Value Chain activities.
Resources may be divided into:
Tangible see? sell? (count) Intangible
Financial Knowledge
Physical Culture
Technological Relations
Patents, trademarks Capabilities
 Tangible Resources
Financial
$$$ from owners, lenders or venture capitalists
Line of credit from bankers

Physical
Factory / offices / store, goods / equipment, people

• University: Campus buildings, class facilities,

library holdings, digital devices; professors
• Telecom provider: networking equipment, wires,
and satellites; license to operate
• Entertainment company: film library and
broadcasting network; contracts with movie stars
• Airline: planes; reservation system;
pilots, cabin crew & ground staff
 Intangible Resources
KNOWLEDGE CAPITAL (know how, know where)
• Intellectual Property (Patents, Designs, Trade Secrets)
• Technical skills & creative/innovative workers
• Effective knowledge management system

CULTURAL CAPITAL (know why)

• Charismatic leadership
• Strong corporate culture, e.g. the H-P Way
• High-motivated and/or loyal employees

SOCIAL CAPITAL (know who)

• Well-known brand name
• Reputation for …
• Good credit rating
• Good relationships (guanxi in China)
 Capabilities … and Competencies
• Capabilities = what you can do with your resources
fast, efficient, flexible, creative, consistent in …
reliable or innovative products, convenient for customers
e.g. efficient SCM

• Competency - transferable capability

”something we are good at doing”

• Distinctive competency – what you do much better

than (m)any of your rivals

• Core competency - critical to your business (success)

for a retail bank, convenience + attractive products + ???
 Retail Bank Example - Resources
Tangible Intangible
Numbers of • Retail location
• Retail locations – Quality (high traffic area)
– branches • Employees
– ATMs – Skills – % of requirement
– Experience (turnover rate)
• Employees – Morale (satisfaction level)
• Products – Relationships
– Saving • Products
– Lending – Distinctive Features
– Other – Flexibility
• Customers • Social Capital
– Account holders Brand name /Image
– Mortgage holders Customers
– etc. – Length of relationship
– Satisfaction / retention rate
IT investment ($) – Deposit amounts
Cash ($) • Information systems
– Reliability
– Easy to use
– Timely & accurate info
 Retail Bank Example - Capabilities
Convenience
Where?
Larger geographic reach - # of countries
Higher traffic locations
Higher density in a specific place
When? (and How?)
Longer-than-average branch opening hours
Shorter-than-average waiting time at teller wickets
24/7 service - online banking / phone banking
Attractive Products/Services
What?
• Wider range of financial services
• One-stop-service at teller wickets
• Common products, distinctive features
e.g. lower interest rates, fast(er) loan approvals
• Distinctive products
e.g. HKD/LVL exchange
 Key Resources & Capabilities -
Original Equipment Manufacturer
to Original Brand Manager
PHYSICAL
Cost-efficient Manufacturing Facility
HUMAN
Productive Workforce
INTELLECTUAL
INTELLECTUAL
Process Innovation
Brand Name expertise
Management
SOCIAL
Process Innovation expertise
Relationship
Product R&D with Brand Name Firm
expertise
SOCIAL
Brand Name Relationship
 Core Technologies at Canon

Precision Fine Micro

Mechanics Optics Electronics
Basic camera
Compact camera
Autofocus camera
Video camera
Laser beam printer
Colour video printer
Facsimile machine
Plain paper copier
Colour copier
Laser copier
Colour laser copier
Laser imager
Excimer laser aligner
 RBV and I-KSFs
Industry Key Success Factors (I-KSFs) are the
most important factors that distinguish good performing
firms from bad performing ones in a given industry

FMCG (consumer goods)

Brand Modern Quality Reliable
I-KSFs
image products service delivery

Related Media Product Staff Transport

competences advertising innovation training + logistics
 
“connect and develop” Outsource
R&D strategy (X-teams) to experts

Make or buy?
 Strengths can become Weaknesses
How do your capabilities compare to “standards”?
Unfavourably – WEAKNESS; VULNERABILITY
Favourably – STRENGTH
STRENGTH can become a WEAKNESS over time
Success → Inertia & blindness → Hinders change
Icarus Paradox
narrow mindsets hinder
evolution of mobile strategy

Photos on film (replacing glass plates) since 1901

virtual monopoly until 1970s - Fuji started to compete on price
Digital cameras introduced by Sony, Canon in 1980s
Failed to pioneer, responded slowly to new technologies,
allowed new entrants to set standards
? Survival in the digital age ?
 Competitive Advantage
Valuable
Inimitable Jay Barney
(1991)
Is the resource … Rare
Organized
Valuable? to capitalize on opportunities or neutralize threats
Rare? Distinctive or even Unique? scarcity has value
Potential source of Competitive Advantage
Realized (fully used) by the organization? Brand
awareness
Complementary to its other resources? Distribution
Actual source of Competitive Advantage channels

Durable? value changes/deteriorates over time

Difficult (or costly) to Duplicate or Imitate?
Nonsubstitutable?
Source of Sustainable Competitive Advantage
If not … only a Temporary Competitive Advantage
Distinctive Competencies = Sustained Success
Superior industrial design, integrated
hardware & software = unique ecosystem,
superior marketing
Secret formula, superior marketing, world’s
most extensive physical distribution network
Modern & functional design, low costs from
global standardization, superior retailing

Very bright & energetic people, ‘practical’

knowledge base, superior relationships
with corporate community
 Imitation & Substitution
Intangible resources (brands, reputations, relationships)
+ complex technologies are harder to imitate or
substitute than tangible ones (unless patent protected)

more generally, Imitation is hindered by:

Physical uniqueness – CityU has most convenient location.
Causal ambiguity – Apple relies on ambiguous innovation.
Path dependence – Bill Gates was in right place at the right time.
Social complexity – Jack Ma Yun has special talent + relationships.

Substitution - Example
Retailing online v physical stores

being 1st choice store for toys is

no longer a competitive advantage
 Potential Strengths and Weaknesses
Strengths Weaknesses/Vulnerabilities
Clear vision and strategy Unclear vision or strategy
Strong financial condition Weak finances; too much debt
Superior relationships Outdated facilities
Superior product quality Higher costs than rivals
Admired brand Production problems
Operating cost advantage Low employee morale
High-performance culture Weak R&D many SMEs

Strong R & D Missing some key skills

Proprietary tech (patents) Too narrow a product line
Superior customer service Poor brand image
Effective marketing Dependence on 1 or 2 customers
Flexible processes Slow response to change
 What Determines
Business Performance?
Industrial Economics “Model”
SCP model of industry analysis
Industry Firm Business
Structure Conduct Performance
“positioning”
strategy

Resource-based “Model”
Firm Capabilities Business
Resources Valued By? Performance
 How to Achieve
Business Success?
Industrial Economics “Model” Resource-based “Model”
Study the external Identify your resources
environment (O/T) (S/W)
Select the most Determine what the firm
attractive industry can do (capabilities)
Formulate the Select “best” industry
“best” strategy to fit your capabilities
Acquire or develop Formulate the
resources/capabilities “best”strategy

Implement your strategy

 From SWOT to Strategic Issues
Strengths Weaknesses

Opportunities mainland China market entry

S-O W-O
issues issues
Famous Poor
brand name facilities

S-T W-T
Threats

issues issues
Foreign competition
(food/drinks, securities brokers)
 INTERNAL
ORGANIZATIONAL
ANALYSIS

THE END
© Maris G. Martinsons