BUSINESS STRATEGY & ENTERPRISE MODELING

INTERNAL ENVIRONMENT ANALYSIS

G.N. Sandhy Widyasthana

widyasthana@gmail.com
 From Analyzing the Company’s Situation to
Choosing a Strategy
FIGURE 3.1 From Analyzing the Company’s Situation to Choosing a Strategy

Analyzing the
company’s
external
environment Select the
Form a
Identify best
strategic
promising strategy
vision of
strategic and
where the
options business
company
for the model
needs to
company for the
head
Analyzing the company
company’s
internal
environment
QUESTION 1: HOW WELL IS THE COMPANY’S
PRESENT STRATEGY WORKING?
 (1) whether the company is achieving its stated financial and strategic objectives, (2)
whether its financial performance is above the industry average, and (3) whether it is
gaining customers and gaining market share. Persistent shortfalls in meeting company
Identifying the Components of a Single-Business
performance targets and weak marketplace performance relative to rivals are reliable

FIGURE 4.1 IdentifyingCompany’s

the ComponentsStrategy
of a Single-Business Company’s Strategy

Moves to respond to changing Initiatives to build competitive

conditions in the macro-environment advantage based on
or in industry and competitive Lower costs and prices
conditions relative to rivals?
A better product or service
(design, features, quality,
R&D, technology, wider selection, etc.)?
product design BUSINESS Superior ability to serve
strategy a market niche or
STRATEGY
KEY F

specific group of buyers?

(The action plan
Supply chain for managing a
management single business)
UN

strategy
Efforts to expand or
CT

Production narrow geographic

IO

strategy coverage
NA

ST
L

Sales, marketing,
and distribution RA Efforts to build competitively
strategies TE valuable partnerships and
G IE
Information S strategic alliances with other
technology enterprises within its industry
strategy Human
resource
strategy Finance
strategy
 Specific indicators of how well a company’s
strategy is working

❖ Trends in the company’s sales and earnings growth.

❖ Trends in the company’s stock price.
❖ The company’s overall nancial strength.
❖ The company’s customer retention rate.
❖ The rate at which new customers are acquired.
❖ Evidence of improvement in internal processes such as
defect rate, order ful llment, delivery times, days of
inventory, and employee productivity.
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 Financial Analysis

❖ Pro tability Ratios

❖ Liquidity Ratios
❖ Leverage Ratios
❖ Activity Ratios
❖ Other Financial Measurement
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QUESTION 2: WHAT ARE THE COMPANY’S
STRENGTHS AND WEAKNESSES IN RELATION TO
THE MARKET OPPORTUNITIES AND EXTERNAL
THREATS?
SWOT or Situational Analysis
❖ An internal strength is something a company is good at doing or
an attribute that enhances its competitiveness in the marketplace.
❖ An internal weakness is something a company lacks or does
poorly (in comparison to others) or a condition that puts it at a
disadvantage in the marketplace.
❖ Market opportunity is a big factor in shaping a company’s
strategy.
❖ Often, certain factors in a company’s external environment pose
threats to its pro t- ability and competitive well-being.
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 more sophisticated tools are required. Chapter 3 introduced you to a set of tools for
analyzing a company’s external situation. In the rest of this chapter, we look more
deeply at a company’s internal situation, beginning with the company’s resources and
capabilities.

The StepsThe
Involved in
Steps Involved in SWOT
FIGURE 4.2 SWOT
Analysis: Identify Analysis
the Four Components of
SWOT, Draw Conclusions, Translate Implications into Strategic Actions

What Can Be Gleaned from the

Identify company SWOT Listings?
strengths and
competitive
assets Conclusions concerning the company’s overall business
situation:
What are the underlying reasons for the success (or lack
of success) of the company's strategy?
Identify company What are the attractive and unattractive aspects of the
weaknesses and company’s situation?
competitive
deficiencies

Implications for improving company strategy:

Identify Use company strengths as the foundation for the
market company’s strategy.
opportunities Shore up weaknesses that are interfering with the success
of the strategy.
Use company strengths to lessen the impact of important
external threats.
Pursue those market opportunities best suited
to company strengths.
Identify external
Correct weaknesses that impair pursuit of important
threats
market opportunities.
Repair weaknesses that heighten vulnerability of external
threats.
QUESTION 3: WHAT ARE THE COMPANY’S MOST
IMPORTANT RESOURCES AND CAPABILITIES, AND
WILL THEY GIVE THE COMPANY A LASTING
COMPETITIVE ADVANTAGE?
some types, such as copyrights and trade secrets, might be more logically categorized
as intangible.
Intangible resources are harder to discern, but they are often among the most
important of a firm’s competitive assets. They include various sorts of human assets

Types of Company Resources

and intellectual capital, as well as a company’s brands, image, and reputational assets.

TABLE 4.3 Types of Company Resources

Tangible resources

• Physical resources: land and real estate; manufacturing plants, equipment, and/or distribution facilities; the locations
of stores, plants, or distribution centers, including the overall pattern of their physical locations; ownership of or
access rights to natural resources (such as mineral deposits)
• Financial resources: cash and cash equivalents; marketable securities; other financial assets such as a company’s
credit rating and borrowing capacity
• Technological assets: patents, copyrights, production technology, innovation technologies, technological processes
• Organizational resources: IT and communication systems (satellites, servers, workstations, etc.); other planning,
coordination, and control systems; the company’s organizational design and reporting structure

Intangible resources

• Human assets and intellectual capital: the education, experience, knowledge, and talent of the workforce, cumulative
learning, and tacit knowledge of employees; collective learning embedded in the organization, the intellectual
capital and know-how of specialized teams and work groups; the knowledge of key personnel concerning important
business functions; managerial talent and leadership skill; the creativity and innovativeness of certain personnel
• Brands, company image, and reputational assets: brand names, trademarks, product or company image, buyer loyalty
and goodwill; company reputation for quality, service, and reliability; reputation with suppliers and partners for fair dealing
• Relationships: alliances, joint ventures, or partnerships that provide access to technologies, specialized know-how, or
geographic markets; networks of dealers or distributors; the trust established with various partners
• Company culture and incentive system: the norms of behavior, business principles, and ingrained beliefs within the
company; the attachment of personnel to the company’s ideals; the compensation system and the motivation level of
company personnel
 The VRIO Framework
Valuable, Rare, Inimitable, and Organized
❖ Is the resource or capability competitively Valuable?
❖ Is the resource or capability Rare—is it something rivals
lack?
❖ Is the resource or capability Inimitable—is it hard or
costly to copy?
❖ Is the rm easy to Organized—is it easy to capture value
of the resource?
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include any assets as well as any capabilities and competencies that a firm can draw upon competitive advantage.
when formulating and implementing strategy. So to some degree, this presentation of the
VRIO model summarizes all of our discussion in the chapter so far.
Exhibit 4.5 captures the VRIO framework. You can use this decision tree to decide if the
resource, capability, or competency under consideration fulfills the VRIO requirements.
As you study the following discussion of each of the VRIO attributes, you will see that
the attributes accumulate. Only if a firm’s managers are able to answer “yes” four times to

EXHIBIT 4.5 / Applying the Resource-Based View: A Decision Tree Revealing Competitive Implications

Is the Resource, Capability, or Competency… and Is the Firm…

YES YES YES YES Sustainable

V aluable R are
Costly to O rganized
I mitate to Capture Competitive
Value? Advantage

NO NO NO NO

Temporary Temporary
Competitive Competitive
Competitive Competitive
Disadvantage Parity
Advantage Advantage

rot20477_ch04_104-139.indd 113 11/26/15 06:43 PM

How To Sustain A Competitive Advantage

❖ Better expectations of future resource value. Sometimes rms can acquire

resources at a low cost, which lays the foundation for a competitive advantage later
when expectations about the future of the resource turn out to be more accurate.
❖ Path dependence describes a process in which the options one faces in a current
situation are limited by decisions made in the past.
❖ Causal ambiguity describes a situation in which the cause and effect of a
phenomenon are not readily apparent.
❖ Social complexity. describes situations in which different social and business
systems interact.
❖ Intellectual property (IP) protection is a critical intangible resource that can also
help sustain a competitive advance.


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QUESTION 4: HOW DO VALUE CHAIN ACTIVITIES
IMPACT A COMPANY’S COST STRUCTURE
AND CUSTOMER VALUE PROPOSITION?



 A Representative Company Value Chain
CHAPTER 4 Evaluating a Company’s Resources, Capabilities, and Competitiveness 103

FIGURE 4.3 A Representative Company Value Chain

Primary Supply
Activities Chain Sales and Profit
Operations Distribution Service
and Manage- Marketing Margin
Costs ment

Product R&D, Technology, and Systems Development

Support
Activities
Human Resource Management
and
Costs
General Administration

PRIMARY ACTIVITIES
Supply Chain Management—Activities, costs, and assets associated with purchasing fuel, energy, raw materials,
parts and components, merchandise, and consumable items from vendors; receiving, storing, and disseminating
inputs from suppliers; inspection; and inventory management.
 Strategic Options for Remedying a Cost or Value
Disadvantage

❖ Improving Internally Performed Value Chain Activities

❖ Improving Supplier-Related Value Chain Activities
❖ Improving Value Chain Activities of Distribution
Partners
QUESTION 5: IS THE COMPANY COMPETITIVELY
STRONGER OR WEAKER THAN KEY RIVALS?
 the overall strength ratings to draw conclusions about the size and extent of the com-
pany’s net competitive advantage or disadvantage and to take specific note of areas of
strength and weakness.
Table 4.4 provides an example of competitive strength assessment in which a hypo-
thetical company (ABC Company) competes against two rivals. In the example, rela-

A Representative Weighted Competitive Strength

tive cost is the most telling measure of competitive strength, and the other strength
measures are of lesser importance. The company with the highest rating on a given
measure has an implied competitive edge on that measure, with the size of its edge

Assessment
TABLE 4.4 A Representative Weighted Competitive Strength Assessment

Competitive Strength Assessment

 (rating scale: 1 = very weak, 10 = very strong)

ABC Co. Rival 1 Rival 2

Key Success
Factor/Strength Importance Strength Weighted Strength Weighted Strength Weighted
Measure Weight Rating Score Rating Score Rating Score

Quality/product 0.10 8 0.80 5 0.50 1 0.10

performance
Reputation/ 0.10 8 0.80 7 0.70 1 0.10
image
Manufacturing 0.10 2 0.20 10 1.00 5 0.50
capability
Technological 0.05 10 0.50 1 0.05 3 0.15
skills
Dealer network/ 0.05 9 0.45 4 0.20 5 0.25
distribution
capability
New product 0.05 9 0.45 4 0.20 5 0.25
innovation
capability
Financial 0.10 5 0.50 10 1.00 3 0.30
resources
Relative cost 0.30 5 1.50 10 3.00 1 0.30
position
Customer service 0.15 5 0.75 7 1.05 1 0.15
capabilities
Sum of 1.00
importance
weights
Overall weighted 5.95 7.70 2.10
competitive
strength rating
QUESTION 6: WHAT STRATEGIC ISSUES AND
PROBLEMS MERIT FRONT-BURNER MANAGERIAL
ATTENTION?
six key questions to consider in evaluating a company’s
ability to compete successfully against market rivals

❖ How well is the present strategy working?

❖ What is the company’s overall situation, in terms of its internal strengths
and weaknesses in relation to its market opportunities and external threats?
❖ What are the company’s most important resources and capabilities and can
they give the company a sustainable advantage?
❖ Are the company’s cost structure and value proposition competitive?
❖ On an overall basis, is the company competitively stronger or weaker than
key rivals?
❖ What strategic issues and problems merit front-burner managerial
attention?
 Reference

❖ Thompson, A. A.; Peteraf, M.A.; Gamble, J. E.; and

Strickland III, A. J. (2018). Crafting and Executing
Strategy - The Quest for Competitive Advantage:
Concepts and Cases. 21st Edition. New York: McGraw-
Hill Education. (TPGS)
❖ Rothaermel, F. T. (2019). Strategic Management, 4th
Edition. New York: McGraw-Hill. (FTR)
 Case 2

❖ Please use your selected case

❖ Conduct External and Internal Environment Analysis
using available tools
❖ You can analysis the recent situation faced by your
company globally
❖ Group assignment using ppt format