Anthony E.

Henry

Henry: Understanding Strategic

Management

Chapter 4: The Internal

Environment: Value-creating
Activities

© Oxford University Press, 2018. All rights reserved.

 Learning objectives

• Understand the activities which comprise an

organization’s value chain and identify their role in
adding value
• Explain how linkages in the value chain can create
competitive advantage
• Undertake a SWOT analysis and discuss its
limitations
• Evaluate the ways in which the performance of an
organization can be measured
• Identify the benefits which derive from benchmarking

Henry: Understanding Strategic Management, 3rd edition

 Value-chain analysis

• Value-Chain Analysis - Porter (1985)

• Value chain
• Describes the activities within an organisation
that
• go to make up a product or service

• Value-chain analysis
• Allows an organization to ascertain how much
value each activity adds

Henry: Understanding Strategic Management, 3rd edition

 Value chain activities

Henry: Understanding Strategic Management, 3rd edition

 Value chain activities

• Support Activities • Primary Activities

These ensure that the Those activities which are
primary activities are directly involved in the
carried out efficiently and creation of a product or
effectively. service.
• Procurement • Inbound logistics
• Technology • Operations
development • Outbound logistics
• Human resource • Marketing and sales
management
• service
• Firm infrastructure

Henry: Understanding Strategic Management, 3rd edition

 Linkages within the value chain

• Value chain activities are the cornerstone of

• competitive advantage
• An organization’s value chain is best viewed
• as interdependent activities
• Linkages - the relationship between the way
• one value activity is performed and the cost
• or performance of another activity

Henry: Understanding Strategic Management, 3rd edition

 Linkages within the value chain

• An organization may derive competitive

advantage from:
• Optimization
- Recognizing trade-offs
- E.g. greater resource input in product design and
quality can reduce maintenance costs
• Coordination
- Better coordination of the activities in an
organization’s value chain can reduce costs or
enhance differentiation

Henry: Understanding Strategic Management, 3rd edition

 Managing linkages within the value
chain system
• Organizations do not undertake all the activities
constituting the value chain system but will usually
focus on a specific number of activities
• In seeking to influence the value chain of its
suppliers, distributors, and consumers, an
organization needs also to address the make or buy
decision
• Undertake or Outsource Value Activities
• When those activities constitute a core competence,
organizations may prefer to keep them in-house.

Henry: Understanding Strategic Management, 3rd edition

 SWOT analysis

• SWOT analysis (Andrews 1971)

• A SWOT analysis allows an organization to
determine the extent of the strategic fit between
its capabilities and the needs of its external
environment.
• How is the market evolving over time?
• Are existing strengths likely to become a
• potential weakness?

Henry: Understanding Strategic Management, 3rd edition

 SWOT analysis

Henry: Understanding Strategic Management, 3rd edition

 Limitations of SWOT analysis

• It does not differentiate between the weightings of

• different factors
• Strengths and weaknesses identified do not always
• translate into opportunities and threats
• The same factor can be both a strength and a
weakness
• The same factor can be both an opportunity and a
threat
• A concentration on industry analysis may fail to identify
• weak signals

Henry: Understanding Strategic Management, 3rd edition

 Organizational performance

• What is performance?
• Maximize shareholders value?
• The principal-agent problem?
– This refers to the separation of ownership from control
within corporation. The owner are the principal who
provide the capital, but control is in the hands of mangers
who act as agent on the principal’s behalf.
• Meeting the needs of stakeholders?
• Financial analysis

Henry: Understanding Strategic Management, 3rd edition

 Case study of IKEA: Organizational
performance
• Reading the following case studies, discuss: What
is IKEA’s organizational performance measure and
why?

• “Sustainability is at the heart of everything we do at

IKEA-from the energy and resources we use and the
way we work with communities to the way we can
support out customers to save energy, water and waste
at home and live more healthy. In Greenwich it’s
fantastic to have the opportunity to put those principles
into practice, working together with the local community
and stakeholders to create a unique experience that
shows how sustainability can be accessible, affordable
and attractive for everyone’ said the Head of
Sustainability at IKEA UK & Ireland. ”
Henry: Understanding Strategic Management, 3rd edition
 Assessing Organizational Performance

• Why do businesses exist?

• Shareholders theory – assumes shareholders’
interests are paramount
• Over-riding objective - maximize shareholder profits
• Principal-agent problem
– - Separation of ownership from control within
organizations
- Owners are the principal (shareholders)
- Control rests with salaried managers, the agent.

Henry: Understanding Strategic Management, 3rd edition

 Measuring corporate performance

• Financial statements show the underlying economic

performance of organizations
• Balance sheet:
- a snapshot of a company’s assets, liabilities,
and capital at one moment in time
• The profit-and-loss account:
- shows the difference between a company’s
total revenue and its total expenses
• This is accounting profit

Henry: Understanding Strategic Management, 3rd edition

 Meeting the needs of stakeholders

• Stakeholders are those individuals or groups that

affect or are affected by the achievement of an
organization’s objectives - Freeman (1984)
• These include customers, suppliers, employees,
government, competitors, the local community and
shareholders
• Those who advocate a stakeholder model dispute
that
the primary role of organizations is to create
shareholder value
• The role of management is to balance these
stakeholder needs rather than simply focus on
shareholders

Henry: Understanding Strategic Management, 3rd edition

 Benchmarking

• Benchmarking involves comparisons between

different organizations with a view to improving
performance by imitating or, indeed, improving
upon the most efficient practices.

Henry: Understanding Strategic Management, 3rd edition