CHAPTER 3 - Assessing the Internal
Each of these Activities maybe
Environment of the Firm
Value-Chain Analysis
 Value chain analysis was introduce by
Michael’s E. Porters in 1985
 Value chain is used to analyze the flow
value adding activities from the raw
materials supplier to the customer.
 The model looks at what value the
company adds to each links and thereby
uncovers the company’s
competitiveness. The value chain
consists of nine value activities that
together created added value and
thereby the company’s margin in many
places also called profit is actually the
value chain to the ten field here there is
no activity the fields size is dependent
on the previous nine fields.
 The profit is equal to the different
between the value chains total value
which is the value of the product to the
customer that is the price he willing to
pay for the product and the total cost of
producing the product and the total
cost that is in the value chain activities.
The nine activities are divided into two
categories
 The first is the primary activities these
activities include the main activities all 5
activities are directly involved in the
production and selling of the actual
product
 The second category is support
activities they go across the major
activities and aim to coordinate their
function as best as possible with each
other
The primary activities consist of five activities
at the bottom of the model
These are inbound logistics, operations,
outbound logistics marketing and sales and
service.
describe as follows.
Inbound logistics can consist of receiving
goods inspection storage receiving and
returned goods.
Operations- include activities associated
with transforming raw materials and
components into new products
Outbound logistics- are activities
associated with order processing packaging
shipping everything which deals with
distribution of the finished product to
buyers.
Marketing and sales are activities
associated with providing the customer
with information about the product
excellence which should lead to a sale
marketing sale are involved in determining
the product distribution channel pricing
promotion personal selling.
Service activities- which ensure that the
purchased products enhance or preserves
value for the customer the service could
include advice in person or online repair
customer training ongoing maintenance.
These were the five primary activities we shall
now review support activities.
Support activities consist of four activities and
they are in the upper part of the model.
 They consist of procurement,
technology development, human
resources management, and firm
infrastructure each of these activities
maybe describe as follows.
 Support activities procurement are
activities that repair to the function of
purchasing not the physical input
procurement support all the primary
 activities it may include the
establishment of procurement routines
for the purchase of the raw materials
for inbounds logistics. In addition, there
must be also negotiations about
purchasing of energy and service to the
machine in Operation buying new car
for delivery of good s part of outbound
logistics there must be a procedure
with in the marketing and sales for the
purchased of the advertising materials
new cars for service technician
represent service in the model effective
procurement routines can greatly
influenced purchased costs and there
by contribute to higher profits.
 The support activities technology
development must be understood
broadly it is the overall system that
provide an overview of the entire
organization the sale's development
have the opportunity to see whether
the products s that customer demand
are out of stocks how far they are
advance in production and when they
can be accurately delivered it may
involve enterprise resource planning
system that bind the entire
organizations information together.
 Support activities human resources
management includes recruitment
training retention motivation of the
firm staff many times it is the HRs
department responsibility that the right
skills are available at the right time in
various departments a simple example
is that before marketing and sales
contact the first potential customers in
company helps with hiring person who
understands the language and their
culture.
 Support activities firm infrastructure is
a kind of superstructure which covers
all the other activities support both the
primary activities and support activities
it includes the organization of the
company management planning
management and finance.
 Now we shall consider how you can use
the model in practice if the
manufacturer of a product is going to
make a profit and survive the total
value of the product for the customer
has to be greater than the cost of
creating the product therefore you
should regularly review the nine
Activities and analyze if the individual
activities earned to provide more value
to the customer than the costs they
accumulate .
 Resources view of the firm- the RBU it
given as the major role in helping
companies to achieve higher
organizational performance. There are
two types of resources the intangible
and tangible
 Internal analysis this is the process of
identifying the assets and obstacle s
that define your company’s potential
and limitation the importance of
internal environment consists of the all
assets and liabilities.
 While the external analysis examines
the industry environment of company
including factors such as competitive
structure and competitive position
 Firm resources - as we mentioned
resources alone are not a basis for
competitive advantage s resources
helps a firm to increase its resources to
the lower cost but the firm derives only
as temporary advantages Because of
competitors quickly imitate and
substitute for it.
 While the crowd sourcing offers the
great promise in practice such as
programs are difficult to run. Customer
 can hijack them instead of offering
constructive ideas customer jump at
the chance to raise concerns into the
company
 Strong brand reputation they must be
aware in efforts to provide consumers
to tarnish the brand
 High demand uncertainly firms are
generally more likely to ask for
customer input when market
conditions are changing example
raising the service level of the supply
increases the demand
 Many initiatives firm typically benefit
from working repeatedly with the same
customer
Tangible Resources Financial Firm’s cash
account and cash equivalents
 It refers to the line item on the balance
sheet that reports the value of a
company’s assets that are cash or can
be converted into cash immediately.
EXAMPLE OF CASH EQUIVALENTS
INCLUDE: commercial paper, treasury
bills and short-term government bonds
with a maturity date of three months
or less.
Firm’s capacity to solve equity.
 Equity is referred to as net worth or
capital and shareholders’ equity.
EXAMPLE: Common stock, additional
paid-in capital, preferred stock,
retained earnings and the accumulated
other comprehensive income.
Firm’s borrowing capacity.
 It is the sum of money someone is able
to borrow from a lender. Physical
Modern plants and facilities. * Some
examples of modern plants and
facilities are manufacturing plant or
production plant, food and beverage
manufacturing facilities and others.
Favorable manufacturing locations.
Example of favorable manufacturing
locations is the needs of a specialized,
R and D driven medical devices
company will be different from a price
sensitive, mass market consumer
goods.
State-of-the-art machinery and equipment.
 It is the newest and most ideas and
features. Means machinery and
equipment which is of the same type,
design and capability as like machinery
and equipment which is also currently
sold or manufactured by done for sale
to customers.
Technological Trade secrets.
 It is any practice or process of a
company that is generally not known
outside of the company. Example of
that is coca cola recipe for their
signature drink and secret client lists at
any company Innovative production
processes.
 Including energy networks, energy
storage, control engineering and
CMO's device technology.
 It is the combination of facilities, skills
and technologies used to produce,
deliver and support a product or
provide a service. Patents, copyright,
trademarks.
 There have a different types of
intellectual property example of
patents the blood rocker, steel kidneys
and packaging success example of
trademark is the unique symbol or
words used to represent a business its
product.
Organizational Effective strategic planning
processes.
 An effective strategy brings together
vision and execution Excellent
 evaluation and control systems.
Example of evaluation is test scores
and grade point averages example of
control system is in your day-to-day life
it includes an air conditioner and a
refrigerator Intangible Resources
Experience and capabilities of
employees. Trust. Managerial skills.
Firms-specific, practices, and procedures
 It also includes things such as
reputation, experience credibility and
staff skills. Innovation and creativity
Technical and scientific skills.
Innovation capabilities
 It is the characteristics that people
seek to develop to help them look at
the world in new ways and form ideas
to improve or add to it. Example of that
is the electronics company LG
introduced a new type of screen that is
flexible enough to roll up like a
newspaper Reputation Brand name.
Example apple nike and coca cola
Reputation with customers for quality
and reliability. Reputation with
suppliers for fairness, non-zero-sum
relationships.
 This is the general belief that someone
is a nice, honest and hardworking
person. Organization Capabilities Firm
competencies or skills the firm employs
to inputs to outputs. Capacity to
combine tangible and intangible
resources, using organizational
processes to attain desired end.
 This is the unique combination of skills,
processes, technologies and human
activities that differentiate a company.
Examples: Outstanding customer
service. Excellent product development
capacities Innovativeness of products
and services. Ability to have motivated,
and retain human capital. It explained
including the talent, speed,
accountability, collaboration, learning,
leadership and customer connectivity.
Blockbuster Incorporated from Sustainable
Advantage to Bankruptcy
 Then the blockbuster had the
opportunity to buy Netflix for 50 milyon
dollar in 2000 but they wasted the
opportunity. Blockbuster tried to follow
each of Netflix’s strategic moves.
However, it remained a perennial
second in the winner-take-all market for
new ways to distribute entertainment
content. Blockbuster continued to lag,
weighed down by the high labor costs
and real estate costs of its once-
dominant locations-assets that became
liabilities.
 In 2011, after closing some 900 stores,
the company bankruptcy. The
blockbusters had a weaknesses that
wasn’t clear at the time. At the same
time, Netflix had a certain advantages.
By eschewing retail locations, it lowered
costs and could afford to offer its
customers far greater variety...
 Netflix proved to be a very disruptive
innovation, because the blockbuster
would have to alter its business model
and damage it profitability in order to
compete with the start up. Despite
being a small, niche service at the time.
 While the Netflix was clearly had some
compelling aspects and still the
customers loved the service and told
their friends they actually liked being
able to browse movies at the store and
pick one up at a moment’s notice. And
now let’s move to make a financial
analysis more meaningful. Here we
have 3 the first is Historical
Comparisons when you evaluate a
firm’s financial performance, it is very
useful to compare its financial position
over time. This provides a mean of
evaluating trends. For example. Apple
Inc. reported revenues of $234 billion
and net income $53 billion in 2015.
Virtually all firms would be very happy
 with such remarkable financial success.
These figures represent a stunning
annual growth in revenue and net
income of 26 percent and 33 percent,
respectively over Apple’s 2014 figures.
Hap Apple’s revenues and net income in
2015 been $150 billion and $30 billion,
respectively, it would still be a very
large and highly profitable enterprise.
However, such performance would
have significantly damaged Apple’s
market valuation and reputation as well
as the careers of many of its executives.
As a matter of fact that is a comparison
of a different societies that they exist
during same time period.
Next is Comparison with Industry norms
 When you are evaluating a firm’s
financial performance. Remember also
to compare it with industry norms. A
firm’s current ratio or profitability may
appear impressive at first glance.
However, it may pale when compared
with industry standards or norms. As
we can see from the word comparison
as far as I know it comparing the
company’s performance to competitors
to the industry. And the last one here is
Comparison with key competitors-
Similar strategies are members of a
strategic group in an industry.
 Furthermore, competition is more
intense among competitors within
group than across groups. Thus, you
can gain valuable insights into a firm’s
financial and competitive position if
you make comparisons between a
pharmaceutical industry. Here we can
get an idea or insight or it will help us
to develop an effective marketing
strategy. If we identify these key
competitors, we should also analyze
them. We can learn from them from
what works and WHAT doesn’t1. But
remember we don’t need to fall into
the tray of worrying about every little
step they take
 The next one is Evaluating Firm
Performance: Here we have a 2
approaches the first is financial ratio
analysis- which, generally speaking,
identifies how a firm is performing
according to its balance sheet, income
statement, and market valuation.
Based on my understanding it is a
useful tool that help business
managers and investors that analyzed
and compare financial relationship
between the accounts on the firms of
financial statements. It also uses the
data gathered from the calculation of
the ratios to make a decision about
improving a firm. And about the
financial analysis ratios there are
Five ways to improve firms.
 Short Term Solvency - That is one of a
capability to pay the liabilities that
come due in the near future (up to one
year).
 Long Term Solvency Or Measures -
here, from the word long term there is
ability of the company to meet the long-
term debt and interest from that debt.
 Asset Management Or Turnover - there
is compare the assets of company to
the sale revenue, how to successfully
use a company to generate the
revenue.
 Second the last, Profitability- They
asses the company ability to earn
profits from the sale or the operations,
balance sheet assets or stakeholders’
equity.
 Finally last Market Value- that is also
count a total dividend paid per year.
Return or investment to investment. If
they were to buy the shares to the
current market price.
 And the second or last firm
performance is the Take A Broader
Stakeholder View - Firm must satisfy a
broad range of stakeholders. Including
employees, customers, and owners, to
ensure their long-term viability. From
the word stakeholders view they need
to have a broad perspective or mindset
of the stakeholders including
employees, customers, and supervisors
to ensure a long-term viability. And my
last report was the Four factors help
explain the extent to which employees
and managers will be able to obtain a
proportionately high level of the profits
that they generate:
 Employee bargaining power - If
employees are vital to forming a firm’s
unique capability they will earn
disproportionately high wages for
example, marketing professionals may
have access to valuable information
that helps them to understand the
intricacies of customer demands and
expectations, or engineers may
understand unique technical aspects of
the products and service. Additionally,
in some industries such as consulting,
advertising, and the preparations,
clients lead to be very loyal to individual
professional employed by the firm,
instead of the firm itself. This enables
them to “the clients with them” If they
leave. This enhances their bargaining
power.
 Employee Replacement Cost - If
employees’ skill are idiosyncratic and
rare (a source of resource-based
advantages), they should have high
bargaining power based on the high
cost required by the fir to replace them.
For example, Raymond Ozzie, the
software designer who was critical in
the development of Lotus Notes, was
able to dictate the terms under which
IBM acquired Lotus.
 Employee Exists Costs - This factor may
tend to reduce an employee’s
bargaining power. An individual may
face high personal costs when leaving
the organization. Thus, that individual’s
threat of leaving may not be credible.
This factor may tend to reduce an
employee’s bargaining power. An
individual may face high personal costs
when leaving the organization. Thus,
that individual’s threat of leaving may
not be credible. For this one, based on
my understanding that is individual
hourly wage or yearly salary it should be
conscious of the true cost of an
employee by full understanding where
all additional costs exists and how to
account for them.
 Manager Bargaining Power - Managers’
power is based on how well they create
resource-based advantages. Means
manager bargaining power there is an
impact of the interaction between the
investment decisions and dividends
policies when the firm has the equity
offering needs. As a matter of fact, as a
manager they take an advantage of the
investment, potential benefits and the
dividends marginal gain
Internal business perspective:
 This is what the customer will notice
that their bust is doing well or the
process is fast they will really come
back to it. Example: Innovation and
learning perspective: Measure continual
improvements to existing products and
prices and introduction of new products
with expanded capabilities.
Example:
 Cultivate climate for innovative
teaching.
 Continuously improve students learning
  Assurance scholarly productivity of
faculty.

Financial perspective:
 Whether the company’s strategy and
operations add value to shareholders.
Example: Revenue Expenses Net
Income Cash-flow
 Asset value Limitation and potential
downsides of the balanced scorecard: -
this can take up a lot of time and while
example is helpful, they can't be exactly
due to the unique needs of every
business. And another example
Learning and Growth, process,
customer and financial Integrating: -
Many important transactions may
greatly expand a firm's market potential
and create significant long-term
shareholder value.
 The process of evaluating businesses,
projects, budgets and other finance-
related transaction to determine their
performance and suitability. Balanced
scorecard: -A strategic management
performance metric that helps
companies identify and improve their
internal operations.