Internal Analysis

Nuresh Eranda, PhD

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Lesson outline
 Internal analysis composition

 Core competencies

 Resource-based view

 Value chain analysis

 Portfolio analysis

 SWOT analysis

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The outcomes from external and
internal environmental analysis

By studying the external By studying the internal

environment, firms environment, firms
identify determine

What they might choose to

What they can do?
do?

Opportunities Strengths
Threats Weaknesses

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What is internal analysis?
 Internal analysis concerned with identifying and
developing an organization’s resources and
competencies

 Look within the organization itself to identify

internal strategic factors - strengths and
weaknesses

 Helpful for determining whether a firm will be

able
 To take advantage of opportunities
 Avoiding threats
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Strategic Capability
‘Strategic capability is the resources and competences of an
organization needed for it to survive and prosper’
Johnson et al (2008)

If we take two organizations operating in the same industry

(Dilmah Vs Zesta), They do not have the same set of
experiences, skills, or assets (capabilities). The differences in
terms of resources and competences define how an
organization effectively and efficiently performs its activities
and achieve competitive advantage
Resources
 Resources are an organization’s assets and building
blocks of the organization

 Tangible resources:
Assets that can be seen and quantified
E.g. Buildings

 Intangible resources:
Include assets that typically are rooted deeply in the
firm’s history and have accumulated overtime
E.g. Brand equity

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Importance of intangible resources
 Less visible & more difficult for competitors to
understand & imitate

 Competitive advantage based on intangible

resources is more sustainable

 Can be leveraged

E.g. sharing knowledge among employees

“Facebook is worth $493bn, but only has $14bn of physical

assets. Its value is intangible—and, potentially, ephemeral.”
Economists.com (2018)
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Capabilities
 Capabilities refer to a firm’s abilities to assemble,
integrate, and manage the bundles of resources

 Capabilities emerge over time through complex

interactions among tangible & intangible resources

 Foundation of capabilities lies in the skills & knowledge of

employees and functional expertise

 Knowledge is central for achieving sustainable competitive

advantage

 Capabilities are developed in specific functional areas

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 “Design &
production skills
yielding reliable
products”

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Core competencies
 Core competencies are resources & capabilities that
serve as a source of a firm’s competitive advantage over
rivals

 Core competencies emerge overtime through

accumulation and learning how to deploy different
resources & capabilities

 Core competency is a collection of competencies that

crosses divisional boundaries, is widespread within the
corporation
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Tesla: Capacity to innovate
 Overturning the core product
architecture
 Positioning in key bottleneck
components
 Resolving system-level
limitations that slow the
adoption of the technology

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 Capability

Customer’s point Competitor’s

of view point of view

Valuable & Unique &

nonsubstitutable inimitable

Core competence
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Resource-Based View (RBV)
Resource-based-view (RBV) of organization
explains that resources which are valuable, rare,
inimitable, non-substitutable act as a basis of
competitive advantage over the competitors
(Barney, 1995).
Resource-Based View (RBV)
Resource-Based View argues that an organization’s
internal capabilities tends to have an influence on firm’s
competitive advantage and superior performance.

The model is simply described as ‘VRIO’ framework

-Valuable
-Rare
-Inimitable
-Organized and Non-substitutable
 Value (V)
 Do a firm’s resources and competencies (Strategic capability)
add value by enabling it to exploit opportunities and/or
neutralize threats?

Example: Sony’s experience in designing, manufacturing,

and selling ‘Miniaturized Technology’ allows Sony to exploit
market opportunities, including portable tape players,
portable disc players, televisions, and video cameras.
Rareness (R)
How many competing firms (competitors) already
possess these valuable strategic capabilities?

If a particular strategic capability or capabilities is

controlled (possessed) by numerous competing firms,
then that capability is unlikely to be a source of
competitive advantage for any one of them.
 Inimitability
Inimitability means the difficulty in imitating or costly for
others to imitate. If a particular resource can easily be
copied, then the organization gains temporary competitive
advantage.

Resources are most difficult to imitate when they are:

1. Path dependent (resources have a specific history which tends

towards firms having highly specialized skills )
2. Causally ambiguous (the actions needed to create them are not
fully known)
3. Socially complex (some resources, such as corporate reputation or
firm culture, are difficult to change on the short-term)

Adapted from Dess et al (2006)

Organization
Is a firm organized to exploit the full competitive
potential of its strategic capabilities?

Complementary capabilities (formal reporting

structure, management control systems, compensation
policies) have limited ability to generate competitive
advantage in isolation. In combination with other
strategic capabilities, they can enable a firm to realize its
full competitive advantage.
Non-substitutability
Organization may possess ‘valuable’, ‘rare’, and
‘inimitable’ capabilities. But, an organization has to
face risk because of substitution.

Product/service substitution: E-mail systems have

substituted for postal systems.

Competence substitution: In the task-based

industries, competences of skilled craft workers have
been replaced by expert systems.
Value chain analysis
 Value chain analysis allows the firm to understand the
parts of its operations that create value for customers and
those that do not.

 Primary activities
These activities are involved with a product’s physical
creation, its sale and distribution to buyers, and its service
after the sale

 Secondary activities
These activities provide the support necessary for the
primary activities to take place

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 Value Chain Analysis

Firm Infrastructure
SUPPORTIVE
ACTIVITIES

Human Resources Management:

Technology Development

Procurement

Inbound Outbound Marketing and

Operations Service
Logistics logistics Sales

PRIMARY ACTIVITIES
Adapted from: Porter, M. E. (1998)
Primary Activities
Inbound Logistics:
Materials handling, Warehousing, Inventory control used to receive, store,
and disseminate inputs to a product

Operations:
Machining, Packaging, Assembly, and Equipment maintenance

Outbound logistics:
Finished-goods warehousing, Materials handling, and Order processing

Marketing and Sales:

Advertising and promotional campaigns, Selection of distribution channels,
development and support of sales force

Service
Installation, Repair, Training and Adjustment
Support Activities
Procurement:
Activities related to purchase the inputs needed to produce a firm’s
products
(e.g. raw materials, supplies, & fixed assets)

Human Resource Management:

Recruitment, Selection, Training, Development and Compensation for
employees

Technology Development:
Activities completed to improve firm’s product & processes used to
manufacture it. Process equipment, basic research & product design,
research & development

Firm infrastructure:
General management, Planning, Finance, Legal support, Governmental
Relations
The Value System
The value system is the chain of activities from supply of
resources through to final consumption of a product.
The total value system, in addition to the organization’s
own value chain, can consists of upstream linkages with
suppliers and downstream linkages with distributions
and customers.
The value system is a similar concept to that of the
supply chain and illustrates the interactions between an
organization, its suppliers, distribution channels and
customers.
 The Value System

Distribution
Supplier Competitor channel
Customers

Distribution
Supplier Organization Customers
channel

Distribution
Supplier Competitor channel
Customers
 Portfolio Analysis
A key concept with regard to successful product or
subsidiary strategy is that of portfolio.
Portfolio analysis is used in evaluating the balance
of an organization’s range of products.
A broad portfolio can spread risk across more than
one market.
A narrow portfolio mean that the organization
become more specialized in its knowledge of fewer
products and markets
 The BCG Matrix
The Boston Consulting Group (BCG) growth-share
matrix is most often used by organizations in
multiproduct and multimarket situations.
BCG matrix offers a way of examining and making
sense of a company’s portfolio of product and
market interests.
It is based on the idea that market share in mature
markets is highly correlated with profitability and
that is relatively less expensive and less risky to
attempt to win share in the growth stage of the
market.
 High Relative market share Low
10X 1X
High
Rate of market growth

Stars Question
marks

Cash cows Dogs

Low

The Boston Consulting Group matrix

 BCG Matrix: Cash cows
Cash cows: A product with a high market share in a
low-growth market is normally both profitable and a
generator of cash.
Profits from this product can be used to support
other products that are in their development phase,
‘milked’ on an on going basis.
Standard strategy would be to manage
conservatively, but to defend strongly against
competitors.
 BCG Matrix: Dogs
Dogs: A product that has a low market share in a
low-growth market is termed a dog in that it is
typically not very profitable.
Once a dog has been identified as part of a portfolio,
it is often discontinued or disposed of.
More creatively, a small share product can be used to
price aggressively against a very large competitor as
it is expensive for the large competitor to follow suit.
 BCG Matrix: Stars
Stars have a high share of a rapidly growing market and
therefore rapidly growing sales.

It is the sales manager’s dream, but the account’s nightmare.

It is often necessary to spend heavily on advertising and

product improvement so that when the market slows these
products become ‘cash flow.’

If market share is lost, the product will eventually become a

‘dog’ when the market stops growing.
BCG Matrix: Question marks
Question marks are aptly named they create a
dilemma.
They already have a foothold in a growing
market, but if market share cannot be improved
they will become ‘dogs.’
Resources need to be devoted to winning market
share.
SWOT Analysis
 SWOT analysis is a simple but powerful tool for sizing
up a company’s resource capabilities and deficiencies,
its market opportunities, and the external threats to is
future well-being

 Helpful in identifying:
 An organization’s resources, capabilities and
deficiencies as Strengths (S) and Weaknesses (W):
Internal Environment: Internal Analysis
 Market Opportunities (O) and Threats (T) for the future
betterment: External Analysis

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 SWOT Matrix- An Example
Strengths (S) Weaknesses (W)
-Core competence in Production & - Higher overall unit cost relative to
distribution competitors
- Strong brand -Weak product innovation
name/image/company reputation capabilities

- Better product quality relative to - Too narrow product line relative to

rivals rivals

Opportunities (O) Threats (T)

- Integrating forward or backward - Slowdown in market growth

- Serving additional market - Increasing intensity of competition

segments - Growing bargaining power of
- Developing mergers to expand buyers or suppliers
market coverage
Summary
 Internal analysis composition

 Core competencies

 Resource-based view

 Value chain analysis

 Portfolio analysis

 SWOT analysis

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