Internal scanning and organization analysis

  

A resource based approach to organizational analysis Business models Value-chain analysis Scanning functional resources and capabilities

A resource based approach to organizational analysis
 

Core and distinctive competencies Using resources to gain competitive advantage Determining the sustainability of an advantage

4.2 Core Competencies and Distinctive Competencies

Core Competencies and Distinctive Competencies

C reC me n ie o o p te c s

Things a corporation can do exceedingly well

D tin tiv C me n ie is c e o p te c s

Core competencies that are superior to those of competitors

Resources: VRIO Framework
1. Values : does it provide competitive advantage? 2. Rareness : do other competitors possess it? 3. Imitability : is it costly for others to imitate? 4. Organization : is the firm organized to exploit the resource?

Factors Determining Sustainability of a Distinctive Competency
4.3 Sustainability of Distinctive Competency

Durability : the rate at which a firm’s resource or core competency depreciates or becomes obsolete Imitability : the rate at which a firm’s resource or core competency can be duplicated by others
  

Transparency Transferability Replicability

Transparency : the speed at which other firms can understand the relationship of resources and capabilities supporting a successful firm’s strategy Transferability : ability of competitors to gather the resources and capabilities necessary to support a competitive advantage Replicability : the ability of competitors to use duplicated resources and capabilities to imitate the other firm’s success

It is easier to imitate another company’s core competency if it comes from explicit knowledge Tacit knowledge is more valuable and more likely to lead to a sustainable competitive advantage than is explicit knowledge

P. 154, fig. 4.2

High Hard to imitate Slow-Cycle Resources

Continuum of Resources Level of Resource Sustainability Sustainability
Standard-Cycle Resources • Standardized mass production • Economies of scale Complicated processes • Chrysler: Mini-van

Low (Easy to Imitate)

Fast-Cycle Resources • Easily duplicated • Idea driven • Sony: Walkman

• Strongly shielded • Patents, brand name • Gillette: Sensor razor

Source: Suggested by J. R. Wiliams, “How Sustainable Is Your Competitive Advantage?” California Management Review (Spring 1992), p. 33.

Business Models

   

A company method for making money in the current business environment. It should include Who it serves What it provides How it makes money How it differentiates and sustains competitive advantage How it provides its product/service

Examples of business models
          

Customer solutions model (IBM) Profit pyramid model (GM) Multi-component system (Gilette) Advertising model Switchboard model Time model Efficiency model Blockbuster model Profit multiplier model Entrepreneurial model De facto standard model

Industry value chain analysis
 

Upstream (ex. Oil exploration, drilling and moving crude oil to refinery) Downstream (refining, transporting and marketing gasoline to distributors and gas station retailers) A company’s center of gravity is the part of the chain that is most important to the company and the point where it has the greatest expertise and capabilities

Typical Value Chain for a Manufactured Product

Raw Materials

Primary Manufacturing

Fabrication

Product Producer

Distributor

Retailer

Source: Suggested by J. R. Galbraith, “Strategy and Organization Planning,” in The Strategy Process: Concepts, Contexts, Cases, 2nd ed., edited by H. Mintzberg and J. B. Quinn (Englewood Cliffs, N.J.: Prentice Hall, 1991), p. 316.

Corporate Value Chain
Firm Infrastructure (general management, accounting, finance, strategic planning) Human Resource Management (recruiting, training, development) Technology Development (R&D, product and process improvement) Procurement (purchasing of raw materials, machines, supplies)
Inbound Logistics (raw materials handling and warehousing) Operations (machining, assembling, testing) Outbound Logistics (warehousing and distribution of finished product) Marketing and Sales (advertising, promotion, pricing, channel relations) Service (installation, repair, parts)

Support Activities

Profit Margin
Source: Adapted/re printed with the permission of the The Free Press, an imprint of Simon & Schuster, from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter, p. 37. Copyright © 1985 by Michael E. Porter.

Primary Activities

Corporate Value Chain Analysis
Examine each product line’s value chain in terms of the various activities involved in producing that product or service (strengths, weaknesses) 2. Examine the linkages within each product line’s value chain 3. Examine the potential synergies among the value chains of different product lines or business units (economies of scale, economies of scope)
1.

Scanning Functional Resources and Capabilities
     

Basic organizational Structures: Simple structure Functional structure Divisional structure Strategic business unit Conglomerate structure

Basic Structures of Corporations: Simple and Functional
I. Simple Structure Owner-Manager Workers II. Functional Structure Top Management

Manufacturing

Sales

Finance

Personnel

4.7b

Basic Structures of Corporations: Divisional (Fig. 4.4)

Basic Structures of Corporations: Divisional
III. Divisional Structure* Top Management

Product Division A

Product Division B

Manufacturing

Finance

Manufacturing

Finance

Sales

Personnel

Sales

Personnel

*Conglomerate structure is a variant of the division structure.

4.8 Strategic Business Unit

Strategic Business Unit
Independent product-market unit with:

1. 2. 3. 4.

Unique mission Identifiable competitors External market focus Control of its business functions

Conglomerate Structure

Appropriate for a large corporation with many product lines in several unrelated industries Called holding company structure

Corporate Culture : the company way

 

Is the collection of beliefs, expectations, and values learned and shared by a corporations’ members and transmitted from one generation of employees to another It gives a company a sense of identity The culture includes the dominant orientation of the company It can include informal work rules or work practices that become part of the company’s tradition

4.9 Attributes of Corporate Culture

Attributes of Corporate Culture

Intensity : the degree to which members of a unit accept the norms, values, or other content of the unit culture, which lead to consistent behavior Integration : the degree to which units throughout the organization share a common culture (culture breadth)

4.10

Functions of Corporate Culture

Functions of Corporate Culture

1. 2. 3. 4.

Conveys sense of identity Generates employee commitment Adds to organizational stability Serves as a frame of reference

Strategic Marketing Issues
   

Market position and segmentation Marketing Mix Product life cycle Brand and corporate Reputation

Marketing Mix Variables
Product Quality Features Options Style Brand name Packaging Sizes Services Warranties Returns Place Channels Coverage Locations Inventory Transport Promotion Advertising Personal selling Sales promotion Publicity Price List price Discounts Allowances Payment periods Credit terms

Source: Philip Kotler, Marketing Management: Analysis, Planning, and Control, 4th ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1980), p. 89. Copyright © 1980. Reprinted by permission of Prentice-Hall, Inc.

The Product Life Cycle

Sales

Introduction

Growth* Time

Maturity

Decline

*The right end of the Growth stage is often called Competitive Turbulence because of price and distribution competition that shakes out the weaker competitors. For further information, see C. R. Wasson, Dynamic Competitive Strategy and Product Life Cycles, 3rd ed. (Austin, Tex.: Austin Press, 1978).

Strategic Financial Issues

Financial leverage (the ratio of total debt to total assets) Capital budgeting : the analyzing and ranking of possible investments in fixed assets

Strategic R& D Issues

R& D intensity (spending percentage from total sales) technological competence (use of innovative technology) technology transfer (from lab to market place)

4.13 R&D Mix

R&D Mix
  

Basic R&D Product R&D Process (Engineering) R&D

Impact of Technological Discontinuity on Strategy

Displacement of one technology by another Occurs when a technology cannot be used to enhance the current technology S shaped curve: the key to competitiveness is to determine when to shift resources to a technology that has more potential

Technological Discontinuity
What the S-Curves Reveal

Product Performance

Mature Technology New Technology

Research Effort/Expenditure
In the corporate planning process, it is generally assumed that incremental progress in technology will occur. But past developments in a given technology cannot be extrapolated into the future, because every technology has its limits. The key to competitiveness is to determine when to shift resources to a technology with more potential. Source: P. Pascarella, “Are You Investing in the Wrong Technology?” Industry Week (July 25, 1983), p. 38. Copyright © 1983 Penton/IPC. All rights reserved. Reprinted by permission.

Strategic Operations Issues

  

Intermittent systems (job shops) where the item is normally processed sequentially, but the work and sequence of the process vary (ex. An auto body repair shop) Continuous systems : where products are continuously assembled or processed on line )ex. Automobile assembly line) Experience curve Flexible manufacturing for mass customization Economies of scale versus economies of scope

Strategic Human Resources Management

 

Use of teams : autonomous, self managing work teams, cross-functional work teams, concurrent engineering (designing features that customers want) Union relations and temporary workers Quality of work life (improving the human dimension of work) Human diversity

Strategic Information Systems/Technology Issues
  

Internet Intranet Extranet

Supply chain Management

The forming of networks for sourcing raw materials, manufacturing products or creating services, storing and distributing goods, and delivering goods to customers and consumers

Internal Factor Analysis Summary (IFAS)
Internal Factors Strengths 1 Weight 2 Rating 3 Weighted Score 4 Comments 5

Weaknesses

Total Weighted Score

1.00

Notes: 1. List strengths and weaknesses (5–10 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the company is responding to the strategic factors in its internal environment. Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and Hunger Associates. Reprinted by permission.

IFE– Gateway Computers (2003) Key Internal Factors
Weight Rating Wtd Score

Strengths
1. Several new senior executive with worldclass skills and leadership experience 2. Continuous decline in operating costs and cost of goods sold 3. Well-known brand name 4. Consumer Reports (Sept 2002) recommended Gateway 500X as #1 5. As a direct seller, Gateway holds high brand recognition 0.05 4 0.40

0.05

3

0.15

0.05 0.10

3 4

0.15 0.40

0.05

3

0.15

IFE– Gateway Computers (2003) Key Internal Factors
Weight Rating Wtd Score

Strengths (cont’d)
6. Gateway is diversifying into non-PC products 0.10 3 0.30

7. Good relationship with its suppliers. 8. Economies of scale, the 6th largest PC maker I the world 9. Gateway retails stores excellent

0.05 0.05

4 4

0.20 0.20

0.05

3

0.15

IFE– Gateway Computers (2003) Key Internal Factors
Weight Rating Wtd Score

Weaknesses
1. High operating expense (22% of revenue vs. 10% for Dell) 2. Almost no budget for R&D vs. Dell’s 18% of revenue 3. Low return on assets ratio 4. No niche market 0.05 3 0.15

0.10

1

0.05

0.025 0.025

1 2

0.10 0.05

IFE– Gateway Computers (2003)

Key Internal Factors

Weight

Rating

Wtd Score

Weaknesses (cont’d)
5. Shortage of cash due to successive losses 0.10 2 0.20

6. Limited number Gateway stores 7. Weak performance in overseas market

0.05 0.10

2 2

0.10 0.20

TOTAL

1.00

2.85

Internal Factors Strengths
• • • • •

Internal Factor Analysis Summary (IFAS): Maytag as Example
Weight Rating Weighted Score 1
.15 .05 .10 .05 .15

Comments 5
Quality key to success Know appliances Dedicated factories Good, but deteriorating Hoover name in cleaners

2
5 4 4 3 3

3
.75 .20 .40 .15 .45

4

Quality Maytag culture Experienced top management Vertical integration Employee relations Hoover’s international orientation

Weaknesses
• Process-oriented R&D • Distribution channels • Financial position • Global positioning .05 .05 .15 .20 2 2 2 2 .10 .10 .30 .40 Slow on new products Superstores replacing small dealers High debt load Hoover weak outside the United Kingdom and Australia Investing now

• Manufacturing facilities

.05

4

.20

Total Weighted Score

1.00

3.05

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