Internal Analysis

Introduction
 Strategic analysis of any Business
enterprise involves two stages: Internal
and External analysis.

 Internal analysis is the systematic

evaluation of the key internal features
of an organization.
 External analysis will be discussed later.
Four broad areas need to be considered
for internal analysis
 The organization’s resources, capabilities
 The way in which the organization
configures and co-ordinates its key value-
adding activities
 The structure of the organization and the
characteristics of its culture
 The performance of the organization as
measured by the strength of its products.
 Analysis of the
global business

Global value chain Resources,

Cultural and
analysis: configuration capabilities and
structural analysis
and co-ordination core competences

Global products and performance

Internal analysis
 Resources
 Resources are assets employed in the activities and
processes of the organization.
 They can be tangible or intangible.
 They can be obtained externally (organization-
addressable) or internally generated (organization-
specific).
 They can be specific and non-specific:
 Specific resources can only be used for highly
specialized purposes and are very important to the
organization in adding value to goods and services.
 Assets that are less specific are less important in adding
value, but are more flexible.
 Resources fall within several categories:
 Human
 Financial
 Physical
 Technological
 Informational

 An audit of resources would be likely to include

an evaluation of resources in terms of availability,
quantity and quality, extent of employment,
sources, control systems and performance.
 General Competences/capabilities
 They are assets like industry-specific skills,
relationships and organizational knowledge
which are largely intangible and invisible assets.
 Competences and capabilities will often be
internally generated, but may be obtained by
collaboration with other organizations.
 Certain competences are likely common to
competing businesses within a global industry
or strategic group.
Core Competences/Distinctive Capabilities
 Core competences or distinctive capabilities
are combinations of resources and capabilities
which are unique to a specific organization and
which are responsible for generating its
competitive advantage.
 Kay (1993) identified four potential sources of
Core competences:
 Reputation
 Architecture (i.e., internal and external relationship)
 Innovation
 Strategic assets
 Criteria to evaluate Core Competences
 Complexity: How elaborate is the bundle of resources
and capabilities which comprise the core competence?
 Identifiability: How difficult is it to identify?
 Imitability: How difficult is it to imitate?
 Durability: How long does it be replaced by an
alternative competences?
 Superiority: Is it clearly superior to the competences of
other organizations?
 Adaptability: How easily can the competence be
leveraged or adapted?
 Customer orientation: How is the competence perceived
by customers and how far is it linked to their needs?
 Resources: Capabilities: Core competence
human, financial, Industry-specific Distinctive and superior
physical, skills, relationships, skills, technology Perceived
technological, + organizational = relationships, customer
legal, informational knowledge knowledge and benefits/value
Intangible reputation of the firm added
Tangible and and invisible Unique, and
visible assets assets difficult to copy

Inputs to Integration of
the firm’s resources into
processes value-adding
activities
Not all capabilities are core Denotes feedback
competences – only those loop
that add greater value than denotes core competence
those of competitors development

The relationships between resources, capabilities and core competence

 Global Value Chain Analysis
 Competitive advantage depends on the ability
of the organization to organize its resources
and value-adding activities in a way that is
superior to its competitors.

 Value chain analysis is a technique developed

by Porter (1985) for understanding an
organization’s value-adding activities and
relationship between them.
 Value can be added in two ways:
By producing products at a lower cost than
competitors
By producing products of greater
perceived value than those of competitors.

 Porter extended value chain analysis to the

value system, analysis of the relationship
between the organization, its suppliers,
distribution channels and customers.
 The Value Chain
 The value chain is the chain of activities
which results in the final value of a
business’s products.
 Value added, or margin is indicated by
sales revenue minus costs.

 Porter divided internal parts of organization

into primary and support activities
Primary activities are those that
directly contribute to production of
good or services and organization’s
provision to customer

Support activities are those that aid

primary activities, but do not
themselves add value
 The Firm as a Value Chain
Support Activities

Materials Management
Human Resources
Information Systems
Company Infrastructure

R&D Production Marketing & Sales Service

Primary Activities
 Certain activities or combinations of activities are
likely to relate closely to the organization’s core
competences, termed core activities. They are:
 Add the greatest value
 Add more value than the same activities in
competitors’ value chains
 Relate to and reinforce core competences

 Other value chain activities relate to capabilities,

but do not add greater value than competitors
and therefore do not relate to core competence.
 The Value System
 The value chain of an individual organization
provide an incomplete picture of its ability to
add value.
 Many value-adding activities are shared
between organizations often in the form of a
collaborative network.
 As organizations identify and concentrate on
their core competences and core activities, they
increasingly outsource activities to other
business for whom such activities are core.
 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.
 Distribution
Supplier Competitor channel
Customers

Distribution
Supplier Organization Customers
channel

Distribution
Supplier Competitor channel
Customers

The Value System

 The “Global” Value Chain
 The configuration of an organization’s activities
relates to where and in how many nations each
activities in the value chain is performed.
 Co-ordination is concerned with the management
of dispersed international activities and the
linkages between them.
 Managers must examine the current configuration
of value-adding activities and the extent and
methods of co-ordination as part of their strategic
analysis, which may determine possibilities for
reconfiguration or improving co-ordination
 A global business has two broad choices of
configuration:
 Concentration of the activity in a limited
number of locations to take advantage of benefits
offered by those locations.
 Dispersion of the activity to a large number of
locations.
 Change in the business environment (e.g.,
technological change) may well lead to
changes over time in the configuration that
gives greatest competitive advantage.
 Co-ordination is essentially about overseeing the
complexity of the organization’s configuration such
that all value-adding parts of the business act in
concert with each other to facilitate an effective
overall synergy.
 Those business that overcome the potential
difficulties of co-ordination are those that sustain the
greatest competitive advantage.
 Analysis of configuration and methods of co-
ordination assists in the process of understanding
current competences and identifying the potential
for strengthening and adding to them.
 Core
competences

Core
activities

Value
chain

Configuration Co-ordination

Internal External
Concentration Dispersion
co-ordination co-ordination
Internal External
Internal linkages linkages
activities
Value-adding Suppliers Channels
External activities Customers
activities
Value system

Managing the value system

Global Organizational Culture and Structure
 A global business must have a culture and
structure which allow it to carry out its global
activities.
 The structure of the business must allow it to
accomplish its objectives as effectively and as
efficiently as possible.
 Culture is an important determinant of how
effectively the organization operates and has
important implications for employee
motivation.
 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 organalization
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 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.
 Relative market share
High 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.
 Limitation of the BCG Matrix

 There are many relevant aspects relating

to products that are not taken into account.

 The imprecise nature of its four categories

and the difficulties inherent in predicting
future market growth.

 Global activity may add extra dimension

to the process of portfolio analysis.