Chapter Two

ENVIRONMENT ANALYSIS

2.1 Internal Environmental Analysis

a. SWOT Analysis
b. Value chain analysis

1
The Internal Environment:
Sources of
(SW)

2
 
’




’
.

3
 Cont..










 Cont…





The proper matching of what a firm can do with
what it might do allows the development of
strategic intent, the pursuit of strategic mission
and formulation of strategies.
 Strengths
 

’


 



6
 Michael Porter identified two basic types of competitive
advantage:
Cost advantage (price)
Differentiation advantage (Quality & Product)
 Competitive advantage enables the firm to create
superior value for its customers and superior profits for
itself.
Weakness

• Limitation or deficiency in resource, and capabilities that

seriously impedes a firm’s effective performance.

• Lack of facilities, financial resources, management

capabilities, marketing skills, and poor brand image can
be source of weaknesses.
7
 Core Competencies
The selling point of the organization
Core Competencies are the knowledge and skills that
make the organization a success and help the organization
change to meet a changing environment.
The firm's resources and capabilities together form its
core competencies.
These competencies enable
innovation,
efficiency,
quality, and
customer responsiveness, all of which can be leveraged to create
a cost advantage or a differentiation advantage
i.e. core competencies serve as sources of competitive
advantage.
8
 Core Competencies cont’d …
When Resources & Capabilities serve as core
competency? when they are:
 Valuable: A resource or capability is said to be valuable
if it allows the firm to exploit opportunities or negate
threats in the environment. If a resource does not allow a
firm to minimize threats or exploit opportunities, it does
not enhance the competitive position of the firm.
 Rare: A resource is rare simply if it is not widely
possessed by other competitors.
 Costly to imitate: An inimitable (the opposite of
imitable) resource is difficult to imitate or to create ready
substitutes for. A resource is inimitable and non-
substitutable if it is difficult for another firm to acquire it
or to substitute something else in its place.
 Non-substitutable
 If these met, they can become core rigidities of the
organization 9
 The Process of Internal Analysis
Involves four basic steps:
1.Developing a profile of financial, physical,
organizational, human, & technological etc
resources
2.Determining the key success requirement of
the product/market segments in which the
organization competes or might compete
3.Comparing the resource profile to the key
success requirements to determine the
strengths & weaknesses
4.Comparing the strengths & weaknesses of the
organization with those of its major 10
 2.2 Value Creation












11
 Value Creation cont’d …
Categories of value: may via
low price (by maintaining quality)
quality received for the price paid
improved service delivery
 The trade off between what customer paid and
what it received
V(value) = C (cost to the customer) – B (benefit to
the customer)

12
 Value Creation cont’d …

The Generic Building Blocks of Competitive

Advantage
• Superior efficiency - the quantity of inputs that it
takes to produce a given output
• Superior quality - customer-perceived value in
the attributes of products/services, reliability etc.
• Superior innovation - anything new or novel,
uniqueness
• Superior customer responsiveness - identifying
& satisfying the needs of customers,
customization
13
 Value Chain Analysis
• The value chain was described and popularized
by Michael Porter in his 1985 in Competitive
Advantage: Creating and Sustaining Superior
Performance.
• A value chain is a systematic way of viewing the
series of activities a firm performs to provide a
product to its customers.
• It allows the firm to understand the parts of its
operations that create value & those that do not.
14
 Value chain analysis
The "primary activities" & Supportive activities
that represent the sequence of
 bringing materials into the business,
converting them into final products,
making it available to the customers and
proving after sale support to the consumer.

They include: inbound logistics, production,

outbound logistics, sales and marketing, and
after sales service
 Cont…
’










 Cont…











 Value Chain Analysis cont’d …
• Each of an organization’s product lines has its
own distinctive value chain.
• Organizations may make several different
products, an internal analysis of the firm involves
analyzing a series of different value chains.

• Thus, a systematic examination of individual

value activities can lead to a better understanding
of an organization’s strengths and weaknesses.

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 


’
’—








◦ 

Corporate Value Chain Analysis
Primary activities Support activities

 Inbound logistics  Procurement

 Operations  Technology
 Outbound logistics development
 Human resource
management
 Firm infrastructure
A Corporation’s Value Chain
 Corporate Value Chain Analysis


1.’

2.’
3.

THANK YOU

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