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Internal Environment

Internal Environmental analysis is the process of reviewing organizational resources, scanning organizational activities and linking them with the organization and identifying the strengths and capabilities.

Significance of Internal Analysis


 Helps to know where the firm stands in terms of strengths and weaknesses.  Helps to select the opportunities to be tapped in line with its capacity.  Helps in matching of its objectives to its capacity.  Helps in assessing the capacity-gap and takes steps to overcome it.  Helps in selecting the specific lines in which the firm can grow, using its potential.

Dynamics of Internal Environment


Organizational Resources Organizational Behavior Strengths and Weaknesses Synergy Effects Competencies Organizational Capabilities Strategic Advantage

Organizational Resources
A firm is a bundle of resources tangible or intangible includes all physical, human and organizational resources, includes all assets, capabilities, processes, information, knowledge, equipment, intelligence and so on. The resources can lead to strategic advantage if they are VALUABLE,RARE, COSTLY TO IMITATE, NON-SUBSTITUTABLE.

Organizational Behavior
It is the influence of various forces and influences operating in the environment that create the ability or place constraints in the usage of resources. Important forces in OB are quality of leadership, mgt. philosophy, values and culture, work environment, quality of work environment, org. politics etc.

Strengths and Weaknesses


Strengths Inherent capability that the organization can use to gain strategic advantage e.g. low cost of capital, efficient use of funds etc. Weaknesses Inherent limitation that can create a strategic disadvantage for an organization obsolete plant and machinery, lack of skilled manpower etc.

Synergy
Synergy is the idea that the whole is greater than the sum of its parts. Also expressed as the two-plus-two-isequal-to-five effect. It gives an idea that resources and behavior do not exist in isolation but combine in number of ways.

Example of Synergy
In marketing, synergistic effects may occur when the product, pricing, promotion and distribution support each other, resulting in high level of marketing synergy ultimately leading to operational synergies.

Competencies
The special qualities possessed by an org. that make them withstand pressures of competition in the marketplace. When an organization uses its competencies exceedingly well, over a period of time, it turns them into core competencies.

Examples of Competencies
Good Technology Surplus Cash Inflow Skilled Sales Force Research and Development

Distinctive Competence
When a specific quality is possessed by org. exclusively or relatively in a large measure, it is called a distinctive competence. It is any advantage a company has over its competitors because it can do something which they cannot or it can do something better than they can.

Examples of Distinctive Competence


Superior product quality on a particular attribute, e.g. a two-wheeler which is more fuel efficient than its competitor products. Creation of marketing niche by supplying highly specialized products to a particular market segment.

Tests to Identify Core Competencies


According to C.K. Prahalad and Gary Hamel, three tests are there:  It should be able to provide potential access to a wide variety of markets.  It should make significant contribution to the perceived customer benefits of the end products.  It should be difficult for competitors to imitate.

Organizational Capability
 Organizational capability is the inherent capacity or potential of an organization to use its strengths and overcome its weaknesses in order to exploit opportunities and face threats in its external environment.  It is a measurable attribute, so it can be compared.  It can be regarded as the sum total of resources and behavior, strengths and weaknesses, synergistic effects and competencies of any org.

Reasons for the study of Organizational Capabilities


To know what capacity exists within the organization to exploit opportunities or face threats. To know what potentials should be developed in the org. so that better prospects could be availed in future.

Strategic Advantage
They are the result of organizational activities leading to rewards in terms of financial parameters (high profits) or nonfinancial parameters (Market share, reputation). These are measurable in absolute terms.

Organizational Capability Factors


These are the strategic strengths and weaknesses existing in different functional areas within an organization which are of crucial importance to strategy formulation and implementation.

Organizational Capability Factors


Financial Capability Marketing Capability Operations Capability Personnel Capability Information Management Capability General Management Capability

Financial Capability
These factors relate to availability, usage, and management of funds and all other related aspects.  Factors related to sources of funds capital structure, working capital, borrowings reserves & surplus etc.  Factors related to usage of funds capital inv. Fixed assets, current assets etc.  Factors related to management of funds MCS, budgeting, financial analysis etc.

Typical Strengths supporting Financial Capability


Access to financial resources High level of credit worthiness Efficient capital budgeting system Low cost of capital Tax benefits due to various govt. policies Relations with financial institutions

Marketing Capability
Relate to the pricing, promotion and distribution of products or services and all other related factors.  Product related factors variety, quality, position, packaging etc.  Price related factors Pricing obj., policies, strategies etc.  Place related factors Distribution, transportation and logistics channels etc.  Promotion related factors Tools, sales promotion, adv., public relations etc.  Integrative factors Marketing mix, MIS etc.

Strengths that support Marketing Capability


Wide variety of products Good customer service Effective sales promotion Low prices as compared in the market Effective distribution system Favorable company and product image High profile advertising

Operations Capability
Relates to the production of goods or services, the use of material resources and all other aspects.  Factors related to production system capacity, location, layout, degree of automation, product design etc.  Factors related to operations and control systems Prod. planning, cost and quality control, inventory controls, maintenance systems etc.  Factors related to R&D System patent rights, product development, level of technology used, technological collaborations etc.

Strengths that Support Operations capability


High level of capacity utilization Favorable plant location Existence of good inventory control systems Available of qualified R&D personnel Technical collaboration with reputed firms abroad Reliable sources of supply

Personnel Capability
Relate to the existence and use of human resources, their skills and all other related aspects.  Personnel System Relating to manpower planning, selection, development, compensation etc.  Org. and Employees Characteristics quality of mgt., staff and workers, working conditions, etc.  Industrial Relations safety, welfare and security, collective bargaining, employee satisfaction and morale etc.

Typical Strengths that support Personnel Capability


Efficient and effective personnel systems Excellent training opportunities and facilities Congenial work environment High level of loyalty Low absenteeism Satisfied and motivated workforce

Information Management Capability


Relate to the design and mgt. of the flow of information from outside as well as from within the org. to facilitate decision-making and all other related aspects.

Factors affecting Information Capability


 Acquisition and retention of Information Sources, security, quantity, quality and capacity of retention.  Processing and analysis DBMS, computer systems, software capability etc.  Retrieval and usage Appropriate information formats, capacity to use information.  Transmission and dissemination -Speed, coverage, acceptability of information.  Integrative and Supportive factors IT infrastructure, up gradation facilities, professionals support etc.

Typical Strengths that Support IM Capability


Extent of use of computerized information system Positive attitude of information sharing Existence of foolproof security systems High-tech equipment available and operate able Easy access to information sources Support of top mgt. and It professionals

General Management Capability


Relates to the integration, coordination and direction of functional capabilities towards common goals and all other related aspects.

Factors related to GM Capability


General Managers Their orientation, values, competence, personal goals, track record, experience etc. GM System Strategic mgt. system, intent, formulation, implementation, evaluation, MIS, corporate planning system etc. External Relationships with govt. financial institutions, public relations, social responsibility Org. Climate culture, use of power, mgt. of change, nature of org. structure and control etc.

Typical Strengths that Support GM Capability


Effective system of Corporate Planning Good control and reward system Development-oriented org. culture Effective system of org. change Favorable corporate image Commonly being perceived as a good org. to work for.

Competitive Advantage
For an organization, it means discovering the needs of the customers and then satisfying and even exceeding their expectations for the purpose of achieving the goals of the organization.

Preparation of OC Profile
Capability Factor Rating

Factors
Weakness (-5) Financial Capability Marketing Capability Operations Capability Personnel Capability IM Capability Factors GM Capability Factors Neutral (0) Strength (5)

What is Strategic Advantage Profile (SAP)?


SAP is the technique of analyzing the internal factors of the organization by preparing a critical picture of different capacity factors. It is a relative strength of the company over its competitors.

Strategic Advantage Profile (SAP)


Functional Area Core Factors
Good Prod. Facilities Old plant &machinery Young & Motivated Force Poor union relations Tax holiday Costly finance Effective comm. Mix Costly employees Rich experience in mkt.

(+) or (-) (+) (-) (+) (-) (+) (-) (+) (-) (+)

Production & Operations Personnel Factors Finance and Accounting Marketing Operations

SAP
R & D and Engineering
No design protection Well-developed laboratory Highly qualified research staff

(-) (+) (+) (+) (+) (-)

Organization System

High-tech MIS Effective delegation and decentralization No Mgt. by exception