Str Mgt Lesson 4 Internal Scanning Scanning


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Str Mgt Lesson 4 Internal Scanning Scanning

  1. 1. Internal Scanning: Organizational Analysis <ul><li>Scanning external environment- not enough </li></ul><ul><li>Identify internal strategic factors </li></ul><ul><li>Internal scanning is therefore organizational scanning </li></ul>
  2. 2. What is a resource? <ul><li>An asset, competency, process, skill or knowledge controlled by the organization </li></ul><ul><li>A strength, if it provides the firm a competitive advantage </li></ul>
  3. 3. VRIO framework <ul><li>Barney proposes 4 questions to evaluate firm’s key resources: </li></ul><ul><li>Value - does it provide competitive advantage? </li></ul><ul><li>Rareness : do competitors possess it? </li></ul><ul><li>Imitability : is it costly for others to imitate? </li></ul><ul><li>Organization : is the firm organized to exploit the resource? </li></ul>
  4. 4. Using resources to gain competitive advantage <ul><li>5-step resource based approach to strategy analysis, proposed by Grant: </li></ul><ul><li>Identify/classify firm’s resources in terms of strengths/weaknesses </li></ul><ul><li>Combine firm’s strength into corporate capabilities/core competencies- if these are superior to competitors they become distinctive competencies </li></ul>
  5. 5. Using resources to gain competitive advantage <ul><li>Evaluate the profit potential of these resources & capabilities </li></ul><ul><li>Select the strategy that best exploits the firms resources/capabilities </li></ul><ul><li>Identify resource gaps & invest in upgrading weaknesses </li></ul>
  6. 6. How to sustain firm’s distinctive competencies <ul><li>2 characteristics determine the sustainability of a firm's distinctive competencies: </li></ul><ul><li>Durability - rate at which a firm’s underlying resources & capabilities become obsolete, and </li></ul><ul><li>Imitability - rate at which a firm’s underlying resources & capabilities can be duplicated by others </li></ul>
  7. 7. <ul><li>A core competency can be easily imitated to the extent that it is: </li></ul><ul><li>Transparent </li></ul><ul><li>Transferable and </li></ul><ul><li>Replicable </li></ul>
  8. 8. Value Chain Analysis <ul><li>A linked set of value creating activities starting with raw material coming from suppliers, moving on to a series of value added activities involved in producing & marketing a product/service, & ending with the ultimate consumer getting the final product from the distributors </li></ul>
  9. 9. Value Chain Analysis <ul><li>Very few corporations include a product’s entire value chain </li></ul><ul><li>In 1920-30s, Ford Motor Company had its own iron mines, ore-carrying ships, railway line, plant, dealers & trucks for delivery of cars to dealers </li></ul>
  10. 10. Industry Value Chain Analysis <ul><li>Value chain of most industries- split in 2 segments: upstream & downstream halves </li></ul><ul><li>Petroleum industry: </li></ul><ul><li>Upstream – oil exploration, drilling, moving crude oil to refinery </li></ul><ul><li>Downstream – oil refining, transporting, marketing </li></ul>
  11. 11. Industry Value Chain Analysis <ul><li>ONGC- expertise in upstream activities- exploration etc </li></ul><ul><li>Indian Oil Corporation- expertise in downstream activities- marketing, retailing etc </li></ul><ul><li>An industry can be analyzed in terms of profit margin available at any one point along the value chain </li></ul>
  12. 12. Industry Value Chain Analysis <ul><li>Even if a firm operates up & down the entire chain, it usually has an area of primary expertise where its primary activities lie </li></ul><ul><li>This is firm’s centre of gravity- the point where its greatest expertise & capabilities lie- its core competencies </li></ul>
  13. 13. Corporate Value Chain Analysis <ul><li>Each firm has its own internal value chain of activities </li></ul><ul><li>Porter proposes that a manufacturing firm’s primary activities begin with inbound logistics (raw material handling & warehousing), go through an operations process in which a product is manufactured, continue to outbound logistics (warehousing & distribution), marketing & sales & finally to service (installation, repair, spares) </li></ul>
  14. 14. Corporate Value Chain Analysis <ul><li>Various support activities such as: procurement, R & D, HRM & infrastructure (accounting, finance, strategic planning), </li></ul><ul><li>ensure that the primary value-chain activities operate effectively & efficiently </li></ul><ul><li>Each of a firm’s product lines has its own distinctive value chain </li></ul>
  15. 15. Scanning Functional Resources <ul><li>Apart from the financial, physical & human assets, functional resources also include : </li></ul><ul><li>Ability to formulate/implement the necessary functional objectives/strategies/policies </li></ul><ul><li>Knowledge of analytical concepts </li></ul><ul><li>Marketing, Finance, R & D, Operations, Human resources, Information systems </li></ul><ul><li>Corporate Culture </li></ul>
  16. 16. Basic Organizational Structures <ul><li>basic 5-types of structure: </li></ul><ul><li>Simple structure- no functional/product categories, suitable for a small, entrepreneur dominated firm with 1 or 2 product lines that operate in a reasonably small easily identifiable market niche, employees tend to be generalists & jack of all trades </li></ul>
  17. 17. Basic Organizational Structures <ul><li>Functional structure- suitable for medium sized firm with several related product lines in one industry, employees tend to be specialists </li></ul><ul><li>Divisional structure- suitable for large firms with many product lines in several related industries-ITC Limited </li></ul>
  18. 18. Basic Organizational Structures Strategic Business Units (SBUs) <ul><li>Divisions/ Groups of divisions </li></ul><ul><li>Composed of independent product market segments </li></ul><ul><li>Given primary responsibility & authority for the management of their own functional areas </li></ul>
  19. 19. Basic Organizational Structures Strategic Business Units (SBUs) <ul><li>May be of any size or level, but must have: a unique mission, identifiable competitors, an external market focus & control of its business functions- Asian Paints </li></ul>
  20. 20. Basic Organizational Structures Conglomerate Structure <ul><li>Suitable for a large corporation with many product lines in several unrelated industries </li></ul><ul><li>Also known as Holding Company </li></ul><ul><li>Legally independent firms (subsidiaries) operating under one company but controlled through subsidiaries’ board of directors </li></ul><ul><li>Unrelated nature of subsidiaries prevents synergy among them </li></ul>
  21. 21. Strategic Audit <ul><li>A checklist for organizational analysis </li></ul><ul><li>Helps to ascertain a firm’s strengths & weaknesses </li></ul><ul><li>Examines resources in terms of functional areas of marketing, finance, R & D, operations, human resources & information systems </li></ul><ul><li>Also examines corporate structure, culture & resources </li></ul>
  22. 22. Synthesis of Internal Factors <ul><li>IFAS - Internal Factor Analysis Summary </li></ul><ul><li>Organize the internal factors into strengths & weaknesses </li></ul><ul><li>How well is the firm responding to these factors- use VRIO framework </li></ul><ul><li>IFAS table constructed in the same way as EFAS table </li></ul>