Details of strategic management

1. Lesson 5
Internal Environment and Value Chain
Analysis
The internal environment is the final step
in gathering information for the Environmental
Analysis. It consists of identifying resources and
capabilities (in the form of the value chain),
finding competencies, and determining what
competitive advantages (hopefully sustainable)
the organization has.

2. Resources and Competences
Perhaps the most basic concept under strategic
capability is that of resources. Tangible resources
are the physical assets of an organisation such as
plant, people and finance. Intangible resources are
non-physical assets such as information, reputation
and knowledge.

3. An Organisational Resource Could Be Classified
as:
1. Physical
Plants
Equipment
People
Finance
 Natural resources …

4. 2. Human
 Managerial Know-how
Talented key employees
Friendly staff …

5. 3. Intellectual
Specialized knowledge
Collective learning
Business systems
Customer databases
Cutting edge technology knowledge …

6. 4. Intangible
 Patent and copyrights
 Brand name
 Customer loyalty …
5. Skills
 Proven ability to introduce new products
 Experts at providing consistently good customer
service
 Able to create “lean” value chain

7. • 6. Organizational
Proprietary technology
Cash
Strong network of suppliers
Well organized, effective, efficient
management structure
7. Alliances, partnerships, cooperative or joint
ventures

8. The efficiency and effectiveness of physical or
financial resources, or the people in an
organisation, depends not only on their
existence but also on how they are managed ,
the cooperation between people, their
adaptability, their experience and learning about
what works well and what does not. These

9. are all competences, by which it meant
the skills and abilities by which resources are
deployed effectively through an organisation’s
activities and processes.
Threshold capabilities are those capabilities
needed for an organisation to meet the
necessary requirements to compete in a given
market.

10. These could be threshold resources required
to meet minimum customer requirements,
for example, to deploy resources so as to
meet customers’ requirements and also
support particular strategies. Retailers do
not simply expect suppliers to have the IT
infrastructure,

11. but to be able to use it effectively so as to
guarantee the required level of service.
Identifying and managing threshold capabilities
raises at least one significant challenges:
Threshold levels of capacity will change as
critical success factors change or

12. through the activities of competitors and new
entrants (critical success factors, CSFs, are those
product features that are particularly valued by
a group of customers and, therefore, where the
organisation must excel to outperform
competition).

13. This could be because the organisation
has unique resources that critically underpin
competitive advantage and that others cannot
imitate or obtain – a long established brand, for
example. It is, however more likely that an
organisation achieves competitive advantage
because it has distinctive, or core competence.

14. Unique Resources and Core Competences
The concept of core competences was
developed, most notably by Gary Hamel and
C.K. Prahalad. While various definitions exist,
here core competences are taken to mean the
skills and abilities by which resources are
deployed through an organisation’s activities
and processes such as to achieve competitive
advantage in ways that others cannot imitate or
obtain.

15. For example, a supplier that achieves a
competitive advantage in a retail market might
have done so on the basis of a unique resource
such as a powerful brand, or by finding ways of
providing service or building relationships with
that retailer in ways that its competitors find
difficult to imitate – core competence.

16. Value Chain Analysis
The term ‘Value Chain’ was used by Michael Porter in his
book "Competitive Advantage: Creating and
Sustaining superior Performance" (1985). The value chain
analysis describes the activities the organization
performs and links them to the organizations competitive
position.
Value chain analysis describes the activities within and
around an organization, and relates them to an
analysis of the competitive strength of the organization

18. Value Chain Analysis describes the activities that
take place in a business and relates them to an
analysis of the competitive strength of the
business. Influential work by Michael Porter
suggested that the activities of a business could
be grouped under two headings:

19.  Primary Activities - those that are directly
concerned with creating and delivering a product
(e.g. component assembly); and
 Support Activities, which whilst they are not
directly involved in production, may increase
effectiveness or efficiency (e.g. human resource
management).
Value Chain Analysis is one way of identifying
which activities are best undertaken by a
business and which are best provided by others
("out sourced").

20. • Inbound logistics are the activities concerned
with receiving, storing and distributing the
inputs to the product or service. They include
materials handling, stock control, transport,
etc.
• Operations transform these various inputs
into the final product or service: machining,
packaging, assembly, testing, etc.

21. • Outbound logistics collect, store and distribute
the product to customers. For tangible
products this would be
warehousing, materials
handling, transport, etc. In the case of
services, they may be more concerned with
arrangements for bringing customers to the
service if it is a fixed location (e.g. Sports
event)

22. • Sales and Marketing is considered everything
associated with marketing the product or
service. The sales force, personal
selling, advertising, promotion, market
research, web site, and dealer or distributor
support are a few examples of Sales and
Marketing.

23. • Service is associated with providing assistance
to the customer. Some Service examples are
installation, warranty work, maintenance,
complaints, questions, repair, and technical
assistance.

24. Each of these groups of primary activities is
linked to support activities.
Support activities help to improve the
effectiveness or efficiency of primary activities.
They can be divided into four areas:

25.  Procurement refers to the processes for acquiring
the various resource inputs to the primary
activities. As such, it occurs in many parts of the
organisation.
 Technology development . All value activities have
a ‘technology’, even if it is just know-how. The key
technologies may be concerned directly with the
product (e.g. R&D, product design) or with
processes (e.g. process development) or

26. with a particular resource (e.g. raw materials
improvements). This area is fundamental to the
innovative capacity of the organisation.

27.  Human resource management is particularly
important area which transcends all primary
activities. It is concerned with those activities
involved in
recruiting, managing, training, developing and
rewarding people within the organisation.

28.  Infrastructure. The systems of planning,
finance, quality control, information
management, etc. are crucially important to
an organisation’s performance in its primary
activities. Infrastructure also consists of the
structures and routines of the organisation
which sustain its culture.

29. Week 8
Business Strategies in Different Industry Context