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  1. 1. Chapter 3: Internal Scanning Organisational Analysis MSK7223 STRATEGIC KNOWLEDGE MANAGEMENT I
  2. 2. Resource-Based Approach to Org Analysis Scanning and analysing the external environment for O&Ts is not enough to provide an organisation with CA. Analysts must also look into within the corporation itself to identify internal strategic factors - those critical S&Ws that are likely to determine if the firm can take advantage of the opportunities while avoiding threats. Often referred to as organisational analysis and is concerned with identifying and developing an organisation’s resources. Resource - an asset, competency, process, skills or knowledge controlled by the corporation that provide CA.
  3. 3. Resource-Based Approach to Org Analysis VRIO Framework Value - does it provide CA? Rareness - do other competitors possess it? Imitability - is it costly for others to imitate? Organisation - is the firm organised to exploit the resource? If the answer is “yes” for a particular resource, then the resource is considered as a strength and a distinctive competence.
  4. 4. Resource-Based Approach to Org Analysis In order to evaluate the resources to ascertain if they are internal strategic factors, we have to compare the measures of these resources with measures of: The company’s past performance The company’s key competitors The industry as a whole To the extent that a resource is significantly different from the firm’s own past, its key competitors or the industry average, the resource is likely to be a strategic factor and should be considered in strategic decisions.
  5. 5. Using Resources to Gain CA Grant proposes a 5-step, resource-based approach to strategy analysis: Identify and classify the firm’s resources in terms of S&Ws. Combine the firm’s strengths into specific capabilities - Core competencies - things that an org can do exceedingly well, or distinctive competencies - capabilities that are superior to those of competitors. Appraise the profit potential of these resources and capabilities in terms of their potential for sustainable CA and the ability to harvest the profits resulting from the use of these resources and capabilities. Select the best strategy that best exploit firms’ resources. Identify resource gaps and invest in upgrading weaknesses.
  6. 6. Determining Sustainability of an Advantage Two characteristics which determine the sustainability of a firm’s distinctive competencies: Durability Rate at which a firm’s resources and capabilities depreciate/ become obsolete. The threat is the emergence of new technology. Imitability Rate at which a firm’s resources and capabilities can be duplicated by others. Competitors will always try to learn and imitate skills and capabilities of another firm with core competencies that provides it with CA at the marketplace.
  7. 7. Determining Sustainability of an Advantage Imitability Competitors’ efforts may range from reverse engineering, hiring employees from competitors or to outright patent infringements. A core competency can be easily imitated depends on: Transparency - speed which other firms can understand the relationship of resources and capabilities that support a successful firm’s strategy. Transferability - ability of competitors to gather resources and capabilities necessary to support a competitive challenge. Replicability - ability of competitors to use duplicated resources and capabilities to imitate a firm’s success.
  8. 8. Determining Sustainability of an Advantage It is relatively easy to learn and imitate another co’s core competency/capability if it comes from explicit knowledge rather than tacit knowledge, i.e. culture. Tacit knowledge is more valuable and more likely to lead to a sustainable CA because it is much harder for competitors to imitate where the competencies cannot be clearly explained. An org’s resources or capabilities can be placed on a continuum to the extent they are durable and cannot be imitated by another firm.
  9. 9. Determining Sustainability of an Advantage Sustainable because of tacit knowledge. CA is achieved. Highest imitation/ pressures because based on concept/technology that is easily duplicated. Time to market needs to be increased.
  10. 10. Value Chain Analysis A good way to begin organisational analysis is to ascertain where a firm’s products are located in the overall value chain. Value chain - a linked set of value-creating activities beginning with basic raw materials, coming from suppliers, moving on to a series of value-added activities involved in producing and marketing a prod/ service, ending with distributors getting the final goods to the ultimate consumer. Very few corporations include a product’s entire value chain.
  11. 11. Value Chain Analysis
  12. 12. Value Chain Analysis Industry Value-Chain Analysis The value chains of most industries can be divided into 2 segments, upstream and downstream. E.g. petroleum industry - upstream refers to oil exploration, drilling and moving crude oil to the refinery; downstream refers to refining the oil plus the transporting and marketing of gasoline and refined oil to distributors and petrol station retailers. An industry can also be analysed in terms of profit margin available at any one point along the value chain. For example, US’s car industry’s revenues and profits come from many value chain activities, manufacturing, new/used car sales, insurance, petrol retailing, lease financing etc.
  13. 13. Value Chain Analysis Industry Value-Chain Analysis In analysing the complete value chain of a prod, note that even if a firm operates up and down the entire industry chain, it usually has an area of primary expertise where its primary activities lie, known as centre of gravity (vertical integration) the point where its greatest expertise and capabilities lie (core competencies). Upon identifying the centre of gravity, one of the strategic moves is to move forward or backward along the value chain in order to reduce costs, guarantee access to key raw materials or to guarantee distribution, a process known as vertical integration.
  14. 14. Value Chain Analysis Corporate Value-Chain Analysis Each corporation has its own internal value chain of activities. Porter proposes that a manufacturing firm’s primary activities usually begin with inbound logistics (raw materials handling and warehousing), go through an operations process in which a prod is manufactured and continue on to outbound logistics (warehousing and distribution), marketing and sales, and finally to service (installation, repair and sales of parts). Several support activities (procurement, R&D, HRM and firm infrastructure) ensure that the primary value chain activities operate efficiently and effectively.
  15. 15. Value Chain Analysis A Corporation’s Value-Chain Analysis
  16. 16. Value Chain Analysis Corporate Value-Chain Analysis Corporate value-chain analysis involves the 3 steps: Examine each product line’s value chain in terms of the various activities involved in producing that products/ services - which activities are S&Ws? Examine the “linkages” within each product line’s value chain for example, marketing and quality control. Examine the potential synergies among the value chains of different product lines or business units - economies of scope 2 different product lines share the same value-chain activities such as distribution, marketing, manufacturing facilities etc.
  17. 17. Scanning Functional Resources The simplest way to begin an analysis of a corporation’s value chain is by examining its traditional functional areas for potential S&Ws. Functional resources include not only the financial, physical and human assets in each area, also the ability of the people in each area to formulate and implement the necessary functional objectives, strategies and policies include knowledge of analytical concepts and procedural techniques common to each area and ability of people to use them effectively.
  18. 18. Scanning Functional Resources Basic Organisational Structures Simple structure - no functional / product categories, appropriate for small, entrepreneur-dominated co with 1 or 2 prod lines that operate in niche market. Employees are generalists and jack-of-alltrade. Functional structure - appropriate for medium-sized firm with several related prod lines in one industry. Employees tend to be specialists in business functions important to the industry. Divisional structure - appropriate for large corporation with many prod lines in several related industries. Employees tend to be functional specialists organised according to prod/market distinctions. Mgmt tries to find synergy through the use of committee and horizontal linkages.
  19. 19. Scanning Functional Resources Basic Organisational Structures Strategic business units (SBUs) - recent modification of divisional structure. SBUs are divisions/groups composed of independent prod-market segments that are given primary responsibility and authority for the mgmt of their own functional areas. May be of any size/level, but it has its own unique mission, identifiable competitors, external market focus and control of its business functions. Idea is to decentralise the strategic elements. Conglomerate structure - appropriate for large corps with many prod lines in several unrelated industries. A holding company is formed with several subsidiaries in it.
  20. 20. Scanning Functional Resources
  21. 21. Corporate Culture: The Company Way Corporate culture: Collection of beliefs, expectations and values learned and shared by a corp’s members and transmitted from one generation of employees to another - work practices over time become a company’s unquestioned tradition. Generally reflects the values of the founder(s) and the mission of the firm. It gives the co a sense of identity - who we are, what we do, what we stand for etc. Corp culture has 2 distinct attributes, intensity and integration.
  22. 22. Corporate Culture: The Company Way Culture intensity The degree to which members of a unit accept the norms, values of other culture content associated with the unit. Shows the culture depth. New firms have weaker, less intensive culture compared to those with strong norms. Employees in an intensive culture tend to exhibit consistent behaviour - tend to act similarly over time. Culture integration The extent to which units throughout an organisation share a common culture. Shows the culture’s breadth.
  23. 23. Corporate Culture: The Company Way Culture integration Organisations with a pervasive dominant culture may be hierarchically controlled and power oriented, i.e. military unit. All employees tend to hold the same cultural norms and values. In contrast, companies that is structured into diverse units by functions/divisions tend to exhibit some strong subcultures and a less integrated corporate culture. Corp culture fulfils several important functions in org: Conveys a sense of identity for employees. Helps generate employee commitment. Adds to the stability of the org as a social system. Serves as a frame of reference for employees.
  24. 24. Corporate Culture: The Company Way Corp culture shapes the behavior of people in the corp. Since these cultures have a powerful influence on the behavior of people at all levels, they can strongly affect a corp’s ability to shift its strategic direction. A strong culture should not only promote survival, but also should create the basis for a superior competitive position e.g. a culture emphasising constant renewal. To the extent that a corp’s distinctive competence is embedded in its culture, it will be a form of tacit knowledge and difficult for competitors to imitate. Corp culture must be compatible with the proposed strategy.
  25. 25. Strategic Marketing Issues Market Position and Segmentation Refers to the selection of specific areas for marketing concentration and can be expressed in terms of market, prod and geographical locations. Which niche to seek, new prods to develop and how to ensure that a co’s many prods do not directly compete with one another. Marketing Mix Combination of key variables under the corp’s control that can be used to affect demand and to gain CA. For example, product, price, promotion and place (4Ps). There are a few subvariables under the 4Ps.
  26. 26. Strategic Marketing Issues Marketing Mix Variables Product Place Promotion Price Quality Features Options Style Brand name Packaging Sizes Services Warranties Returns Channels Coverage Locations Inventory Transport Advertising Personal selling Sales promotion Publicity List price Discounts Allowances Payment periods Credit terms
  27. 27. Strategic Marketing Issues Product Life Cycle One of the most useful concepts in marketing and SM. It is a graph showing time plotted against the dollar sales of a product as it moves from introduction through growth and maturity to decline. Enables marketing manager to examine the marketing mix of a particular prod / group of prods in terms of its position in its life cycle.
  28. 28. Strategic Marketing Issues Product Life Cycle Sales Introduction Growth Maturity Time Decline
  29. 29. Strategic Marketing Issues Brand A name given to a company’s product which identifies that item in the mind of the consumer. Corporate brand A type of brand in which the company’s name serves as the brand. Corporate reputation A widely held perception of a company by the general public Stakeholders’ perceptions of quality Corporation’s prominence in the mind of stakeholders
  30. 30. Strategic Financial Issues The financial manager must ascertain the best sources of funds, uses of funds and control of funds. Cash must be raised from internal / external (local / global) sources and allocated for different uses. The flow of funds in the operations must be properly monitored. Companies that operate globally must beware of the currency fluctuations. Benefits in the forms of returns, repayments, or prods and services must be given to the sources of outside financing. All these tasks must complement and support corp’s overall strategy.
  31. 31. Strategic Financial Issues Financial Leverage The ratio of total debts to total assets. Useful to describe how debt is used to increase the earnings available to common shareholders. High leverage is perceived as corporate strength in times of prosperity and ever-increasing sales, or weakness in times of recession and falling sales. Greater leverage is good for firms in stable environments and vice-versa. Capital Budgeting Analysing and ranking of possible investments in fixed assets such as lands, buildings, equipments etc. A good finance dept may be able to prepare capital budgets and rank them for the purpose of strategic decision making.
  32. 32. Strategic R&D Issues The R&D manager is responsible for suggesting and implementing a company’s technological strategy in light of its corporate objectives and policies. The managers job involve: choosing among alternative new technologies to use within the corporation. developing methods of embodying the new technology in new prods and processes. deploying resources so that the new technology can be successfully implemented.
  33. 33. Strategic R&D Issues R&D Intensity, Technological Competence & Tech Transfer R&D intensity - spending on R&D as percentage of sales revenue - is a principal means of gaining market share in global competition. The amount spent varies by industry. A co’s R&D unit should be evaluated for technological competence (adequate expenditure and high in innovation) in both the development and use of tech. A co must also be proficient in tech transfer - process of taking new tech from the lab to market to gain CA
  34. 34. Strategic R&D Issues R&D Mix - consists of : Basic R&D - conducted by scientists in well-equipped labs on theoretical problem areas. Results are patents and research publications. Product R&D - concentrates on marketing, concerned with product / product-packaging improvements. The best measurement - no of successful new prods introduced, percentage of total sales/profits coming from prods introduced within the past 5 years. Engineering (or Process) R&D - concerning engineering, concentrating on quality control and development of design specifications and improved production equipment. Can be measured by reduction in manufacturing costs and no of defects.
  35. 35. Strategic R&D Issues Impact of Technological Discontinuity on Strategy The R&D manager must determine when to abandon present tech and when to develop/adopt new tech. Technological discontinuity is a frequent strategically important phenomenon. Such discontinuity occurs when a new tech cannot simply be used to enhance the current tech but actually substitute the tech to yield better performance. For each tech, the plotting of prod performance against research effort /expenditures resulted in a S-shaped curve. For example, computerised IT is currently on the steep upward slope - small increment in R&D effort resulting in greater improvement in performance.
  36. 36. Strategic R&D Issues Impact of Technological Discontinuity on Strategy R&D dollars should be allocated to tech with more potential.
  37. 37. Strategic Operations Issues The primary task of the operations (manufacturing / service) manager is to develop and operate a system that will produce the required no of prods/services, with a certain quality at a given cost within an allotted time. Manufacturing can be intermittent or continuous: Intermittent systems (job shops) - the item is processed sequentially, but the work and sequence of the process vary. Labour-intensive and little automated machinery. Small amount of fixed costs. Employees earn piece-rate wages. Continuous systems - laid out as lines on which prods can be continuously assembled/processed. In contrasts with job shop.
  38. 38. Strategic Operations Issues Operating leverage The impact of a specific change in sales volume on net operating income. The advantage of high operating leverage is that once firm reaches breakeven, its profit rise faster than those with less automated firms having lower operating leverage. Continuous systems reap benefits from economies of scale. In terms of strategy, this firm needs to find a high-demand niche in the marketplace for which it can produce and sell a large quantity of goods. However, firms with high operating leverage is likely to suffer huge losses during recession compared to firms with less automation. It is easier to lay off staff than to sell plants or machines.
  39. 39. Strategic Operations Issues Experience Curve Originally called learning curve. Suggests that unit production costs decline by some fixed percentage each time the total accumulated volume of production in units doubles. It is based on many variables - amount of time it takes for a person to learn new tasks, economies of scales, product and process improvements, lower raw material costs, etc. Achieving these results means investing in R&D and fixed assets, higher fixed costs and less flexibility. Management commonly uses the experience curve in estimating production costs of (1) a product never before made with the present techniques.processes; (2) current prods produced by newly introduced techniques/processes.
  40. 40. Strategic Operations Issues Flexible Manufacturing for Mass Customisation The use of CAD/CAM and robot tech means the learning time are shorter and products can be economically manufactured in small, customised batches in process called mass customisation. Mass customisation - the low-cost production of individually customised goods and services. Economies of scope - common parts of the manufacturing activities of various products are combined to gain economies even though small no of each prod are made - replaces economies of scale - which unit costs are reduced by making large no of the same prod) in flexible manufacturing. Flexible manufacturing permits the low-volume output of customtailored products at relatively low unit costs through economies of scope.
  41. 41. Strategic HRM Issues The primary tasks of HR is to improve the match between individuals and jobs. A good HRM dept should know how to use attitude surveys and other feedback devices to assess employees’ job and corporation satisfaction. HRM manager should also use job analysis to obtain job description info about which job needs to accomplish in terms of quality and quantity. Up-to-date JD is essential not only for the various HR functions, but also for summarising corporate-wide HR in terms of employee-skill categories.
  42. 42. Strategic HRM Issues Use of Teams Many organisations have been successful in using autonomous (selfmanaging) work teams - a group of people work together without a supervisor to plan, coordinate and evaluate their work. Some companies are using cross-functional work teams - instead of developing prods in series of steps, companies are grouping people from each discipline to work on the project from the very beginning. In a process called concurrent engineering, specialists now work sideby-side to design cost-effective prods with features customers want. This reduce the prod develop cycle. Coaching and training is important for cross-functional teams, else, it may worsen morale, raise the level of cynicism etc.
  43. 43. Strategic HRM Issues Union Relations and Temporary Workers If the corporation is unionised, the HR manager must be able to work closely with the union. Union members have reduced in US due to increasing employee involvement programmes - participation in decision making. Different countries have a different types of unions - Europe (militant, political oriented), Japan (usually supportive of management) etc. To increase flexibility, avoid layoffs and reduce labour costs, corps are using more temporary/contingent workers. Corps are trying to create a disposable workforce with low wages and no benefits.
  44. 44. Strategic HRM Issues Flatter organisational structures Increased employee autonomy Higher knowledge requirements Increased globalisation Increased employee decision making
  45. 45. Strategic HRM Issues Quality of Work Life and Human Diversity In order to reduce job dissatisfaction and unionisation efforts, HR departments must consider the quality of work life in designing the jobs based on human dimension rather than technical or economic dimension. These can be achieved by: introducing participative problem solving restructuring work introducing innovative reward systems improving the work environment Human diversity - refers to the mix of people from different races, cultures and backgrounds - hot issue in HRM. The long-term resource advantage remaining to corps operating in industrialised nations lie in skilled HR.
  46. 46. Strategic IS/IT Issues The primary task of a IS/IT manager is to design and manage the flow of information in an organisation in ways that improve productivity and decision making. Information must be collected, stored and synthesised in such a manner that it will answer important operating and strategic decisions. Corporate investments in IS/IT are growing annually. A corp’s IS can be S or W in all elements of SM. Not only it aids in environmental scanning and control a company’s many activities, it can also be used as a strategic weapon in gaining CA.
  47. 47. Strategic IS/IT Issues IS/IT offers 4 main contributions to corporate performance: 1970s - with mainframe computers. Used to automate existing back-office processes, i.e. payroll, HR records, accounts payable, receivable and to establish huge databases. 1980s - Used to automate individual tasks, i.e. keeping track of clients and expenses through the use of PC with word processing and spreadsheet software (to create what-if scenarios). 1990s - Used to enhance business functions, such as marketing and operations for productivity improvements.
  48. 48. Strategic IS/IT Issues IS/IT offers 4 main contributions to corporate performance: Beginning 2000 - used to develop CA. Focus is to take advantage of opportunities via supply chain management, ecommerce and KM. Most companies devote 85% of IS/IT budget for the first two utility functions, 12% for productivity enhancement and 3% for CA. Internet (for marketing), Intranet (internal communications), extranet (for logistics and distribution) and Web 2.0 have been widely used today.
  49. 49. Strategic IS/IT Issues IS/IT offers 4 main contributions to corporate performance: Extranet used to connect employees, customers and suppliers to gain CA - reduce time needed to design and bring new prods to market, slashing inventories, customising manufacturing and entering new markets.
  50. 50. Synthesis of Internal Factors - IFAS After strategists have scanned the internal organisational environment and identified factors for their particular corporation, they may summarise their analysis of these factors using IFAS (Internal Factor Analysis Summary). The IFAS Table is one way to organise internal factors into generally accepted categories of S&Ws and analyse how a company’s management (rating) is responding to these factors in light with the perceived importance (weightage) of these factors. Use VRIO framework to assess the importance of each factors that might be considered strength.
  51. 51. Synthesis of Internal Factors - IFAS Column 1 List 8 - 10 most important S&Ws (internal factors) facing your company. Column 2 Assign a weight to each factor from 1.0 (most important) to 0.0 (least important) based on the probable impact on the firm’s current strategic position. The higher the weight, the more important is this factor to the current and future success of the company. All weight must sum to 1.0.
  52. 52. Synthesis of Internal Factors - IFAS Column 3 Assign a rating to each factor, from 5.0 (outstanding) to 1.0 (poor) based on management’s current response to this particular factor. Column 4 Multiply the weight in Column 2 for each factor times its rating in Column 3 to obtain each factor’s weighted score. This results in a weighted score for each factor ranging from 5.0 (outstanding) to 1.0 (poor) with 3.0 as average. Column 5 Note why a particular factor was selected/how its weight and rating were estimated.
  53. 53. Synthesis of Internal Factors - IFAS Finally, add up the weighted scores for all the internal factors in Column 4 to determine the total weighted score for that particular company. The total weighted score indicates how well a particular company is responding to current and expected factors in its internal environment. The score can be used to compare that firm to other firms in its industry. The total weighted score for an average firm in an industry is always 3.0.
  54. 54. Synthesis of Internal Factors - IFAS

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