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Chapter 3: Internal Scanning Organisational Analysis

MSK7223 STRATEGIC KNOWLEDGE MANAGEMENT I

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.


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.


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.

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.

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.


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.


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.


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.

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.


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.


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.


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.


A Corporation’s 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.

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.


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.


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.

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.


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.


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.


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.

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.


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


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.


Product Life Cycle

Sales

Introduction

Growth
Maturity
Time

Decline


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

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.

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.

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.


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


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.


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.


Impact of Technological Discontinuity on Strategy

R&D dollars should be allocated to tech with more potential.

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.


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.


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.


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.

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.


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.


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.


Flatter organisational structures
Increased employee autonomy
Higher knowledge requirements
Increased globalisation
Increased employee decision making


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.

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.


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.


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.


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.

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.


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.


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.


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.

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