Internal scanning is important for identifying a firm's internal strategic factors and resources. A resource provides competitive advantage if it is valuable, rare, difficult to imitate, and the organization is well-structured to exploit it. A strategic audit examines a firm's functional resources, organizational structure, culture, and assesses its strengths and weaknesses using frameworks like VRIO and IFAS.

1. Internal Scanning: Organizational Analysis Scanning external environment- not enough Identify internal strategic factors Internal scanning is therefore organizational scanning

2. What is a resource? An asset, competency, process, skill or knowledge controlled by the organization A strength, if it provides the firm a competitive advantage

3. VRIO framework Barney proposes 4 questions to evaluate firm’s key resources: Value - does it provide competitive advantage? Rareness : do competitors possess it? Imitability : is it costly for others to imitate? Organization : is the firm organized to exploit the resource?

4. Using resources to gain competitive advantage 5-step resource based approach to strategy analysis, proposed by Grant: Identify/classify firm’s resources in terms of strengths/weaknesses Combine firm’s strength into corporate capabilities/core competencies- if these are superior to competitors they become distinctive competencies

5. Using resources to gain competitive advantage Evaluate the profit potential of these resources & capabilities Select the strategy that best exploits the firms resources/capabilities Identify resource gaps & invest in upgrading weaknesses

6. How to sustain firm’s distinctive competencies 2 characteristics determine the sustainability of a firm's distinctive competencies: Durability - rate at which a firm’s underlying resources & capabilities become obsolete, and Imitability - rate at which a firm’s underlying resources & capabilities can be duplicated by others

7. A core competency can be easily imitated to the extent that it is: Transparent Transferable and Replicable

8. Value Chain Analysis 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

9. Value Chain Analysis Very few corporations include a product’s entire value chain 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

10. Industry Value Chain Analysis Value chain of most industries- split in 2 segments: upstream & downstream halves Petroleum industry: Upstream – oil exploration, drilling, moving crude oil to refinery Downstream – oil refining, transporting, marketing

11. Industry Value Chain Analysis ONGC- expertise in upstream activities- exploration etc Indian Oil Corporation- expertise in downstream activities- marketing, retailing etc An industry can be analyzed in terms of profit margin available at any one point along the value chain

12. Industry Value Chain Analysis Even if a firm operates up & down the entire chain, it usually has an area of primary expertise where its primary activities lie This is firm’s centre of gravity- the point where its greatest expertise & capabilities lie- its core competencies

13. Corporate Value Chain Analysis Each firm has its own internal value chain of activities 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)

14. Corporate Value Chain Analysis Various support activities such as: procurement, R & D, HRM & infrastructure (accounting, finance, strategic planning), ensure that the primary value-chain activities operate effectively & efficiently Each of a firm’s product lines has its own distinctive value chain

15. Scanning Functional Resources Apart from the financial, physical & human assets, functional resources also include : Ability to formulate/implement the necessary functional objectives/strategies/policies Knowledge of analytical concepts Marketing, Finance, R & D, Operations, Human resources, Information systems Corporate Culture

16. Basic Organizational Structures basic 5-types of structure: 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

17. Basic Organizational Structures Functional structure- suitable for medium sized firm with several related product lines in one industry, employees tend to be specialists Divisional structure- suitable for large firms with many product lines in several related industries-ITC Limited

18. Basic Organizational Structures Strategic Business Units (SBUs) Divisions/ Groups of divisions Composed of independent product market segments Given primary responsibility & authority for the management of their own functional areas

19. Basic Organizational Structures Strategic Business Units (SBUs) 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

20. Basic Organizational Structures Conglomerate Structure Suitable for a large corporation with many product lines in several unrelated industries Also known as Holding Company Legally independent firms (subsidiaries) operating under one company but controlled through subsidiaries’ board of directors Unrelated nature of subsidiaries prevents synergy among them

21. Strategic Audit A checklist for organizational analysis Helps to ascertain a firm’s strengths & weaknesses Examines resources in terms of functional areas of marketing, finance, R & D, operations, human resources & information systems Also examines corporate structure, culture & resources

22. Synthesis of Internal Factors IFAS - Internal Factor Analysis Summary Organize the internal factors into strengths & weaknesses How well is the firm responding to these factors- use VRIO framework IFAS table constructed in the same way as EFAS table