Internal Scanning:: Organizational Analysis

Internal Scanning:
Organizational Analysis
Copyright © 2015 Pearson Education, Inc.

Developed by Prof. Majed El-Farra
1
Learning Objectives
• Apply the resource-based view of the firm to
determine core and distinctive competencies
• Use the VRIO framework and the value chain
to assess an organization’s competitive
advantage and how it can be sustained
• Understand a company’s business model and
how it could be imitated

5-2
Learning Objectives
• Scan functional resources to determine their fit
with a firm’s strategy
• Construct an IFAS Table that summarizes
internal factors

5-3
A Comprehensive Strategic Management Model
Perform
Feedback
external
audit
Develop Establish Generate, Establish Allocate Measure and

Mission long term Evaluate, policies resources evaluate
statement objectives and select and performance
strategies annual
objectives
Perform
internal
audit Formulation Evaluation
Implementation

4
Situational Analysis
SWOT --
–Internal
•Strengths/Weaknesses
–External
•Opportunities/Threats

6-5
TOWS Matrix

6-6
Case study
• Case 12: Amazon.com, Inc: Retailing
Giant to High Tech Player?

7
Resource-Based Approach
Internal strategic factors:
Critical strengths and weaknesses

that are likely to determine if the firm
will be able to take advantage of
opportunities while avoiding threats.

8
Resource:
An asset, competency, process, skill,

or knowledge controlled by the
corporation.

9
Evaluating Key Resources
VRIO Framework
• Barney, in his VRIO framework of analysis,
proposes four questions to evaluate a firm’s
Competencies:
1. Value: Does it provide customer value and
competitive advantage?
2. Rareness: Do no other competitors possess it?
3. Imitability: Is it costly for others to imitate?
4. Organization: Is the firm organized to exploit the
resource?
• If the answer is yes to all it is considered
distinctive competence.
10
Tips
• Use VRIO Framework to the
resources of IUG: professors,
programmers in the IT unit.

11
Core and distinctive competencies
• Capabilities: organization ability to utilize its
resources. Its business process and routine.
• Competency: cross-functional integration and
coordination of capabilities. E.g., new product
development. The process is competent if it is
highly integrated with other processes.
• Core-competency: collection of competencies that
crosses divisional boundaries. E.g., new product
development is a core-competency if it goes beyond
one division.
• Distinctive competencies: when core-
competencies are superior to those of the
competitions.
12
Keys of Strategic Outsourcing
Success
1- Understand the bus core competencies.
‘What it gives competitive Differentiation’
Core comp. Is the integration of technologies,
constituent skills and collective learning cross
divisions, which makes healthy bus.
2- Understand the type of the work of bus.
3- Mapping out the work of bus.
4- Requires trust between parties

13
Competitive advantage analysis
• Analyzing competences and core
competences:
The analysis here determines how resources
are deployed
Competitive advantage is built on the
uniqueness of resources or on the core
competences.

14
Strategic Outsourcing for
Competitive Advantage
• Used mainly for downsizing and cost
reductions at corporations.
• Usually corps outsourcing non-essential
work, why?
To free valuable resources and focus on its
areas of competitive advantage.
To do this org. must know its core
competences.
15
5-Steps
approach to strategy analysis:
• 1- Identify & classify firm’s resources

• What are the Strengths & weaknesses
• 2- Combine firm’s strengths into capabilities
• Core competencies
• Distinctive competencies

16
5-Step approach to strategy analysis:
• 3- Appraise the Profit potential of

resources\capabilities. Includes,
- Identify the competitive advantages.
- Sustainable competitive advantage
• 4- Select strategy that best,
• Exploits firm’s resources relative to external
opportunities
• 5- Identify resource gaps
• Invest in upgrading weaknesses

17
Access to a Distinctive
Competency
1. Asset endowment/available, e.g.,
patent.
2. Acquired from someone else, e.g.,
buying distributing system.
3. Shared with another business, e.g.,
alliance partner.
4. Built and accumulated within the
company.
18
Why some nations are more
competitive than others?
• M. Porter in his diamond, suggests that
there are inherited reasons why some
nations are more competitive, and there
organizations are as well, than others.
• Porter believes that national home base of
an organization influence the global
success of organization.

19
Porter’s Determinants of
National Advantage
There are four forces:
1- The conditions of the nation, availability of
skills, infrastructure.
2- Home country’s demand for products.
3- The presence or absence of supporting
industries.
4- The firm’s strategy, structure, rivalry,
establishment process..

20
Four Nation’s Distinct
Strategies
• S-O, or maxi-maxi
• S-T, or maxi-mini
• W-O, or mini-maxi
• W-T, or mini-mini

21
Determining the Sustainability
of an Advantage
• Two characteristics determine the
sustainability of a firms’ distinctive
competency: durability and imitability.

22
Determining the Sustainability
of an Advantage
Durability:
how long core competency continues
before it becomes obsolete.
Rate at which a firm’s underlying\basic
resources and capabilities (core
competencies) depreciate or become
obsolete. E.g., new technology can make the
company core competency irrelevant.

23
Sustainability of an Advantage
Imitability:
Rate at which a firm’s underlying
resources and capabilities (core
competencies) can be duplicated
by others?. Competitors will do
what they can to learn and imitate
that set of skills and capabilities.

24
Core Competencies
Imitability of core competencies
determined by:
1. Transparency/clearly understood.
Gillette’s razor design is very difficult to
copy; complicated manufacturing
equipment.
2. Transferability. Ability of competitors to
gather necessary resources and capabilities
to support a competitive challenge.
3. Replicability/ do it exactly by the
competitors :imitate other firms’ success.

25
Core Competencies
Is it easy to imitate another company’s core

competency? Depends if it comes from:
Explicit Knowledge:
– Knowledge that can be easily articulated and
communicated.
Tacit/unexpressed Knowledge:
– Knowledge that is not easily communicated
because it is deeply rooted in employee
experience or in a corporation’s culture .

26
Resource Sustainability

27
Business models
• How firms earn revenue and make profit. This is
based on business model used which is usually
composed of 5 elements:
1. Who it serves
2. What it provides
3. How it makes money
4. How it differentiates and sustains competitive
advantage.
5. How it provides its products.
28
Competitive advantage analysis
• Steps of analyzing competences:
1- Value chain analysis: describes the
activities within and around the
organization, and relates them to an
analysis of the competitive strength of the
organization.
2- the bases of core competences.

29
Corporate Value Chain

30
Corporate Value Chain Analysis steps:
• Examine each product line’s value chain

• Core competencies & core deficiencies
• Examine the “linkages” within each product
line’s value chain
• Connections between the way one value activity is
performed and the cost of performance of another
activity
• Examine the synergies among the value

chains of different product lines or
business units
• Economies of scope

31
How can value chain analysis help identify
a company's strengths and weaknesses?
• The systematic examination of
individual value activities can lead to a
better understanding of a corporation's
strengths and weaknesses. Its advantage
over other methods of analyzing a firm's
internal environment is, its ability to
visualize a company in terms of
strings/sequences of product value
chains.
32
Competitive advantages
• When competitive advantage is
materialized?
When a firm earns persistently higher rate of
profit over its rivals.
• Determinants of profit level
1- Value of company products in customers’
eyes.
2- Company production cost.
33
Competitive advantage
• It can be created in certain industrial field,
through the adoption of low-cost-
differentiation strategy.
• However, M. Porter believes that the
company should adopt one of these
strategies other wise it will stuck in the
middle.

34
What is the success strategy
• The strategy which enables organizations
developing new advantages, or
maintaining/sustaining the existing
advantages.

35
Market segmentation analysis
• It aims to identify similarities and differences
between groups of customers or users .
Not all customers are the same.
• Some criteria for market segmentation:
1. Characteristics of customers (e.g., income,
gender, age, education),
2. Purchase situation (e.g., behavior, its size,
importance, when purchasing),
3. Users needs and preferences for product
characteristics (e.g., quality, price, brand).
Segment which was chosen must be growing,
sizeable and profitable. This is why this tool is
considered internal, because internal strategic
decision.
36
What is efficiency and effectiveness?
• Management (cont.)
• elements of definition
• Efficiency - getting the most output from the least
amount of inputs
• “doing things right”
• concerned with means
• Effectiveness - completing activities so that
organizational goals are attained
• “doing the right things”
• concerned with ends
1-37
37
Boston Consulting Group Matrix
• It portrays differences among

divisions in terms of relative
market share position and industry
growth rate.
• The matrix allows multidivisional
corp. to manage its portfolio of
business effectively.

38
Boston Consulting Group Matrix ‫مصفوفه‬
‫بوستن‬
‫ الحصة السوقية‬Relative market share
1 high low
1 0.5 0.0
+20
high ‫النجمة‬ Question mark
ٍStar
Industrial
Growth
Rate 0
?
‫معدل نمو‬
% ‫الصناعة‬ ‫البقرة النقدية‬Cash Cow ‫الفخ النقدي‬Cash Trap
low
-20

39
Homework
• How value chain analysis is
used as an internal tool for
analyzing business resources?

40
Benchmarking
• . Benchmarking is the search for the best
practices among competitors or non-competitors that
lead to their superior performance.
• The benchmarking process typically follows four
steps.
• a. A benchmarking planning team is formed. The
team’s initial task is to identify what is to be
benchmarked, identify comparative organizations,
and determine data collection methods.
• b. The team collects internal and external data.
• c. The data is analyzed to identify performance
gaps and to determine the cause of the difference.
• d. An action plan is prepared and implemented.
Copyright © 2015 Pearson 41
Education, Inc. Developed
Steps In Benchmarking
Form a benchmarking
planning team
Best
Practices Gather internal and
external data
Prepare and
implement
action plan
Analyze data to
identify performance
gaps
© Prentice Hall, 9-42
42
Suggestions for improving benchmarking
1. Link benchmarking efforts with strategic
objectives.
2. Have the right size team -6-8 persons.
3. Involve those people who will be directly affected
by the benchmarking.
4. Focus on specific targeted issues rather than broad.
5. Set realistic timetable.
Copyright © 2015 Pearson 43

Education, Inc. Developed
Management Audit Checklist
•Does the firm use strategic management

concepts?
•Are objectives/goals measurable? Well
communicated?
•Do managers at all levels plan effectively?
Ch 4-44
Copyright © 2015
•Do managers delegate well?

•Is the organization’s structure appropriate?
•Are job descriptions clear?
•Are job specifications clear?
•Is employee morale high?
Ch 4-45
Copyright © 2015
•Is employee absenteeism low?

•Is employee turnover low?
•Are the reward mechanisms effective?
•Are the organization’s control
mechanisms effective?
•This checklist can help determine
specific strengths and weaknesses. “No”
answers indicate potential weaknesses,
while “Yes” answers indicate areas of
strength.
Ch 4-46
Copyright © 2015
Marketing
• Marketing can be described as the process
of defining, anticipating, creating, and
fulfilling customers’ needs and wants for
products and services.
Ch 4-47
Copyright © 2015
Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
Ch 4-48
Copyright © 2015
Marketing
Marketing Audit Checklist of Questions
1. Are markets segmented effectively?

2. Is the organization positioned well among
competitors?
3. Has the firm’s market share been increasing?
4. Are the distribution channels reliable & cost
effective?
5. Is the sales force effective?
Ch 4-49
Copyright © 2015
Marketing
Opportunity Analysis
6. Does the firm conduct market research?

7. Are product quality & customer service good?
8. Are the firm’s products/services priced
appropriately?
9. Does the firm have effective promotion,
advertising, and publicity strategies?
Ch 4-50
Copyright © 2015
Marketing
Opportunity Analysis
10. Are the marketing, planning, and budgeting

effective?
11. Do the firm’s marketing managers have
adequate experience and training?
Ch 4-51
Copyright © 2015
Finance/Accounting Audit
•Does the firm have sufficient working

capital?
•Are capital budgeting procedures effective?
•Are dividend payout policies reasonable?
•Are the firm’s financial managers
experienced & well trained?
Ch 4-52
Copyright © 2015
Finance/Accounting Audit
Effective Financial Analysis Requires:

1. Analysis of how the ratios have changed
over time
2. How the ratios compare to industry norms
3. How the ratios compare with key
competitors
Ch 4-53
Copyright © 2015
Production/Operations Audit
•Are suppliers of materials, parts, etc. reliable

and reasonable?
•Are facilities, equipment, and machinery in
good condition?
•Are inventory-control policies and procedures
effective?
Ch 4-54
Copyright © 2015
Production/Operations Audit
•Are quality-control policies & procedures

effective?
•Are facilities, resources, and markets
strategically located?
•Does the firm have technological
competencies?
Ch 4-55
Copyright © 2015
Research & Development Audit
•Are the R&D facilities adequate?

•If R&D is outsourced, is it cost-effective?
•Are the R&D personnel well qualified?
•Are R&D resources allocated effectively?
Ch 4-56
Copyright © 2015
Research & Development Audit
•Are MIS and computer systems adequate?

•Is communication between R&D and other
organizational units effective?
•Are present products technologically
competitive?
Ch 4-57
Copyright © 2015
Management Information Systems
Audit
•Do managers use the information system to

make decisions?
•Is there a CIO or Director of Information
Systems position in the firm?
•Is data updated regularly?
Ch 4-58
Copyright © 2015
Audit
•Do managers from all functional areas

contribute input to the information system?
•Are there effective passwords for entry into
the firm’s information system?
•Are strategists of the firm familiar with the
information systems of rival firms?
Ch 4-59
Copyright © 2015
Audit
•Is the information system user-friendly?

•Do all users understand the competitive
advantages that information can provide?
•Are computer training workshops provided for
users?
•Is the firm’s system being improved?
Ch 4-60
Copyright © 2015
The Internal Factor Evaluation
(IFE) Matrix
• 1. A summary step in conducting an internal
strategic-management audit is to construct an IFE
Matrix. This strategy-formulation tool summarizes
and evaluates the major strengths and weaknesses in
the functional areas of a business, and it also provides
a basis for identifying and evaluating relationships
among these areas.
• 2. Intuitive judgments are required in developing an
IFE Matrix, so the appearance of a scientific approach
should not be interpreted to mean this is an all-
powerful technique.
Ch 4-61
Copyright © 2015
Steps in developing Internal Factor
Evaluation (IFE) Matrix
1. List key internal factors as identified in the internal-audit
process. Use a total from ten to twenty internal factors
including both strengths and weaknesses.
2. Assign a weight ranging from 0 (not important) to 1.0
(very important). The weight indicates the relative
importance of the factor to being successful in the firm’s
industry. The sum of all the weights must equal 1.0.
3. Assign a 1-4 rating to each factor to indicate whether that
factor represents a major weakness (1), minor weakness
(2), minor strength (3), or major strength (4).
4. Multiply each factor’s weight by its rating to determine a
weighted score for each variable.
5. Sum the weighted scores for each variable to determine
the total weighted score for the organization.
6. Total weighted scores of below 2.5 indicate an
internally weak organization.
Ch 4-62
Copyright © 2015
Ch 4-63
Copyright © 2015
Ch 4-64
Copyright © 2015
Steps in developing Internal Factor Evaluation
(IFE) Matrix (different calculation.
1. List key internal factors as identified in the internal-
audit process. Use a total from ten to twenty internal
factors including both strengths and weaknesses.
2. Assign a weight ranging from 0 (not important) to
1.0 (very important). The weight indicates the
relative importance of the factor to being successful
in the firm’s industry. The sum of all the weights
must equal 1.0.
3. Assign a 1-5 rating to each factor to indicate whether
that factor represents priority in management
response.
4. Multiply each factor’s weight by its rating to
determine a weighted score for each variable.
5. The total weighted score indicates how well the
company is responding to its internal environment.
6. The score can be used to compare the firm with
other competitors. Ch 4-65 Copyright © 2015
Goals & Objectives Defined
• Goals: The desired general ends towards
which efforts are directed e.g., expand firm
size.
• Objectives: are specific quantified, e.g.,
increase sales by 10% each year.
• “We may derive a number of objectives
from a goal”

66
Long-Term Objectives
• Objectives: Specific results an organization
seeks to achieve in pursuing its basic mission.
• Long-term objective: More than 3 years.
Objectives should be: challenging, measurable,
consistent, reasonable and clear. Ex. Our
objective is to achieve 20% return on equity.

67
Annual Objectives
• Short-term that the organization must achieve
to reach long-term objectives.
Objectives Characteristics:
Measurable, quantitative, challenging, realistic,
consistent and prioritized.
Annual objectives are important for strategy
implementation, whereas, long-term
objectives are important for strategy
formulating.
68
Objectives
• We must avoid generalities e.g.:
maximize profits
reduce costs
become more efficient
increase sales

69
Review
• How to use the "resource-based" approach
in environmental analysis? Is it a tool for
internal or external evaluation? How can we
benefit from resource-based approach in
enhancing the competitive advantages of
business? Draw an example in your answer?

70

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Internal Scanning:

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Develop Establish Generate, Establish Allocate Measure and

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Internal strategic factors:

Critical strengths and weaknesses

Copyright © 2015 Pearson Education, Inc.

An asset, competency, process, skill,

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

• 1- Identify & classify firm’s resources

Copyright © 2015 Pearson Education, Inc.

• 3- Appraise the Profit potential of

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Is it easy to imitate another company’s core

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Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

• Examine each product line’s value chain

• Examine the synergies among the value

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Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

• It portrays differences among

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson 43

•Does the firm use strategic management

•Do managers delegate well?

•Is employee absenteeism low?

1. Are markets segmented effectively?

6. Does the firm conduct market research?

10. Are the marketing, planning, and budgeting

•Does the firm have sufficient working

Effective Financial Analysis Requires:

•Are suppliers of materials, parts, etc. reliable

•Are quality-control policies & procedures

•Are the R&D facilities adequate?

•Are MIS and computer systems adequate?

•Do managers use the information system to

•Do managers from all functional areas

•Is the information system user-friendly?

Copyright © 2015 Pearson Education, Inc.