Lect 5 SM

Internal environment
scanning
(value chain analysis) Resource based view of firm, Benchmarking
Learning Outcomes :
 Examining the process of applying value chain analysis to

identify differential value creation.
 Learning to apply resource based view of the firm to comment
upon the extent of competitive advantage a firm's unique resource
bundle can defer.
 Studying benchmarking as a tool for internal analysis.
Green Aviation:
Internal Scanning: Organizational Analysis
 Scanning external environment- not

enough
 Identify internal strategic factors
 Internal scanning is therefore
organizational scanning
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
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?
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
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
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
 A core competency can be easily
imitated to the extent that it is:
 Transparent
 Transferable and
 Replicable
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
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
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
 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
 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
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)
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
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
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
 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
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
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
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
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

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

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Internal environment

 Examining the process of applying value chain analysis to

 Scanning external environment- not

 Marketing, Finance, R & D, Operations,

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