Coulter smia6 ppt_04

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4-1 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Assessing Strengths and Weaknesses: doing an Internal Analysis Chapter 4 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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Coulter smia6 ppt_04

Transcript of Coulter smia6 ppt_04

Page 1: Coulter smia6 ppt_04

4-1Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Assessing Strengths

and Weaknesses: doing an

Internal Analysis

Chapter 4

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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Chapter Four Learning Outcomes

4.1 Describe an internal analysis.

4.2 Explain how to do an internal analysis.

4.3 Discuss why an internal analysis is important.

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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Learning Outcome 4.1

Describe What an Internal Analysis Is

• To formulate appropriate and effective strategies, it is important to know what an organization can and cannot do particularly well and what assets it does or does not have

– Internal analysis is the process of evaluating an organization’s assets, skills, and work activities; what it does well or what is lacking

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A Quick Review of Organizational Resources

• Resources are the assets an organization has for doing whatever it is in business to

• Resources can be financial, physical, human, tangible, intangible, structural-cultural

– Among the financial resources are debt capacity, credit lines, available equity, cash reserves

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A Quick Review of Organizational Resources – cont’d• Other examples of Resources

– Human resources, which include experiences, knowledge, judgment, skills, accumulated wisdom, competencies of employees

• The value of resources is context dependent; based on it seeks to do to make money

– Resources can be a source of competitive advantage for a company

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From Resources to Organizational Capabilities

• An organization’s resources are that which are needed to perform its work

• To reach its goals an organization must generate value from its resources and does so through capabilities

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From Resources to Organizational Capabilities – cont’d• Organizational capabilities

– Are the various routines and processes that transform resources (inputs) into products/services (outputs)

• Organizational routines and processes

– Are regular, predictable, sequential work activities done by organizational members

– Complex network of these routines and processes encompass all work activities

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From Resources to Organizational Capabilities – cont’d• Employees learn how to best use

organizational resources and processes, creating core competencies and distinctive organizational capabilities– Capabilities result from learning and are more than

the mere possession of resources

– Some organizations do it better than others; they are unable to develop capabilities to survive in an

increasingly dynamic and competitive marketplace

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From Resources to Organizational Capabilities – cont’d• Southwest Airlines is an example of a firm that

has developed valuable capabilities and competitive advantages

– Loading, unloading planes

– Reservations

– Safety inspections

– Customer service

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From Resources to Organizational Capabilities – cont’d• Capabilities are not self-sustaining in today’s

complex and dynamic environment

– Future conditions and competitors change

• Today’s environment demands dynamic capabilities

– The ability to build, integrate, and reconfigure capabilities to address the rapidly changing environment

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From Capabilities to Core Competencies and Distinctive Capabilities

• Core competencies

– Value creating capabilities that an organization possesses that are essential to their business

– Contribute to improving and enhancing other organizational capabilities

– They are the result of accumulated knowledge and actual work activities

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From Capabilities to Core Competencies and Distinctive Capabilities – cont’d

• Distinctive organizational capabilities

– These are special and unique organizational capabilities that distinguish an organization from its competitors

• Example of distinctive capabilities Southwest Airlines:

– gate turnaround, ticketing, and employee-customer interaction

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Characteristics of Distinctive Capabilities

1. Must contribute to superior customer value and offer real benefits to customers

– Being good at what customers value

– Requires adaptiveness

2. Must be difficult for competitors to imitate

– Requires balancing a complex array of employee skills and knowledge

– Harnessing learning in the organization

– Utilizing cross-functional interaction

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Characteristics of Distinctive Capabilities

3. A distinctive capability should be used in a variety of ways

– Organizational routines and processes developed in one area should be transferable to other areas

• Example of transferred capabilities Honda:

– Reliable, fuel efficient drive trains for cars, motorcycles, boats, lawnmowers, snow blowers, and power generators

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Competitive Advantage and Performance Results

• Competitive advantage

– Sets the organization apart from competitors

– Must come from unique resources or distinctive capabilities

– Will positively affect performance results

– Benefits may be short or long term

– Demands that decision makers know the strengths and weaknesses of its resources, capabilities, and competencies

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The Role of Strengths and Weaknesses

Strengths

• These are resources that the organization possesses and capabilities that is has developed

– These can be exploited and developed into a sustainable competitive advantage

– Not all strengths will lead to competitive advantage, but they can be competitive weapons if nurtured and reinforced

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The Role of Strengths and Weaknesses – cont’d

Weaknesses

• Are resources and capabilities that are lacking or deficient and prevent the organization from developing competitive advantage

– Organizational weaknesses must be corrected if they are in critical areas that prevent the organization from competing effectively

– Organization with limited resources to correct the problem will simply seek to minimize the impact

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The Role of Strengths and Weaknesses – cont’d

• Organizational members at all levels struggle with strategic questions:

– What strengths and weaknesses are in my area/s of responsibility? (This implies the need for effective internal analysis to be able to answer the next question)

– How can I manage these areas strategically to achieve high levels of performance?

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Learning Review: Learning Outcome 4.1

• What is an internal analysis and how is it different from an external analysis?

• Describe the relationship between resources, capabilities, and competitive advantage.

• What characteristics do distinctive organizational capabilities have?

• Define strengths and weaknesses.

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Learning Outcome 4.2

Explain How to Do an Internal Analysis

• This section looks at three different approaches for doing internal analysis

– An effort to understand the work of the business and look at its value creating activities

– An examination and assessment of all internal areas that goes beyond financial information

– A focus on developing a profile of the organization’s capabilities

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Value Chain Analysis

• Every organization (for profit or not-for-profit) needs “customers” to survive

– The premise is that there is a demand for some type of value in the goods/services they purchase or obtain

• To assess the ability to provide value it is important that strategic decision makers use a systematic process to examine organizational activities and how they produce value

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Value Chain Analysis – cont’d

• Value chain activities are specific organizational routines and processes that create varying levels of customer value and organizational costs

– The concern for organizations is that the value created outweighs the cost of creating that value (often referred to as the margin)

– The effort is to assess the organization’s ability to create value through its work activities

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Value Chain Analysis – cont’d

• Value chain analysis evaluates the internal environment, the organization’s strengths and weaknesses

• Value chain analysis assesses nine activities

– Five primary

– Four support

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Value Chain Analysis – cont’d

Primary activities – create customer value

• Inbound logistics – routines and processes that bring resources into the organization

• Operations – processing the resources into goods and services

• Outbound logistics – physically distributing these to customers

• Marketing/Sales – appealing to customers

• Customer service – serving customer needs

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Value Chain Analysis – cont’d

Support activities – support primary activities and each other

• Procurement – gathering resources

• Technology – provide efficiencies and improve operational efforts

• Human Resources – recruit, select, train, retain employees

• Infrastructure – capabilities to identify external opportunities and threats

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Value Chain Analysis – cont’d

• Assessment of both primary and support activities is essential

– The effective or efficient performance of these activities helps create potential competitive advantage

– This analysis is not easily done because organizational activities do not always fit nicely and neatly into the analytical framework

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Using the Internal Audit

• How well the basic organizational functions are performed determines the identification of organizational strengths and weaknesses

• A financial audit is simply an examination of an organization’s financial records and procedures

• An internal audit is a thorough assessment of an organization’s internal functions

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Using the Internal Audit – cont’d

Internal audit

• Focuses on more than the financial aspects

• Used by strategic decision makers to assess the organization’s resources and capabilities

• Focuses on different functions and organizational elements

• Seeks to determine if the necessary resources are available so people can perform their work

• Assesses how well work is being performed

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Using the Internal Audit – cont’d

• Internal audit looks at six organizational-functional areas

– Production/operations

– Marketing

– Research and development

– Financial/accounting

– Management (includes all general management)

– Information systems

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Using the Internal Audit – cont’d

• In addition to the six organizational-functional areas, internal audit looks at three other important elements

– Strategic managers

– Organizational structure

– Organizational culture

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Capabilities Assessment Profile

• This approach involves an in-depth evaluation of an organization’s capabilities

– The approach was developed because strategic decision makers had few guidelines for identifying and evaluating their organization’s distinctive capabilities

– Assessing capabilities can be complex since they arise from the ways resources are combined within the basic work processes and routines

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Capabilities Assessment Profile –cont’d

• A capabilities assessment consists of two phases

– Identifying distinctive capabilities

– Developing and leveraging these capabilities

• Remember what makes capabilities distinctive

– They contribute to superior customer value

– They are difficult for competitors to imitate

– They can be used in a variety of ways

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Capabilities Assessment Profile –cont’d

Steps in Assessing Organizational Capabilities

1. Preparing a current product-market profile

– Emphasizes organization-customer interactions

– This requires identifying what we are selling, who we sell to, and whether we are providing superior customer value and benefits

– The effort demands information on for each product-market segment

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Capabilities Assessment Profile –cont’d

2. Identifying sources of competitive advantage and disadvantage in main product-market segments

– We want to know why customers choose our products instead of those of competitors

– The assessment involves identifying specific cost, product, and service attributes

– This helps identify those attributes customers value in the products

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Capabilities Assessment Profile –cont’d

3. Describing organizational capabilities and competencies

– This requires the examination of resources, skills, and abilities of the various functions within the organization

– This step allows for the uncovering of what resources and capabilities led to a competitive advantage the firm enjoys

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Capabilities Assessment Profile –cont’d

4. Sorting the core capabilities and competencies according to their strategic importance

– Which capabilities are most important for the organization’s future?

– Judging capabilities as most important for building the organization’s future is a matter of evaluating each according to three specific criteria

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Capabilities Assessment Profile –cont’d

4. Sorting the core capabilities and competencies according to their strategic importance : the three criteria for judging capabilities

– Does the capability provide tangible customer benefits?

– Is the capability difficult for customers to imitate?

– Can the capability provide wide access to a number of different markets?

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Capabilities Assessment Profile –cont’d

5. Identify and agree on the key competencies and capabilities

– Based on rankings of importance, decision makers identify key competencies and capabilities

– Achieving agreement is essential as it will determine future resource allocation and support for various departments, units, or divisions

– Without agreement, managing strategically to achieve competitive advantage is difficult

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Determining Strengths and Weaknesses

• Each internal analysis can be used to identify an organization’s resources and capabilities

– It can be from the perspective of analyzing customer value created by primary and support activities

– It can be from the perspective of auditing various functional areas

– It can be from the perspective of identifying distinctive capabilities

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Determining Strengths and Weaknesses – cont’d

• Past performance is one way to determine strengths and weaknesses

– This would include such performance measures as financial ratios, operational efficiency statistics, employee productivity statistics, quality control data, or any measurable aspects of the operation

– While performance trends show important information, they do not provide comparative measures to determine if trends are good or not

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Determining Strengths and Weaknesses – cont’d

• Organizational goals are a second was to determine strengths and weaknesses and they provide means to measure performance against a desired end

– Every organization needs goals in all functional areas that state what and how organizational resources and capabilities are used in carrying out the organizational vision and mission

– This is used to compare against competitors

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Determining Strengths and Weaknesses – cont’d

• By comparing resources and capabilities against competitors, an organization can see how it stacks up against how competitors are performing

• The effort to obtain information that enables for comparisons with competitors can raise legal and ethical questions

– There are no easy answers to the ethical dilemmas of competitive intelligence gathering

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Determining Strengths and Weaknesses – cont’d

• Personal and subjective opinions by strategic decision makers or consultants is the last criterion for helping judge organizational strengths and weaknesses

– Quantitative measures do not always capture an understanding of what is really going on in an functional area

– The perspective of those in a functional area can be useful as they see what is working or not

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The Grey Zone

• Some techniques for gathering competitor information include:

– Pretend to be a journalist writing a story and call competitors and pretend to interview them

– Dig through competitors trash

– Sit outside the business and count customers

– Get copies of in-house newsletters read them

– Check with the Better Business Bureau for customer complaints

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The Grey Zone – cont’d

• Do these methods seem ethical or unethical?

• Which ones?

• Why?

• What ethical guidelines might you propose for strategic decision makers when seeking competitor intelligence?

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Learning Review: Learning Outcome 4.2

• How would the value chain approach to internal analysis be used?

• What does an organizational internal audit evaluate?

• How do you judge which organizational capabilities are strategically important?

• Describe the criteria that can be used to judge organizational resources and capabilities as either strengths or weaknesses

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Learning Outcome 4.3

Discuss Why an Internal Analysis is Important

• Doing an internal analysis is important for two reasons:

– It is the only way to identify an organization’s strengths and weaknesses

– It is needed for making good strategic decisions

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Learning Outcome 4.3 - cont’d

• An internal analysis is a process for identifying and evaluating an organization’s strengths and weaknesses

• The outcome provides information about resources, skills, work routines and processes

• It answers the critical questions

– What strengths come from the firm’s resources and capabilities?

– What weaknesses do we have?

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Learning Outcome 4.3 – cont’d

• With information from the internal analysis, decision makers can make good judgments

– What competitive advantages is might possess

– What might be developed into competitive advantages

– What might be preventing the development of competitive advantages

– Combined with external analysis it is the basis for strategic action

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Learning Review: Learning Outcome 4.3

• How would the value chain approach to internal analysis be used?

• What does an organizational internal audit evaluate?

• How do you judge which organizational capabilities are strategically important?

• Describe the criteria that can be used to judge organizational resources and capabilities as either strengths or weaknesses.

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