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SOM497 – Business Policy & Strategy

CHAPTER 5CHAPTER 5: Internal Scanning:

Organizational Analysis

STRATEGIC MANAGEMENT & BUSINESS POLICY 10TH EDITIONTHOMAS L. WHEELEN & J. DAVID HUNGER

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Organizational Analysis

External scanning Scan (outside) environment to identify

opportunities and threats

Internal scanning of strategic factors(aka: Organizational analysis) Look inside firm to identify critical strengths

and weaknesses

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Organizational Analysis: Resource-Based

Core & Distinctive Competencies Resources

Capabilities

Competency

Core competency

Distinctive competency

Evaluation methods Firm’s past performance

Firm’s main competitors

Understanding environment as whole

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Core & Distinctive Competencies

VRINO Framework- help evaluate firm’s competencies Value Rareness Imitability Non-Substitutable (not in text) Organization

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VRIN Outcomes

Is the resource or capability …Competitive

ConsequencePerformance ImplicationsValuable? Rare?

costly to Imitate?

Non-substitutable?

No No No No Competitive Disadvantage

Below average returns

Yes No No Yes/No Competitive parity (equality)

Average returns

Yes Yes No Yes/NoTemporary Competitive advantage

Above average returns to

average returns

Yes Yes Yes YesSustainable Competitive advantage

Above average returns

Not in your textbook!

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Organizational Analysis: Resource-Based

5-Step Approach Strategy Analysis

1. Identify and classify resources

2. Combine strengths into capabilities

3. Appraise profit potential of capabilities

4. Select strategy that best exploits

5. Identify resource gaps invest in weaknesses

Distinctive competencies can come from: Patents Built over time Shared Acquired from someone else

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Sustainability of Advantage Durability –Rate at which a firm’s underlying resources &

capabilities depreciate or become obsolete

Imitability –Rate at which a firm’s underlying resources and capabilities can be duplicated by others

Transparency

Transferability

Replicability

Continuum of Sustainability

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Business Models

Firm’s way to make money in the current business environment

Elements Who does the firm serve What does the firm provides How does the firm make money How does the firm differentiate & maintain its

competitive advantage How does the firm provide its products/services

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Corporate Value-Chain Analysis

Allows firms to understand the parts of its operations that create value and those that do not Primary Activities

Support Activities

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Basic Firm Structures

1. Simple structure

2. Functional structure

3. Divisional structure

Strategic business units (SBU’s)

Conglomerate structure

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Corporate Culture

The set of beliefs, expectations, myths, and values that create a feeling of community among firm members

Corporate culture is the “social glue”

Strong culture can be beneficial

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Strategic Marketing Issues Market Position

The selection of specific areas for marketing concentration (in terms of market, product, and geographic locations)

Market Segmentation Dividing the market into segments to ID available niches

Marketing Mix Help gain competitive advantage via:

Product

Price

Place

Promotion

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Strategic Marketing Issues (con’t)

Product Life Cycle Pre-commercialization (not in text) → basic strategy: innovate

Introduction → basic strategy: infiltrate

Growth → basic strategy: advance

Maturity → basic strategy: defend

Decline → basic strategy: withdraw

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Strategic Marketing Issues (con’t)

Brand Reputation Name of product that identifies them

Corporate Brand Name of firm serves as brand

Strong & positive reputation → source of above average returns

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Other Strategic Issues

Financial Issues Financial manager has to understand the firm’s sources of

funds, how they are used Funds (short and long-term) should match the corporate

objectives, strategies, and policies

Research & Development Issues The firm must also be capable of

managing and incorporating their innovations into its daily operations (technology competence)

Taking new technology from lab to marketplace (technology transfer)

Firm’s R&D intensity is a way to gain market share in global competition

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Next Class

Remember there is no class on Tues, Feb 19th (Monday schedule)

Next class will be on Thurs, Feb 21 Read & prepare to discuss: Case 28 (Panera Bread

Company: Rising Fortunes)