dynamics of internal environment in strategic management

7/23/2019 Dynamics of Internal Environment in Strategic Management

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Dynamics of Internal

Environment



Development of Strategic Advantage by an organization

StrategicAdvantage

OrganizationalCapability

Competenci

es

Synergisticeects

Strengths andWeaknesses

Organizational resources +

Organizational ehaviour



!angible

• Plant &equipment

• Technology

• Geographiclocation• Human

Resources

• Access to raw

"ntangible

•

apa!ilities• Information"#nowle$ge

• Processes

• Training• E%perience• Relationships

rgani'ational Resources



#our Characteristics forStrategic Advantage

rgani'ational Resources (trategicA$vantage

)alua!le

Rare

ostly to imitate

*on (u!stituta!le



rgani'ational +ehaviour

,orces a-ecting organi'ational!ehaviour – .uality of lea$ership

–

/anagement philosophy – (hare$ values an$ culture

– .uality of wor0 environment

– rgani'ational climate

– rgani'ational politics

– 1se of power



(ynergy

/ar0eting

(ynergy

Pro$uct

PriceDistri!utio

n

Promotion

/ar0eting Ine2cienc

y

Pro$uctionIne2ciency

Dysergy3*egative(ynergy



rgani'ational ompetencies

• ompetencies 4 (pecial qualities possesse$

!y an organi'ation that ma0e themwithstan$ pressures of competition in themar0etplace5

• ore competencies 4 6hen an organi'ationuses its competencies e%cee$ingly well they!ecome core competencies

• Distinctive competencies 4 Any a$vantage a

company has over its competitors !ecauseit can $o something which they cannot or itcan $o something !etter than they can



rgani'ational apa!ility

• The inherent capacity or potential ofan organi'ation to use its strengthsan$ overcome its wea0nesses in

or$er to e%ploit opportunities an$face threats in its e%ternalenvironment

• Potential• apacity



rgani'ational apa!ility lea$s to

(trategic a$vantage or competitivea$vantage

rgani'ational apa!ility ,actors 4strategic strengths an$ wea0nessese%isting in $i-erent functional areas

within an organi'ation



rgani'ational apa!ility ,actors

75 ,inancial apa!ility

85 /ar0eting apa!ility

95 perations apa!ility:5 Personnel apa!ility

;5 Information management apa!ility

<5 General /anagement apa!ility



,inancial apa!ility

• ,actors relate$ to – (ources of fun$s

– 1ses of fun$s

– /anagement of fun$s



/ar0eting apa!ility

• Pro$uct relate$

• Price relate$

•

Place relate$• Promotion relate$

• Integrative an$ system relate$ 4

mar0eting mi%" mar0et stan$ing"mar0eting system" etc



perations apa!ility

,actors relate$ to

• Pro$uction system

•

perations an$ control system• R & D



Personnel apa!ility

,actors relate$ to

• Personnel system

•

rgani'ation an$ employeecharacteristics

• In$ustrial relations



Information /anagement(ystem

,actors relate$ to

• Acquisition an$ retention ofinformation

• Processing an$ synthesis ofinformation

• Transmission an$ $issemination ofinformation

• Integrative" systemic an$ supportivefactors



General /anagementapa!ility

,actors relate$ to

• General management system

•

General managers• E%ternal relationships

• rgani'ational climate



In$ustry

• An in$ustry is a group of =rms thatmar0et pro$ucts which are closesu!stitutes for each other >e5g5 the

car in$ustry" the travel in$ustry?5

• The most in@uential analytical mo$elfor assessing the nature of

competition in an in$ustry is /ichaelPorters ,ive ,orces /o$el



!hreat of $e% &ntrants

• *ew entrants to an in$ustry can raise the level ofcompetition" there!y re$ucing its attractiveness5

• The threat of new entrants largely $epen$s on the!arriers to entry5 High entry !arriers e%ist in somein$ustries >e5g5 ship!uil$ing? whereas otherin$ustries are very easy to enter >e5g5 estate agency"

restaurants?5• #ey !arriers to entry inclu$e

B Economies of scaleB apital 3 investment requirements

B ustomer switching costsB Access to in$ustry $istri!ution channels

B Pro$uct $i-erentiationB Government policies



!hreat of Substitutes

• (u!stitutes are pro$ucts or services that seemto !e $i-erent !ut satisfy the same set ofcustomer nee$s5

•

The presence of su!stitute pro$ucts can lowerin$ustry attractiveness an$ pro=ta!ility!ecause they limit price levels5 The threat ofsu!stitute pro$ucts $epen$s onC

B +uyers willingness to su!stituteB The relative price an$ performance ofsu!stitutesB The costs of switching to su!stitutes



argaining 'o%er of Suppliers

• (uppliers are the !usinesses that supply materials & other

pro$ucts into the in$ustry5• The cost of items !ought from suppliers >e5g5 raw materials"

components? can have a signi=cant impact on a companyspro=ta!ility5 If suppliers have high !argaining power over acompany" then in theory the companys in$ustry is lessattractive5 The !argaining power of suppliers will !e high whenC – 6hen suppliers are few an$ !uyers are many

– 6hen pro$ucts or services are unique an$ are not commonly availa!le

– 6hen su!stitutes are not freely availa!le

– 6hen switching costs of a supplier from one !uyer to another is low

– 6hen supplier is not critically $epen$ant on the pro$uct or service

supplie$ – 6hen !uyer !uys in small quantities an$ is not important to the

supplier



argaining 'o%er of uyers

•

+uyers are the people 3 organisations who create$eman$ in an in$ustry

• The !argaining power of !uyers is greater when – 6hen !uyers are few in num!er

– 6hen !uyers place large or$ers

– 6hen alternative suppliers are present an$ are willing tosupply at lower price

– 6hen switching costs of !uyers is low

– 6hen purchase$ pro$uct constitutes a high percentage of!uyers cost ma0ing it loo0 aroun$ for lower price$ supplies

– 6hen !uyer has the a!ility to integrate !ac0war$s an$create its own supply source



"ntensity of (ivalry The intensity of rivalry !etween competitors in an in$ustry will

$epen$ onC

• !he structure of competition 4,ragmente$B many small or equally si'e$ competitors 4 no $i-erentiation of

pro$uctsB commo$itiesB =erce competition

onsoli$ate$ B clear mar0et lea$er

DiversityB greater $i-erentiation among =rms

• Demand Conditions – )igh demand * moderate competition

– Stagnant demand * competition for market share

– Declining demand lo% competition maintain market share

• &,it barriers B when !arriers to leaving an in$ustry are high >e5g5

the cost of closing $own factories? B then competitors ten$ toe%hi!it greater rivalry5 – &conomic 4 high investment commitment

– StrategicB interlin0ages !etween $i-erent resourcesB own supplier or!uyer

– &motionalB (entimental attachmentB ancestral !usinessB loyalty to

employees or $istri!utors

dynamics of internal environment in strategic management

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