str mgt lesson 4 internal scanning scanning
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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
Industry Value Chain Analysis
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
Industry Value Chain Analysis
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
Basic Organizational Structures
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
Basic Organizational Structures 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
Basic Organizational Structures 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
Basic Organizational Structures 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