TM-1

Topic 4 Topic 4 The Internal Environment The Internal Environment

Two Approaches to Two Approaches to Organizational AnalysisOrganizational Analysis

I. We can use value chain analysis orI. We can use value chain analysis or

II. We can use our approach which is functional II. We can use our approach which is functional resource approach -- Management (organizing, resource approach -- Management (organizing, HRM, etc.), Marketing, Finance, R&D, Production HRM, etc.), Marketing, Finance, R&D, Production Management, CIS, etc.Management, CIS, etc.

We are especially looking for our We are especially looking for our core competenciescore competencies in our internal environment, and the in our internal environment, and the critical critical success factorssuccess factors..

TM-2

I. Core Competencies and I. Core Competencies and Distinctive CompetenciesDistinctive Competencies

Core CompetenciesCore Competencies• Things a corporation can do exceedingly wellThings a corporation can do exceedingly well It may provide a competitive edgeIt may provide a competitive edge

Distinctive CompetenciesDistinctive Competencies• Core competencies that are superior to those of Core competencies that are superior to those of

competitorscompetitors* Gives a winning approach to running your * Gives a winning approach to running your

businessbusiness

Critical Success FactorsCritical Success FactorsThese are the factors which, if you aren’t These are the factors which, if you aren’t successful in overcoming threat or exploiting successful in overcoming threat or exploiting opportunities, strategies won’t be successfulopportunities, strategies won’t be successful

TM-3

Determining Distinctive Determining Distinctive CompetenciesCompetencies

1. Values (Does it provide competitive edge?)1. Values (Does it provide competitive edge?)

2. Rareness (Do other competitors posses it?)2. Rareness (Do other competitors posses it?)

3. Imitability (Is it costly for others to imitate?)3. Imitability (Is it costly for others to imitate?)

4. Organization (Is the Firm organized to support?)4. Organization (Is the Firm organized to support?)

If answers are “YES”, you have a distinctive If answers are “YES”, you have a distinctive competence.competence.

TM-4

I. Typical Value Chain for a I. Typical Value Chain for a Manufactured ProductManufactured Product

Product Producer

Fabrication Distributor RetailerRaw Materials

Primary Manufacturing

TM-5

Using Value Chain AnalysisUsing Value Chain Analysis

• Examine your value chainExamine your value chain• Determine how you reduce non-value workDetermine how you reduce non-value work• Determine how to link work together Determine how to link work together

(salesperson’s inspect)(salesperson’s inspect)• Gain economies of scope by sharing functions Gain economies of scope by sharing functions

between productsbetween products

TM-6

Corporate Value ChainCorporate Value Chain

Support Activities

Primary Activities

Profit Margin

Firm Infrastructure (general management, accounting, finance, strategic planning)

Human Resource Management (recruiting, training, development)

Technology Development (R&D, product and process improvement)

Procurement (purchasing of raw materials, machines, supplies)

Inbound Logistics (raw materials handling and warehousing)

Operations (machining, assembling, testing)

Outbound Logistics (warehousing and distribution of finished product)

Marketing and Sales (advertising, promotion, pricing, channel relations)

Service (installation, repair, parts)

Source: Adapted/reprinted with the permission of the The Free Press, an imprint of Simon & Schuster, from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter, p. 37. Copyright © 1985 by Michael E. Porter.

TM-7

II. We Use Functional II. We Use Functional Approach When Approach When Investigating Investigating

Internal EnvironmentInternal EnvironmentA. Management and organizing for strategiesA. Management and organizing for strategies

B. Organizational CultureB. Organizational Culture

C. Organizational ResourcesC. Organizational Resources

Functional ApproachFunctional ApproachA. Management and Organizational Structure A. Management and Organizational Structure

-- See next slide for changes you need to make in -- See next slide for changes you need to make in organizational structure to match some strategy organizational structure to match some strategy

changeschanges

TM-8

A. Basic Structures of A. Basic Structures of Corporations: Simple and Corporations: Simple and

FunctionalFunctionalI. Simple Structure

II. Functional Structure

Owner-Manager

Workers

Top Management

Manufacturing Sales Finance Personnel

TM-9

Basic Structures of Basic Structures of Corporations: DivisionalCorporations: Divisional

III. Divisional Structure*

Manufacturing Finance Manufacturing Finance

Top Management

Product Division A Geographic

*Conglomerate structure is a variant of the division structure.

Sales Personnel Sales Personnel

TM-10

Strategic Business Unit Strategic Business Unit (SBU)(SBU)

Independent product-market unit with:Independent product-market unit with:

1. Unique mission1. Unique mission

2. Identifiable competitors2. Identifiable competitors

3. External market focus3. External market focus

4. Control of its business functions4. Control of its business functions

Can identify ROI Profit/ InvestmentCan identify ROI Profit/ Investment

TM-11

A corporate conglomerate is A corporate conglomerate is an organizational structure an organizational structure

made up of SBU’smade up of SBU’sBUDWEISERBUDWEISER

Theme Parks Beer Railway CarsLand and

Home Development

TM-12

A. Other Aspects of A. Other Aspects of Organizational StructureOrganizational Structure

•CentralizationCentralization--level of level of organization where decisions are organization where decisions are made. When decision-making for made. When decision-making for important decisions is only at top of important decisions is only at top of organization, we have centralization.organization, we have centralization.

•Decentralization Decentralization when lower when lower level managers make important level managers make important decisions, the organization is decisions, the organization is decentralized.decentralized.

TM-13

•Tall OrganizationsTall Organizations have many have many levels of management.levels of management.

•Flat OrganizationsFlat Organizations have fewer have fewer levels of management.levels of management.

•Wide SpansWide Spans of management of management associated with flat structure and associated with flat structure and fewer total employees.fewer total employees.

•Narrow SpansNarrow Spans associated with tall associated with tall organizations more managers.organizations more managers.

TM-14

Major recent changes in Major recent changes in organizing functionorganizing function

Cross Functional TeamsCross Functional Teams --teams are --teams are used with individuals from across used with individuals from across functions and across levels of functions and across levels of hierarchy.hierarchy.

Use of teamsUse of teams and and participationparticipation..

OutsourcingOutsourcing -- Use of outside -- Use of outside contractors to perform functions-contractors to perform functions-Logistics Management (billing Logistics Management (billing rate,movement, etc.) is also rate,movement, etc.) is also becoming more common.becoming more common.

TM-15

B. Functional Approach:B. Functional Approach: After We Evaluate After We Evaluate Management and Management and Organizational Structure, Organizational Structure, We Evaluate Organizational We Evaluate Organizational Culture:Culture:• Collection of beliefs, expectations, and Collection of beliefs, expectations, and

values learned and shared by members values learned and shared by members and transmitted from one generation of and transmitted from one generation of workers to the next generation.workers to the next generation.

TM-16

Attributes of Corporate Attributes of Corporate CultureCulture

• IntensityIntensity - degree member accept norms and - degree member accept norms and valuesvalues

• IntegrationIntegration - extent to which members in various - extent to which members in various departments share organizational culturedepartments share organizational culture

TM-17

Functions of Corporate Functions of Corporate CultureCulture

1. Conveys sense of identity1. Conveys sense of identity

2. Generates employee commitment2. Generates employee commitment

3. Adds to organizational stability3. Adds to organizational stability

4. Serves as a frame of reference4. Serves as a frame of reference

Methods of Managing the Culture of an Methods of Managing the Culture of an Acquired FirmAcquired Firm

Not at All

How Much Members of the Acquired Firm Value Preservation of Their Own Culture

Very Much

Integration Assimilation

Separation Deculturation

Per

cep

tio

n o

f th

e A

ttra

ctiv

enes

s o

f th

e A

cqu

irer

Not

at A

ll A

ttrac

tive

Ver

y A

ttrac

tive

Source: A. Nahavardi and A. R. Malekzadeh, “Accultutation in Mergers and Acquisitions,” Academy of Management Review (January 1988), p. 83. Copyright © 1988 by the Academy of Management. Reprinted by permission.

TM-19

Managing Organizational Managing Organizational Culture Of Acquired FirmsCulture Of Acquired Firms

• Integration: Use good cultural aspects of both Integration: Use good cultural aspects of both organizationsorganizations

• Separation: Cultures can’t work together but each Separation: Cultures can’t work together but each culture is working -- keep them apart but don’t culture is working -- keep them apart but don’t change themchange them

• Assimilation: Dominant culture supplants weak or Assimilation: Dominant culture supplants weak or non-useful culture for organization’s new strategynon-useful culture for organization’s new strategy

• Deculturation: Organization goes out of its way to Deculturation: Organization goes out of its way to get rid of a culture which is detrimental to get rid of a culture which is detrimental to strategy.strategy.

TM-20

Functional ResourcesFunctional ResourcesMarketing and Marketing Marketing and Marketing

StrategyStrategy

• The marketing function is the most necessary The marketing function is the most necessary function -- you must have a market for goods function -- you must have a market for goods and services. The market must be viable. You and services. The market must be viable. You must identify market segments on which you can must identify market segments on which you can successfully use the 4 p’s of marketing.successfully use the 4 p’s of marketing.

• Marketing strategyMarketing strategy is: is:

• 1. Pick target market(s) from market 1. Pick target market(s) from market segment(s)segment(s)

• 2. Use 4 p’s on segments --Product , 2. Use 4 p’s on segments --Product , price, place (distribution, and promotionprice, place (distribution, and promotion

TM-21

C. Marketing Mix VariablesC. Marketing Mix Variables

Product Place Promotion Price

Quality Channels Advertising List price

Features Coverage Personal selling Discounts

Options Locations Sales promotion Allowances

Style Inventory Publicity Payment periods

Brand name Transport Credit terms

Packaging

Sizes

Services

Warranties

Returns

TM-22

The Product Life CycleThe Product Life Cycle

Introduction Growth* Maturity Decline

Time

Sal

es

*The right end of the Growth stage is often called Competitive Turbulence because of price and distribution competition that shakes out the weaker competitors. For further information, see C. R. Wasson, Dynamic Competitive Strategy and Product Life Cycles, 3rd ed. (Austin, Tex.: Austin Press, 1978).

TM-23

Go to slides that say Go to slides that say financial part of Chapter 4 financial part of Chapter 4 after you finish the rest of after you finish the rest of

Chapter 4.Chapter 4.• Directions for doing financial analysis for cases Directions for doing financial analysis for cases

is found in Appendix “A”of the Supplement on is found in Appendix “A”of the Supplement on how to do TEAM and CASE individual cases.how to do TEAM and CASE individual cases.

• Doing financial analyses and definitions of ratios Doing financial analyses and definitions of ratios are found on pp. 137-143.are found on pp. 137-143.

• DDo Appendix “A”o Appendix “A” 1ST1ST when you analyze a case. when you analyze a case. Implementation sectionImplementation section will discuss will discuss financing financing your your alternatives.your your alternatives.

TM-24

Functional ResourceFunctional ResourceProduction/Operations Production/Operations

functionfunction• All activities that transform inputs into outputs All activities that transform inputs into outputs

of goods or services.of goods or services.• POM is often the largest share of organization POM is often the largest share of organization

resources which requires the most investmentresources which requires the most investment• Good POM requires that production/service Good POM requires that production/service

departments work with marketing, product departments work with marketing, product engineering and design so that the develop the engineering and design so that the develop the appropriate -- processes, capacity, inventory, appropriate -- processes, capacity, inventory, workforce, quality.workforce, quality.

TM-25

POMPOMOther important Production Other important Production

issuesissues• COMPREHENSIVE SUPPLY CHAIN MANGEMENT COMPREHENSIVE SUPPLY CHAIN MANGEMENT

STRATEGYSTRATEGY

• Process -- process to make product includes choice of Process -- process to make product includes choice of technology, layout, facility locationtechnology, layout, facility location

• Capacity -- determination of optimal output involves Capacity -- determination of optimal output involves facilities planning, aggregate planning, schedulingfacilities planning, aggregate planning, scheduling

• Inventory -- involves managing level of raw material, Inventory -- involves managing level of raw material, WIP, finished goods, how much to orderWIP, finished goods, how much to order

• Workforce developmentWorkforce development

• Quality -- CPI, zero defects, TQMQuality -- CPI, zero defects, TQM

TM-26

Functional ResourceFunctional ResourceR&D FunctionR&D Function

• Encourage R&D to work with marketing, finance, Encourage R&D to work with marketing, finance, etc. as it does research -- R&D must etc. as it does research -- R&D must communicate, communicate, communicatecommunicate, communicate, communicate

• Types of R&D:Types of R&D:• Basic R&D Basic R&D • Product R&DProduct R&D• Process (Engineering) R&DProcess (Engineering) R&D• Concurrent EngineeringConcurrent Engineering

Do Product and Process at the same time Do Product and Process at the same time

TM-27

Technological DiscontinuityTechnological DiscontinuityWhat the S-Curves Reveal

Research Effort/Expenditure

In the corporate planning process, it is generally assumed that incremental progress in technology will occur. But past developments in a given technology cannot be extrapolated into the future, because every technology has its limits. The key to competitiveness is to determine when to shift re-sources to a technology with more potential.

Stop Spending

Start Spending

Source: P. Pascarella, “Are You Investing in the Wrong Technology?” Industry Week (July 25, 1983), p. 38. Copyright © 1983 Penton/IPC. All rights reserved. Reprinted by permission.

Pro

du

ct P

erfo

rman

ce

TM-28

Technological CompetenceTechnological Competence - can develop and use - can develop and use new technology and get rid of and drop new technology and get rid of and drop profitability.profitability.

A. Develop technologyA. Develop technology

B. *TransferB. *Transfer

C. **Drop Technology (gas guzzling planes for C. **Drop Technology (gas guzzling planes for TWA, aluminum cans for bottles)TWA, aluminum cans for bottles)

*Technological Transfer*Technological Transfer - take technology form lab - take technology form lab to market in real time (good at both product and to market in real time (good at both product and process engineering)process engineering)

**Technology Discontinuance**Technology Discontinuance - drop product from - drop product from product linesproduct lines

TM-29

Functional ResourceFunctional ResourceComputer Information Computer Information

SystemsSystems•

Chief Information Officer(CIO) and CTO Chief Information Officer(CIO) and CTO may be from CIS area and are responsible may be from CIS area and are responsible for gathering external information for for gathering external information for strategic audit.strategic audit.

• MIS (Marketing Information Systems)MIS (Marketing Information Systems)• MIS (Management Information Systems) is more than just MIS (Management Information Systems) is more than just

CIS--phones, paper, espionage, person-to-person etc.CIS--phones, paper, espionage, person-to-person etc.• Difference between data and information and the need to Difference between data and information and the need to

collect, categorize, analyze, file, retrieve datacollect, categorize, analyze, file, retrieve data• Typical MIS support from CIS includes E-mail, external Typical MIS support from CIS includes E-mail, external

news sources and databases, word processing, news sources and databases, word processing, spreadsheets and filingspreadsheets and filing

• Strategic Planning programs are available, CheckMATE, Strategic Planning programs are available, CheckMATE, Business Simulator, EXCEL STRATPAC, SIMPLAN, Business Simulator, EXCEL STRATPAC, SIMPLAN, REVEAL, COSMOS, etc.REVEAL, COSMOS, etc.

TM-30

Go to slide show that says Go to slide show that says financialfinancial

Part of Chapter 4 Part of Chapter 4

TM-31

ConclusionConclusionThe Internal Environment is The Internal Environment is analyzed as we have said analyzed as we have said

before by dividing the before by dividing the internal environment into internal environment into

the three areas belowthe three areas below• 11. Organizational Management and . Organizational Management and org.al structureorg.al structure• 2.2. Organizational Culture Organizational Culture• 3.3. Resources Resources areas of Marketing, R & D, Finance, Operations, areas of Marketing, R & D, Finance, Operations,

Information Systems, etc.Information Systems, etc.

• Value Chain was discussed at beginning of these notes for the Value Chain was discussed at beginning of these notes for the help that might give us in identifying core competencies and items help that might give us in identifying core competencies and items in value chain.in value chain.

TM-32

Internal Factor Evaluation (IFE)Internal Factor Evaluation (IFE)

Internal Factors Weight RatingWeighted Score Comments

1 2 3 4 5

1.00

Strengths

Weaknesses

Total Weighted Score

Notes: 1. List opportunities and threats (5–10 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the company is responding to the strategic factors in its external environment.Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and Hunger Associates. Reprinted by permission.

TM-33

Internal Factor Evaluation (IFE):Internal Factor Evaluation (IFE):Maytag as ExampleMaytag as Example

Internal Factors Weight RatingWeighted Score Comments

1 2 3 4 5

1.00

Strengths• Quality Maytag culture

• Experienced top management

• Vertical integration

• Employee relations

• Hoover’s international orientation

Weaknesses• Process-oriented R&D

• Distribution channels

• Financial position

• Global positioning

• Manufacturing facilities

Total Weighted Score

Quality key to success

Know appliances

Dedicated factories

Good, but deteriorating

Hoover name in cleaners

Slow on new products

Superstores replacing small dealers

High debt load

Hoover weak outside the United Kingdom and Australia

Investing now

3.05

.15

.05

.10

.05

.15

.05

.05

.15

.20

.05

5

4

4

3

3

2

2

2

2

4

.75

.20

.40

.15

.45

.10

.10

.30

.40

.20

The Role of ForecastingThe Role of Forecasting

Forecast of Internal and external environment need to be developed so that the results of your potential alternative can be evaluated..

EnvironmentalScanning

EnvironmentalScanning

PresentTrends andFashions

PresentTrends andFashions

ForecastingFuture Trendsand Fashions

Assumptionsfor StrategicPlanning and

Decision Making

Assumptionsfor StrategicPlanning and

Decision Making