Unit 2

Analyzing Company’s Internal

Environment

Mrs. Kalyani Kapate

Learning Objectives

Resource Based view of

Concept of Core Competence and
firm
Distinctive Competitiveness

Competitive Advantage, Benchmarking,

competitive disadvantage Organizational Capability
and parity Profile

Business Portfolio
VRIO Framework Value
Analysis- BCG Matrix,
Chain analysis
GE 9 Cell

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Internal Environmental Analysis:

• Analyzing Company’s Internal Environment:

• Environmental Analysis-Identifies and evaluates
resources, capabilities, and core competencies
• An internal analysis provides the means to
identify the strengths to build on and the
weaknesses to overcome when formulating
strategies.
• Why:
• Identify an organization’s strengths and
weaknesses
• For making strategic decisions

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Internal Environmental Analysis:

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 Four broad areas need to be considered for internal analysis

➢ The organization’s resources,

capabilities
➢ The way in which the organization
configures and co-ordinates its key
value-adding activities
➢ The structure of the organization and
the characteristics of its culture
➢ The performance of the organization as
measured by the strength of its
products.
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 Resources

Human Resources
➢Resources are assets
Financial Resources
employed in the activities and
processes of the organization. Organizational Physical Resources
➢They can be tangible or Resources
intangible. Technological
Resources
➢They can be obtained
externally or internally Informational
Resources
generated (organization-
specific).

Mrs. Kalyani Kapate

 Resource based view of a firm or Resource based Theory:

Organization’s resources
Major Contributor to the
and capabilities : basis for
Resource based Theory
strategic decisions
Barney (1991)
Resource based view
of a firm or
Resource
based Theory:

Competitive advantage can Organizations can identify,

be gained through locate and acquire key
acquisition and value of valuable resources
organizational resources
Valuable resources are costly to
imitate and non-substitutable

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 Heterogeneity:

The competition between Apple and Samsung is a good example of the

companies operating in the same industry, are exposed to the same external
environment, can achieve different organizational performance due to
difference in resources . Apple competes with Samsung in tablets and
Smartphone markets, where apple sells its products at much higher prices,
and as a result reaps higher profit margins. Why Samsung does not follow
the same strategy? Simply because Samsung does not have the same brand
reputation or is capable to design the user-friendly products like Apple
does. (Heterogeneous Resources)

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 The theory holds that:
Firms possessing resources
that are valuable and rare will able to achieve
strategic advantage.
This theory is concerned
with the efficiency of resource
utilization.

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According to Barney (1991):

Physical Resources-
Technology, plant and equipments,
geographical location
Human Resources-
Training, relationships, expertise,
experience
Organizational Resources-
Formal systems and structures

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 Resource Based Model:

Assumes each organization has a

collection of unique resources &
capabilities that is the basis for
firm’s strategy & ability to earn
above-average returns

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 Characteristics of Resources

Valuable Rare
1. 2.

Characteristics
of Resources
Non-
Costly to Imitate
substitutable
3. 4.

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 Organizational Capabilities:

Organizational Capability: Competitive Advantage:

is the inherent capacity /potential- is concerned with Continuous
use strengths, exploit opportunities, process improvement &
face threats in external
technological advancement in its
environment.
R&D

Core Competence/ Distinctive

Competitive Parity: Capability:
combinations of resources & capabilities
is an area where you achieve
which are unique to a specific
standard or average results as organization and are responsible for
compared to others in the industry. competitive advantage

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 Firm has an edge in Defending against
01 competitive forces and Securing
customers

02 Offers superior value

CompetitiveA
dvantage 03 Offer buyers a good product at a
lower price

Use differentiation to provide a

04 better product

• An advantage over competitors gained by offering

consumers greater value than competitors offer.

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 Average
Capabilities in a Superior or
particular area as industry leading
compared to capabilities
others in the
industry.
Competitive Competitive
Parity Advantage

Associated with-
•Best Practices Associated With –
•Standards Technology company may target Innovation
•Outsourcing competitive parity in their accounting
department- comply with laws & follow
best practices & standards.
Same company may aggressively –
innovate to achieve competitive
advantage. ( ex: customer service)

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 Ways to Achieve:

1. Competitive Parity: 2.Competitive Advantage:

• Best Practices • Efficiency
• Standards • Quality
• Strategy • Innovation
• Outsourcing • Customer Service

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Strategies adopted to gain competitive
advantage:

1. Cost leadership strategy

2. Differentiaation strategy
3. Focus strategy

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 An Unfavorable condition/circumstance-
causes firm to underperform in an industry

20% Disadvantages:
Competitive Know-how, scale, scope, location,
Disadvantage distribution, quality, product features,
process efficiency
, productivity, costs

It may be measured by comparing against a

top competitor or industry average for a
particular factor

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 Competence/
capabilities

Distinctive
General Competencies/ Capabilities/Core
Capabilities Competence
Buyer Power
Basic requirements or
A valuable business Potential sources:
capabilities It can be Achieved: Reputation,
(Assets like industry- Innovation
capability possessed
Architecture (i.e.,
specific skills, Marketing by one firm that all internal and external
relationships and Design other firms in an relationship)
organizational Cost industry can’t match. Innovation,
knowledge) Strategic assets

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Core Competences/Distinctive Capabilities

➢ Core competences or distinctive capabilities are combinations of resources

and capabilities which are unique to a specific organization and which are
responsible for generating its competitive advantage.
➢ Kay (1993) identified four potential sources of Core competences:
➢ Reputation
➢ Architecture (i.e., internal and external relationship)
➢ Innovation
➢ Strategic assets
➢ https://www.youtube.com/watch?v=Abl6b71H2Mc

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 Core Competences/Distinctive Capabilities

Contribute greatly to stakeholder value

Supplier
Open Power
doors to new opportunities
Characteristics Threat of New Entry
Can’t be copied by competitors

03 Sustainable Competitive Advantage

Benefits SupplierPower
Power
Differentiated
Supplier customer value
04
Supplier
Access to a Power
wide variety of markets

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 https://www.youtube.com/watch?v=yZC4neLax5o

Core competency of a technology company could be the

design of high-speed microprocessors or efficient Internet
Technology
search algorithms, both of which are difficult to replicate.

Innovative companies have a competitive edge in the marketplace.

For example, one of Apple's core competencies has been its ability
Innovation
Core Competences/ to produce cutting edge and "cool" designs. It introduced the iPod as
a "cool" way to download and listen to music.
Distinctive
Capabilities Quality & Businesses with a reputation for quality are able to
Reliability demand higher prices and they usually enjoy customer
loyalty.

Exceptional Businesses with Exceptional Customer service enjoy customer

Customer l loyalty.
Service

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 Resources: Capabilities: Core competence
human, financial, Industry-specific Distinctive and superior
physical, skills, relationships, skills, technology Perceived
technological, + organizational = relationships, customer
legal, informational knowledge knowledge and benefits/value
Intangible reputation of the firm added
Tangible and and invisible Unique, and
visible assets assets difficult to copy

Inputs to Integration of
the firm’s resources into
processes value-adding
activities
Not all capabilities are core Denotes feedback
competences – only those loop
that add greater value than denotes core competence
those of competitors development

The relationships between resources, capabilities and core competence

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 VRIO MODEL

During the strategic planning (the “strategy formulation” step), we might look at
business from different perspectives:

General advantages and weaknesses (SWOT analysis),

Actual performance versus expected one (GAP analysis),
External factors (PESTEL analysis), risks, or constraints.

VRIO analysis forms a part of the strategic analysis toolkit.

It suggests looking at the resources and capabilities and deciding which of them might
lead to sustainable competitive advantage.

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 VRIO MODEL

The discussion about the use of resources to achieve competitive advantage

was started by Birger Wernerfelt in 1984 (RBV – Resource Based View
framework). Later, in 1991, Jay Barney, a professor in strategic management,
evolved the RBV and introduced the VRIO framework as we know it today.

VRIO stands for Value – Rarity – Imitability – Organization.

Mrs. Kalyani Kapate

 VRIO stands for Value – Rarity – Imitability – Organization.

1. Valuable: Look at the position of the resource in value creation chain. What’s
the role of the resource there? What would happen if you lose access to the
resource? What would happen if you double its volume?
2. Rare: In the technological world, we are talking more often about the rarity of
talents and skills and their correlation with achieving competitive advantage.
3. Anything can be imitated, the question is the cost (think about Tesla
superchargers network) and the possibility of reproducing certain conditions.
4. Having certain resources doesn’t necessarily mean that the organisation
exploits those resources effectively. Your company might hire the best talents, but
without access to a proper innovative structure, they will not be able to build the
next Google for you.

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VRIO MODEL

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VRIO MODEL

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https://www.youtube.com/watch?v=XUBeH7VQaFY

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 Value Chain Contains 2 types of organizational Activities:
1. Primary Activities: Value creation activities.
2. Support Activities: Activities facilitating performance of the primary activities

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https://www.youtube.com/watch?v=_mVmO1pg2o0
https://youtu.be/bzlbPyAXn54

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Support activities:

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https://www.youtube.com/watch?v=CDTRTGYXz4Q

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Organizational Capabilities

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 1. Product-related Factors
2. Price Related Factors
1. Sources of Funds
3. Place related Factors
2. Usage of Funds
4. Promotion Related Factors
3. Management of Funds
5. Integrative and System related
factors

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 1. Factors related to Production 1. Factors related to Personnel
System System
2. Factors related to operations & 2. Factors related to Organizational
control System and employee character
3. Factors related to industrial
3. Factors related to the R & D Relations

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 1. Factors related to general
1. Acquisition & retention of
management system
information
2. Factors related to general managers
2. Processing & synthesis of
3. Factors related to external
information
relationships
3. Retrieval and usage of information
4. Factors related to organizational
4. Transmission and dissemination
climate
5. Integrative, systemic & supportive
5. Integrative and System related
factors
factors
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https://www.youtube.com/watch?v=Ev4Z7yPBeXA

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 STRATEGIC ADVANTAGE PROFILE.
Strategists must be aware of the strategic advantages or strengths of the
firm to be able to choose the best opportunity for the firm. On the
other hand they must regularly analyse their strategic disadvantages
or weaknesses in order to face environmental threats effectively.

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A strategic profile is a snapshot of an organization's
history, its current products and services and its plans
for the future. Using a SWOT (strengths, weaknesses,
opportunities and threats) analysis to develop the
strategic profile is a useful tool for understanding the
direction that a company wishes to take with its
planning, goal-setting and strategy development.

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Understanding a company's weaknesses can help it to
understand the things it needs to change to make itself more
competitive. These weaknesses could easily be internal
matters such as staff shortages or budget pitfalls, but they
can also be external to the company: the economy, buyer
interest and market fluctuations. As such, auditing the
resources available to the company to deal with or overcome
its limitations is part and parcel of the strategic profile.

Mrs. Kalyani Kapate

 STRECH LEVERAGE FIT

“Stretch is a misfit “Leverage can be defined as

between resources and the process or act of
The strategic fit is central to
aspirations” concentrating, accumulating,
the strategy school of
“This is exactly opposite to complimenting, conserving,
positioning where techniques
the idea of fit that means and recovering resources in
like SWOT analysis can be used
positioning the firm by such a manner that meagre
to analyze and assess the
matching its organizational (less or insufficient in amount)
organizational capabilities and
resources to its resource base is stretched to
environmental opportunities.
environment.” meet the aspirations that an
organization dares to have.”

Mrs. Kalyani Kapate

 Leverage - is when a firm takes
Stretch - is when a firm its current resources, and tries
doesn't have the resources to make the most of them in
or capability to take up the order to get a "foot in the Fit - Is when a firm positions
position it would like in door" of the market it aspires itself in an environment that
the market, so it attempts to command. suits its resources and
to augment or alter its The firm will not be able to capabilities.
capabilities to better fit take control of that market
into the market. segment, but it will leverage its
current resources to make
some headway.

Mrs. Kalyani Kapate

 The Arenas of Resource Leverage
Management can leverage its resources, financial
The Arenas of Resource Leverage
and nonfinancial,
Management can inleverage
five basic ways:
its resources, by concentrating
financial and
nonfinancial, in five basic ways: by concentrating them more
them more effectively
effectively on key strategic on
goals; key strategic
by accumulating them goals;
more by
accumulating them
efficiently; by complementing more efficiently;
one kind of resource with by
another to create higher order value; by conserving resources
complementing one and
wherever possible; kind of resource
by recovering them fromwiththe another to
create higher
marketplace order value;
in the shortest by time.
possible conserving resources
wherever possible; and by recovering them from the
marketplace in the shortest possible time.

Mrs. Kalyani Kapate

 Concentration
• Concentration is a type of expansion strategy. It involves
converging resources in one or more of a firm’s businesses in
terms of their respective customer needs, customer functions, or
alternative technologies-either singly or jointly in such a manner
that expansion results.
• concentration strategies: (1) market penetration, (2) market
development, and (3) product development

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 Accumulating Resources: Extracting and
Borrowing.
Companies can leverage by extracting knowledge
from experiences.
Accumulating Resources: Extracting and Borrowing.
“Borrowing” the resources of other companies is
another way to accumulate and leverage resources.
alliances, licensing deals, and joint ventures to
bolster its product-development efforts and to gain
access to foreign markets.

Mrs. Kalyani Kapate

 Conserving Resources:
Recycling, Co-opting, and Shielding. The more often a
given skill or competence is used, the greater the resource
leverage. Sharp exploits its liquid-crystal-display
competence in calculators, electronic pocket calendars,
mini-TVs, large-screen-projection TVs, and laptop
computers. Honda has recycled engine-related innovations
across motorcycles, cars, outboard motors, generators, and
garden tractors.

Mrs. Kalyani Kapate

 Complementing Resources:
Blending and Balancing. By blending different types
of resources in ways that multiply the value of each,
management transforms its resources while
leveraging them. The ability to blend resources
involves several skills: technological integration,
functional integration, and new-product imagination.

Mrs. Kalyani Kapate

 Recovering Resources:
The time between the expenditure of resources and their
recovery through revenues is yet another source of
leverage—the more rapid the recovery process, the higher
the resource multiplier. A company that can do anything
twice as fast as its competitors, with a similar resource
commitment, enjoys a twofold leverage advantage

Mrs. Kalyani Kapate

 Business Portfolio Analysis:
Business Portfolio Analysis :
Business Portfolio Analysis is an organizational strategy formulation technique that
is based on the philosophy that Organizations should develop strategy much as they
handle investment portfolios.

Portfolio analysis is a systematic way to analyze the products and services that
make up an association's business portfolio. In the way, in which the sound
financial investments should be supported and unsound ones discarded, sound
organizational activities should be emphasized and unsound ones deemphasized

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 The aim of a portfolio analysis:

1) To Analyse: Analyse its current business portfolio and decide which SBUs
should receive more or less investment.
2) To Develop Growth Strategies: Develop growth strategies for adding new
products and business to the portfolio.
3) To Take Decisions Regarding Product Retention: Decide which business or
products should no longer be retained.

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Portfolio Analysis Techniques:

1. BCG Matrix: The basis for many of these matrix analyses grew out of work carried out
in the 1960s by the Boston Consulting Group (BCG).
BCG observed in many of their studies that producers tend to become increasingly
efficient as they gain experience in making their product and costs usually declined with
cumulative production.
The growth-share matrix (product portfolio, BCG-matrix, Boston matrix, Boston
Consulting Group analysis, and portfolio diagram) is a chart that had been created by
Bruce D. Henderson for the Boston Consulting Group in 1970 to help corporations with
analyzing their business units or product lines.

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Relative market share

Relative market share indexes a firm's or a brand's market share against

that of its leading competitor.

Relative market share offers a way to benchmark a firm's or a brand's

share against that of its largest competitor, enabling managers to
compare relative market positions across different product markets.

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GE Nine Cell Matrix:

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 Core
Competence

Superiority Customer
Complexity Indentifiablity Durability Imitability
Adaptability Orientation

How elaborate is How easily can

Is it clearly How is the
the bundle of the competence competence
How difficult is How long does it How difficult is
resources and superior to the be leveraged or perceived by
it to identify? be replaced by it to imitate?
capabilities competences of adapted? customers
an alternative
which comprise other and how far
competences?
the core organizations? is it linked to
competence? their needs?

Criteria to evaluate Core Competences

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