Internal Environmental Analysis

• Internal environmental analysis will be the focus, along with applying the SWOT analysis, resource-based and value chain methods, and functional approach.

Internal Environmental Analysis

• It is still part of the strategic direction.
• An organization's capacity can produce a competitive edge.
• A successful strategy should not overextend resources but seen as a key for success.
• One must evaluate strengths and weaknesses in ALL functional areas.
• Key to a strategy's success is a realistic pressure on resources.
• Internal analysis must be objective in strategy decisions; avoid subjective gut feelings.
• SWOT analysis has limitations for environmental analyses and is one of at least 4 methods.

Resource Valuation Methods

• Resource-based: valuation of organization as a bunch of resources.
• Value-chain analyses: focus on activity areas adding value.
• Strategic direction can only be followed if its position is known by identifying what is done well and where are the gaps.
• Vision must challenge internal resources for attaining strategic excellence.
• The link between future vision and picture of the internal environment is important.
• It is necessary to match internal ability with a vision that stretches.

Past vs Now

• The past provided low labor costs, access to finance sources, and protected markets.
• Now, it is important to have the ability to change and foster a climate of continuous learning for making strategic decisions, still knowing what they do best.
• Recognition of CORE competencies is essential before taking strategic decisions.
• Some managers do not understand this and give attention to elements that will not create a competitive edge.
• SWOT analysis provides a framework for environmental analysis.
• SWOT's limitations include reviewing too narrowly and does stimulate discussion.
• SWOT highlights conditions in an organization's environment: about what the organization has or does not have in resources and capabilities – both internal and external.
• Understanding a strength is important.
• It is important to understand what the four SWOT elements are.

Internal Analysis for Effective Strategy Development

• Analyzing internally through Resources, Capabilities, Core Competencies is important for developing an E&E strategy, and no single analysis tool is exclusive.
• Resource-based view (RBV) is one way of internal analysis
• RBV says resources and capabilities as organization and competencies impact management capabilities, sources of core competencies, and leads to competitive edge.
• Foundational features make up competitive advantage: resources, organizational capabilities, and competencies.
• RBV holds that for gaining and keeping a competitive edge, resources are more important than industry structure.
• The main concern for competitive edge is organizational resources and capabilities, no two organizations are the same and these elements decide efficiency and effectiveness.
• There are 3 types of resources that lead to distinctive competencies: tangible, intangible, and organizational capabilities.
• Tangible Assets are physically 'seeable' and the balance sheet value is not indicative of real value.
• Intangible assets cannot be touched but are often critical for a competitive edge.
• The textbook notes that the organizational capabilities is the 3rd resource, but it is discussed separately.
• Capabilities are the "glue" that develops over time and keeps it all together and defines organizational strategic capabilities.
• Capabilities are the network of processes and skills to create output from resources.
• Key is knowing how to apply the 'secret formula'.
• Resources and capabilities become real competitive advantages when they are truly distinctive and contribute to core competencies.
• When capabilities are unique, it is considered a "distinctive capability".

What makes resources valuable:

• Valuable: when it adds value, e.g. skilled people.
• Rare: scarce but also sustainable and valuable for customer satisfaction.
• Inimitability: hard to imitate.
• Organized: for capturing, applying, exploiting the value of resources through processes, policies, and systems.
• Value Chain Analysis (VCA), developed by Michael Porter, is another way of internal analysis.
• VCA has an article reference to understand the assumption customers want and demand value.
• "Value" is the amount of money a customer will pay, and high returns come from creating value.
• Value Chain Analysis is essentially examining the chain of activities to see where value is added which is the difference in monetary value of finished product vs input.
• VCA is technically a systematic tool to see how activities contribute and what activities bring to create value for customers.
• Value is created by the uniqueness of products and it is cheaper than competitor and fast response.
• VCA sees the organization as a sequential process and takes apart all activities to see where differentiation occurs and at what cost (cost advantages), so the process is central in the VCA, so the business is viewed as one.
• VCA can assist to identify where most value is added as a strength and if it is possible to add more, it becomes a weakness which means there is room for improvement.
• If an activity is a source of a competitive edge, do what is required that the organization can do that better than competitors.
• Group activities into primary and support activities.
• Primary creates product/service and value when done well.
• Secondary provides support and value added throughout the process.
• Activities should focus on profit through value.

Primary depend on Support

• Lack of efficiency in any area will lead to shortages, lack of marketing focus.
• Watch for activities being "efficiently and effectively" - work done right and the right thing.
• Handling of raw materials must be done efficiently and effectively in input logistics.
• Operations activities are responsible for transformation - how efficient layout by using control systems.
• Output logistics considers all matters linked to distribution.
• Marketing methods are evaluated, with market research being effective and brand loyalty considered.
• Customer service basics must be done well and listen to complaints and act on it.
• Procurement overlaps with primary about optimizing quality, speed, the best cost for quality, and relationships with suppliers.
• Tech development should consider processes & equipment - what level, quality of development, innovation, and its effect on deadlines.
• HR management should consider recruitment, selection, training, payment, effective procedures and level of motivation.
• General Admin, Infrastructure, E&E planning systems in place with coordination and integration of VC activities is important.
• Financial management needs effective recording, control, and sound accounting principles used.
• Value Chain Analysis should support the strategy of the organization if it has a low-cost strategy, then activities should focus on minimizing costs.
• The alignment of value chain activities and strategy being aligned is very important.
• Functional approach involves assessing if each functional area is performing well.
• Functional areas are generic to all organizations, such as finance/accounting, marketing, and production.
• There should be a focus on how well or poorly functions are performed, with no indication whether a function's contribution is important.
• The value chain assumes that customers expect value for a competitive advantage to be built.
• Internal audit says that an organization has certain functions to perform and assesses those functional areas.
• Internal Factor Evaluation Matrix is method for performing internal analysis.
• List 10 to 15 important factors from internal audit.
• Add weighting for relative importance in success.
• Rate response to that weighting and multiple to get a score (average is 3) and commenting is possible.
• This is used and referred to again.