internal analysis, Apuntes de Administración de Empresas

¡Descarga internal analysis y más Apuntes en PDF de Administración de Empresas solo en Docsity!

Unit 4. Internal analysis

Subject: Strategic Management

Degree: Business Administration

Unit 4. Internal analysis

INDEX 4.1 Resources, Capabilities and Competitive Advantage 4.2 Methods of internal analysis 4.2.1 Functional analysis and strategic profile. 4.2.2 Value Chain. 4.2.3 Comparisons: historical, industry and Benchmarking 4.3 External and internal analysis integration 4.3.1 SWOT analysis 4.3.2 Strategic analysis matrix BIBLIOGRAPHY Guerras, L.A. & Navas, J.E. (2007): La Dirección Estratégica de la Empresa. Teoría y Aplicaciones, Thompson-Cívitas, Madrid, 4 th^ ed. Chapter 6 and 7 Johnson, G., Scholes, K. & Whittington, R. (2006): Dirección Estratégica, Prentice Hall, Madrid, 7 th^ ed. Chapter 3.

4.1 Resources, capabilities and Competitive Advantage

Company Unique set of resources (technologies, skills, knowledge, etc.) and heterogeneous capabilities, that are generated and expanded along the time.

Companies are different because of:

• The heterogeneity of its R&C
• The imperfect mobility of its R&C, that can be valuables for one firm but not for another, they are very specialized and specific of one firm

Identify

Assess strategically

Determine those that provide a Competitive Advantage

R&C available in the company The key to success is more internal than external, and it is based on:

• Manage R&C properly
• Exploit the differences with other companies

The company as a set of Resources and Capabilities

4.1 Resources, capabilities and Competitive Advantage

• R & C are interrelated and represent two levels of aggregation of the elements that determine the potential of a company to compete. Resources
• Individual character
• Stock (things, elements)
  • First level analysis
  • Stock of factors or individual assets that a company owns or controls (financial resources, physical elements patents, etc.).

Capabilities

• Ways to proceed (flow)
• Collective character
  • Second level analysis.
  • Dynamic concept related to what the company knows how to do
  • Express the way in which the company combines its resources (flow variables). (Capability for: innovation, design, costumer service, etc.)
  • They provide collective skills.

The resources are not productive for themselves, they are combined and coordinated to perform an activity.

Resources and Capabilities concept

4.1 Resources, capabilities and Competitive Advantage

Tangible Resources Analysis

• Physical and financial actives.
• Easy to identify and assess (balance sheet).
• The accounting valuation is hardly significant regarding strategic purposes
• The potential for creating competitive advantage depends on:  What possibilities exist for a more efficient application (e.g. Less resources for the same business volume)  What possibilities exist for using them in more profitable uses (in the company, sale to other companies, partnerships, etc.)

4.1 Resources, capabilities and Competitive Advantage

 Characteristics

• They don’t have a physical existence
• They are based on the information and knowledge, and these are difficult to code
• Not all appear recorded in the balance
• They are slow and costly assets, difficult to sell in the market and susceptible of multiple uses
• Property rights are not, in some cases, well defined

Intangible Resources Analysis

Assets difficult to identify and assess

4.1 Resources, capabilities and Competitive Advantage Capability analysis

• Ways that each company has to combine and coordinate their resources to develop an activity.
• Regarding their own nature, they are intangible
• They can be identified and classified using the functional criteria or the value chain
• They are usually organized in hierarchical structures:
  • Example: the capabilitie for developing a new product (higher level), requires integration of different specializad functional capabilities (R+D, production, etc.)

Central or distinctive competences (core competences), are capabilities developed by a company, which allows it to perform an activity which is valuable for its costumers and other stakeholders, better than their competitors.

4.1 Resources, capabilities and Competitive Advantage Capability analysis: how resources are integrated?

 Resource integration mechanisms:

 Non human (financial, technologic, etc.). They are “pasive”.  Human (knowledges and skills embodied by people according to their speciality). Mechanisms:  Rules and guidelines (through them, specialized knowledge becomes operative practices: tasks normalization, procedure manuals, etc.)  Organizational routines (models formed by a sequence of coordinated individual actions). Thus, production, sales, etc., activities are organized through a set of standardized routines.  Routines are the basis for the capabilities generation  Stablishing routines for the development of particular tasks is the basis for developing distinctive competences.

Most capabilities require both types of coordination mechanisms

 Any characteristic that a company has, and that differenciates itself from its competitors, placing it in a superior relative position to compete.  Possession of a sustainable Competitive Advantage allows to get “profits” in excess of normal  Without competitive advantages, companies gain only “normal profits”.  The company must know what it can do well and which are the sources of competitive advantages.  Competitive advantages arise from two origins: low cost position or differentiation / perceived uniqueness.

4.1 Resources, capabilities and Competitive Advantage

Competitive Advantage

4.1 Resources, capabilities and Competitive Advantage

Resources Capabilities

R&C threshold

Minimum resources needed to compete

Minimum capabilities needed to compete

R&C source of Competitive Advantage

Unique Resources Resources that are valuable, rare and inimitable

Distinctive Capabilities Capabilities that are valuable, rare and inimitable

R&C threshold : they are necessary to compete and their level changes with the competitive dynamic (new competitors, new substitutes, improving competitors, etc.)

Unique resources and distinctive Capabilities: are the sources for sustainable competitive advantages.

Resources and Capabilities classification

4.2 Methods of internal analysis

• They allow to identify, evaluate and compare with the competition the key R&C, through the analysis of the company in each of its functional areas.
• There is no single list of key R&C valid for any situation and company (they depend on the type of company, sector, how they compete, etc.).
• Are presented, from a general perspective, those that could be considered in each functional area
• To obtain the strategic profile, key variables are measured in a scale of 1 to 5

4.2.1 Functional analysis and strategic profile

4.2 Methods of internal analysis 4.2.1 Functional analysis and strategic profile: key variables, functional areas

Marketing function  Market (market share trends, ..)  Product (post-sale service, ...)  Price  Distribution  Promotion and advertising Production function  Characteristics of the production process  Cost analysis  Quality control,...  Productivity analysis  Equipment status (maintenance policy)  Procurement policy  Inventory management: sources, timelines,…  Plants location Finance Function  Financial structure  Profitability analysis  Risk analysis

Human Resource Function  Recruiting system  Qualification and training level  Conflict level (worked hours vs. nominal hours)  Human resource efficiency (measuring absenteeism and its causes)  Promotion systems, incentives and rewards, and participation.  Security systems in the job

Management function  Organizational structure  Management  Motivation system  Information systems  Planning-control systems  Business culture

4.2 Methods of internal analysis

• Profile Interpretation: identification of strengths and weaknesses of the company (strengths and weaknesses map)
• Advantages: Intuituve technique, qualitative and easy to develop and understand It encourages to reflection and systematic analysis for the interlal diagnostics
• Potential drawbacks: Relative: should be used in comparison with another profile Subjetive assessment. Importance of realism and self-criticism Static in its development. It can become more dynamic by comparison to past profiles

4.2.1 Functional analysis and strategic profile

• Utility : Systematic support to diagnose the company situation  Comparison with another reference : leader or average company Temporal comparison of the company itself development

4.2 Methods of internal analysis

4.2.2 Value chain

• Concept:

Technique that allows a partition of the company in separable activities and learn how each one of them contributes to achieving the desired objectives. It consists of all activities that a company performs to produce and sell a product / service. Lets analyze activities and relationships between them.

• Objective: identify sources of competitive advantage (activities or parts that contribute most to the generation of the value obtained), through the analysis of:

Basic activities Interrelations between basic activities (horizontal links) Interrelations within the Value System (vertical links)