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Why an Internal Analysis is Important - Texas Tech University

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Strategic Management Chapter 4“Internal Analysis”
Diana PerkinsAshleyGonzenbachBrian ByrneAmanda Long
What Will Be Covered
What is an internal analysisHow to do an internal analysisWhy an internal analysis is important
What an Internal Analysis Is
The process of evaluating an organization’s resources and capabilities.Provides information on organization’s assets, skills, and work activities.What is good? What is lacking?Most Important- Evaluating resources, capabilities, and core competencies
Organizational Resources
Info On Resources
Assets for doing businessInputs needed to perform workWhat it hasFinancial, physical, human, intangible, structural, culturalImportant in producing capabilities and core competenciesCan lead to a competitive advantage
Comparison to Companies
Kraft- size, people, knowledge of the industry, companies withinCirque du Soleil- performers, producers, setsApple- human capital, market share, partners, knowlege
Organizational Capabilities
Info on Capabilities
Various routines and processes that transform inputs into outputsOrganizational routines and processes-regular, predictable, sequential work activities done by organizations and its membersInteraction between people and resourcesSome never get the hang of itCapabilities changeDynamic Capabilities-ability to build and integrate capabilities to address rapidly changing environments
Comparisons to Companies
Kraft- Produce food, markets food, deliver productsCirque du Soleil- Best performances and venuesApple- Provide leading technology to the masses
Distinctive Organizational Capabilities
Special unique capabilities that distinguish an organization from its competitorsThree Characteristics:Contributes to superior customer value and offers real benefits to customersDifficult for competitors to imitateThe capability should be usable in a variety of ways
Organizational Core Competencies
Info on Core Competencies
Any major value-creating capabilities that are essential to businessCapabilities are the building blocks of core competenciesAny core competencies are created out of routines, processes, knowledge, work activities (resources & capabilities)
Comparison to Companies
Kraft-largest confectionery, food, and beverage corporation headquartered in the US. Markets brands in more than 155 countries.Cirque du Soleil- The performance itselfApple- Customer service, Apple experience
In Simpler Words
Internal Analysis assesses:What an organization has/doesn’t haveWhat an organization can/cannot doStrengths- resources an organization possesses & capabilities it has developedWeaknesses- resources and capabilities the organization lacks or are deficient
Gaining a Competitive Advantage
Resources, capabilities, and core competencies all link togetherCan’t have one without the otherHow strengths and weaknesses are managed changes an organizationMembers at all levels deal with these strategic decisions
How to Do an Internal Analysis
Three approaches to Internal AnalysisValue Chain AnalysisViews the organization’s workInternal AuditUsed to examine and asses all internal areas of an organization.Capabilities Assessment ProfileDevelops a profile on the organization’s capabilities.
Value Chain Analysis
A systematic way of examining all the organization’s functional activities and how they create customer value.Comes from 3 categoriesUnique productLow pricesMeets the needs of a specific group of customers quickly and efficient
How to Do an Internal Analysis
How to Do an Internal Analysis
Primary activitiesActivities that create customer valueSupport activitiesSupport the primary activities
Value Chain Analysis
How to Do an Internal Analysis
A thorough assessment of an organization’s internal areas.Six organizational functional areas:Production-operationsMarketingResearch and developmentFinancial-accountingManagementInformation systems
Internal Audit
How to Do an Internal Analysis
Capabilities Assessment Profile-evaluation of an organization’s capabilitiesTwo Phases1. Identifying distinctive capabilities (5 steps)2. Developing and leveraging distinctive capabilities
Phase 1: Identifying distinctive capabilities
1. Prepare current product-market profile2. Identify sources of competitive advantage and disadvantage in the main product –market segments3. Describe all the organizational capabilities and competencies4. Sort the core capabilities and competencies according to strategic importance5. Identify and agree on the key capabilities and competencies
How to Do an Internal Analysis
How to Do an Internal Analysis
Are organizational resources and capabilities strengths or weaknesses?Criteria to measure against-Past performance trends- Specific goals or targets- Comparison against competitors- Personal opinions of strategic decision makers or consultants
Phase 2: Determining Strengths and Weaknesses
Why an Internal Analysis is Important
Two Reasons:1. Identifies an organization’s strengths and weaknesses2. Needed for making good strategic decisions
Why an Internal Analysis is Important
Identifies Strengths and WeaknessesOutcome from Internal Analysis is information about resources, skills, work routines, and processesWhat strengths and weaknesses do we have because of our specific resources and capabilities?-Kraft Foods go GlobalNo Internal Analysis = No critical strategic information
Why an Internal Analysis is Important
Used to Make Good Strategic DecisionsUse this critical strategic information for decision makingDetermine current competitive advantages, discover potential advantages, and what is preventing competitive advantages from being developedProvides basis for which strategic actions are necessary for sustainable competitive advantage- Kraft Foods invests in “Power Brands”
Three Takeaways
What an Internal Analysis is- Process of evaluating an organization’s resources and capabilities- Resources are inputs and capabilities transform inputs intooutputsHow to Do an Internal Analysis- Value chain—examines functional activities that create customervalue- Internal Audit—assessment of internal functional areas- Capabilities Assessment Profile—evaluates organization’scapabilitiesWhy an Internal Analysis is Important- Identifies strengths and weaknesses- Needed for making good strategic decisions

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Why an Internal Analysis is Important - Texas Tech University