Business Strategy
LO2
Internal Analysis
Internal analysis is about looking at the resources an organisation
possesses - its tangible and intangible assets, including IT
infrastructure, employee skills and knowledge - and its
capabilities - what it can do, for example, its ability to manage
effectively the knowledge and skills its people possess. In
relation to a digital business this is concerned with whether the
organisation has the appropriate technological & applications
infrastructure plus financial/ human resources to support it
A value chain is a set of activities that an
organization carries out to create value for its
customers. Porter proposed a general-purpose
value chain that companies can use to
examine all of their activities, and see how
they're connected.
Primary Activities:
Primary activities relate directly to the physical creation, sale, maintenance and
support of a product or service. They consist of the following:
Inbound logistics
– These are all the processes related to receiving, storing, and distributing inputs
internally. Your supplier relationships are a key factor in creating value here.
Operations – These are the transformation activities that change inputs into
outputs that are sold to customers. Here, your operational systems create value.
Outbound logistics – These activities deliver your product or service to your
customer. These are things like collection, storage, and distribution systems, and
they may be internal or external to your organization.
Marketing and sales – These are the processes you use to persuade clients to
purchase from you instead of your competitors. The benefits you offer, and how
well you communicate them, are sources of value here. Service – These are the
activities related to maintaining the value of your product or service to your
customers, once it's been purchased.
Support Acticvities:
Procurement (purchasing) – This is what the organization does to get the
resources it needs to operate. This includes finding vendors and negotiating
best prices.
Human resource management – This is how well a company recruits, hires,
trains, motivates, rewards, and retains its workers. People are a significant
source of value, so businesses can create a clear advantage with good HR
practices.
Technological development – These activities relate to managing and
processing information, as well as protecting a company's knowledge base.
Minimizing information technology costs, staying current with technological
advances, and maintaining technical excellence are sources of value creation.
Infrastructure – These are a company's support systems, and the functions
that allow it to maintain daily operations. Accounting, legal, administrative, and
general management are examples of necessary infrastructure that businesses
can use to their advantage.
VIRO Framework
One of such tools that analyze firm’s internal resources
is VRIO analysis. The tool was originally developed by
Barney, J. B. (1991) in his work ‘Firm Resources and
Sustained Competitive Advantage’, where the author
identified four attributes that firm’s resources must
possess in order to become a source of sustained
competitive advantage.
Valuable
The first question of the framework asks if a resource
adds value by enabling a firm to exploit opportunities
or defend against threats. If the answer is yes, then a
resource is considered valuable. Resources are also
valuable if they help organizations to increase
the perceived customer value. This is done by
increasing differentiation or/and decreasing the price
of the product. The resources that cannot meet this
condition, lead to competitive disadvantage. It is
important to continually review the value of the
resources because constantly changing internal or
external conditions can make them less valuable or
useless at all.
Rare
Resources that can only be acquired by one or very few
companies are considered rare. Rare and valuable resources
grant temporary competitive advantage. On the other hand, the
situation when more than few companies have the same resource
or uses the capability in the similar way, leads to competitive
parity. This is because firms can use identical resources to
implement the same strategies and no organization can achieve
superior performance.
Even though competitive parity is not the desired position, a firm
should not neglect the resources that are valuable but common.
Losing valuable resources and capabilities would hurt an
organization because they are essential for staying in the market.
Costly to Imitate
A resource is costly to imitate if other organizations that doesn’t
have it can’t imitate, buy or substitute it at a reasonable price.
Imitation can occur in two ways: by directly imitating (duplicating) the
resource or providing the comparable product/service (substituting).
A firm that has valuable, rare and costly to imitate resources can (but not
necessarily will) achieve sustained competitive advantage. Barney has
identified three reasons why resources can be hard to imitate:
Historical conditions. Resources that were developed due to historical
events or over a long period usually are costly to imitate.
Causal ambiguity. Companies can’t identify the particular resources that
are the cause of competitive advantage.
Social Complexity. The resources and capabilities that are based on
company’s culture or interpersonal relationships.
Organized to Capture Value
The resources itself do not confer any advantage for
a company if it’s not organized to capture the value
from them. A firm must organize its
management systems, processes, policies,
organizational structure and culture to be able
to fully realize the potential of its valuable, rare
and costly to imitate resources and capabilities. Only
then the companies can achieve sustained
competitive advantage.
Resource Plan:
Purpose • To identify what is required to bring the product or service to market
• To allow the controllers of the different types of resource to provide what is
needed at the required time
• To allow similar resources to be aggregated to reduce cost and admin.
Structure For each resource:
• The quantity, precise specifications and timings for its provision
• This is best done as a list, but charts and spreadsheets will play their part
Content Resourc Quantit Date Cost
e y
Specify
details
Warehousi 1000m2 Week 8 £20k
ng
Office 800m2 Week £20k
space 12
Factory 2000m2 Week £80k
This
floorcan take the form
20of tables or charts
Comments The main input to this section is the time plan. Each activity requires
resources: staff, finance, materials, IT, premises etc. These can be scheduled
from that plan
Profitability Ratios
Gross profit margin
Net profit margin
Operating profit margin
Return on assets
McKenzie's &s Model:
McKinsey 7s model was developed in 1980s by
McKinsey consultants Tom Peters, Robert
Waterman and Julien Philips with a help from
Richard Pascale and Anthony G. Athos. Since
the introduction, the model has been widely
used by academics and practitioners and
remains one of the most popular strategic
planning tools.
Strategy is a plan developed by a firm to achieve sustained
competitive advantage and successfully compete in the market.
What does a well-aligned strategy mean in 7s McKinsey model?
In general, a sound strategy is the one that’s clearly articulated,
is long-term, helps to achieve competitive advantage and is
reinforced by strong vision, mission and values. But it’s hard to
tell if such strategy is well-aligned with other elements when
analyzed alone. S
Structure represents the way business divisions and units are
organized and includes the information of who is accountable to
whom. In other words, structure is the organizational chart of
the firm. It is also one of the most visible and easy to change
elements of the framework.
Systems are the processes and procedures of the company,
which reveal business’ daily activities and how decisions are
made. Systems are the area of the firm that determines how
business is done and it should be the main focus for managers
during organizational change.
Skills are the abilities that firm’s employees perform very well. They also
include capabilities and competences. During organizational change, the
question often arises of what skills the company will really need to
reinforce its new strategy or new structure.
Staff element is concerned with what type and how many employees an
organization will need and how they will be recruited, trained, motivated
and rewarded.
Style represents the way the company is managed by top-level
managers, how they interact, what actions do they take and their
symbolic value. In other words, it is the management style of
company’s leaders.
Shared Values are at the core of McKinsey 7s model. They are the norms
and standards that guide employee behavior and company actions and
thus, are the foundation of every organization.