Business Analysis

BUSI 493 – MODULE NOTES
1
MODULE NOTES: Internal Organization & Competitive Advantage
• Strategic competitiveness and above average returns result only when core competencies
(identified by studying the firm’s internal organization) are matched with opportunities
(determined by studying the firm’s external environment). As outlined in our External
Environment MODULE, it is important for a firm to understand its external business
environment in order to understand what potential opportunities and threats may exist.
• It is just as critical for a firm to assess and analyze its own strengths and weaknesses and
identify whether or not it has any core competencies.
• Internal organization analysis is an important aspect of strategic management. The
development of a strategic plan invariably will attempt to address an opportunity or a threat
by playing to a firm’s strengths. In some cases, firms may cultivate a strength into a core
competence. Core competencies are the building blocks of competitive advantage.
• A firm may achieve strategic competitiveness and above average returns when its core
competencies (identified by studying the firm’s internal organization) are matched with
opportunities (or threats) in the business environment (determined by studying the firm’s
external environment).
Important Concepts –
• Resources – may be either tangible or intangible. Resources are combined to create a
firm’s capabilities.
• Tangible resources – typically defined as including physical assets that can be observed
and quantified (form manufacturing firms, can be described as being the inputs of
production). Tangible assets may include cash, plant & equipment, raw materials, and real
estate.
• Intangible resources – linked tightly with a firm’s people (management and nonmanagement). Intangible resources may include corporate culture, reputation, brand,
innovation, specialized knowledge, understanding and knowhow.
• Generally, intangible resources are difficult for competitors to replicate and in many cases
allow firms to develop valuable capabilities that allow them to compete successfully.
• Capabilities – tangible and intangible resources are combined to create capabilities.
Typically, a firm may develop specific very specific capabilities in one or more functional
areas of the firm. These capabilities may relate to functional areas such as: marketing,
purchasing, manufacturing, finance, human resources management and research &
development.
• Core competencies – sometimes defined as capabilities that lead to a competitive
advantage over the competition. Some firms possess no core competencies; others are
dominant in their industries and possess 2 or 3 core competencies.
BUSI 493 – MODULE NOTES
2
• No competitive advantage lasts forever. Firms must exploit their current advantages while
forming new advantages to remain competitive.
• Effectively managing core competencies requires analysis of the firm’s resources and
capabilities.
• People (their knowledge and skill sets) are the foundation for most competitive advantages
that a firm may possess.
• Corporate culture may assist with allowing people to communicate and share knowledge
and skills with others in the firm.
• Core competencies can be evaluated and assessed using the Four Criteria model. Analysis
of the internal organization allows the firm to understand its resources, capabilities and core
competencies. The Four Criteria model is used to assess whether the firm has a
competitive advantage and if so, what it is.
The Four Criteria Model of Sustainable Competitive Advantage
• A competitive advantage exists only when competitors cannot duplicate the benefits of a
firm’s strategy or when they lack the resources to attempt imitation.
• Only when a capability is valuable, rare, costly to imitate, and non-substitutable is it a
competence and a source of competitive advantage.
• Core competencies are a source of competitive advantage only when they allow the firm
to create value by exploiting opportunities in its external environment.
Value Chain Analysis
• Value chain analysis allows the firm to understand the parts of its operations that create
value and those that do not. Value chain analysis is used to identify and evaluate the
competitive potential of resources and capabilities.
• By studying their skills relative to those associated with value chain activities and
support functions, firms can understand their cost structure and identify the activities
through which they can create value.
• A firm’s value chain is segmented into value chain activities and support functions.
• Value chain activities are activities or tasks the firm completes in order to produce
products and then sell, distribute and service those products in ways that create value
for customers.
BUSI 493 – MODULE NOTES
3
• Support functions include the activities or tasks the firm completes in order to support
the work being done to produce, sell, distribute and service the products the firm is
producing.
• A firm can develop a capability and/or a core competence in any of the value chain
activities and any of the support functions. This establishes an ability to create value for
customers.
Value Chain Activities
Value chain activities include:
• Supply Chain Management – activities related to procurement and logistics management
that are necessary for the firm to receive raw materials and to convert them into final
products.
• Operations – activities related to convert raw materials into finished products. Includes:
developing employee work schedules, designing production processes, physical layout
of production facilities, production capacity, maintenance of equipment.
• Distribution – activities related to getting the final product to the customer. Involves
managing customer orders, delivery channels, and arrangements related to customer
payment. Includes all aspects of distribution or channel strategy.
• Marketing (Including Sales) – activities related to segmenting target customers based on
their wants and needs, advertising campaigns, brand management, pricing strategy,
training and supporting a sales force. Includes: product strategy, pricing strategy,
promotion strategy and target market strategy.
• Follow-up Service – activities to increase a product’s value for customers, includes “after
sales service” and/or “customer service” depending on the product offered. Could also
include customer satisfaction surveys, technical support, 1-800 help lines and product
warrantees.
Support Functions
Support functions include:
• Finance – activities associated with effectively acquiring and managing financial
resources.
• Human Resources – activities associated with managing the firm’s human capital.
• Management Information Systems – activities take to obtain and manage information
and knowledge throughout the firm.