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Strategic Management

Course Code: 6277 (PG)

Dr. Majharul Talukder


Faculty of Business and Government

Internal Analysis
(Chapter 3)

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Internal Analysis

Internal analysis helps to pinpoint the strengths and weaknesses

It includes assessments of:


1. The firm’s resources and capabilities
2. Distinctive competencies. Eg. Southwest Airline

Competitive Advantage, Sustained Competitive Advantage


Distinctive Competencies- strengths to differentiate its products from rivals

Building and sustaining a competitive advantage requires:

1. Efficiency
2. Quality
3. Innovations
4. Responsiveness to customers

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Distinctive Competencies

Distinctive Competencies arise from two complementary sources:


resources and capabilities

Resource- refer to the asset of a company


Capabilities- refers to a company’s skills at coordinating its resources

Resource can be two types: Tangible and Intangible

Eg. Toyota production system

Eg. Microsoft, Explicit and Tacit Knowledge

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Capabilities and Competencies

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Value Creation and Profitability

A company’s profitability depends on three factors:

1. Value or utility the customer gets from owning the product


2. Price that a company charges for its products
3. Costs of creating that product

Consumer surplus-excess utility a consumer captures beyond the price paid

The more utility that consumers get from a company’s products or services,
the more pricing options the company has

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Value Creation per Unit

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2
Value Creation and Pricing Option

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Comparing Toyota and General Motors

Toyota Made 1,200 profit in every vehicle made in 2006


GM Lost 2,496 on every vehicle it made in 2006
Toyota takes 29.40 hours to build a car compare to GM 33.19 hours

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The Value Chain

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3
Primary Activities

1. Research and Development


Design of the products and production processes
Eg. Banking Industries

2. Production
Creation of goods and services

3. Marketing and sale


Thorough brand positioning, advertising

4. Customer service
Provide after sale service and support
Eg. Caterpillar provides spare parts any point in the world within 24 H

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Secondary Activities

1.Material management/logistics
Transmission of physical material through production to distribution
Eg. Dell’s lower inventory cost

2. Human resources
Manage employees and skilled people to perform its value creation
Training, motivation and compensation

3. Information systems
Electronic system managing inventory, tracking sales, pricing
Eg. Wal mart

4. Infrastructure
Organizational structure, control system and company culture

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Building Blocks of Competitive Advantage

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4
1. Efficiency

Measured by the quantity of inputs it takes to produce a given output


Efficiency = Outputs / Inputs

Productivity leads to greater efficiency and lower costs:

Eg. Employee productivity. Eg. GM to Ford, 30 to 25 hours

Eg. Capital productivity. For Dell $ 12.07/1, HP $ 2.12/1

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2. Quality

Quality products are goods and services that are:


– Reliable and customers perceive to have higher value

A perception of quality allows a firm to differentiate its products in the eyes


of its customers.

Attributes- Form, features, performance, durability, reliability, style, design

Eg. Rolex watch

Eg. Lather boots $ 20, Nordstrom sell $ 500

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A Quality Map for Automobile

When customers evaluate the


quality of a product, they
commonly measure it against
two kinds of attributes:

1. Quality as Excellence

2. Quality as Reliability

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3. Innovation

Innovation is the act of creating new products or new processes

1. Product innovation
• New to the world and superior attributes
• Creates products that customers perceive as more valuable

Eg. Intel in 1970, iPod in 2000

2. Process innovation
• New process for producing products
• Creates value by lowering production costs

Eg. Toyota’s lean production system- just in time inventory

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4. Customer Responsiveness

Identifying and satisfying customers’ needs – better than the competitors

Enhanced customer responsiveness-


Customer response time, design, service, after-sales service and support

Superior responsiveness leads to brand loyalty and premium pricing

Eg. 60 c for normal post to $ 5 for next day delivery

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Durability of Competitive Advantage

The durability of a company’s competitive advantage depends on-

1. Barriers to Imitation
Making it difficult to copy a company’s distinctive competencies

2. Capability of Competitors
Prior strategic commitment

Eg. GM, Ford & Chrysler from 1945-1970 and Toyota after 1970s

3. Industry Dynamism
Ability of an industry to change rapidly

Eg. Motorola
Computer industry- Apple → IBM → Compaq → Dell

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Why Company Fails

There are three basic reasons:


1. Inertia
Companies find it difficult to change their strategies and structures
Eg. IBM

2. Prior Strategic Commitments


Limit a company’s ability to imitate
Eg. IBM’s commitment with particular business strategy

3. The Icarus Paradox


– A company can become so specialized and inner-directed based on
past success that it loses sight of market realities

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Steps to Avoid Failure

1. Focus on the building blocks of competitive advantage

2. Institute Continuous Improvement and Learning

3. Track Best Practice and Use Benchmarking


Eg. Xerox used P&G for marketing

4. Overcome Inertia- changes in organizational structure and control system

5. Rule of Luck- luck may play a role in success


Eg: Bill Gates

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Thank You

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