BUSINESS POLICY & STRATEGY

UNIT-III
ORGANISATIONAL ANALYSIS
Analysis of Internal resources
Scanning & analyzing the external environment for opportunities and threats is not
enough to provide an organisation a competitive advantage. Strategic managers
must also look within the corporation itself to identify internal strategic factors.
Those critical strengths and weaknesses which are likely to determine whether the
firm will be able to take advantage of opportunities while avoiding threats. This
internal scanning often referred to as organisational analysis is concerned with
identifying and developing an organisations resources.
An organisation uses different types of resources & exhibits a certain type of
behavior.
Interplay of these resources along with the prevalent behavior produces synergy
with an organisation; which leads to the development of strengths & weaknesses
over a period of time.
Need of Internal Resource Analysis
1. All enterprises are not equally strong in all their functional attributes:
Companies with a highly competent general management team may not
have an equally favorable competitive advantage. One which is financially
sound and prosperous may be lagging in R & D efforts.
2. The effect of deficiencies on companies prosperity & growth is certainly
visible. It is evidenced over a period of time when some companies continue
to grow and prosper while others stagnate and decline.
3. Executives must be aware of their competencies as well as deficiencies to be
able to match their capabilities with the environmental challenges and
threats. Awareness of corporate strengths & weaknesses can be possible only
if there is a systematic analysis of the factors reflecting strategic advantages.

Indeed the basic purpose of analyzing internal resources and capabilities is for
the strategist to ascertain what the company is capable of doing. Considering
the external environment in which it operates.
The choice of corporate strategy is predicted on 2 sets of considerations:
I.
II.

Relating to the external opportunities & threats

Comprising the companys capabilities.

FRAMEWORK FOR THE DEVELOPMENT OF STRATEGIC ADVANTAGE BY AN

ORGANISATION

Organisational resources: The organisational resources are the formal systems &
structures as well as informal relations among groups. A firm is a bundle of
resources- tangible, intangible. These include all assets, capabilities, organisational
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processes, information, knowledge and so on. These resources could be classified as

physical, human and organisational resources.
a. Physical resources- technology, plant & equipment, geographic location,
access to raw materials.
b. Human
resourcesTraining,

experience,

judgment,

intelligence,

relationships and so on.

c. Organisational resources- Formal systems & structures as well as informal
relations among groups.
But the mere possession of resources does not make an organisation capable. Much
depends on their usage within an organisation. The usage in turn is based on
organisational behavior.
Organisational behavior: It is the manifestation of the various forces & influences
operating in the internal environment of an organisation that create the ability for,
and place constraints in the usage of resources.
It leads to the development of a special identity & character of an organisation.
Organisations resources & behavior do not exist in isolation. They
combine in a complex fashion to create strengths & weaknesses within the
internal environment of an organisation.
Synergistic effects: Like resources & behavior, strengths & weaknesses do not
exist individually but combine in a variety of ways. Synergy is a situation where
attributes do not add mathematically but combine to produce an enhanced or a
reduced impact. This is synergistic effect.
The synergy is the idea that the whole of is greater or lesser than the sum of its
parts. It is also expressed as the-two-plus-two-is-equal-to-five-or-three-effect
Competencies: These are special qualities possessed by an organisation that make
them withstand pressures of competition in the market place. Synergistic effects
manifest themselves in terms of organisational competencies. Net result of strategic
advantage and disadvantages that exist for an organisation determines its ability to
compete with its rivals. These may b unique resources, core capabilities, invisible
assets or embedded knowledge in the organisation.
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Distinctive competence any advantage a company has over its competitors because
it can do something which they cannot or it can do something better than they can.
Difference between competencies, core competencies & distinctive competencies
lies in the degree in the uniqueness associated with them.
Organisational Capability: The inherent capacity or potential of an organisation
to use its strengths & overcome its weaknesses in order to exploit opportunities &
face threats in its external environment. It is the skill of coordinating resources and
putting them to productive use. Without capability, resources even though valuable
& unique, may become worthless.
Strategic advantage: It is the outcome of organisational capabilities. The result of
organisational activities leading to rewards in terms of financial parameters such as
profit or shareholder value and or non-financial parameters such as market share or
reputation.
A special case of strategic advantage where there is one or more identified rivals
against whom rewards or penalties could be measured is known as competitive
advantage.
BARNEYS VRIO FRAMEWORK
A companys competencies can be evaluated by Barneys VRIO framework.
1.
2.
3.
4.

Value: Does it provide competitive advantage?

Rareness: Do other competitors possess it?
Imitability: Is it costly for others to imitate?
Organisation: Is the firm organized to exploit the resources?
If the answer to these questions is yes for a particular competency, it is
considered to be strength and thus a distinctive competency.

STRATEGIC ADVANTAGE ANALYSIS

The process by which strategists examine a firms resources and capabilities

in the key functional areas to determine where the firm has significant
strengths (& weaknesses) so that it can exploit the opportunities & meet the
threats in the environment.
Factors of common concern:
Assessment of the strengths & weaknesses of a firm centers round an
analysis of the following factors:
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1. MARKETING & DISTRIBUTION FACTORS:

a. Competitive position and market share
b. Product line
c. Product life cycle
d. Pricing strategy
e. Mature of the market
f. Channels of distribution
g. Brand image
h. Market research
i. Packaging
j. Marketing policy
2. FINANCE & ACCOUNTING FACTORS:
a. Financial resources & strength
b. Capital structure & cost of capital
c. Relations with owners (shareholders)
d. Financial planning & budgeting
e. Accounting system & audit procedures
f. Tax planning & tax advantages.
3. PRODUCTION & OPERATIONS MANAGEMENT:
a. Cost of operations
b. Capacity utilization (existing demand can be fulfilled & capital fully
utilized or not)
c. Production facilities
d. Cost & availability of materials & components
e. Plant location
f. Purchasing & inventory control
g. Operation procedures (design, testing, scheduling & quality control)
h. Production control & management information
4. RESEARCH & DEVELOPMENT AND PRODUCTION ENGINEERING:
a. Facilities created (adequate labs, equipments, tooling & testing
arrangements)
b. R&D expenditure
c. Results of R&D efforts
d. Technical expertise & personnel
e. Work environment (creativity & innovation)
f. Nature of R&D projects (long term projects/ short term projects)
5. H.R & ORGANISATIONAL FACTORS:
a. Organisational climate
b. Employees performance record (consistency)
c. Personnel policies & practices (effectively implemented or not?)
d. Managerial/ leadership style
e. Union-management relationships
f. Corporate image (source of loyalty & pride for employees)
6. GENERAL MANAGEMENT CAPABILITY- It is defined as its propensity & its
ability to engage in behavior which will optimize attainment of firms
objectives.
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A profile of general management capability should therefore comprise the

following aspects
1. Managers- Mentality, power, competence, capacity
2. Organisational climate- Culture (attitude towards change, risk, time
perspective, critical success factors)
3. Organisational competence- problem solving skills, organisational
structures

flexibility,

managerial

reward

system,

organisational

capacity.

VALUE CHAIN APPROACH TO INTERNAL ANALYSIS:

Generic Value chain- Micheal Porter
Identifying the series of activities which are undertaken by the firm and are
strategically relevant for meeting customers demand and in respect of which
the firm may potentially have an edge over its competitors. Thus, internal
factors of key importance are sought to be linked with the chain of value
activities through systematic identification of the discrete activities as
potential sources of strengths & weaknesses.
Two categories of value activities are:
1. Primary activities- Activities connected with physical creation of firms
product / service, its marketing & delivery provision of after sales support.
2. Support Activities-Activities which provide inputs or infrastructure for
primary activities to be performed.

PRIMARY ACTIVITIES:
Inbound Logistics: Activities associated with storage and flow of inputs to the
product like material handling, warehousing, inventory control, vehicle scheduling &
returns to suppliers. It involves activities like warehousing, material handling,
inventory control, scheduling.
Operations: Activities associated with transformation of inputs into final products
like machining, assembly, packaging, equipment maintenance, testing and facility
operation belong to this category.
Outbound logistics: Activities associated with collection, storage, physical
distribution of finished goods, order processing, scheduling deliveries, operation of
delivery vehicles.
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Marketing & sales: Activities like advertising, sales promotion, sales force
management, channel selection, channel relation, pricing.
Service: Activities aimed at providing services to enhance or maintain the value of
the product, like installation, repair, training, supply of parts & product adjustment.
SUPPORT ACTIVITIES
Provide infrastructure for primary activities and required to be identified by isolating
them on the basis of technological & strategic distinctiveness.
1. Procurement: purchasing inputs, purchasing equipments & machinery. It
pervades all other activities as inputs are needed everywhere.
2. Technological development: Activities related with creating and improving the
way in which various activities in the value chain performed. It includes up
gradation & development of technology.
3. HRM: recruitment, Training & development, remuneration, performance
appraisals, etc.
4. Firm Infrastructure: Distinct from specific primary/ support activities because
these are essential for entire chain of activities.

Benefits of Value chain approach:

It provides guidance for a systematic internal analysis of the firms existing or
potential strengths & weaknesses.
It enables the strategist to identify key internal factors for closer examination as
potential services of competitive advantage.

FUNCTIONAL AREA PROFILE & RESOURCE DEPLOYMENT MATRIX

It was given by Hofer & Schendel
Matrix is prepared by using

functional

areas

and

some

common

characteristics to each functional area.

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Resource outlay and focus of efforts over time in respective functional areas
be presented also in the form of a matrix.
The matrix indicates how the key functional areas stand in relation to each
other and as compared to the competitors with respect to the deployment of
resources and the focus of efforts in the respective areas.
Functional area profile & resource deployment matrix helps in determining
the interpretation and diagnosis of data and constitute the basis on which
strengths and weaknesses are to be identified.
Strategist should consider what policies and approaches were governing the
operations, are governing the operations and will be governing the
operations.
Present position should be examined in the light of past achievements, future
expectations and internal requirements.
Strength sometimes work as weaknesses with different policies & situations.
Analysis takes into account the position over a period of time. This would
enable

the strategist to see whether the areas of advantage are being

further strengthened or getting dissipated.

Relative strengths & weaknesses of key functional areas should be
considered together. If a company has developed competencies in one
functional area, it needs to be examined whether the capabilities in other
areas have compatible potentialities. Otherwise, the imbalance may lead to a
position of weakness for the company as a whole.
In this capability analysis, strengths & weaknesses are compared.
Emphasis on strengths rather than on weaknesses because of optimism and
to take advantage of an opportunity on the basis of strengths.
Strengths & weaknesses are considered on the basis of external conditions,
usually in realtion to competing firms.
Choice of competitor firms should also b appropriate i.e. companies in same
phase of product life cycle, with similar mission statements and more than
one company should be considered.
Strengths & weaknesses should be diagnosed on the basis of operational
details and also on the basis of key areas & indicators.
These areas may be the areas of activity of company excellence, activities of
poor performance.
Identification of intensity of weaknesses.
FUNCTION

RESOURCE

AL AREA

DEPLOYMEN

2006-2007

2007-2008

2009-2010

2010-2011

T&

FOCUS

OF

EFFORTS

MARKETIN

Development

outlay (%)
Focus
of

PRODUCTI
ON
FINANCE

efforts
Development
outlay (%)
Focus
of
efforts
Development
outlay (%)
Focus
of

R&D

efforts
Development
outlay (%)
Focus
of

MANAGEM
ENT

efforts
Development
outlay (%)
Focus
of
efforts

STRATEGIC ADVANTAGE PROFILE

SAP is a summary statement which provides an overview of the advantages&
disadvantages in key areas likely to affect future operations of the firm.
It systematically evaluates the strategic advantage factors and diagnose each
factor in each functional area and then prepares a detailed profile.
It is a summary statement of corporate capabilities in summarizing the functional
competencies; a comparative view needs to be taken in the light of external
conditions & the time horizon of projections.
It is also taken in consideration that how much strength can be relied upon and how
long will it be considered as an advantage in the near future.
It must also recognize the danger of relying on strengths in a particular area without
simultaneously reckoning the capabilities in other interdependent units of activity.
Internal area/ capability factor

Competitive strengths or weaknesses

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Marketing

+
-

Operations

+
-

R&D

+
-

Finance

+
-

SWOT Analysis
Matching internal capabilities with environmental opportunities & threats.
Interlinking ETOP & SAP
SWOT MATRIX
Strengths
Threats

ST- Strengths

Weaknesses
required

to face threats

WTan

Weaknesses
organisation

which
should

over come to face threats

Opportuni

SO- Strengths required

SW-

ties

to acquire opportunities

an

weaknesses
organisation

overcome

to

which
should
acquire
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opportunities

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