Dynamics of Internal

Environment
Development of Strategic Advantage by an organization
Strategic Advantage

Organizational Capability

Competencies

Synergistic effects

Strengths and Weaknesses

Organizational resources + Organizational Behaviour

 Organizational Resources

Tangible Intangible

Capabilities
Plant & equipment Information,
Technology Knowledge
Geographic location Processes
Human Resources Training
Access to raw Experience
materials Relationships
 Four Characteristics of organizational
resources for Strategic Advantage
Organizational Resources Strategic Advantage
Valuable
Rare
Costly to imitate
Non Substitutable
 Organizational Behaviour
Forces affecting organizational behaviour
Quality of leadership
Management philosophy
Shared values and culture
Quality of work environment
Organizational climate
Organizational politics
Use of power
 Synergy
Price Distribution

Promotion
Product
Marketing
Synergy

Dysergy/
Marketing Production
Negative
Inefficiency Inefficiency Synergy
 Organizational Competencies
Competencies Special qualities possessed by
an organization that make them withstand
pressures of competition in the marketplace.
Core competencies When an organization
uses its competencies exceedingly well they
become core competencies
Distinctive competencies 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
 Organizational Capability
The inherent capacity or potential of an
organization to use its strengths and
overcome its weaknesses in order to exploit
opportunities and face threats in its external
environment
Potential
Capacity
Organizational Capability leads to Strategic
advantage or competitive advantage

Organizational Capability Factors strategic

strengths and weaknesses existing in different
functional areas within an organization
 Organizational Capability Factors
1. Financial Capability
2. Marketing Capability
3. Operations Capability
4. Personnel Capability
5. Information management Capability
6. General Management Capability
 Financial Capability
Factors related to
Sources of funds capital structure, borrowings,
working capital, reserves and surplus, etc
Uses of funds- capital investment, fixed asset
acquisition, current assets, loans and advances,
dividend distribution, relationship with
shareholders, etc
Management of funds- financial, accounting and
budgeting systems, cash, credit, return and risk
management, cost control, tax planning, etc
 Marketing Capability
Product related- variety, differentiation, mix,
quality, etc
Price related- pricing policy, objectives,
protection, changes, etc
Place related- distribution, transportation,
logistics, marketing channels, etc
Promotion related- sales, advertising, public
relations, etc
Integrative and system related marketing mix,
market standing, marketing system, etc
 Operations Capability
Factors related to
Production system- capacity, location, layout,
product and service design, etc
Operations and control system- aggregate
production planning, material supply, inventory,
materials planning, maintenance systems, etc
R & D- personnel facilities, product development,
patent rights, technology level, collaboration, etc
 Personnel Capability
Factors related to
Personnel system
Organization and employee characteristics
Industrial relations
 Information Management System
Factors related to
Acquisition and retention of information
Processing and synthesis of information
Transmission and dissemination of
information
Integrative, systemic and supportive factors
 General Management Capability
Factors related to
General management system
General managers
External relationships
Organizational climate
 Industry
An industry is a group of firms that market
products which are close substitutes for each
other (e.g. the car industry, the travel
industry).
The most influential analytical model for
assessing the nature of competition in an
industry is Michael Porter's Five Forces Model
Threat of New Entrants
New entrants to an industry can raise the level of
competition, thereby reducing its attractiveness.
The threat of new entrants largely depends on the
barriers to entry. High entry barriers exist in some
industries (e.g. shipbuilding) whereas other industries
are very easy to enter (e.g. estate agency, restaurants).
Key barriers to entry include
- Economies of scale
- Capital / investment requirements
- Customer switching costs
- Access to industry distribution channels
- Product differentiation
- Government policies
 Threat of Substitutes

Substitutes are products or services that seem to

be different but satisfy the same set of customer
needs.
The presence of substitute products can lower
industry attractiveness and profitability because
they limit price levels. The threat of substitute
products depends on:
- Buyers' willingness to substitute
- The relative price and performance of
substitutes
- The costs of switching to substitutes
 Bargaining Power of Suppliers
Suppliers are the businesses that supply materials & other products
into the industry.
The cost of items bought from suppliers (e.g. raw materials,
components) can have a significant impact on a company's
profitability. If suppliers have high bargaining power over a
company, then in theory the company's industry is less attractive.
The bargaining power of suppliers will be high when:
When suppliers are few and buyers are many
When products or services are unique and are not commonly available
When substitutes are not freely available
When switching costs of a supplier from one buyer to another is low
When supplier is not critically dependant on the product or service
supplied
When buyer buys in small quantities and is not important to the
supplier
 Bargaining Power of Buyers
Buyers are the people / organisations who create demand
in an industry
The bargaining power of buyers is greater when
When buyers are few in number
When buyers place large orders
When alternative suppliers are present and are willing to supply
at lower price
When switching costs of buyers is low
When purchased product constitutes a high percentage of
buyers cost making it look around for lower priced supplies
When buyer has the ability to integrate backwards and create its
own supply source
 Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on:
The structure of competition
Fragmented- many small or equally sized competitors no differentiation of
products- commodities- fierce competition
Consolidated - clear market leader
Diversity- greater differentiation among firms
Demand Conditions
High demand moderate competition
Stagnant demand competition for market share
Declining demand- low competition- maintain market share

Exit barriers - when barriers to leaving an industry are high (e.g. the cost
of closing down factories) - then competitors tend to exhibit greater
rivalry.
Economic high investment commitment
Strategic- interlinkages between different resources- own supplier or buyer
Emotional- Sentimental attachment- ancestral business- loyalty to employees
or distributors