SU3001
Strategic Management: Environments
(know yourself)
Dr David R Moore
Analysing the Internal Environment: Resource Capability
Prior to making strategic decisions, an
organisation must recognise its own
capabilities and core competencies
(internal analysis)
This requires an evaluation of the
organisation’s strengths and
weaknesses:
• Portfolio analysis
• Value-chain analysis
• SWOT analysis
Portfolio analysis
comprises:
• Recognition that all
organisations need to assess
the balance of their activities,
products and services;
• Recognition that to be reliant
on one product, service or
customer carries high levels of
risk.
P.A. matrix
developed by
Boston
Consulting
Group (BCG) in
the 1970’s
remains
commonly used
in strategic
management.
Earnings low,
unstable,
growing. Cash
Flow negative
Annual
Rate of
Market
Growth
Earnings low,
unstable. Cash
Flow neutral or
negative
Earnings high,
stable,
growing. Cash
Flow neutral
Problem
Children
Stars
Dogs
Cash
Cows
Relative Market Share
Earnings
high, stable.
Cash Flow
high, stable
Difficulties in P.A. include:
• Definition of market growth – high v.
low? (Normally above and below 5%)
• Definition of the market – not always
clear. Possible to make a product
look like a market leader, if market is
defined too narrowly.
• Assumes every business in a
portfolio is independent – thereby
denies synergistic rationale for a
multi-business organisation.
• Perceived desirability of
growth – not always
appropriate: Possible to
achieve high longer term
profit with low growth
levels.
• Competitors will not always
‘allow’ a change to be
made – their portfolio
analysis may lead to a plan
to prevent changes by their
competitors.
Dubious P.A. recommendations –
• Can an organisation really afford
to eliminate Dogs?
• Possible that Dogs share
production resources with Stars
and Cash Cows.
• Eliminating Dogs could cause
higher production costs for
other products.
• Does not always clearly
appreciate the nature of the
value chain.
The Value Chain:
Organisations consist of activities
that link together to form a chain
of value for the business.
These include purchasing, supplies,
manufacturing, distribution and
marketing of goods and services.
Value (added) can be defined as:
VA = sales revenue from output –
cost of material inputs
Inbound Logistics
Cost of Material inputs =
wages/salaries + interest +
rent + royalties/license fees
Operations
+ taxes + dividends +
retained earnings (Retained
earnings is the percentage Outbound Logistics
of net earnings not paid
out as dividends,
but retained by the
Marketing & Sales
company to be reinvested in
its core business, or to pay
debt)
Service
Support Activities
Procurement
Technology
Development
Human
Resource
Management
Firm
Infrastructure
Primary Activities:
• Inbound logistics – receiving goods from suppliers, storage and
materials handling within the company until required by ops.
• Operations (ops) – production area of the organisation.
Dependant upon product or service, this may be split further
(reception, room service, restaurant, etc.).
• Outbound Logistics – distribution of the final product to the
customer. Includes packaging, transport, warehousing, etc.(or
equivalents)
Marketing & Sales – includes marketing intelligence, customer
needs v. products supplied.
Service – before and after sales. Training in the use of the product,
installation, repair and after-sales back-up.
Procurement – function of obtaining goods and raw materials used
in the production process / service provision: highest quality goods
at lowest prices.
• Function covers many parts of the organisation.
Support Activities:
• Technology Development – important area covering
development of new products and services (R&D). Also
fundamental to the innovative capacity of the organisation
• HRM – recruitment, training, succession planning and personal
development plans. All essential to the organisation’s ability to
function and prosper.
Support activities add value, as with primary activities, but in a
manner more difficult to link with a single part of the
organisation
Also identify Core Competencies – critically underpin the
organisation’s competitive advantage.
Example: corner shops versus supermarkets (traditional) core competencies.
Supermarkets’ C.C.’s are low cost supplies, bulk buying
and electronic stock control.
Corner shops’ C.C.’s are convenience, personal service,
extended opening hours and informal credit facilities.
• Differentiation (within the value chain) through added-value,
products that meet customer needs, and superior customer service
is difficult to imitate if sustained through the management of
‘unique’ linkages within the supply chain.
• The strategy could be to use this to create competitive advantage.
• Whichever strategy is considered, there will need to be a realistic
assessment of strengths and weaknesses, opportunities and
threats before a decision is made.
SU3001
Strategic Management: Environments
(know yourself)
Dr David R Moore