Ch 4 -1
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Strategic Management: Concepts
and Cases
Arab World Edition
Fred R. David
Abbas J. Ali
Abdulrahman Y. Al-Aali
Chapter 4:
The Internal Assessment
Ch 4 -2
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Chapter Outline
• The Nature of an Internal Assessment
• The Resource-Based View (RBV)
• Integrating Strategy and Culture
• Evaluating Capabilities and Competitive Position
• Identifying Strengths, Weaknesses, Opportunities, and
Threats
• Value Chain Analysis (VCA)
• The Internal Factor Evaluation (JFE) Matrix
Ch 4 -3
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The Internal Assessment
“Great spirits have always encountered
violent opposition from mediocre minds.”
– Albert Einstein
“There is nothing wrong with borrowing
useful things from others.”
– King Abdul Aziz Bin Saud
Ch 4 -4
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Nature of an Internal Assessment
Functional Areas of Business:
• Strengths
• Weaknesses
Ch 4 -5
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Source: Adapted from Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22,
no. 3 (June 1988) 40.
Ch 4 -6
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Nature of an Internal Assessment
Basis for Objectives & Strategies
• Internal strengths/weaknesses
• External opportunities/threats
• Clear statement of mission
Ch 4 -7
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Key Internal Forces
Functional Business Areas
•
•
Ch 4 -8
Vary by organization
In large organizations, divisions may have differing
strengths & weaknesses
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Key Internal Forces
Distinctive Competencies
Distinctive (core) competencies
A firm’s strengths that cannot be easily matched
or imitated by competitors.
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Publishing as Prentice Hall
Ch 4 -9
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Key Internal Forces
Distinctive Competencies
• Building competitive advantage involves taking
advantage of distinctive competencies.
• Strategies designed to improve on a firm’s
weaknesses and turn to strengths.
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Publishing as Prentice Hall
Ch 4 -10
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Performing an Internal Assessment
Parallels the process of external audit
Information from functional areas:
• Management
• Marketing
• Finance/accounting
• Production/operations
• Research & development
• Management information systems
Ch 4 -11
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Performing an Internal Assessment
Parallels the process of external audit (contd.)
Information from functional areas:
• Customer service
• Warranties
• Advertising
• Packaging
• Pricing under marketing
Ch 4 -12
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Performing an Internal Assessment
Performing an internal strategic-management assessment
provides a vehicle for understanding the nature and effect of
decisions in other functional business areas of the firm.
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Publishing as Prentice Hall
Ch 4 -13
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Performing an Internal Assessment
The key to organizational success is coordination &
understanding among managers from all functional
areas
Ch 4 -14
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Performing an Internal Assessment
Functional Relationships
Number and complexity increases relative to organization
size
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Publishing as Prentice Hall
Ch 4 -15
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Performing an Internal Assessment
Financial Ratio Analysis
Exemplifies complexity of relationships among functional areas
of the business
Return on investment
Profit margin
Return of equity
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Publishing as Prentice Hall
Ch 4 -16
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Resource Based View (RBV)
Approach to Competitive Advantage
Internal resources are more important than
external factors
Ch 4 -17
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Resource Based View (RBV)
Three All-Encompassing Categories
1. Physical resources (plant – equipment –
location – technology – raw material - …etc. )
2. Human resources (employees – trainingexperiences – intelligence – knowledge- skills –
abilities - …etc. )
3. Organizational resources (structure –
systems- policies ----etc. )
Ch 4 -18
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Resource Based View (RBV)
Empirical Indicators
For a resource to be valuable, it must be:
•
Rare
•
Hard to imitate
•
Not easily substitutable
•
Add value
Ch 4 -19
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Integrating Strategy & Culture
Organizational Culture: defined as ;a Pattern of behavior
developed by an organization as it learns to cope with its
problem of external adaptation and internal integration and
that has worked well enough to be considered valid and to be
taught to new members.
Ch 4 -20
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Integrating Strategy & Culture
Values
Beliefs
Legends
Heroes
Cultural
Products
Symbols
Ch 4 -21
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Myths
Rites
Rituals
Integrating Strategy & Culture
Strategy can be supported/not supported by the
organizational culture . Success is often determined by
linkages between a firm’s culture and strategies
Organizational culture
•
Resistant to change
•
May represent:
- Strength
- Weakness
Ch 4 -22
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Arab Versus Other Cultures
To successfully compete in world markets, Arab executives must
have a better knowledge of historical, cultural, and religious
forces that motivate and drive people in other countries.
In the united states . Values of individualism , are widely and
deeply applied
In contrast , Japanese business relation operate within the
collectivism by context of Wa (We) which stress group harmony
and social interaction
Ch 4 -23
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Ch 4 -24
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Assignment (4)
Book page number 124 (important)
determined the main cultural differences
between Arab and US managers
Ch 4-25
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Publishing as Prentice Hall
Evaluating Capabilities and Competitive
Position
•
Assessment of resource capabilities, strengths and
weaknesses enables managers to have a realistic
understanding of where their company stands in the
marketplace
•
Three common methods of assessment
Ch 4 -26
-
Strength-Weaknesses-Opportunities-Threats (SWOT)
analysis
-
Value Chain Analysis (VCA)
-
Internal Factor Evaluation (IFE)
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Identifying Strengths, Weaknesses,
Opportunities and Threats
• Part of SWOT analysis
• Provides useful insights on the company’s strategic position
Ch 4 -27
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SWOT Analysis
Strengths
Ch 4 -28
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Resources
Capabilities
Skilled and experienced
managers
Quality product
Customers loyalty
SWOT Analysis
Weaknesses
Disadvantages of a
company relative to
its competitors
Ex. limited financial resources
Limited factories
Limited services
Ch 4 -29
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SWOT Analysis
Opportunities
Induced by various
factors and changing
conditions in the
external environment
Ex .closure competitors
Increase the demand
Market growth
Ch 4 -30
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SWOT Analysis
Threats
Ch 4 -31
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Any factor in the external
environment which
negatively impacts a firm
Ex .increasing number of
competitors
The Value of SWOT Analysis
After the SWOT Analysis, executives must engage in
two more processes:
1. Developing and understanding the company’s
position
2. Devising strategies compatible with the company’s
internal and external situations
Ch 4 -32
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The Value of SWOT Analysis
These three processes (SWOT identification, examining the
firm’s position, and developing strategies) are interrelated
and require careful attention.
These help ensure the company is embarking on a course of
action that is practical and will lead to optimal outcomes.
Ch 4 -33
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Value Chain Analysis (VCA)
Value Chain
According to Porter , total revenues minus total costs of
all activities undertaken to develop and market a product
or a service yields value.
A firm will be profitable as long as total revenues exceed
the total costs
Firms should strive to understand not only their own value
chain operation but also their competitors‘ , suppliers’
and distributors’ value chain
Ch 4 -34
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Value Chain Analysis (VCA)
Ch 4 -35
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Value Chain Analysis (VCA)
Value Chain Analysis
A process whereby a firm determines the costs associated
with organizational activities
Ch 4 -36
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Value Chain Analysis (VCA)
Benchmarking
An analytical tool used to determine whether a firm’s
value chain activities are competitive compared to its
rivals and thus conducive to winning in the
marketplace.
Benchmarking entails measuring costs of value chain
activities across an industry to determine best
practices among competing firms for the purpose of
duplicating or improving upon those best practices
Ch 4 -37
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The Internal Factor Evaluation (IFE) Matrix
•
An internal strategic-management analysis
•
Evaluation of strengths and weaknesses
•
Basis for identifying and evaluating relationships
•
Intuitive judgments are required
Ch 4 -38
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Ch 4 -39
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Ch 4 -40
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For Review (Chapter 4)
Key Terms & Concepts
Ch 4 -41
SWOT analysis
Opportunities
Strengths
Threats
Weaknesses
Value Chain Analysis
(VCA)
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