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Summary Strategic Management Chapter 5: Internal Scanning: Organizational Analysis
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Summary of Chapter 5 of the book Strategic Management and Business Policy.
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Chapter 5: Internal scanning:Organizational Analysis
A Resource-Based Approach to Organizational Analysis
Organizational analysis = concerned with identifying, developing, and taking advantage of an
organization’s resources and competencies.
Core and distinctive competencies
Resources = are an organization’s assets and are thus the basic building blocks of the
organization. (Tangible assets, intangible assets, human assets)
Capabilities = refer to a corporation’s ability to exploit its resources.
When these capabilities are constantly being changed and reconfigured to make them more
adaptive to an uncertain environment, they are called dynamic capabilities.
Competency = a cross-functional integration and coordination of capabilities.
Core competency = a collection of competencies that crosses divisional boundaries, is
widespread within the corporation, and is something that the corporation can do
exceedingly well.
Core rigidity or deficiency = a strength that over time matures and may become a weakness.
Distinctive competencies = when core competencies are superior to those of the
competition.
VRIO framework = four questions: Value, Rareness, Imitability and Organization.
Compare measures with:
1. The company’s past performance
2. The company’s key competitors
3. The industry as a whole.
Using resources to gain competitive advantage
Grant proposes a five-step, resource-based approach to strategy analysis.
1. Identify and classify the firm’s resources in terms of strengths and weaknesses.
2. Combine the firm’s strengths into specific capabilities and core competencies.
3. Appraise the profit potential of these capabilities and competencies in terms of their
potential for sustainable competitive advantage and the ability to harvest the profits
resulting from their use.
4. Select the strategy that best exploits the firm’s capabilities and competencies relative
to external opportunities.
5. Identify resource gaps and invest in upgrading weaknesses.
Determining the sustainability of an advantage
Two characteristics determine the sustainability of a firm’s distinctive competency(ies):
- Durability = the rate at which a firm’s underlying resources, capabilities or core
competencies depreciate in value or become obsolete.
- Imitability = the rate at which a firm’s underlying resources, capabilities, or core
competencies can be duplicated by others.
o Transparency = the speed with which other firms can understand the
relationship of resources and capabilities supporting a successful firm’s
strategy.
, o Transferability = the ability of competitors to gather the resources and
capabilities necessary to support a competitive challenge.
o Replicability = the ability of competitors to use duplicated resources and
capabilities to imitate the other firm’s success.
Explicit knowledge = knowledge that can be easily articulated and communicated.
Tacit knowledge = knowledge that is not easily communicated because it is deeply rooted in
employee experience or in a corporation’s culture.
Business Models
Business model = a company’s method for making money in the current business
environment.
Five elements:
1. Who it serves
2. What it provides
3. How it makes money
4. How it differentiates and sustains competitive advantage
5. How it provides its product/service
The simplest business model is to provide a good or service that can be sold such that
revenues exceed costs and all expenses. Other business models are:
- Customer solutions model
- Profit pyramid model
- Multicomponent system/installed base model
- Advertising model
- Switchboard model
- Time model
- Efficiency model
- Blockbuster model
- Profit multiplier model
- Entrepreneurial model
- De facto industry standard model
Value-Chain Analysis
Value chain = a linked set of value-creating activities that begin with basic raw materials
coming from suppliers, moving on to a series of value-added activities involved in producing
and marketing a product or service, and ending with distributors getting the final goods into
the hands of the ultimate consumer.
Industry value-chain analysis
The value chains of most industries can be split into two segments, upstream and
downstream. In the petroleum industry, for example, upstream refers to oil exploration,
drilling, and moving the crude oil to the refinery, and downstream refers to refining the oil
plus transporting and marketing gasoline and refined oil to distributors and gas station
retailers.
Vertical integration = the move forward or backward along the value chain.
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