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Foundations of Strategy PSU MGMT #511

Dave Gartendaveoutside@alum.mit.edu

Week # 3 –Internal Analysis

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Internal Analysis – Key Points

Internal analysis is never really just internal Relative performance Economic performance ~ competitive

advantage

Internal analysis – “S” and “W” in SWOTAccurate view of oneself is hard… Underestimate vs. overestimate

Short term bias

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VRIO “Internal” AnalysisCritical analysis of the value chainCompetitive advantage from where?

Source: derived from Gaining & Sustaining Competitive Advantage, by Jay Barney

Valuable?

Rare? Costly to imitate?

Exploited by

Organization?

Advantage?

Research

Development

Manufacturing

Marketing

Sales/Channel

Service

Sustainable advantageTemporary advantageParityDisadvantage

VRIO – Barney 5.2/5.3

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 Valuable

? Rare?Costly to Imitate?

Strength/Weakness

Competitive Implication

Economic Performance

1 N     WeaknessDis-

advantage Below normal

2 Y N   Strength Parity Normal

3 Y Y N

Strength & distinctive

competenceTemporary advantage Above

4 Y Y Y

Strength & sustainable distinctive

competenceSustained advantage Above

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Core CompetenceDefined:

What can a company do w/its core competence?

Examples: Canon, HDTV, 3M, HondaSource: derived from The Core Competence of the Corporation, by C.K. Prahalad and Gary Hammel, HBS, 1990. cX

collective learning that coalesce around individuals who coordinate a comprehensive set of diverse skills & integrate multiple streams of know-how

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Core CompetenceDistinguish between core capability, core components, core productsTo gain competitive advantage, must be distinctive competencies as well…Outsourcing a core only works for a while – ultimately position/profitability will erode. Core competency -> a few, perhaps 2-5Mgmt: SBU vs. core competence

“Benefits of competency, like the benefits of money supply, depend upon their velocity of their

circulation.” -The Core Competence of the Corporation by C.K. Prahald and Gary Hammel, 1990

“Benefits of competency, like the benefits of money supply, depend upon their velocity of their

circulation.” -The Core Competence of the Corporation by C.K. Prahald and Gary Hammel, 1990

3 measures of CC1. “provides potential access to a

variety of markets”2. “makes a significant contribution

to the perceived customer benefits of the end product”

3. “should be difficult for competitors to imitate”

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Source: The Core Competence of the Corporation, by C.K. Prahalad and Gary Hammel, HBS, 1990. c

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Core Competence

Low

Low High

High

Rel

ativ

e S

tren

gth

Strategic Importance

Superfluous Strengths

CoreCompetency

Zone of Irrelevance

KeyWeakness

TransformUp

TransformAway

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Core Competency and Growth

Core

Step 1 (38%)

Step 2 (26%)

Step 3 (7%)

Diversification (<1%)

Source: Bain, October 2003

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Ambidexterity

“Structural”Separate

units/teams More specialists Exploratory

Radical/disruptiveClearly defined

Ambidextrous qualitiesInitiative: alert to opportunities beyond 4 wallsCooperative: seek to combine effort w/others

Brokers: looking to build linkagesMulti-taskers: comfortable wearing multiple hats

“Contextual”Part of the job

IncrementalDistributed

Less definedMore generalists

VS

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Ambidexterity

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Internal Evaluation Tools

Low

Low High

High

Impo

rtan

ce to

Str

ateg

y

Cultural Compatibility

LowRisk

LowRisk

LowRisk

HighRisk

HighRisk

HighRisk

Internal Alignment

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Under-investment

Over-investment

Internal Evaluation Tools

Lowest

Lowest Highest

Highest

Res

ourc

e A

lloc

atio

n P

lans

Investment Priorities

Internal Alignment

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Week #3 Case Write-upObjective: analyze a company’s strengths and weaknesses and how they relate to core competencyLearnings:

The game changes as the industry structure changes. Successful companies must adapt to take advantage of opportunities and mitigate the threats.

Apple’s competencies provide a point of strength for Apple to pursue a consumer brand business.

The changes to the PC industry have a huge affect on the winners and losers.

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Apple

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Strategy Evaluation ToolsSWOT & Strategy Development

Opportunities (O)

Threats (T)

Strengths (S) Weaknesses (W)

SO Strategies

ST Strategies

WO Strategies

WT Strategies

Use strengths to take advantage of opportunities

Use strengths to avoid threats

Overcome weaknesses by

taking advantage of opportunities

Minimize weaknesses and

avoid threats

1.2...

1.2...

1.2...

1.2...

Source: Strategic management by Fred R. David