Internal Environment Analysis: Resources, Capabilities, and Strategy

This document is an analysis of the internal environment, focusing on resources, capabilities, and distinctive competencies. It covers key concepts such as the VRIN model (Valuable, Rare, Inimitable, Non-substitutable), which is used to assess sustainable competitive advantage, and value chain analysis, which breaks down a firm's activities to understand how value is created. The document further discusses the importance of distinctive competencies, which are firm-specific strengths that differentiate a company from its competitors, and key success factors (KSFs), which are the crucial elements for success in an industry. The document emphasizes that a firm's internal analysis aims to pinpoint its strengths and weaknesses, which are essential for generating better business results and achieving a sustainable competitive advantage.

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INTERNAL
ENVIRONMENT
ANALYSIS
Chapter 4
Assoc Prof. Dr. Lê Thái Phong
Faculty of Business Administration
Foreign Trade University
E: [e-mail]
T: 0975.055.299
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Learning objectives
1. Understanding resources + capability +
distinctive/core competencies
2. Value creation of firm
3. Value chain analysis
4. Key success factors (KSFs)
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2-3
THE
MACRO-ENVIRONMENT
THE
INDUSTRY
External and Internal Analysis
THE
COMPANY
STRATEGIC GROUPS
INDUSTRY STAGE of DEVELOPMENT
5 FORCES MODEL (Plus 1)
• Rivalry
• Barriers to entry
• Suppliers
• Buyers
• Substitutes
• Complementors
• COMPETITOR ANALYSIS
EXTERNAL
Macroeconomics
Economic
Political & Legal
Technology
Socio-cultural
Demographic
EXTERNAL
COMPANY STAGE of DEVELOPMENT
RESOURCES, COMPABILITY, DISTINCITIVE
COMPETENCIES, VALUE CREATION
• Efficiency
• Innovation
• Customer Responsiveness
• Quality
INTERNAL
STRENGTHS and
WEAKNESSES
OPPORTUNITIES
and THREATS
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“Before leaders can set up a new
strategy, they must reach a
common understanding of the
current position of the company .”
- W. Chan Kim & Renee Mauborgne -
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The purpose of internal analysis is to pinpoint the
strengths and weaknesses of the organization.
• The aim of the strategy is to generate better
business results (competitive advantage).
Internal environment analysis
Strengths
Lead to superior performance.
Weaknesses
Lead to inferior performance
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Internal environment analysis
• Internal analysis includes:
– Quality + quantity of resources + capabilities
– The method of construction of unique skills and
distinctive capacity of enterprises
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Competitive advantage
• Competitive advantage
Firm’s ability to gain profitability that is greater than the
average profitability of the industry.
• Sustainable Competitive advantage
– Ability to maintain profitability and good profit growth that
is higher than average level of the industry for many years.
The main objective of the strategy is to
achieve a sustainable competitive advantage
which is measured by better profit and profit
growth rate.
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Competitive advantages
Dell achieved sustainable competitive advantage, in comparison with competitors
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Strategy and competitive advantage
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Resources
• Tangible (visible):
assets that can be
seen, touch, and
quantified
• Intangible
(invisible): assets
that cannot be seen,
touch, and
quantified
• THE ASSETS THAT ORGANISATIONS HAVE OR
CAN CALL UPON (from partners or suppliers)
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Types of Firm Resources
• Tangible resources are assets that are
relatively easy to identify:
– Physical assets: plant & facilities, location, machinery &
equipment
– Financial assets: cash & cash equivalents, borrowing capacity,
capacity to raise equity
– Technological resources:trade secrets, patents, copyrights,
trademarks, innovative production processes
– Organizational resources: effective planning processes &
control systems
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Types of Firm Resources
• Intangible resources are difficult for
competitors to account for or imitate – are
embedded in unique routines & practices:
– Human resources: trust, experience & capabilities of
employees; managerial skills & effectiveness of work teams
– Innovation resources: technical & scientific expertise &
ideas; innovation capabilities
– Reputation resources: brand names, reputation for fairness
with suppliers; reliability & product quality with customers
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Example: FTU
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Capability
• Ability/Skills at coordinating its resources
and putting them into productive use
• Coming from organisational’s routines, rules,
and procedures (internal processes)
• Product of its organisational structure,
processes, control, and hiring systems
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Types of Firm Resources
• Organizational capabilities are competencies or
skills that a firm uses to transform inputs into
outputs; the capacity to combine and use
tangible & intangible resources, e.g.:
– Outstanding customer service
– Excellent product development capabilities
– Superb innovation processes & flexibility in
manufacturing processes
– Ability to hire, motivate, & retain human capital
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Capability
• Usually based on the development of, transfer,
and exchange of information, and knowledge
through human resources in enterprises
• Capacity foundation is the knowledge and
unique skills of staff in companies =>
professional skills of labour
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Capability
Functional areas Capabilities Examples
Supply chain •Effective procurement techniques
•Effective logistic mgt techniques
Starbucks
Wal-Mart
HRM •Motivate, empower, retain employees Royal Bank
Info System •Effective/Efficient inventory control via
point-of-purchase data collection
Wal-Mart
Marketing •Effective promote brand name of
products
•Effective customer service
Gillette
McKensey
Management •Ability to envision the future
•Effective organisational structure
•Effective culture
Nordstrom
GAP
WestJet
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Capability
Functional areas Capabilities Examples
Management •Design & production skill yielding
reliable products
•Product & design quality
•Production of technologically
sophisticated automobile engines
•Product & production miniaturization
Komatsu
GAP
Matda
Sony
R&D •Exceptional technological capability
•Development of sophisticated
elevator control solutions
•Rapid transformation of technology
into new products & processes
•Knowledge of silver-halide materials
Corning
Motion Control
Nucor Steel
Kodak
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Resources and capability
• RESOURCES
– What we have
• CAPABILITY
– What we do well
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Distinctive competencies
• Firm-specific strengths that allow to:
– Differentiate its products from others
– And/or achieve substantially lower costs than
rivals
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Distinctive competencies
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Distinctive competencies
• JIT system
• Self-managing teams
• Reduce set-up times for complex equipment
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Resources, capability,
distinctive competencies
• (some) RESOURCES +
• (some) CAPABILITIES =
• DISTINCTIVE COMPETENCIES
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