A compilation of Strategic Management chapter into PPT in alliance with SME. The intended idea was distribute the PPT as online resource with institute to promote online learning as well as quick sheet sheet for teachers/educators.

1. Chapter 4
Internal Analysis: Managing
Capabilities, Costs and
Knowledge

2. Chapter Index
S. No
Reference
No
Particulars
Slide
From-To
1 Learning Objectives 3
2 Topic 1 Concept of Internal Environment 4-24
3 Topic 2 Organisational Analysis 25-32

3. Learning Objectives
 Discuss the concept of internal environment of a business
 State the importance of organisational resource analysis
 Explain the concept of core competency
 Describe the concept of competitive advantage
 Discuss how to build sustainable competitive advantage
 Explain techniques and factors affecting organisational analysis

4. Concept of Internal Environment
 The factors that affect the internal environment include:
Vendors or suppliers: These are organisations or individuals who
provide inputs or raw materials to the organisation.
Competitors: These are organisations which manufacture or provide
products or services that are similar to those of the organisation and
within the same business category.
Intermediaries: These are distributors, retailers, wholesalers, etc.
The intermediaries form a link between the organisation and end
users.
Customers: These are individuals or organisations who buy products
or services of the organisation
Organisation itself: An organisation itself hosts many factors
including shareholders or investors, employees and the board of
directors that can significantly affect its functioning.

5. Organisational
Resourses
Organisational
Competencies
Organisational
Capabilities
Internal
Environment
 The components of the internal environment of an organization are:
• The internal environment analysis helps the organisation
determine its capabilities which enables the organisation to utilise
opportunities in the best possible manner and maximise its profits.
• The internal environment consists of resources, competencies and
capabilities that depict the strengths and weaknesses of the
organisation.
• The organisation consists of various departments, such as
marketing, finance, human resources and operations.

6. Organisational Resource Analysis
 Organisational resource analysis is the process of exploring strengths
and weaknesses of the organisation.
 The process of identifying and analysing organisational resources,
which helps to attain a competitive advantage, is known as Resource
Based View (RBV) organisational analysis.
 RBV organisational analysis helps to use resources in the best way to
attain a competitive advantage and determine the sustainability of the
competitive advantage.
 The competencies, which are unique and superior to those that exist in
the external environment, and result in value addition in the process
of the organisation, are called Distinctive Competencies.
 The usage of resources depends on organisational behaviour, which is the
manifestation of various influences operating in the organisation’s
internal environment that may create or destroy the utility of resources.

7.  Organisational resources can be of two types:
Business
Environment
Tangible
Resources
Intangible
Resources
They consist of financial, physical and
human resources.
 Financial resources include cash and
long-term investments.
 Physical resources include plants,
equipment & raw materials, whereas
human resource constitute employees
They consist of patents, copyrights and
intellectual property rights.
Classification of three categories of
intellectual capital are:
• Human capital
• Structural capital
• Customer capital

8. Organisational Capability
Organisational capability is the potential of the organisation to
utilise its strengths and surmount its weaknesses to exploit
opportunities and face threats in the environment.
Organisational
capabilities
are
of
two
categories
Static capabilities: These are capabilities of the
organisation to deal with problems faced by it on a routine
basis in all its processes and functions.
Innovative capabilities: These include innovation and
development related to the previous knowledge resources of
the organisation, which results in the innovation of new
products or services and adds value to the organisation

9.  There are five types of organisational capabilities:
The financial capability of an organisation covers the following aspects:
Financial Capability: In an organisation, financial capability refers to the
ability that enables an organisation to take decisions and tackle problems
related to finance.
1
• It refers to the knowledge and understanding of managing
and using funds in different functions and includes the
ability to tackle day-to-day financial matters and opt for the
right options
• The organisation should have an ability to apply its
knowledge and understanding of financial skills in
predictable and non-predictable situations
• It identifies the impact of the organisation’s financial
decisions on employees, organisation and the broader
community.
• Financial
knowledge and
understanding
• Financial skills
and competence
• Financial
responsibility

10. Sources of fund Management of
funds
Usage of funds
The major factors affecting the financial capability
of the organisation are as follows:

11. Marketing Capability: Marketing capability is the ability of the
organisation to utilise its knowledge, skills and resources for gaining a
competitive advantage.
2
The factors, which influence the marketing capability of an organization are:
These include factors such as design, variety, quality or
packaging of products.
These include factors such as pricing objectives, discounts
and tax on products.
These include factors such as distribution, transportation,
marketing channels and marketing intermediaries.
• Product-related
factors
• Price-related
factors
• Place-related
factors
These include factors such as advertising and sales
promotions.
• Promotion-
related factors

13. Operations Capability: Operations capability refers to the ability of an
organisation to manage and control its core delivery processes.
3
There are five components of operations capability which are
as follows:
• Employee’s individual competencies
• Employee’s collective capabilities considered as a team
• Processes used for business
• Systems required for the implementation of processes
• Management of all components as an interdependent
system

14. The factors considered in operations capability are:
These include capacity, location, layout and product or
service design.
These factors include production planning, cost and quality
control and maintenance systems and procedures.
These include factors such as technological innovation and
product development.
• Production system-
related factors
• Operations and
control system factors
• Research and
development factors
Benefits of organisation having marketing capability are:
• It offers increased capacity utilization.
• It ensures a better research and development system.
• It provides a choice to opt for a favourable plant location.
• It facilitates the creation of a good inventory control system.

15. Information Management Capability: It refers to the ability of the
organisation to create, acquire, store, analyse and use information to
provide an intellectual platform for supporting the growth and
development of the organisation.
4
It includes sources, quantity, quality, timeliness
and security of information.
It includes computer systems, capabilities of
software and database management.
It involves the coverage of information in terms
of speed, scope, width and depth.
• Acquisition and retention of
information
• Processing and synthesis of
information
• Transmission and
dissemination of information
These factors are availability of IT
infrastructure, availability of computer
professionals and top management support.
• Integrative, systematic and
supportive factors
The factors influencing the information capability of the organization are as follows:

17. General Management Capability: General management capability is the
ability that involves integrating, directing and coordinating different
functions of the organisation to achieve the common objective.
5
• Organisational
climate
related-factors
• General
manager
related-factors
• External
relationships
related-factors
• General
management
system-related
factors
Include values, norms, personal goals, orientation, competence, capacity
for work, track record and balance of functional experience.
Include strategic management system, strategic intent, strategy
formulation, strategy system evaluation, management information
system, planning system of corporate, incentive & reward system for top
managers.
Include relations with the public and building rapport with the
government, regulatory agencies and financial institutions, sense of social
responsibility, philanthropy and public image as corporate citizen.
Include organizational culture, use of power, acceptance and management
of change, political processes, balance of stakes (vested interests),
introduction and nature of organisational structure and control.
Important factors which influence the general management capability are:

18. Core Competency
Core competency refers to the collective learning of an
organisation that is gained by coordinating diverse skills
of its employees and integrating technologies.
According to Prahalad
and Hamel, core
competency should
fulfil three criteria,

19. Competitors replicate core competency that has the following features
Transparency
• It reflects the
degree of
transparency
between resources,
capabilities, and
strategies used to
develop the core
competency.
Transferability
• It reflects the
capability of
competitors to
gather necessary
resources or
capabilities
required to build
the core
competency.
Replicability
• It covers the usage
of duplicate
resources or
capabilities by
competitors to
imitate others’ core
competency.

20. Explicit
knowledge
Tacit
knowledge
The core competency of an
organisation is gained in either of
the two ways
Explicit
knowledge deals
with easy
communication
and
identification.
Tacit knowledge
either exists in
employees’
experience or is
inherited in the
culture of the
organization.

21.  Differences between Core Competency and Distinctive Competency
Core Competency Distinctive Competency
It is a well-performed internal
activity, which is central to the
organisation’s competiveness and
profitability.
It is a unique competitive activity
that helps the organisation to
perform better than its rivals.
Examples:
• Sony: Core competency in product
miniaturisation
• McDonald’s: Core competency in
delivery speed, customer care and
cleanliness
• Federal Express: Core competency in
logistics management and customer
service
Examples:
• Sharp Corporation: Expertise in flat
panel display technology
• Intel: Expertise in designing and
manufacturing powerful
microprocessors for PCs
• Walmart: Expertise in low-cost
distribution and use of the state-of
the-art retail technology

22. Competitive Advantage
Competitive advantage can be defined as the specific advantage
possessed by the organisation over competitors that exist in the
external environment.
Cost advantage
It is the organisation’s
ability to provide
similar benefits of
product or services at
lower
According to Michael Porter, there are two main
types of competitive advantage
Differentiation
advantage
The organisation has
this advantage if it
offers products or
services to customers
with enhanced features
and benefits than those
offered by the
competitors.

23. Porter’s generic strategies model of
competitive advantage
Competitive
Edge
Narrow
Target
Broad
Target
Lower Cost Differentiation
Competitive Advantage

24. Sustainable Competitive Advantage
 A competitive advantage helps the organisation provide the valued product to
customers and increase its profit margins.
Organisation’s
sustainability
in the market
is based on
these two
features
Durability: It refers to the period of
existence of the organisation’s capability or
core competency in the market
Imitability: It is the relative difficulty of
replicating the organisation’s resources or
core competency by competitors.

25. Organisational Analysis
Organisational analysis can be described as the process of identifying
the strengths and weaknesses of different functions of the organisation.
It enables the organisation in strategy formulation in alignment with
opportunities existing in the external environment by avoiding threats.
It involves the study of organisational resources, capabilities, core
competencies and value chain analysis of the organisation
Organisational analysis helps analysts determine factors and their
influence on organisational procedures.

26. Techniques for Organisational Analysis
 External environment scanning is performed at three levels:
1. Internal Analysis
• VRIO framework
• Value chain
analysis
• Quantitative
analysis
• Qualitative
analysis
Three broad classifications
of organisational analysis
techniques are
2. Comparative
Analysis
• Historical analysis
• Industry norms
• Benchmarking
3. Comprehensive
Analysis
• Key factor rating
• Systems related
to business
intelligence
• Balanced
scorecard

27. Internal Analysis
 The internal analysis of an organisation involves the identification of strengths and
weaknesses of the organization for which following methods are used.
A resource or
capability that
meets the following
four requirements
can bring a
sustained
competitive
advantage for the
organization:
• Value
• Rareness
• Imitability
• Organisation
Introduced by
Michael Porter,
this analysis
aims at
recognising
activities, which
are the most
valuable to the
organization and
could provide it
cost or
differentiation
advantage.
It states that the
strengths and
weaknesses of the
organisation are
identified on the
basis of numbers
To determine the
strengths and
weakness of the
organisation, both
financial figures
and non-financial
activities are
considered.
2. Value chain
analysis
3. Quantitative
analysis
1. VRIO
framework
Not all activities
performed in the
organisation can
be expressed in
terms of money.
This is because
the analysis of
some activities
depends on
subjective
judgment or
informed opinion.
4. Family
structure

28. Comparative Analysis
 The comparative analysis of an organisation helps to identify its strengths and weaknesses
and distinctive competency with respect to its competitors in the market.
 Historical analysis: In historical analysis, the
organisation compares its progress with its past
performance to identify its strengths and
weaknesses.
 Industry norms: In this method, the strengths and
weaknesses of the organisation are evaluated by
comparing strategies and procedures of the
organisation with similar industry norms
 Benchmarking: It is the process of finding best
practices within the industry.
Three ways
to perform
comparative
analysis are:

29. According to American
Productivity and
Quality Centre

30. It refers to the process of analysing the capabilities of the organisation
by considering key factors of different areas or functions of the
organisation with the help of different questions.
According to the Gartner Group, business intelligence is the process to
gather, store, analyse and provide access to data enabling the
organisation to make effective decisions related to business.
Key factor
rating
Business
intelligence
Balanced
scorecard
It refers to analysing the strengths and weaknesses of the organisation by combining
different techniques as each technique has some purpose and limitations
Three methods/techniques used to conduct the comprehensive analysis are:
Comprehensive Analysis
It evaluates the performance of an organisation based on four different
perspectives such as financial perspective, customer perspective,
internal business perspective and learning and growth perspective.

31.  The balanced scorecard model is shown below:
Vision and
Strategy
Financial
Perspective
Internal
Process
Perspective
Learning/
Innovation
Perspective
Customer
Perspective
What must we excel at?
How do customers see us?
How do we look to shareholders?
How can we sustain our ability
to change and improve?

32. Organisational analysis is affected by various factors, which are:
Strategist-related factors
Organisation-related factors
Internal environment-related factors
Factors Affecting Organisational Analysis
Organisational analysis is the process of assessing the organisation’s
strengths and weaknesses to match them with opportunities existing
in the external environment by avoiding threats