SM MODULE – 2

Prepared by- Assit. Prof Suvarna Manwar

Internal Analysis
Value chain

The more value an organization creates, the more profitable it is likely to

be. And when you provide more value to your customers, you build
competitive advantage.
Primary Activities
Primary activities relate directly to the physical creation, sale, maintenance and
support of a product or service. They consist of the following:

Inbound logistics – These are all the processes related to receiving, storing, and
distributing inputs internally. Your supplier relationships are a key factor in
creating value here.
Operations – These are the transformation activities that change inputs into
outputs that are sold to customers. Here, your operational systems create value.
Outbound logistics – These activities deliver your product or service to your
customer. These are things like collection, storage, and distribution systems, and
they may be internal or external to your organization.
Marketing and sales – These are the processes you use to persuade clients to
purchase from you instead of your competitors. The benefits you offer, and how
well you communicate them, are sources of value here.
Service – These are the activities related to maintaining the value of your product
or service to your customers, once it’s been purchased.

Support Activities
These activities support the primary functions above. In our diagram, the dotted
lines show that each support, or secondary, activity can play a role in each
primary activity. For example, procurement supports operations with certain
activities, but it also supports marketing and sales with other activities.

Procurement (purchasing) – This is what the organization does to get the

resources it needs to operate. This includes finding vendors and negotiating best
prices.
Human resource management – This is how well a company recruits, hires, trains,
motivates, rewards, and retains its workers. People are a significant source of
value, so businesses can create a clear advantage with good HR practices.
Technological development – These activities relate to managing and processing
information, as well as protecting a company’s knowledge base. Minimizing
information technology costs, staying current with technological advances, and
maintaining technical excellence are sources of value creation.
Infrastructure – These are a company’s support systems, and the functions that
allow it to maintain daily operations. Accounting, legal, administrative, and
general management are examples of necessary infrastructure that businesses
can use to their advantage.

SWOT ANALYSIS
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By
definition, Strengths (S) and Weaknesses (W) are considered to be internal factors
over which you have some measure of control. Also, by definition, Opportunities
(O) and Threats (T) are considered to be external factors over which you have
essentially no control.
Strengths – Strengths are the qualities that enable us to accomplish the
organization’s mission. These are the basis on which continued success can be
made and continued/sustained.
Strengths can be either tangible or intangible. These are what you are well-versed
in or what you have expertise in, the traits and qualities your employees possess
(individually and as a team) and the distinct features that give your organization
its consistency.

Strengths are the beneficial aspects of the organization or the capabilities of an

organization, which includes human competencies, process capabilities, financial
resources, products and services, customer goodwill and brand loyalty. Examples
of organizational strengths are huge financial resources, broad product line, no
debt, committed employees, etc.

Weaknesses – Weaknesses are the qualities that prevent us from accomplishing

our mission and achieving our full potential. These weaknesses deteriorate
influences on the organizational success and growth. Weaknesses are the factors
which do not meet the standards we feel they should meet.
Weaknesses in an organization may be depreciating machinery, insufficient
research and development facilities, narrow product range, poor decision-making,
etc. Weaknesses are controllable. They must be minimized and eliminated. For
instance – to overcome obsolete machinery, new machinery can be purchased.
Other examples of organizational weaknesses are huge debts, high employee
turnover, complex decision making process, narrow product range, large wastage
of raw materials, etc.

Opportunities – Opportunities are presented by the environment within which

our organization operates. These arise when an organization can take benefit of
conditions in its environment to plan and execute strategies that enable it to
become more profitable. Organizations can gain competitive advantage by
making use of opportunities.
Organization should be careful and recognize the opportunities and grasp them
whenever they arise. Selecting the targets that will best serve the clients while
getting desired results is a difficult task. Opportunities may arise from market,
competition, industry/government and technology. Increasing demand for
telecommunications accompanied by deregulation is a great opportunity for new
firms to enter telecom sector and compete with existing firms for revenue.

Threats – Threats arise when conditions in external environment jeopardize the

reliability and profitability of the organization’s business. They compound the
vulnerability when they relate to the weaknesses. Threats are uncontrollable.
When a threat comes, the stability and survival can be at stake. Examples of
threats are – unrest among employees; ever changing technology; increasing
competition leading to excess capacity, price wars and reducing industry profits;
etc.

Advantages of SWOT Analysis

SWOT Analysis helps in strategic planning in following manner-

It is a source of information for strategic planning.

Builds organization’s strengths.
Reverse its weaknesses.
Maximize its response to opportunities.
Overcome organization’s threats.
It helps in identifying core competencies of the firm.
It helps in setting of objectives for strategic planning.
It helps in knowing past, present and future so that by using past and current
data, future plans can be chalked out.

There are certain limitations of SWOT Analysis which are not in control of
management. These include-
Price increase;
Inputs/raw materials;
Government legislation;
Economic environment;
Searching a new market for the product which is not having overseas market due
to import restrictions; etc.
Resources, capability, competencies and dynamic competency

Creating Value
Value is measured by a product’s performance characteristics and by its attributes
For which customers are willing to pay.

Resources, capabilities, and core competencies are the foundation of competitive

advantage. Resources are bundled to create organizational capabilities. In turn,
capabilities are
The source of a firm’s core competencies, which are the basis of competitive
advantages.
Tangible resources are assets that can be seen and quantified. Production
equipment, manufacturing facilities, distribution centers, and formal reporting
structures are examples of tangible resources.
Intangible resources are assets that are rooted deeply in the firm’s history and
have accumulated over time. Because they are embedded in unique patterns of
routines, intangible resources are relatively difficult for competitors to analyze
and imitate. Knowledge, trust between managers and employees, managerial
capabilities, organizational routines (the unique ways people work together),
scientific capabilities, the capacity for innovation, brand name, and the firm’s
reputation for its goods or services and how it interacts with people (such as
employees, customers, and suppliers) are intangible resources.
Capabilities
Capabilities exist when resources have been purposely integrated to achieve a
specific task or set of tasks. These tasks range from human resource selection to
product marketing and research and development activities.

Core competencies are capabilities that serve as a source of competitive

advantage for a firm over its rivals. Core competencies distinguish a company
competitively and reflect its personality. Core competencies emerge over time
through an organizational process of accumulating and learning how to deploy
different resources and capabilities.
Building Core Competencies
Two tools help firms identify and build their core competencies.
1. Sustainable competitive advantage
2. Value chain analysis
Four criteria of Sustainable Competitive Advantage
Capabilities failing to satisfy the four criteria of sustainable competitive advantage
are not core competencies, meaning that although every core competence is a
capability, not every capability is a core competence.

Valuable capabilities allow the firm to exploit opportunities or neutralize threats

in its external environment. By effectively using capabilities to exploit
opportunities, a firm creates value for customers.

Rare capabilities are capabilities that few, if any, competitors possess. A key
question to be answered when evaluating this criterion is, “How many rival firms
possess these valuable capabilities?” Capabilities possessed by many rivals are
unlikely to be sources of competitive advantage for any one of them. Instead,
valuable but common (i.e., not rare) resources and capabilities are sources of
competitive parity.
Costly-to-imitate capabilities are capabilities that other firms cannot easily
develop. Capabilities that are costly to imitate are created because of one reason
or a combination of three reasons . First, a firm sometimes is able to develop
capabilities because of unique historical conditions.

Nonsubstitutable capabilities are capabilities that do not have strategic

equivalents. This final criterion for a capability to be a source of competitive
advantage “is that there must be no strategically equivalent valuable resources
that are themselves either not rare or imitable.

A Business-Level Strategy can help your organization achieve a competitive

advantage in the marketplace. They provide a way to provide value to
customers by exploiting your organization’s core competencies.
According to the Business-Level Strategies theory, there are two types of competitive
advantage that an organization must choose between:
 1. Cost Leadership: ensuring you cost less than your competitors.
2. Differentiation: ensuring you are different from your competitors.

There are also two types of competitive scope than an organization must
choose between:
Broad market: serving a diverse market.
Narrow market: focusing on a niche market.
1. Cost Leadership Strategy
This strategy is for organizations that want to compete for a broad customer base
based on price.

A misconception about this strategy is that returns are lower. That is not the case. To
maintain above-average returns and provide the lowest price, the organization must
focus on internal efficiencies continually.

2.Differentiation Strategy

This strategy is for firms that want a broad customer base based on their uniqueness.
Typically, firms with this strategy will focus on building unique features to win in the
marketplace. They also usually charge a higher price to their customers, to offset the
cost of being unique.

Common mechanisms to differentiate include:

Superior quality.
Customer service.
Design.
Uniqueness

3. Focused Cost Leadership Strategy

These organizations compete on price but also stand out because they focus on serving a niche
market.
Common mechanisms to adopt a focused cost leadership strategy include:
Focusing on serving a small group of customers.
By understanding the needs of your smaller target market, you can uniquely cut costs to serve
the needs of that market.
4.Focused Differentiation Strategy
This strategy is very similar to that of a differentiation strategy except that it is focused on a
very narrow segment of the market. These firms compete by offering unique features to a small
market segment.
Common mechanisms to focus include:
Select a profitable narrow subset of the market.
Focus on areas where competition is weakest.
Focus on a segment where product substitution is difficult.

Diversification means expansion of business either through operating in multiple

industries simultaneously (product diversification) or entering into multiple
geographic markets (geographic market diversification) or starting a new business
in the same industry.

At the business-unit level, diversification occurs when a business unit

expands into a new segment of the present industry in which the company
is -already doing business.

Levels of Diversification

According to them, three levels of diversification exist;

A. Low Levels of Diversification.

B. Moderate to High Levels of Diversification.
C. Moderate to High Levels of Diversification.

Low Levels of Diversification

This level of diversification is seen in a company that operates its activities

mainly on a single or dominant business. The company is in a single
business if its revenue is greater than 95 percent of the total sales.
If the generated revenue is between 70 percent and 95 percent, the
company’s business is dominant. 5M Security Services Limited is an
example of a firm with little diversification as its primary focus is on the
‘security guards market’.

Moderate to High Levels of Diversification

In this level, two types of diversification are evident – ‘related
constrained’ and ‘related linked’, in the case of related constrained
diversification, less than 70 percent of revenue comes from the
dominant business and ail SBUs/divisions share product, technology,
and distribution channels.

If the firm has related linked diversification, less than 70 percent of

revenues come from the dominant business but there are only limited
links between and among the SBUs. Procter and Gamble is an example
of a related constrained firm, while Johnson and Johnson is an example
of a related linked firm.

Very High Level of Diversification

This level applies to companies that have unrelated diversification. It
earns less than 70 percent of its revenues from the dominant business
but there are no common links between the SBUs.