Chapter 4: Analysis of the

Internal Environment
 Main Text
1. Frynas and Mellahi: Global Strategic
Management
2. Học liệu tiếng việt
3. Slides
4. Handout materials
 Additional Resources
• A useful note on SWOT analysis:
http://www.provenmodels.com/37/swot-analysis/c.-roland-christensen--
edmund-p.-learned--kenneth-r.-andrews--william-d.-guth/
• A useful note on core competencies:
http://www.quickmba.com/strategy/core-competencies/
• A useful note on competitive advantage and value creation:
http://www.quickmba.com/strategy/competitive-advantage/
• A useful note on Michael Porter’s value chain analysis:
http://www.provenmodels.com/26/value-chain-analysis/porter,-michael-
e.
• A useful note explaining the concept of global value chains:
http://www.globalvaluechains.org/concepts.html
• A short video interview on using online tools for competitive intelligence:
http://videos.webpronews.com/2009/10/12/improving-your-competitive
-intelligence/
Learning Outcomes
After this lecture you should be able to:
• Understand the significance of the internal environment and
core competencies for the strategies of multinational firms
• Distinguish between the positioning perspective and the
resource-based perspective
• Conduct a resource audit and apply the VRIO framework to a
firm
• Conduct a value-chain and value system analysis
• Conduct a comparative analysis for a multinational firm
Internal Business Environment

Just as the external business environment is

important, managers need to understand the
internal firm environment: the unique strengths and
weaknesses of their firm relative to their
competitors.
Strategic Capabilities – The key Issues
What type of
resources and How can
capabilities How can resources and
What are can contribute resources and capabilities be
resources and to competitive capabilities be developed and
capabilities? advantage and evaluated? managed?
superior
performance?
 Resource Based View - Strategy

▪▪ The
The environmental
resource-basedfactors likely to
view (RBV) of have a high
strategy
impact on the success or failure of strategy
asserts that the competitive advantage and
▪ Typically
superior key drivers vary
performance of by
anindustry or market
organisation are
▪ explained by retailers
For example, the distinctiveness
are concernedof itswith social
capabilities
changes and customer behaviour which have
driven a move to ‘out of town’ shopping.
• Personal disposable
It is sometimes income
also calledalso
the drives demand
‘capabilities
for retailers
view’.
• The industry-based view focuses on how
“average” firms within an industry
compete
• The Resource-Based View focuses on how
individual firms differ from each other
within an industry and can outperform
the industry average consistently and
significantly
 Competitive advantage arises from:
Foundations of resources and
performing parts of the value chain better than
capabilities competitors

Resources and Competencies NOT available to

competitors
• The resources and capabilities
of an organisation contribute to Resources: things that firms have
its long-term survival and e.g. physical and non-physical assets
potentially to competitive
advantage. Competencies: things that firms do well

▪ Resources are the assets that

e.g. efficient routines, mgt skills, leadership

organisations have or can call upon

(e.g. from partners or suppliers), that
is ‘what we have’.
▪ Competences are the ways
those assets are used or
deployed effectively, that is
‘what we do well’

149
Resources and Capabilities
• Firms have resources and capabilities.
• Resources are all assets, capabilities,
organizational processes, firm attributes,
information, knowledge, patents, real estate etc.
controlled by a firm.
• Capabilities are complex bundles of skills and
collective learning, exercised through
organizational processes, that ensure superior
coordination of functional activities.
Core Competencies
• Core competencies refer to the combination of
individual technologies and production skills that
underlie a company’s multiple production lines and
critically underpin the firm’s competitive
advantage.
• Core competencies are about communication,
involvement and a deep commitment to working
across organizational boundaries.
 Core competences

• Core competences are the linked set of

skills, activities and resources that,
together

G. Hamel and C.K. Prahalad, ‘The core competence of the corporation’,

▪ deliver customer value
▪ differentiate a business from its
competitors

Harvard Business Review, vol. 68, no. 3 (1990), pp. 79–91

▪ potentially, can be extended and
developed as markets change or new
opportunities arise

153

1
Competence as tree metaphor
 Sustaining Competitive Advantage is not easy…

❑ Rivals can imitate a successful firm’s

products or overcome the firm’s
advantage through new technologies,

G. Hamel and C.K. Prahalad, ‘The core competence of the corporation’,

products and business models

❑ With passage of time, entry, imitation

Harvard Business Review, vol. 68, no. 3 (1990), pp. 79–91

and price competition will eventually
reduce profits to zero

❑ If companies do not act, they could

become obsolete

156

1
 Strategic capabilities and competitive advantage

1G 1Jay Barney: ‘Firm resources and sustained competitive advantage’, Journal of

•The four key criteria by which capabilities can be
assessed in terms of providing a basis for achieving
sustainable competitive advantage are

V R I O

Management, vol. 17 (1991), no. 1, pp. 99–120

Value Rarity Inimitability Organizational
Support
VRIO
•Do capabilities exist that are •Are capabilities difficult
valued by customers and and costly for
enable the organization to competitors to obtain
respond to environmental and imitate?
opportunities or threats?

V R I O
Value Rarity Inimitability Organizational
Support

•Do capabilities exist that • Is the organization

no (or few) competitors appropriately organized
possess? to exploit the
capabilities?
(V)RIO
•take advantage of
opportunities and neutralise
threats

V •provide value to customers

Value

•are provided at a cost that still

allows an organisation to make
an acceptable return
V(R)IO
•Rare capabilities are those possessed
uniquely by one organisation or only by a
few others (E.g. a company may have
patented products, have supremely
talented people or a powerful brand.)

V R
Value Rarity

•Rarity could be temporary

•(E.g. Patents expire, key individuals can
leave or brands can be de-valued by
adverse publicity
VR(I)O
•Competitive advantage can be built on
unique resources (a key individual or IT
system) but these may not always be
sustainable (key people leave or others
acquire the same systems).

V R I
Value Rarity Inimitability

•Sustainable advantage is more often

found in competences (the way
resources are managed, developed and
deployed) and the way competences
are linked together and integrated
Criteria for the inimitability of
strategic capabilities
•Casual Ambiguity
Characteristic ambiguity
Linkage ambiguity

V R I •Complexity
Internal Linkages External
Value Rarity Inimitability Linkages

•Culture & history

•Taken for granted activities
Path dependency
VRI(O)
• The organisation must be suitably
organised to support the valuable, rare
and inimitable capabilities that it has.
• This includes appropriate processes and
systems

V R I O
Value Rarity Inimitability Organizational
Support
 VRI(O)

V
Value
R
Rarity
I
Inimitability
O
Support
Organizational

Source: Adapted with the permission of J.B. Barney and W.S. Hesterly, Strategic
Management and Competitive Advantage, Pearson, 2012.
 VRIO analysis

• A VRIO analysis helps to evaluate if,

how and to what extent an
organisation or company has resources
and capabilities that are :

• (i) valuable;
• (ii) rare;
• (iii) inimitable;
• (iv) supported by the organisation.

165
VRIO framework
The VRIO framework, devised by Jay Barney (1997), asks four
questions:
• The question of value Do a firm’s resources and capabilities
enable it to respond to environmental threats or
opportunities?
• The question of rareness How may rival firms already
possess particular valuable resources and capabilities?
• The question of imitability Do firms without a resource or
capability face a cost disadvantage in obtaining it compared
to firms that already possess it?
• The question of organization Is a firm organized to exploit
the full competitive potential of its resources and
capabilities?
Strategic Fit vs Strategic Stretch
Strategic Fit Strategic Stretch
is about developing strategy by is about identifying and leveraging the
identifying opportunities in the business resources and competencies of the
environment and adapting resources organization to yield new opportunities
and competences so as to take or to provide competitive advantage
advantage of these
The Positioning Perspective suggests The Resource-Based Perspective
that the business opportunity should be suggests that unique firm resources
the starting point for developing should be the starting point for
successful strategies developing successful strategies
SWOT Analysis
• Managers can analyse both the internal and the
external environment by using SWOT Analysis.
• SWOT is a simple analysis tool for managers for
classifying the various influences on the firm’s
strategy into four categories:
• Internal Strengths (S)
• Internal Weaknesses (W)
• External Opportunities (O)
• External Threats (T).
The Concept of Value Added
• Managers must understand the economic value of
the different activities that a firm performs.
• Value added is the difference between the cost of
inputs and the market value of outputs; it is the
value that a firm adds to its bought-in materials
and services through its own production and
marketing efforts within the firm.
• margin
Value Chain Analysis
• Value chain analysis depicts the main activities
inside the firm and aims to reveal the relative
value added amongst the different parts of the
firm’s operations.
• Undertaking a value chain analysis helps the firm
to understand its cost position and to identify its
competitive strengths.
 The Value Chain
▪ The value chain describes the categories of activities within an organisation which, together,
create a product or service
▪ The value chain consists of five primary activities (which are directly concerned with the
creation or delivery of a product or service) and four support activities (which help to improve
the effectiveness or efficiency of primary activities).
▪ Competitive advantage can be analysed in any of these activities

174
 Uses of the Value Chain (1 of 2)
▪ A generic description of activities – understanding how
the discrete activities (or clusters of linked activities)
contribute to consumer benefit
▪ Identifying activities where the organisation has
particular strengths or weaknesses
▪ Analysing the competitive position of the organisation
using the VRIO criteria – thus identifying sources of
sustainable advantage
▪ Looking for ways to enhance value or decrease cost in
value activities (e.g. outsourcing)

177
 Uses of the Value Chain (2 of 2)
▪ Understanding cost/price structures across the value
system – analysing the best area of focus and the best
business model
▪ Identifying ‘profit pools’ (i.e. The levels of profit in
different parts of the system) – seeking ways to use
existing capabilities in order to exploit these
▪ The ‘make or buy’ decision – which activities to do
‘in-house’ and which to outsource
▪ Partnering – deciding who to work with and the nature
of these relationships

178
 Benefits of Value Chain analysis
• Helps understand which aspects of the value chain
may form the basis of competitive advantage (e.g.
apply VRIO )

• Informs ‘make or buy’ decisions (i.e. outsourcing)

179
A Two-Stage Decision Model in Value Chain Analysis

180
Examples of value chains in global
petroleum industry
Value System Analysis
• A value system is a wider system of creating value
which involves the value chains of the firm’s
suppliers, distributors and customers. Value
system analysis depicts the main activities inside
and outside the firm and aims to reveal the firm’s
linkages with its suppliers’ value chains, its
distributors’ value chains and its customers’
value-chains.
Comparative Analysis
• Resources and capabilities can only be judged to
be valuable or rare if a firm compares itself with
the competitors.
• Therefore, an integral part of an internal firm
analysis must be a comparison with your
competitors.
• Competitor intelligence and benchmarking can
help the firm to compare itself with its peers.
Competitor Intelligence
• Competitor intelligence is the systematic collection of
information about rivals in order to assist the
development of firm strategies.
• Competitor intelligence is aimed at both learning
about competitors’ strengths and weaknesses and
their likely future strategies and initiatives as well as
assessing the strengths and weaknesses of the firm’s
own resources and capabilities relative to other
firms.
Benchmarking
• Benchmarking is the search for industry best
practices that will lead to the superior
performance of a company. The aim of
benchmarking is to find better practice processes
which show higher levels of performance and
which can be copied or adapted internally by the
organization.
Benchmarking

Benchmarking is a means of understanding how an organisation

compares with others – typically competitors.
Two approaches to benchmarking:

• Industry/sector benchmarking – comparing performance against

other organisations in the same industry/sector against a set of
performance indicators.
• Best-in-class benchmarking – comparing an organisation’s
performance or capabilities against ‘best-in-class’ performance –
wherever that is found even in a very different industry. (e.g. BA
benchmarked its refuelling operations against Formula 1).
189
Thank You

190