Scribd Logo
Upload

Welcome to Scribd!

  • 23 views

    Chapter 5 THE INTERNAL ENVIRONMENT ANALYSIS

    Uploaded by

    kfbrillantes16
    1. The internal environment analysis identifies a company's internal strategic factors like strengths and weaknesses to exploit opportunities and avoid threats. It consists of corporate culture, organizational structure, and business resources. 2. Corporate culture refers to the beliefs, values, and expectations of employees, which shape behaviors and identity. An effective culture motivates employees and reduces turnover. 3. Organizational structure defines tasks, resource use, and relationships. The appropriate structure achieves goals effectively and efficiently with information flow and clear roles. 4. Resources alone do not provide competitive advantage; they must be strategic by exploiting opportunities, being rare, costly to copy, and without substitutes. A company needs capabilities to exploit strategic resources for advantage

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Chapter 5 THE INTERNAL ENVIRONMENT ANALYSIS

    Uploaded by

    kfbrillantes16
    23 views6 pages
    1. The internal environment analysis identifies a company's internal strategic factors like strengths and weaknesses to exploit opportunities and avoid threats. It consists of corporate culture, organizational structure, and business resources. 2. Corporate culture refers to the beliefs, values, and expectations of employees, which shape behaviors and identity. An effective culture motivates employees and reduces turnover. 3. Organizational structure defines tasks, resource use, and relationships. The appropriate structure achieves goals effectively and efficiently with information flow and clear roles. 4. Resources alone do not provide competitive advantage; they must be strategic by exploiting opportunities, being rare, costly to copy, and without substitutes. A company needs capabilities to exploit strategic resources for advantage

    Original Title

    Chapter-5-THE-INTERNAL-ENVIRONMENT-ANALYSIS

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    1. The internal environment analysis identifies a company's internal strategic factors like strengths and weaknesses to exploit opportunities and avoid threats. It consists of corporate culture, organizational structure, and business resources. 2. Corporate culture refers to the beliefs, values, and expectations of employees, which shape behaviors and identity. An effective culture motivates employees and reduces turnover. 3. Organizational structure defines tasks, resource use, and relationships. The appropriate structure achieves goals effectively and efficiently with information flow and clear roles. 4. Resources alone do not provide competitive advantage; they must be strategic by exploiting opportunities, being rare, costly to copy, and without substitutes. A company needs capabilities to exploit strategic resources for advantage

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    23 views6 pages

    Chapter 5 THE INTERNAL ENVIRONMENT ANALYSIS

    Uploaded by

    kfbrillantes16
    1. The internal environment analysis identifies a company's internal strategic factors like strengths and weaknesses to exploit opportunities and avoid threats. It consists of corporate culture, organizational structure, and business resources. 2. Corporate culture refers to the beliefs, values, and expectations of employees, which shape behaviors and identity. An effective culture motivates employees and reduces turnover. 3. Organizational structure defines tasks, resource use, and relationships. The appropriate structure achieves goals effectively and efficiently with information flow and clear roles. 4. Resources alone do not provide competitive advantage; they must be strategic by exploiting opportunities, being rare, costly to copy, and without substitutes. A company needs capabilities to exploit strategic resources for advantage

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    CHAPTER 5:

    THE INTERNAL ENVIRONMENT ANALYSIS

    THE INTERNAL ENVIRONMENT


    A strategic management analysis is conducted to provide companies with competitive
    advantage. External environment scanning or analysis alone is not enough to achieve it. Strategic
    managers must also consider the need to scan or analyze the internal environment of a company. An
    internal environment analysis identifies a company's internal strategic factors, such as its strengths
    and weaknesses, to enable it to exploit opportunities and avoid threats of the external environment.
    The internal environment refers to the environment within a company. Its variables are not
    within the control of the top management within a short-run period.

    It consists of the following strategic elements:


    1. Corporate culture
    2. Organizational structure
    3. Business resources

    CORPORATE CULTURE

    Every company has its own separate and distinct culture. Corporate culture refers to the
    beliefs, values, practices and expectations of every member of a company on how the company
    conducts itself. In short, it is a company's way of doing things. It defines corporate identity. Corporate
    culture is developed, nurtured, and transmitted from one generation of employees to the next.
    Corporate culture is one source for gaining a competitive advantage. It shapes the people
    within a company to produce behavioral norms, provides them with a distinct identity and
    belongingness and acts as a motivating factor to generate commitment among employees. Companies
    that have effective corporate or organizational cultures have motivated and productive employees
    resulting in less employee turnover. Effective corporate culture must be sustained.

    ORGANIZATIONAL STRUCTURE
    The pattern of the relationships among the members of a company is depicted in its
    organizational structure. A company's organizational structure defines how tasks are to be performed,
    how resources should be utilized, and how relationships among employees should be defined.
    Every organizational structure has its own advantages and disadvantages. Strategic managers
    must thoroughly assess and evaluate the structure that is most appropriate for a company to achieve its
    goal effectively and efficiently. A well-defined organizational structure exhibits an effective flow of
    information, a well-defined control and monitoring system, and a clearly patterned chain of command.

    BUSINESS RESOURCES
    Resources are assets owned or controlled by a company. They can be tangible or intangible assets.
    Examples of tangible assets include land, processing plants, machinery, equipment, and inventory.
    Intangible assets are patents, trademarks, processes, formulas, and computer program. Resources
    also include humans, processes, technologies, knowledge and skills.
    A resource alone, however, does not provide competitive advantage to a company. It must be a
    strategic resource, and a company must have the capabilities to exploit it to gain competitive
    advantage. A resource is considered strategic when the following attributes exist:
    1. It can exploit opportunities.
    2. It is not common among competitors.
    3. It is difficult or costly to imitate or copy
    4. There are no equivalent substitutes.
    When a company does not have the capability or competency to exploit strategic resources,
    competitive advantage can hardly be achieved.

    CONDUCTING AN INTERNAL ENVIRONMENT ANALYSIS


    Conducting an internal environment analysis is more complicated compared to that of an external
    environment scanning for the following reasons:
    1. An external environment analysis uses secondary data, while an internal scanning makes use
    of primary data. Secondary data are readily available from the reports and publications of
    government agencies and other organizations. Hence, gathering data for an external
    environment analysis is not as burdensome compared to that of an internal environment
    analysis.
    2. An internal environment analysis evaluates the five strategic elements comprising the internal
    environment separately, while an external environment analysis simultaneously scans the
    different strategic factors.
    3. An internal environment analysis includes an assessment of a company's competency to
    exploit opportunities and gain competitive advantage.
    Strategic managers adopt either the resource-based approach or the value chain analysis when
    conducting an internal environment analysis. These strategic management tools are discussed in
    Chapter 6

    ANALYZING CORPORATE CULTURE

    One of the best ways to assess corporate culture is to determine the present state of the
    individual or employee, the group or functional unit, and the entirety of a company. This is usually
    determined through one-on-one personal interviews with employees as individuals, team leaders and
    corporate managers, as well as a survey instrument. The analysis of the internal audit will be supported
    by the findings from personal interviews and survey questionnaires. The objective of the analysis is to
    determine how corporate culture affects the formulation and adoption of proposed strategies. The range
    of issues and concerns to be assessed and evaluated vary from business to business.

    To conduct a corporate culture scanning, the following steps are to be performed:


    1. Identify cultural values and core beliefs
    2. Gather information about the employees' perception of company values and beliefs.
    3. Rate company practices, values, and beliefs as perceived by the employees.
    4. Integrate collected information from research and observation.
    5. Describe the company's current culture, whether it can provide competitive advantage or not.
    A template to assess corporate culture is shown in Table 5.1. The details regarding corporate
    culture (Column A) and their elements (Column B) vary among companies. The perception of the
    employees on corporate culture is statistically computed. It is preferable that the data collected shall be
    quantitatively expressed to facilitate analysis and evaluation. They are sourced mainly from employee
    surveys, either through interviews or with the use of questionnaires. These data will be collaborated
    with the available records of a company.

    Table 5.1 Corporate Culture Analysis Matrix

    ANALYZING ORGANIZATIONAL STRUCTURE

    The analysis of an organizational structure starts by evaluating the present organizational


    chart. The chart reflects the arrangement of work groups, flow of communication and reporting, and
    chain of command in a company. The objective of the analysis is to determine the structure that can
    achieve the organizational goals effectively and efficiently. The analysis of an organizational structure is
    easily conducted with the aid of an organizational audit.

    When analyzing an organizational structure, the following steps are to be observed:

    1. Assess the present business model and organizational structure.


    2. Identify problems encountered recently with the present model and structure.
    3. Examine the performance of different functional units.
    4. Define possible measures to improve the structure.
    A business model is an approach adopted by a company about the way it generates money in
    the current business setting. It includes the customers, the products or services, the manner of
    generating money, the measures adopted to sustain competitive advantage, and the manner and
    channel of distributions.

    There are several types of business models that a company may adopt to earn money. Some of
    these models include the following:

    1. Profit pyramid model


    2. Advertising model
    3. Customer solution model
    4. Efficiency model
    5. Entrepreneurial model

    Strategic managers must determine the point in the value chain where the company earns
    money so that the business model will function effectively.

    The different functional areas of a business such as finance, operations, human resources,
    marketing, and research and development must also be critically evaluated to determine the different
    functional resources that must be exploited and identify different strategic issues

    Table 5.2 Organizational Structure Analysis Matrix

    ANALYZING BUSINESS RESOURCES


    A resource must be a strategic factor for a company to gain competitive advantage. The
    resources of a company can be grouped under the following categories:
    1. Financial resources
    2. Human resources
    3. Physical resources
    4. Technological resources
    5. Organizational resources
    The objective of the analysis is to determine which business resources contribute to the
    attainment of competitive advantage with which a company obtains benefits. Competitive advantage
    refers to a company's resources (e.g., valuable, rare, and not imitable) and its capability to obtain
    benefits from them and to overcome competitive forces. When a company has a core competency - it
    has the capability to exploit its resources at different functional levels to achieve competitive advantage.
    Capability refers to the ability of a company to exploit its strategic resources. Competency is the
    integration or coordination of cross-functional capabilities. A company will gain distinctive competency
    when its core competency is superior over that of its rivals.
    The VRIO framework, which was introduced by Jay Barney, an American professor in strategic
    advantage. VRIO stands for value, rareness, imitability, and organization.
    The following steps are undertaken when identifying the core and distinctive competencies of a
    company:
    1. Determine if the company has valuable resources or capabilities.
    2. Scan if competitors have the capabilities to provide what customers consider valuable.
    3. Assess if the company's resources or capabilities can be imitated.
    4. Evaluate if the company is organized to exploit its resources and capture what customers
    consider valuable.
    5. Assess if the company has competitive advantage.
    A team composed of functional managers, division chiefs, and supervisors is formed to
    determine the core and distinctive competencies of a company. The most effective mechanism is
    through a focus group discussion. The data collected from competitive intelligence become the basis
    for evaluating competitors.
    Table 5.3 Business Resources Analysis Matrix

    Once a company identifies its core and distinctive competencies, it can easily identify its
    strengths and weaknesses which are to be analyzed as well. However, only a company’s important
    strengths and weaknesses shall be included in the list. The list shall have a maximum of 10 items.
    Table 5.4 Strengths and Weaknesses Analysis Matrix

    The following steps are to be followed when using the strengths and weaknesses analysis:
    1. Identify the company's strengths and weaknesses.
    2. Gather information and identify the possible reasons for their selections.
    3. Assign a weight that will range from 0.0 to 1.0 to each identified strength and weakness based
    on its importance and urgency to the company. The most important strength or weakness shall
    receive the highest weight of 1.0, and the factor that is not important is designated as 0.0.
    However, the total weight in all instances in Column D shall be equal to 1.0.
    4. Rate how the company's management handles the identified strengths and weaknesses using a
    particular scale. If a 5-point Likert scale is used, 5.0 is outstanding, 4.0 is above average, 3.0 is
    average, 2.0 is below average, and 1.0 is poor.
    5. Determine the weighted score by multiplying the assigned weight (Column D) by the rate given
    (Column E). The total weighted score reflects the internal performance of the company in
    responding to the needs of the industry. The average total score is 3.0 when using the 5-point
    Likert scale. When the weighted score is relatively higher than 3.0, it means the company is
    above average in terms of the strengths and weaknesses of the competitors in the industry.
    6. Clearly define the company's strengths and weaknesses status. The strength/weakness index is
    above average when the total weighted score is above 3.0, meaning the company is responding
    favorably to the challenges of the external environment by effectively utilizing its strength in
    exploiting its resources.

    The first three strengths and weaknesses can be classified as the company's strategic factors
    and will be used when making a SWOT analysis.

    DEFINE A COMPANY'S CURRENT PROFITABILITY


    The last stage in the evaluation of a company's internal environment is to define its present status in
    terms of profitability and market share performance. The profitability performance issue does not only
    consider whether a company is gaining or losing but also evaluates the level of profitability in terms of
    the level of investment, investments realized by competitors, and the industry average.
    Strategic managers also assess the ability of a company to sustain its profitability performance by
    evaluating the different factors that contribute to the realization of profit. One important factor that
    strategic managers must define is the current market share of a company compared to that of its
    competitors. It is very important for a company to define its current profitability and market share
    performance as a basis for strategy formulation in order to gain competitive advantage.

    You might also like