Chapter 8 Internal Analysis

Question 1

What is STRATEGIC CAPABILITY?

Answer 1

‘Strategic capability reflects the ability of an entity to use and exploit resources available to it, through competences developed in activities and processes it performs, the ways in which these activities are linked internally & externally, and overall balance of core competences across entity
 It can also be described as the ability of an organisation to use its core competences to create competitive advantage.
 Competitive advantage comes from successful management of resources, competences and capabilities.

Question 2

What are custome needs?

Answer 2

 Better-quality product
 Better design features
 Availability
 Convenience of purchase
 Right Price

Question 3

Identify tthree broad categories of customers?

Answer 3

Customers may be grouped into 3 broad types:
 Consumers: these buy products and services for their personal benefit or use
 Industrial and commercial customers: customers might include other business entities
 Government organisations and agencies.

Question 4

what is Difference between a Customer & Consumer?

Answer 4

 A customer Purchases and pays for a product or service
 A consumer Ultimate user of the product or service;
Consumer may not have paid for the product or service

Question 5

Write 4Ps of Marketing mix?

Answer 5

 Product refers to the design features of the product, and the product quality. Features such as short lead time for delivery and reliable delivery could also be important.
 Price is the selling price for the product
 Place refers to the way in which the customer obtains the product or service, or the ‘channel of distribution’.
 Promotion refers to the way in which product is advertised and promoted.

Question 6

What is the definition of a critical success factor?

Answer 6

 Critical success factors (CSFs) are factors that are critical to the success of an organisation and the achievement of its overall objectives.
 They have been defined as: ‘those components of strategy in which the organisation must excel to out-perform competition’ (Johnson and Scholes).
 CSFs of a product or service must be related to customer needs.
 They are features of a product or service that will have main influence on buying decisions

Question 7

When CSFs should be identified?

Answer 7

 CSFs should be identified during the process of assessing strategic position.
(Need to understand the main reasons why particular products or services are successful)

Question 8

What is importance of CSFs?

Answer 8

 CSFs are important in the process of making strategic choices.
(Should select strategies that will enable it to achieve a competitive advantage)
 CSFs are also important for strategy implementation.
(Performance targets should be set for each CSF)

Question 9

What is KPIs?

Answer 9

 Measured targets for CSFs are called key performance indicators (KPIs).

Question 10

About 6-step approach to using CSFs (Johnson and Scholes), define step 1 .

Answer 10

Step 1
Identify the success factors that are critical for profitability. These might include ‘low selling price’, and also aspects of service and quality such as ‘prompt delivery after receipt of orders’.

Question 11

About 6-step approach to using CSFs (Johnson and Scholes), define step 2.

Answer 11

Step 2
Identify what is necessary (‘critical competencies’) in order to achieve superior performance in the CSFs. This means identifying what the entity must do to achieve success. For example:
- If CSF is ‘low sales price’, a critical competence might be ‘strict control over costs’.
- If a CSF is ‘low level of sales returns’, a critical competence might be ‘zero defects

Question 12

About 6-step approach to using CSFs (Johnson and Scholes), define step 3.

Answer 12

Step 3
The entity should develop the level of critical competence so that it acquires the ability to gain a competitive advantage in the CSF

Question 13

About 6-step approach to using CSFs (Johnson and Scholes), define step 4.

Answer 13

Step 4
Identify appropriate KPIs for each critical competence.

Question 14

About 6-step approach to using CSFs (Johnson and Scholes), define step 5.

Answer 14

Step 5
Give emphasis to developing critical competencies for each aspect of performance, so that competitors will find it difficult to achieve a matching level of competence.

Question 15

About 6-step approach to using CSFs (Johnson and Scholes), define step 6.

Answer 15

Step 6
Monitor firm’s achievement of its target KPIs, and also monitor performance of competitors.

Question 16

What is Benchmarking?

Answer 16

 Benchmarking is a process of comparing your own performance against the performance of someone else, preferably the performance of ‘the best’.
 To identify differences between your performance and selected benchmark.
 Where these differences are significant, methods of closing the gap and raising performance can be considered.

Question 17

What is Internal
benchmarking?

Answer 17

• Compare the performance of units within entity with best-performing unit.
• E.g. an organisation with 30 branch offices might compare the performance of 29 of the branches with the best-performing branch

Question 18

WHat is Operational
benchmarking?

Answer 18

• Compare performance of a particular operation with the performance of a similar operation in a different business entity in a different industry.
• E.g., a publishing company might compare its order handling, warehousing & dispatch systems with similar systems of company in cloth manufacturing

Question 19

What is Customer
benchmarking?

Answer 19

• The benchmark is a specification of what customers expect.
• An entity compares its performance against what its customers expect

Question 19

What is Competitive
benchmarking?

Answer 19

• Compare own performance and its own products with those of its most successful competitors.

Question 20

What are Methods of competitor benchmarking?

Answer 20

 Published financial statements of competitors should be studied.
 Financial ratios obtained from the financial statements of competitor should be compared with similar ratios for the company.
 Where there are significant differences in performance, the possible reasons for differences should be considered.
 The products or services of competitors should be analysed in detail.
 By talking to customers and potential customers who have had dealings with a competitor, and who are willing to discuss what the competitor is offering
 Sales prices should be compared. Competitor analysis should also include an assessment of the CSF of all firms in the market.

Question 21

What is Definition of value?

Answer 21

 Value relates to the benefit that a customer obtains from a product or service.
 Customers are willing to pay money because of the benefits they receive.
 Business entities create added value when they make goods and provide services. (e.g buying leather at Rs 1,000 and selling leather belt at Rs 5,000 creates a value of 4,000)
 Most successful business entities are those that are most successful in creating value.
 Customer should be willing to pay a higher price if he sees additional value in that product
- This extra value might be real or perceived.
(e.g. presumption of a good quality in a well-known brand name)
- The extra value might relate to the quality or design features of the product.
- Sometimes extra value can come from convenience of getting that immediately

Question 22

What is Value chain?

Answer 22

The concept of the value chain by Porter
A value chain refers to inter-connected activities that create value. Activities within an organisation can be analysed into different categories. The total value added by the entity is the sum of the value created by each stage along the chain

Question 23

What is a primary value chain according to Porter?

Answer 23

Porter identified the chain of activities in the primary value chain as follows
1.Inbound logistics
2.Operations
3.Outbound logistics
4.Marketing and sales
5.Service

Question 24

In Primary Value Chain, define
1.Inbound logistics

Answer 24

These are the activities concerned with receiving and handling purchased materials and components and storing them until needed.
In a manufacturing company, inbound logistics therefore include activities such as materials handling, transport from suppliers and inventory management and inventory control

Question 25

In Primary Value Chain, define
2.Operations

Answer 25

These are the activities concerned with converting the purchased materials into an item that customers will buy.
In a manufacturing company, operations might include machining, assembly, packing, testing and equipment maintenance

Question 26

In Primary Value Chain, define
3.Outbound logistics

Answer 26

These are activities concerned with the storage of finished goods before sale and the distribution and delivery of goods (or services) to the customers.
For services, outbound logistics relate to the delivery of a service at the customer’s own premises

Question 27

In Primary Value Chain, define
4.Marketing and sales

Answer 27

Marketing involves identifying, informing and attracting customers within the target market(s) in which an organisation competes.
Marketing involves coordinating the 4 P’s of the marketing mix (discussed in detail elsewhere) in order to satisfy customer needs.
‘Sales’ describes the transactional process of customers placing orders for goods or services and organisations fulfilling those orders.

Question 28

In Primary Value Chain, define
5.Service

Answer 28

These are all the activities that occur after the point of sale, such as installation, warranties, repairs and maintenance, providing training to the employees of customers and after-sales service.

Question 29

Does the concept of primay value chain is valid for all type of business activities?

Answer 29

The nature of the activities in the value chain varies from one industry to another and there are also differences between the value chain of manufacturers, retailers and other service industries.
However, the concept of the primary value chain is valid for all types of business entity.

Question 30

What is a secondary value chain according to Porter?

Answer 30

In addition to the primary value chain activities, there are also secondary activities or support activities. Porter
identified these as:
1.Procurement
2.Technology development
3.Human resources management
4.Corporate infrastructure

Question 31

Under secondary value chain activities , define
1.Procurement

Answer 31

These are activities concerned with buying the resources for the entity – materials, plant,equipment and other assets.

Question 32

Under secondary value chain activities , define
2.Technology development

Answer 32

These are activities related to any development in the technological systems of the entity, such as product design (research and development) and IT systems.
Technology development is an important activity for innovation.
‘Technology’ also includes acquired knowledge: in this sense all activities have some technology content, even if this is just acquired knowledge.

Question 33

Under secondary value chain activities , define
3.Human resources management

Answer 33

These are the activities concerned with recruiting, training, developing and rewarding people in the organisation.

Question 34

Under secondary value chain activities , define
4.Corporate infrastructure

Answer 34

This relates to the organisation structure and its management systems,
including planning and finance management, quality management and information systems management.

Question 35

who should look for adding value ?

Answer 35

 Management should look for ways of adding value at each stage in primary value chain.
 Management should also consider ways in which support activities can add more value.

Question 36

What are methods of adding value ?

Answer 36

 Alter a product design, and include features that might meet the needs more better
 Making it easier for the customer to buy a product (e.g.providing a website for orders)
 Promoting a brand name. (giving a sense of better quality)
 Delivering a service or product more quickly.
 Providing a reliable service at the promised time

Question 37

What happens by adding value ?

Answer 37

 By adding value, a firm will improve its profitability, by reducing costs or improving sales.
 Customer would also get a better-quality product or a lower selling price.
 The benefits can be re-invested to create more competitive advantage in the future.

Question 38

What is a resource ?

Answer 38

 A resource is any asset, process, skill or item of knowledge that is controlled by the entity.

Question 39

What are 4 groups of resource?

Answer 39

• Human resources [Leaders, managers and other employees of an entity]
• Physical resources. [Tangible assets of an entity]
• Financial resources. [Financial assets and ability to acquire additional finance]
• Intellectual capital. [Patents, trademarks, brand names acquired knowledge etc]

Question 40

What are threshold resources?

Answer 40

 Resources that an entity needs in order to participate in industry and compete in market.
 Without threshold resources, an entity cannot survive in its industry and markets.

Question 41

What are Unique resources?

Answer 41

 Controlled by entity that competitors do not have and would have difficulty in acquiring.
 It might be obtained from:
- Ownership of scarce raw materials (e.g. ownership of exploration rights or mines)
- Location (e.g. a hydroelectric power generating company located near large waterfall)
- A special privilege (e.g. ownership of patents or a unique franchise)

 Unique resources can be a source of competitive advantage, but can change over time e.g.:
- Exceptionally talented employees might be approached by competitors
- Competitors might find an alternative method of making a similar product

Question 42

What are Competences?

Answer 42

 Competences are activities or processes in which an entity uses its resources.
 They are created by bringing resources together and using them effectively.
 A competence can be defined as an ability to do something well.

Question 43

What are Threshold competencies?

Answer 43

 Activities, processes and abilities that provide an entity with the capability to provide a product or service with features that are sufficient to meet customer needs
 These are minimum capabilities needed to compete in a given market
- The areas where the entity has the same level of competence as its competitors, or
- These are easy to imitate (copy).

Question 44

What are Core competencies?

Answer 44

 Activities, processes and abilities that give the entity a capability of meeting CSF, and achieving competitive advantage.
 These are ways in which an entity uses its resources effectively, better than its competitors,
and in ways that competitors cannot imitate or obtain.
 A competence which is not exceptional in some way is not considered as core competence

Question 45

What are Sustainable core competences?

Answer 45

 Competitive advantage is provided by sustainable core competences.
 These are core competences that can be sustained over a fairly long period of time
 Sustainable competences should be durable and/or difficult to imitate.

Question 46

Define relationship between Core competences and the selection of markets

Answer 46

 A core competence gives a business entity a competitive advantage in a particular market.
 Core competence can be extended to other markets and other industries as well
 An entity should look for opportunities to expand into other markets where it sees an opportunity to exploit its core competences.

Question 47

What is Competitive advantage?

Answer 47

Competitive advantage is any advantage that an entity gains over its competitors, that enables it to deliver more value to customers than its competitors. It is essential for sustained strategic success.

Question 48

What are Capabilities?

Answer 48

 Capabilities are the ability to do something.
 An entity should have capabilities for gaining competitive advantage.
 These come from using and co-ordinating the resources and competences of the entity
 Each business entity should have capabilities that rivals cannot copy exactly.

Question 49

What are Dynamic capabilities?

Answer 49

 Business entities operate in a continually-changing environment.
 Dynamic capabilities is term used to describe ability of an entity to create new capabilities by adapting to its changing business environment, and:
- Renewing its resource base
- Developing new and improved core competences.
 Dynamic capabilities are abilities to create, extend and modify ways in which an entity operates and uses its resources in response to changes in the business environment.
 Dynamic capabilities refer to the ability of an entity to recognise the need for change and the opportunities for innovation, through new products, processes and services.

Question 50

Write about Cost efficiency and strategic capability?

Answer 50

 Cost efficiency (for an accountant) means minimising costs through control over spending and the efficient use of resources.
 Company must achieve a certain level of cost efficiency to be able to compete and survive
 In strategic management, cost efficiency refers to the ability not only to minimise costs in
current conditions, but to continually reduce costs over time.
 Cost efficiency has been described as a ‘threshold strategic capability’.
 A cost efficiency capability is the result of both:
- Making better use of resources or obtaining lower-cost resources, and
- Improving competencies and capabilities

Question 51

Name Ways of achieving cost efficiency?

Answer 51

 Economies of scale
- Ways in which average costs of production can be reduced by producing or operating at a higher volume of output.
- Fixed costs is spreaded over a larger volume of output units
- Large entities can make use of economies of scale.
- Therefore businesses are very keen on continuous growth
 Economies of scope
- In some industries, cost reductions might be achieved by making 2 or more products
- Entity achieves lower costs per unit than competitors who produce only 1 product
Cost efficiency can become a strategic capability, which will give the organisation competitive advantage, for example by achieving ‘cost leadership’

Question 52

Write about Corporate knowledge and strategic capability

Answer 52

 Corporate knowledge is knowledge and ‘know-how’ that is acquired by entity as a whole.
 It is created through the interaction between technologies, techniques and people.
 Knowledge gives a company a competitive advantage.
 It cannot be easily replicated by a competitor (i.e. something unique)
 A capability in knowledge management comes from a combination of unique resources and
core competences:
- Experience in an industry or market, and acquiring knowledge through experience
- Knowledge that employees have or acquire through training
- Management of people, and success in encouraging creativity and new ideas
- Technology, which makes it possible to store and communicate knowledge
- Management of IS/IT systems.
- Information analysis techniques.

Question 52

What are techniques to assess resources and competences?

Answer 52

There are several techniques that might be used to assess resources and competences:
 Value chain analysis.
 Capability profile of the entity
 Resource audit.
 SWOT analysis.