Internal analysis

Question 1

SWOT ANALYSIS:

Answer 1

If you are required to use SWOT analysis in your examination, you may be required to analyse
opportunities and threats as well as strengths and weaknesses in the strategic position. Strengths
and weaknesses are concerned with the internal capabilities and core competencies of an entity.
Threats and opportunities are concerned with external factors and developments in the
environment.
A SWOT analysis might be presented as four lists. Following is an example of SWOT analysis of a
small company producing pharmaceuticals.

Question 2

Strength

Answer 2

• extensive research knowledge
• highly skilled scientists in the workforce
• high investment in advanced equipment
• patents on six products high profit margins

Question 3

opportunities

Answer 3

• strong growth in total market demand

* new scientific discoveries have not yet been fully exploited

Question 4

weakness

Answer 4

• slow progress with research projects
• poor record of converting research projects into new product developement
• recent increase in labour turnover

Question 5

threats

Answer 5

• recent merger of two major competitors

* risk of stricter regulation of new products

Question 6

COMPETITOR BENCHMARKING:

Answer 6

“Benchmarking is a process of comparing your own performance against the performance of
someone else”.
The purpose of benchmarking is to identify differences, and closing the gap (i.e. improve
performance)

Question 7

Methods of benchmarking:

Answer 7

1. Internal benchmarking
   An entity might compare its operations of one unit, with operations of other unit in the
   same entity.
2. Operational benchmarking
   An entity might compare its operations with another entity in another industry.
3. Competitive benchmarking
   An entity might compare its performance with its competitors. Competitive benchmarking
   is done without knowledge and cooperation of selected benchmark.
4. Customer benchmarking
   An entity compares its performance against what its customers expect.

Question 8

How to conduct Competitive Benchmarking:

Answer 8

 Study published financial statements. Segment analysis in financial statements may show
performance of competitor in each segment.
 Ratio analysis (e.g. GP ratio, Return on Capital Employed, Growth in Sales)
 Perform detail analysis of product/service of competitor by using it or analyzing in
labortary.
 Talk to customers

Question 9

resources audit

Answer 9

refer notes

Question 10

Customer Needs:

Answer 10

There are various types of customers in any industry, and their needs vary.
Customers can be grouped into various types e.g.
 Industrial
 Consumers
 Govt.
Needs of customers may vary. Their buying decision depends on:
 Price
 Quality
 Availability i.e. delivering a product/service more quickly and reliably on/before time.
 Convenience i.e. making it easier for customer to buy product e.g. online.
 Advertisement i.e. promoting a brand name.

Question 11

Marketing Mix:

Answer 11

Keeping in view type of customers and their needs, marketing-mix strategy (i.e. 4Ps strategy) is
developed which includes:
1. Product refers to the design, features and quality of the product.
2. Price is the selling price for the product.
3. Place refers to the way in which the customer obtains the product or service, or the
‘channel of distribution’.
4. Promotion refers to the way in which product is advertised and promoted.

Question 12

CRITICAL SUCCESS FACTORS (CSF)

Answer 12

‘Those few key areas of activity in which the organisation must excel to achieve its goals’
CSF may be:
 For A Business, or
 For A Product/Service
CSF for a produce/service must be related to customer need

Question 13

Relationships b/w Critical Success Factors (CSF) and Key Performance Indicators (KPIs)

Answer 13

Key performance indicators (KPIs) are the way to measure whether the CSFs are working.
Remember that what cannot be measured cannot be managed

Question 14

Example: A restaurant
Goal: Increase profit by 10% by January next year without compromising on quality.

Answer 14

refer notes

Question 15

How to use CSF to gain competitive advantage:

Answer 15

There are six steps:

1. Identify Critical Success Factors (CSF).
2. Identify ‘competence’ which is necessary to achieve superior performance in CSF.
3. Develop competence.
4. Identify KPI for each competence.
5. Consolidate your competencies to make it difficult for competitors to copy.
6. Monitor achievement of targets and KPIs.

Question 16

Value Chain Diagram:

Answer 16

refer notes

Question 17

Achieving Competitive Advantage by Porter:

Answer 17

Porter says that competitive advantage can be achieved either by:
 Reducing Costs (by having Cost Leadership), or
 Adding Value (by having Differentiation)

Question 18

Reducing Cost:

Answer 18

cost efficiency can be achieved by either of following ways:

1. Economies of Scale: Reduction in cost due to production at a higher level of output
2. Economies of Scope: Reduction in cost due to production of two or more products.

Question 19

Adding Value

Answer 19

Porter has provided a framework (called Value Chain Analysis) to analyze how value can be added to a product or service.
 Value chain describes the categories of activities within an organization which, together, create a product or service.
 Value Chain Analysis evaluates each of the activities in a company’s value chain to understand where opportunities for improvement lie.

Question 20

Value Chain Explanation:

Answer 20

Porter classified all activities of a firm’s value chain into two categories that contribute to its margin/profit i.e. Primary activities and Support activities.

Question 21

Primary activities

Answer 21

Primary activities are those that go directly into the creation of a product:
1. Inbound logistics: Activities related to receiving, warehousing, and inventory management
of source materials and components
2. Operations: Activities related to turning raw materials and components into a finished
product
3. Outbound logistics: Activities related to distribution, including packaging, sorting, and
shipping
4. Marketing and sales: Activities related to the marketing and sale of a product or service,
including promotion, advertising, and pricing strategy.
5. After-sales services: Activities that take place after a sale has been finalized, including
installation, training, quality assurance, repair, and customer service

Question 22

Secondary activities

Answer 22

Secondary activities help primary activities become more efficient—effectively creating a competitive advantage. These are:
1. Procurement: Activities related to buying of raw materials, components, equipment, and services
2. Technological development: Activities related to research and development, including product design, market research, and process development
3. Human resources management: Activities related to the recruitment, hiring, training,development, retention, and compensation of employees
4. Infrastructure: Activities related to the company’s overhead and management, including financing and planning.
Nature of activities may be different from one industry to another industry. However, concept of chain analysis is valid for all types of industries.

Question 23

Competitive advantage:

Answer 23

Competitive advantage is the ability of an organization to generate greater returns than those of competitors over the long term

Question 24

Resource-based view (RBV) Strategy:

Answer 24

Resource-based view (RBV) Strategy states that organization should focus on internally. An
organization should focus on its Strategic Capability i.e. its internal Resources and Competence.

Question 25

Strategic capability:

Answer 25

Strategic capability is the ability of a company to survive and grow.
Strategic capability can also be divided into:
 threshold capabilities (i.e. ability to survive)
 capabilities for competitive advantage. (i.e. ability to grow

Question 26

Threshold Capability

Answer 26

Threshold Capability is based on:
 Threshold Resources and
 Threshold Competence

Question 27

Competitive Advantage

Answer 27

Competitive Advantage Capability is based on:
 Unique resources and
 Core competences

Question 28

Dynamic Capability

Answer 28

Dynamic Capability is a firm’s ability to build or reconfigure its competencies to address rapid changes in
environment.

Question 29

Resources:

Answer 29

Firm’s assets that the firm controls and utilises. They are therefore inputs to processes/activities.
Examples of resources include:
 Tangible/Physical:
o Products, machinery, equipment, capital, infrastructure, etc.
o They can be easily acquired by competitors and offer a less competitive advantage
in the long run.
 Intangible/Intellectual:
o Brand presence, intellectual property, goodwill, trademarks, etc.
o They cannot be easily acquired by competitors, and are the primary source of
sustainable competitive advantage.
 Human Resources
 Financial Resources
These resources can be either:
 Threshold Resources i.e. those which are needed to meet customers’ minimum
requirements, or
 Unique Resources i.e. Unique resources are those resources that create competitive
advantage. These distinguish firm from its competitors.

Question 30

VRIO Framework:

Answer 30

VRIO analysis helps a company to identify unique resources which gives it Sustainable Competitive
Advantage.
It states that Resources with following characteristics give Competitive Advantages:
 Value i.e. resource must add value for customers.
 Rarity i.e. resource must be limited to you, out of reach of competitors.
 Imitability i.e. competitors cannot find its substitute.
 Organization i.e. company has organized system to utilize this resource.

Question 31

Competence:

Answer 31

Competence means Activities, Process and Methods through which an organization uses its
resources effectively.
These competence can be either:
 Threshold Competence i.e. those activities, process, methods which are essentials for a
product. These are imitated by every competitor.
 Core Competence i.e. those activities, process, methods which differentiate company from
its competitors, and cannot be imitated by competitors. These make a company able to
achieve Critical Success Factors, and thus competitive advantage.
Competence with VRIO characteristics give Competitive Advantages