Internal Analysis and SWOT Analysis

Internal Analysis and SWOT Analysis
Note: Throughout this course, it is recommended that you complete the SLP before you undertake the case analysis. Before you begin the SLP, you need to read the background materials (Attached: SLP03 Background Material.doc) thoroughly.
The background material discussed the process and utility of conducting an internal analysis - particularly with regard to it providing support for the identification of strengths and weaknesses in connection with a SWOT analysis. Two different tools of methods were discussed: The Value Chain Analysis and the Resource Based View.
In this SLP, you will be researching sources of information required to complete a an RBV analysis. This is similar to the exercise in the last module, where you learned where to go to find information about an industry's external environment. We will complete this exercise in steps, and in the end, you should have a list of potential resources ready to use when you conduct your internal analysis in this module's case.
Step One: RBV is based on the concept of the creation of economic rent though distinctive capabilities. Thus, the first step is to find a way to value a firm's economic rent or Economic Value Added (EVA). A firm's EVA is the amount of capital it generates above and beyond the cost of doing business. Find out how EVA is measured and how you can determine a company's economic rent.
According to RBV, a firm's competitive advantage is driven by its ability to manage its unique capabilities and resources to achieve above average returns.
Step Two: Resources are the inputs into a production process. They can be capital, equipment, patents, skill sets of individual employees and/or managers, financial resources, etc. Resources can be tangible or intangible. Individually, they may not necessarily lead to a competitive advantage, it is how they are used and the synergies they create that make them strategically valuable. Research web and library sources that would give you data on a company's unique resources. Find a minimum of 2 different sources for data and information concerning the following:
Tangible Resources
1. Physical Resources
2. Financial Resources
3. Human Resources
Intangible Resources
1. Technical Resources
2. Intellectual Resources
3. Goodwill
Step Three: Distinctive capabilities are those competencies possessed by a firm that cannot be copied or copied only with great difficulty. Research web and library sources that would give you data on a company's unique resources. Find a minimum of 2 different sources for data and information concerning the following:
1. Architecture
2. Reputation
3. Innovation
Step Four: In a 2 page paper (not including cover page or references), list your resources from steps 1-3 above. For each source, provide a brief paragraph explaining what information is available, how it would be useful in an internal analysis, and critiquing the source (for example, What are the limitations of the source? Is one better than the other? Why?)
SLP Expectations:
You may be concise in your presentation of this SLP. It does not have to follow the conventions of a written case paper. Tables or bulleted lists may help you present the information concisely and make it easy for the reader to quickly grasp the information. Give the full title of the resource and a URL if applicable as you list them. Be sure to provide complete references for each source on a separate reference page.

One of the criticisms of Porter's 5-Forces model and an external analysis in general, is that it can help identify what problems or difficulties firms are likely to encounter in a given industry, but it gives no insight into what a particular company can do to manipulate those forces in their favor and thus gain a competitive advantage.
In this module, we will focus on analysis of the Internal Environment, or the company itself. This is sometimes referred to as the "company profile."
Two useful frameworks that help us focus on the essential factors for analysis of the internal environment are Porter's Value Chain and the Resource Based View framework (RBV).
After conducting an analysis of an organizations internal environment, you will be in a position to complete the last two elements of the SWOT analysis, identification of the strengths and weaknesses of a company.
Internal Analysis Components
Before we introduce the analytical models we will be using in this module, some background information is helpful.
A company has (A) primary activities and (B) support activities.
The primary activities are:
• Research and Development (R&D),
• Production (manufacturing),
• Marketing and Sales,
• Customer Service
The Support activities are:
• Company Infrastructure,
• Human Resources,
• Materials Management, and
• Infrastructure.
A. Primary Activities
• Research and Development includes development and design of products, and of production processes. Many manufacturing companies have separate R&D departments, and for highly innovative companies this may be one of the most important departments in the organization (for example, see 3-M). Some service companies may include R&D activities as a part of marketing or customer service. For instance, banks introduce new products to attract customers.
• Production is in charge of creating goods or services. Some companies manufacture products. Banks make loans. Retail companies sell products. These are instances of production.
• The Marketing and Sales department plays several roles. It advertises and positions the brand, it identifies marketing needs, it sets pricing.
• Service provides after sale service.
B. Support Activities
• Materials Management manages the logistics of moving materials from procurement of inputs to production and then moving outputs through distribution to customers. Inventory management is part of it.
• Human Resources focuses on employing the necessary skills mix to carry out the organization's mission, and to motivate, train, and compensate the workforce.
• Information Systems refers to computer support in processing functions and supporting company operations , as well as Internet.
• Infrastructure: organizational structure, controls, and culture. The infrastructure must be capable of supporting the primary activities of the organization and be compatible with its strategy.
Power Point Presentation
Please go to Dr. Connelley's presentation. For part two of the narrated slide presentation on strategic situation analysis, click on the title below. This slide presentation focuses on the importance of optimizing the internal functions of an organization in order to create added value to the firm's products or services: Strategy for the Internal Environment (Attached: Strategy for the internal environment.ppt)
Porter's Value Chain
Porter's value chain is a widely used framework for organizing and interpreting an internal analysis. It is pictured below and discussed in the previously powerpoint presentation. You can see that it considers both primary and support activities, though it may use slightly different labels and definitions. By managing the various components of the value chain, companies can achieve a cost advantage over competitors, or distinguish themselves from competitors by offering a distinctively better product or service. Read more about Value chain analysis at:
n.a. (2007) The Value Chain. NetMBA. Retrieved from http://www.netmba.com/strategy/value-chain/

While the value chain can be a very valuable tool for breaking down and streamlining costs and creating maximum value, it is a very complicated process that typically involves considerable quantitative analysis. Refer back to the reading for Module 2 for a look at the types of financial ratios are used to determine the value of various components of the chain.
Comeford, R., & Callaghan, D. Environmental, industry, and internal analysis. Retrieved from University of Rhode Island. Web site: http://www.cba.uri.edu/Faculty/Comerford/Text/Chapter2.html
The Resource Based View
The resource based view arose directly in response to the criticism mentioned at the start of this page, that the external analysis is much less useful to a company seeking to attain a competitive advantage than its internal capabilities and resources.
"Instead of focusing on the accumulation of resources necessary to implement the strategy dictated by conditions and constraints in the external environment (I/O model), the resource-based view suggests that a firm's unique resources and capabilities provide the basis for a strategy. The business strategy chosen should allow the firm to best exploit its core competencies relative to opportunities in the external environment."
Source: "Strategic Management - Competitiveness and Globalization", M.A. Hint, R.D. Ireland, R.E. Hoskisson
Central to this analytical view is that a firm's core competencies and resources are MORE critical to the development of a strategy than the external environment. In reality, the truth probably lies somewere in between, with a balance between external demands and internal capacities leading to the most successful competitive position. This is the essence of a SWOT analysis, and RBV can certainly inform an analysis of strengths and weaknesses.
For an excellent review of the basics of the Resource Based View, read the following chapter:
Henry, A. (2007). The Internal Environment: A Resource Based View of Strategy. Understanding Strategic Managment. Oxford University Press. Retrieved from http://www.oup.com/uk/orc/bin/9780199288304/henry_ch05.pdf
Required Readings:
Connelley, D. Strategy for the internal environment. Power Point presentation. (Attached: Strategy for the internal environment.ppt)
Comeford, R., & Callaghan, D. Environmental, industry, and internal analysis. Retrieved May 16, 2009 from University of Rhode Island. Web site:http://www.cba.uri.edu/Faculty/Comerford/Text/Chapter2.html
Henry, A. (2007). The Internal Environment: A Resource Based View of Strategy. Understanding Strategic Managment. Oxford University Press. Retrieved from http://www.oup.com/uk/orc/bin/9780199288304/henry_ch05.pdf
n.a. (2007) The Value Chain. NetMBA. Retrieved from http://www.netmba.com/strategy/value-chain/
Case Readings:
SWOT analysis: Lesson. (2009). Retrieved from Marketing Teacher. Web site: http://marketingteacher.com/Lessons/lesson_swot.htm
Zahorsky, D. (2009). A business owner's secret weapon: SWOT analysis. Retrieved from About.com: Small Business Information. Web site: http://sbinformation.about.com/cs/bestpractices/a/swot.htm