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Dynamics of Internal

Environment

Development of Strategic Advantage by an organization

Strategic
Advantage
Organizational
Capability
Competenci
es
Synergistic
effects
Strengths and
Weaknesses
Organizational resources
Organizational Behaviour

Organizational Resources
Tangible

Plant &
equipment
Technology
Geographic
location
Human
Resources
Access to raw

Intangible
Capabilities
Information,
Knowledge
Processes
Training
Experience
Relationships

Four Characteristics for


Strategic Advantage
Organizational Resources
Advantage
Valuable
Rare
Costly to imitate
Non Substitutable

Strategic

Organizational Behaviour
Forces affecting organizational
behaviour
Quality of leadership
Management philosophy
Shared values and culture
Quality of work environment
Organizational climate
Organizational politics
Use of power

Synergy
Price

Product

Distributio
n
Promotion

Marketin
g
Synergy

Marketing
Inefficienc
y

Production
Inefficiency

Dysergy/
Negative
Synergy

Organizational Competencies

Competencies Special qualities possessed


by an organization that make them
withstand pressures of competition in the
marketplace.
Core competencies When an organization
uses its competencies exceedingly well they
become core competencies
Distinctive competencies Any advantage a
company has over its competitors because
it can do something which they cannot or it
can do something better than they can

Organizational Capability
The inherent capacity or potential of
an organization to use its strengths
and overcome its weaknesses in
order to exploit opportunities and
face threats in its external
environment
Potential
Capacity

Organizational Capability leads to


Strategic advantage or competitive
advantage
Organizational Capability Factors
strategic strengths and weaknesses
existing in different functional areas
within an organization

Organizational Capability Factors


1.
2.
3.
4.
5.
6.

Financial Capability
Marketing Capability
Operations Capability
Personnel Capability
Information management Capability
General Management Capability

Financial Capability
Factors related to
Sources of funds
Uses of funds
Management of funds

Marketing Capability

Product related
Price related
Place related
Promotion related
Integrative and system related
marketing mix, market standing,
marketing system, etc

Operations Capability
Factors related to
Production system
Operations and control system
R&D

Personnel Capability
Factors related to
Personnel system
Organization and employee
characteristics
Industrial relations

Information Management
System
Factors related to
Acquisition and retention of
information
Processing and synthesis of
information
Transmission and dissemination of
information
Integrative, systemic and supportive
factors

General Management
Capability
Factors related to
General management system
General managers
External relationships
Organizational climate

Industry
An industry is a group of firms that
market products which are close
substitutes for each other (e.g. the
car industry, the travel industry).
The most influential analytical model
for assessing the nature of
competition in an industry is Michael
Porter's Five Forces Model

Threat of New Entrants


New entrants to an industry can raise the level of
competition, thereby reducing its attractiveness.
The threat of new entrants largely depends on the
barriers to entry. High entry barriers exist in some
industries (e.g. shipbuilding) whereas other
industries are very easy to enter (e.g. estate agency,
restaurants).
Key barriers to entry include
- Economies of scale
- Capital / investment requirements
- Customer switching costs
- Access to industry distribution channels
- Product differentiation
- Government policies

Threat of Substitutes
Substitutes are products or services that seem
to be different but satisfy the same set of
customer needs.
The presence of substitute products can lower
industry attractiveness and profitability
because they limit price levels. The threat of
substitute products depends on:
- Buyers' willingness to substitute
- The relative price and performance of
substitutes
- The costs of switching to substitutes

Bargaining Power of Suppliers


Suppliers are the businesses that supply materials & other
products into the industry.
The cost of items bought from suppliers (e.g. raw materials,
components) can have a significant impact on a company's
profitability. If suppliers have high bargaining power over a
company, then in theory the company's industry is less
attractive. The bargaining power of suppliers will be high when:
When suppliers are few and buyers are many
When products or services are unique and are not commonly available
When substitutes are not freely available
When switching costs of a supplier from one buyer to another is low
When supplier is not critically dependant on the product or service
supplied
When buyer buys in small quantities and is not important to the
supplier

Bargaining Power of Buyers


Buyers are the people / organisations who create
demand in an industry
The bargaining power of buyers is greater when
When buyers are few in number
When buyers place large orders
When alternative suppliers are present and are willing to
supply at lower price
When switching costs of buyers is low
When purchased product constitutes a high percentage of
buyers cost making it look around for lower priced supplies
When buyer has the ability to integrate backwards and
create its own supply source

Intensity of Rivalry
The intensity of rivalry between competitors in an industry will
depend on:
The structure of competition
Fragmented- many small or equally sized competitors no differentiation of
products- commodities- fierce competition
Consolidated - clear market leader
Diversity- greater differentiation among firms

Demand Conditions
High demand moderate competition
Stagnant demand competition for market share
Declining demand- low competition- maintain market share

Exit barriers - when barriers to leaving an industry are high (e.g.


the cost of closing down factories) - then competitors tend to
exhibit greater rivalry.
Economic high investment commitment
Strategic- interlinkages between different resources- own supplier or
buyer
Emotional- Sentimental attachment- ancestral business- loyalty to
employees or distributors

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