Internal Environment - Introduction to International Business and Management

The Internal Environment

Analysis of the Internal Environment

Internal analysis is a process of identifying and evaluating an organizations specific characteristics

• analyzing resources available in the business

• analyzing competencies and capabilities (available and needed)

• analyzing internal activities

• analyzing financial performance

• analyzing performance of functional areas - HR, marketing

• conducting quality and service level reviews/audits

• analyzing the range and appropriateness of products/services

Theories of Organization and Management

The Classical Approach: dates back to the early 20th century and looks at the work of Taylor, Fayol, Urwick and Brech

• These theories look mainly at a ‘Scientific Management’ ‘Bureaucracy’ and structural approach

The Human Relation Approach: This approach emphasizes the importance of people in the work environment and the influence of social and psychological factors in shaping organizational behavior

• This takes into account hierarchy of needs: Maslows Hierarchy of Needs

Maslows Hierarchy of Needs

Physiological needs, these are the physical requirements for human survival.

Air, water, food

Safety and Security needs include:

Personal security, Financial security, Health and well-being, Safety needs against accidents/illness and their adverse impacts.

Social belonging: to be accepted and valued by others, Friendships, Intimacy, Family

Esteem: to be excepted, respected and loved by others. Involves self esteem and self respect.

Self-actualization: Realizing ones full potential

Theories of Organisation & Management

The Systems Approach: This uses ‘technology’ to manage departments, people, products and services.

Sub-system approach; looks at how an organisation uses the various parts of the organisation to function i.e. HR department, marketing, Production etc

Contingency approach. Is a management theory that uses the most appropriate style of management and is dependent on the situation. Not dependent on one ridged approach

Functional Organisation

The functional approach to organisation is depicted in the figure below. In this structure activities are clustered together by common purpose and function.

Value Chain Analysis

Value Chain: describes the activities within an organisation that go to make up a product or service.

Value Chain Analysis: allows an organisation to establish the costs and value that derive from each of its value activities.

Activities in an Organization

Primary Activities: these are activities which are directly involved in the creation of a product or service.

• Inbound logistics, operations, production

Support Activities: these are activities which ensure that the primary activities are carried out efficiently and effectively.

• HRM, Innovation, Technology & Development , Marketing

Internal Audit

This is a through analysis of an organisations internal functional areas - (inc, operations, marketing, finance, R&D, management and I.T.) usually carried out by CEO’s Executives

Advantages

• Fairly straight forward & can be tailored to fit any organisation

• Provides a through analysis of the organisations important strategic capabilities

• The main approach to identifying S&W

Resource-Based View of the Firm

Firms differ in fundamental ways because each firm possesses a unique “bundle” of resources - tangible and intangible assets and organizational capabilities to make use of those assets.

Three Basic Types of Resources

Tangible Assets

• cash reserves

• inventory

• buildings

• patent

• equipment

Intangible Assets

• reputation

• brand names

• leadership

• culture

• alliances

Organisational Capabilities

• customer

• service

• innovation

• NPD processes

• flexibility

• relationship mgt

Tangible Assets

Easiest to identify and often found on a firm’s balance sheet

Include physical and financial assets

Examples: Production facilities, raw materials, financial resources, real estate, computers

Intangible Assets

Cannot be seen or touched

Often very critical in creating competitive advantage

Examples: Brand names, company reputation, company morale, patents and trademarks, accumulated experience

Organizational Capabilities

Organizational Capabilities: is a process that determines how efficiently and effectively the organization transforms its inputs into outputs

Organizational Routines and Process: is a regular, predictable and sequential patterns of work activities

Dynamic Capabilities: the ability to rapidly address the changing environment- timely response and flexible product innovation

Core competencies: Does the organization share its capabilities and skills across the multiple product lines? Use left over's else where.

Distinctive Organizational Capabilities: this refers to the special and unique capabilities that distinguish the organization from its competitors.

What Makes a Resource Valuable?

1. Competitive superiority: Does the resource help fulfill a customer’s need better than those of firm’s competitors?

2. Resource Unavailability: Is the resource in short supply?

3. Inimitability: Is the resource easily copied or acquired?

4. Appropriability : How appropriate is the resource.

5. Durability: How rapidly will the resource depreciate? (Product life cylcle)

6. Substitutability: Are other alternatives available?

SWOT Analysis

Once an internal analysis (internal audit) has been conducted a SWOT is required to analyse the S.W.O.T of an organization

Limitations of a SWOT Analysis

It is not an end to a process leading to a decision, but part of a process- A SWOT is not enough alone to conduct an analysis

Ambiguity- ‘S’ can be ‘W’ and weaknesses can be strengths

‘S’ & ‘W’ may not easily be translated into ‘O’ & ‘T’