Internal Analysis and Organizational Design

This set of vocabulary flashcards covers concepts from internal organizational analysis, the Resource-Based Theory of Competition, various framework tools (VRIS, VREEL), and organizational structures and design.

Capabilities

The ability to combine resources, tangible and/or intangible, to create something that is valuable to the organization.

Resources

The primary building blocks of an organization covering all aspects including machinery, people, culture, processes, capital, locations, and network of relationships.

Tangible resources

Anything that can be seen, touched, or quantified.

Intangible resources

Resources not able to be seen, touched, or quantified, such as organizational culture, which are very difficult for other companies to copy.

Jay Barney

A famous scholar in Resource-Based Theory of Competition who focused on identifying resources in a company that drive competitive advantage.

SWOT Analysis

An acronym for Strengths, Weaknesses, Opportunities, and Threats; Strengths and Weaknesses relate to the internal environment, while Opportunities and Threats relate to the external environment.

Non-trivial impact

A prioritization mantra used to identify issues that have a significant effect on the economic performance of the company.

Incompetencies

Being poor at something important, leading to rapid failure and serving as an immediate threat to survival.

Deficiencies

Being good or okay at something while at least one competitor is noticeably better, leading to competitive disadvantage.

Core competencies

Being good at something that no other competitors are better at, which leads to competitive parity.

Distinctive competencies

Being good at something and doing it better than all competitors, which leads to competitive advantage.

VRIS framework

A tool used to identify sources of competitive advantage by asking four sequential questions: Is it Valuable, Rare, Imitable, and Substitutable?

Valuable (VRIS question)

Determining if a resource or capability provides economic value greater than the cost of capital, similar to an $EVA$ definition.

Rare (VRIS question)

Determining whether any other competitors possess the same or equivalent set of resources and capabilities.

Imitability (VRIS question)

Assessing how easy or costly it would be for competitors to copy or develop the same or equivalent set of resources and capabilities.

Substitutable (VRIS question)

Determining if products or services outside of the immediate industry serve as a substitute that prevents above normal profits.

Sustainable competitive advantage (SCA)

The result in Barney's model when a resource is valuable, rare, costly to imitate, and non-substitutable.

VREEL framework

A quantifiable approach that assesses organizational infrastructure and eroding factors to determine the timeframe for the sustainability of competitive advantage.

Alfred Chandler

Author of "Strategy and structure: Chapters in the History of the Industrial Enterprise" ($1962$) who argued that strategic expansion drives structural change.

Organizational structure

A framework specifying a firm's reporting relationships, hierarchy, procedures, controls, responsibilities, and decision-making process.

Organizational design

A strategic process involving shaping and modifying structure to align with business goals, workflows, culture, and technology.

Strategic controls

Corporate-level subjective criteria used to verify if a firm is using appropriate strategies for external environment conditions.

Financial controls

Corporate-level objective criteria used to measure performance against quantitative standards such as budgets or $IRR$.

Simple organizational structure

A structure focused on small business startups where the owner makes all major decisions and monitors all activities.

U-Form (Unitary)

A centralized authority structure typically seen in small to mid-sized companies where functional executives report to the CEO.

M-form (Multi-divisional)

A decentralized structure where authority is divided into semi-autonomous divisions focused on primary products or geographical regions.

H-form (Holding company)

An extension of the M-Form for unrelated diversified firms (conglomerates) where independent companies are managed like a portfolio of stocks.

Matrix structure

A hybrid between functional and divisional structures where departments report to both a primary and a secondary "dotted line" manager.

Flat structure

A structure with few levels of authority seeking to promote autonomy and quicker decision-making.

Strategic business units (SBUs)

A multi-divisional structure used by massive companies that clusters similar divisions under an executive team level before the CEO.

Multi-domestic structure

A model that allows each subsidiary maximum flexibility and decentralization to adapt products to local markets.

Global structure

A model that centralizes decision-making at headquarters to maintain uniformity across all territoires.

Value chain

A representation of the sequential steps involved in producing goods and services, from raw materials to the delivered product.

Vertical integration

A strategy where a company decides to enter one or more businesses along its industry value chain.

Upstream

Moving towards suppliers and raw materials in the value chain.

Downstream

Moving towards the final end-use customers in the value chain.

Transaction costs

Costs including time, effort, money, risk, compliance, and enforcement incurred during any action or exchange.

External transaction costs

Costs associated with searching for a counterparty and negotiating, monitoring, and enforcing contracts with third parties.

Internal transaction costs (Administrative costs)

Costs associated with recruiting employees, office space, and organizing or supervising staff.

Strategic alliance

Collaborative alternatives to the make-or-buy decision including long-term contracts, equity alliances, and joint ventures.

Equity alliances

A relationship where one partner takes a partial ownership stake in another.

Joint ventures

The creation of a new entity where multiple parties take an ownership stake.