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STRATEGIC MANAGEMENT
Lesson 5
Strategic analysis – internal environment

Hello and welcome to lesson 5 of your Strategic management module. In this lesson, we
shall be considering the internal environment and how strategic managers can analyse this.
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Lesson 5 Contents

SECTION 1 Value Chain analysis

SECTION 2 Core competencies and organisational capability
SECTION 3 Strategic alignment and strategic fit
SECTION 4 Strategic stretch
SECTION 5 Competitive advantage
SECTION 6 Benchmarking and the balanced scorecard

Specifically, we shall be considering: value chain analysis; core competencies and

organisational capability; strategic alignment and strategic fit; strategic stretch; competitive
advantage and the role of benchmarking and the balanced scorecard.
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Value Chain analysis

To produce a product or service, organisations have an inter-linking chain of

value-creating activities which need to be coordinated. With globalisation,
this could include suppliers and customers and so may not be a wholly
internal analysis.

Porter’s Value Chain recognises that to produce a product or service, organisations have
inter-linking chains of value creating activities which need to be coordinated. With
globalisation, not all of these activities are internal to the organisation now and could
therefore include suppliers and customers, no longer a wholly internal analysis.
Primary activities are those which have a direct impact on customers and therefore an
organisation’s profit margins. If in the public or not-for-profit sectors, a direct impact on
monies available to help others from surplus may be generated. These activities, which
include logistics, operations, marketing and sales etc, rely upon efficient and effective
support activities. Support activities include the structure of the firm and its processes,
procedures and communication systems, technology, HR management and procurement.
Failings in any of these support activities directly impact on primary activities which in turn
impacts on profits or surplus available to help others.
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Core competencies and organisational capability

• Remember the RBV perspective to strategy?
• Companies have varying types and levels of resources available to them
• These resources cannot necessarily be easily traded
• How is the organisation able to capitalise on and develop internal resources to
secure long-term survival and competitive advantage?
• To add strategic value, resources need to be VRIN / VRIO / VRIS

You may recall the resource-based approach to strategy. Organisations have varying types
and levels of resources and capabilities available to them. These resources may not
necessarily be easily traded. The resource-based view considers that the organisation is able
to capitalise on and develop those internal resources to secure long-term survival and
competitive advantage. However, to add strategic value, those resources and/or capabilities
need to be VRIN. You may also see the acronyms VRIO and VRIS which consider the same
factors:
Is the resource or capability valuable?
Is it rare?
Is it difficult to imitate?
The final factor is where you will find a little variance between the models.
O ‒ Is the organisation organised around the resource? / N ‒ Is it easily substitutable? S also
stands for non-substitutable.
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Strategic alignment and strategic fit

Strategic alignment Strategic fit

• Vertical – top-down to ensure that • Extent to which the company is

strategic objectives align top to matching internal resources
bottom (competencies and capabilities)
with business opportunities
• Horizontal – ensure that strategic
objectives align across functions, • Still links with RBV, as
processes, business units etc consideration of external factors
alone is not sufficient to be
successful in implementing
• Need assets to be horizontally and
strategy
vertically aligned

• Need to be organised to focus on

strategic objectives

Strategic alignment is where the strategist seeks to enable alignment of organisational

objectives.
Vertically – top of the organisation to the bottom, and
Horizontally – across all business units, functional departments etc.
The objective is to have alignment across the entire organisation so that all operations are
organised to achieve strategic objectives.
Strategic fit considers the extent to which the company is matching its internal competencies
and capabilities with business opportunities, i.e., the extent to which strategy fits with the
external environment. It still links with the resource-based view as it considers external
factors alone is not sufficient to be successful to implement strategy, but that the internal
factors (resources and capabilities) also need to be in place for strategy to be achieved.
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Strategic stretch

A very different future is envisaged and setting difficult-to-achieve goals with

current resources

Challenge – how to best configure companies’ competencies and capabilities

Frequently, an outside-in approach starting with market orientation and focusing

on the external environment

Strategic stretch is where a different future is envisioned and difficult targets and goals are
set to be achieved using current resources. The challenge, therefore, is how to best
configure competencies and capabilities to achieve those targets (possibly something which
people within the public sector are used to when funding is being cut). Frequently, this starts
with an outside-in approach considering what the market wants or needs and focuses on the
external environment.
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Competitive advantage

Competencies and capabilities

Achieve through resources and how they are organised
Core competence – unique capability to give a competitive advantage over
competitors – remember VRIN…

These are critical in competitive positioning.

Organisations seeking to gain a competitive advantage are also concerned with their
competencies and capabilities. This is not just about what they have but how they are
organised. So, in addition to considering whether a specific individual resource or capability
is valuable, rare, difficult to imitate and hard to substitute, how they are organised is
considered in the same way. This is critical when an organisation is looking to position
themselves competitively against their competitors.
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Benchmarking and the balanced scorecard

You can use these tools to determine competitive advantage and the level of
improvements made as a result of organisational strategy.

Benchmarking Balanced scorecard

The continuous process of measuring Usually four perspectives of finance:

products, services and practices customer, learning, growth, and
against your toughest competitors. internal processes, which are all
evaluated and the organisation’s
performance is measured against.

Can be compared historically or

against competitors’ and the
organisation’s perspective of their
performance.

Finally, we need to consider the role of benchmarking and the balanced scorecard.
Benchmarking is where an organisation continuously measures its products, services and
practices against their toughest competitors. How do they compare on price, quality, speed
of delivery etc? Frequently, organisations grade or rank themselves against competitors in
the marketplace and then seek to see how they can improve their performance in
comparison.
The balanced scorecard is where the organisation usually considers the four perspectives of
finance: customer, learning, growth, and internal processes. These are evaluated and the
data enables an organisation’s performance to be measured. So, for example, how much
profit or surplus did the organisation make last month/last year and how does that compare
to previous periods? How many customer complaints were made? How much trade? Again,
this can be compared against the organisation’s historical records and against their
perspective of competitors’ performance.
Both benchmarking and the balanced scorecard can be used to measure performance in
strategy implementation too.
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THANK YOU

Thank you for listening. Do read the class notes available on the learning platform along with
the links to further reading. This will help to broaden your understanding of the different
perspectives and also consider further the limitations of the approaches we have looked at. I
will see you again in lesson 6.