INTERNAL BUSINESS

ENVIRONMENT ANALYSIS
Prof.Dr.Dr.Dr.H.C. Constantin Bratianu
Faculty of Business Administration
Academy of Economic Studies
Bucharest, Romania

Strategic

Strategic

Strategies

Strategies

Intention

Analysis

Elaboration

Implementation

Strategic management
process

Strategic Analysis
Internal
Environment
Analysis

SWOT Analysis

External
Environment
Analysis

Internal Environment Analysis

Finding

Core
Competencies

Strategic

Core
Competencies

Advantage

Capabilities

Unique
Resources

Rare

-Tangible

Valuable

- Intangible

Costly to
immitate

Value Chain
Analysis

Resources
Tangible resources
- Financial (money, borrowing capacity)
- Physical objects (buildings, equipments)
- Human resources (as physical bodies)
Intangible resources:
- Human resources (experience, talent, intelligence)
- Explicit knowledge (documents)
- Structural capital
- Brands, symbols, company image

Market/Book values
Company
eBay

Market value
($ billions)
54.5

Book value
($ billions)
4.9

Intel

170.9

33.5

Microsoft

286.2

57.5

Nucor(Steel)

4.8

2.3

J.C.Penny

10.0

6.4

General
Motors

27.3

25.3

Intellectual capital
Human capital

Structural
capital

Intellectual capital

Customer
capital

Human capital
Information and knowledge at individual level
Thinking models, as cognitive approximations of the real
world in which we are living

Talent and creativity potential

Rational intelligence
Emotional intelligence

Socialization
Tacit knowledge

Externalization

Tacit knowledge

Internalization

Explicit
knowledge

Explicit
knowledge

Combination

Socialization
It is a process of exchange of tacit knowledge between
two or more individuals.
The most difficult process since tacit knowledge is based
on sharing feelings, emotions, and experiences.
Individual face-to-face interaction is the only way to
capture the full range of physical sensations and
emotional reactions that are necessary for transferring
tacit knowledge.

Combination
This is the most used and practical mode for sharing
explicit knowledge between two or several individuals
It is based on rational arguments and verbal language
Knowledge flows from the individual with a higher level
of knowing toward the individual with a lower level of
knowing

Sharing knowledge is different than sharing tangible

things, since there is no law of conservation

Externalization
This is a process of transforming tacit knowledge into
explicit knowledge
It is a transformation of knowledge taken from direct
experience and from the non-rational mind and put it into
a rational way able of being explained using the verbal
language
For the Japanese companies this is a knowledge
creation process, which contributes significatly to the
innovation process

Internalization
It is the reverse process by which explicit knowledge is
transformed into tacit knowledge
This is very helpful in developing different skills and in
creating some control mechanisms
It is a process which goes from the organizational
knowledge to the individual knowledge, in order to
increase individuals understanding
It is a very useful process in developing organizational
culture and behavior

Capabilities
Capability = Managerial capacity of using
efficiently given resources
Capabilities can be obtained by integrating in
time human resources, organizational structure
and organizational knowledge

Examples:
Microsoft employees motivation capability
Walt Disney, 3M innovation capability
Toyota just in time process capability

Core Competencies
Core competency = any of the strengths that represent
unique skills or resources that can determine the
organizations competitive edge
Core competency = an integration of resources and
capabilities in a specific way in order to increase
companys competitiveness
Any core competency is base on resources and
capabilities, but not any of these can become core
competency

Finding core competencies: 4 criteria & chain value

analysis

The 4 criteria
Uniqueness = A resource or capability which is
not to be found in the other companies

Rarity = A resource or capability ob being rare

(Walt Disney talent and creativity)
Valuable = A resource or capability of being in
itself very valuable (Harvard University
professors)
Imitation cost = the higher the imitation costs,
the longer it takes to competitors to copy the
core competency

VRINE Model

Value - Rarity - Inimitability Nonsubstitutability Exploitability

Value A resource or capability is valuable if it enables a firm to take

advantage of opportunities or to fend off threats in its environment.

Does the resource or capability allow the firm to meet a market

demand or protect the firm from market uncertainty?

If it is true, it satisfies the value requirement. Valuable resources are

needed in an industry, but value in itself does not convey an
advantage.

Union Pacific (UP) Railroad, for example, maintains an extensive

network of rails and equipment on the US Golf Coast (S-E). It has a
great value in any competition with others carriers.

VRINE Model

Rarity Rarity is defined as scarcity relative to demand. An

otherwise valuable resource that isnt rare wont necessarily
contribute to competitive advantage.

Assuming that a resource or capability is valuable, is it scarce

relative to demand or is it widely possessed by competitors?

Valuable resources that are also rare contribute to a competitive

advantage, but that advantage may be only temporary.

When McDonalds signs an agreement to build a restaurant inside

a Wal-Mart store, it has an intangible location advantage over
Burger King and Wendys that is not only valuable but also rare
because it has an exclusive right to that geographic space.

VRINE Model

Inimitability and Nonsubstitutability

A valuable and rare resource or capability will grant an
advantage only so long as competitors dont gain possession
of it or find a close substitute.

The criterion of inimitability is satisfied if competitors cannot

find a way to imitate or copy the product, or if there is a cost
barrier to do it.

The criterion of nonsubstitutability is satisfied if a competitor

cannot achieve the same benefits using different combinations
or resources and capabilities.

VRINE Model

Exploitability

The possession and control of a resource or capability is

necessary but not sufficient to gain a competitive advantage. A
firm must have the organizational capability to exploit it.

Although the issue is quite broad, the point is for the firm to
have the ability to get value out of any resource or capability
that it may generate.

Chain value analysis

Activities
for support

Information systems & technologies

Energy systems
General administration
Human resources management

Input
logistics

Basic
Activities

Production
processes

Output
logistics

Marketing