Assessing internal

environment through
functional approach

Value chain approach

Functional Approach
Understanding a business in depth is the goal of internal
analysis.
This analysis is based on resources and capabilities of the firm.
Three Basic Resources
1. Tangible assets are the easiest resources to identify and
are often found on a firms balance sheet
2. Intangible assets are resources such as brand names,
company reputation, organizational morale, technical
knowledge, patents and trademarks, and accumulated
experience
3. Organizational capabilities are not specific inputs. They
are the skills that a company uses to transform inputs into
outputs
Tangible Resources
Financial
Borrowing capacity of the firm
Ability to generate internal funds
Physical
Firms machinery and equipments
Raw Materials
Intangible Resources
Innovation & Creativity
Reputation
Reputation with customers Brand name, perception of quality,
durability
Reputation with suppliers
Culture
Relationship with Stakeholders
Examples
Intel and American Express have successfully protected their
intangibles
Brand is everything for Coca-Cola and Gillette
While software and pharmaceutical companies depend mostly
on their technology and patents.
Sonys good reputation
Capabilities
Skills and knowledge of firms employees, including
functional expertise (human capital)
Decisions in different functional Department like Corporate
level, R&D, Production, Marketing and Sales
Outstanding customer service, excellent product development
capabilities, innovative process.
Example - Gillette
Value Chain Analysis
Value chain analysis is a strategy tool used to analyze internal
firm activities. Its goal is to recognize, which activities are the
most valuable

Support Activities
Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Firm Infrastructure

Support
Human Resource Management
Activities
Technological Development
Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 A TOOL DEVELOPED BY DR. MICHAEL PORTER OF HARVARD
BUSINESS SCHOOL
Can be used to examine the various activities of the firm and
how they interact in order to provide a source of competitive
advantage by:

- Performing these activities better

or
- At a lower cost than the competitors
TYPES OF FIRM ACTIVITIES

1. PRIMARY

- THOSE THAT ARE INVOLVED IN THE CREATION, SALE AND

TRANSFER OF PRODUCTS (INCLUDING AFTER-SALES
SERVICE)
TYPES OF FIRM ACTIVITIES

2. SUPPORT

- THOSE THAT MERELY SUPPORT THE PRIMARY ACTIVITIES

 PRIMARY ACTIVITIES

1. INBOUND LOGISTICS

- CONCERNED WITH RECEIVING, STORING, DISTRIBUTING

INPUTS
(e.g. HANDLING OF RAW MATERIALS, WAREHOUSING,
INVENTORY CONTROL)
 PRIMARY ACTIVITIES

2. OPERATIONS

- COMPRISE THE TRANSFORMATION OF THE INPUTS INTO THE

FINAL PRODUCT FORM (E.G. PRODUCTION, ASSEMBLY, AND
PACKAGING)
 PRIMARY ACTIVITIES

3. OUTBOUND LOGISTICS

- INVOLVE THE COLLECTING, STORING, AND

DISTRI BUTING THE PRODUCT TO THE
BUYERS
(e.g. PROCESSING OF ORDERS,
WAREHOUSING OF FINISHED GOODS, AND
DELIVERY)
 PRIMARY ACTIVITIES

4. MARKETING AND SALES

- HOW BUYERS CAN BE CONVINCED TO PURCHASE THE

PRODUCT
(e.g. ADVERTISING, PROMOTION, DISTRIBUTION)
 PRIMARY ACTIVITIES

5. SERVICE

INVOLVES HOW TO MAINTAIN THE VALUE OF THE PRODUCT

AFTER IT IS PURCHASED
(e.g. INSTALLATION, REPAIR, MAINTENANCE, AND TRAINING)
 SUPPORT ACTIVITIES

1. PROCUREMENT

-CONCERNED WITH THE TASKS OF PURCHASING INPUTS SUCH

AS RAW MATERIALS, EQUIPMENT, AND EVEN LABOR
 SUPPORT ACTIVITIES

2. TECHNOLOGY DEVELOPMENT

THESE ACTIVITIES ARE INTENDED TO IMPROVE THE PRODUCT

AND THE PROCESS,
CAN OCCUR IN MANY PARTS OF THE FIRM
 SUPPORT ACTIVITIES

3. HUMAN RESOURCE MANAGEMENT

INVOLVED IN RECRUITING,
HIRING, TRAINING, DEVELOPMENT
AND COMPENSATION
 SUPPORT ACTIVITIES

4. FIRM INFRASTRUCTURE

- THE ACTIVITIES WHICH ARE NOT SPECIFIC TO

ANY ACTIVITY AREA SUCH AS GENERAL
MANAGEMENT, PLANNING, FINANCE, AND
ACCOUNTING ARE CATEGORIZED UNDER FIRM
INFRASTRUCTURE.
 USES OF VALUE CHAIN
ANALYSIS
The sources of the competitive advantage of a firm can be seen
from its discrete activities and how they interact with one another.
The value chain is a tool for systematically examining the activities
of a firm and how they interact with one another and affect each
others cost and performance.
Exercise
Identify the value chain process of Pepsi Co Ltd.