BUSS1000: Future of Business

Lecture 3: Internal Analysis

Presented by
Dr. Steven Hitchcock
Associate Lecturer
Office Hours: 3pm-4pm Monday-Thursday
steven.hitchcock@sydney.edu.au

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 What are we doing today?

– Talking about ways of conceptualizing and understanding the internal

environment
– Layers
– Internal Environment
– Value Chain
– The Resource Based View
• VRIO
– SWOT
– What is SWOT?
– Tips and FAQs for your Case Study

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Layers, levels, and
environments

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 Layers of the business environment

– ‘Layers’ is a way to think about the business environment

– This week we are talking about the layers outside the organisation

(Johnson, 2008, p. 54)

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 Layers of the business environment

– Another way of looking at it

– They are layers because they are built upon one another.
– They are interdependent – what happens in one affects the others.

The Organisation

Competitors or market

Industry or sector

The macro-environment
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 Layers of the business environment cont.

– Macro-environment: Highest-level layer, factors identified in this layer

impact all organisations to some degree.
– Industry(or sector): Constituted of all organisations that produce the same
products or services.
– Competitors (or market): Layer closest to organization, within an industry or
sector, some organisations will be competing closer than others.
– The organisation: The organization itself.

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 Today’s Example Application

– Starbucks in the context of Australia (The Starbucks Story, 2017)

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The Value Chain

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 Value Chain

– Developed by Porter in 1985

– A conceptual framework that helps us to understand the processes by which
organizations take inputs, add value, and produce outputs.
– Map out organization’s process and identify opportunities to increase value

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 Value Chain

– Two core parts of this

– Primary activities
• Includes: Inbound logistics, operations, outbound logistics,
marketing/sales, and service
– Support activities
• Includes: Firm Infrastructure, Human Resource Management,
technology development, and procurement.
– However, this is not to suggest that primary activities are more or less
important to the success of the organization than support activities

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 The Value Chain

– (Porter, 1985)

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 Example Application

– Starbucks in the Context of Australia

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 Critiques of Value Chain

– By nature, it can deceive us into seeing an organization as a linear

input>value add>output system.
– Lends itself most easily to manufacturing of goods
– “It was created at a time when being big and having scale was in itself a
key aspect to competitive advantage and profitability.” (Merchant, 2012)
– It is hard to translate to smaller, more agile or nimble organisations.
– It doesn’t distinguish between generic and distinct goods.
– Lacks the fourth dimension a.k.a. time

– While every graduate of business school knows it, it doesn’t get used that
much as it can be very hard to properly employ properly
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The Resource Based View (RBV)

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 What is the Resource Based View?

– “The resource-based view (RBV) of the firm holds that certain assets with
certain characteristics will lead to sustainable competitive advantage. All
the traits are required to be present to result in a sustainable competitive
advantage” (Black & Boal, 1994, p. 131)
– Often credited to Wernerfelt (1984)

– There are many theories that fit within the Resource Based View, to some
degree.
– Today we will talk about VRIO which is one such example.

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 Drucker on Strengths

– “One gets paid only for strengths; one does not get paid for weaknesses…”
(Drucker in Grant, 2016)

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 Drucker on Strengths

– “…The questioning, therefore, is first;

– What are our specific strengths?
– And then: Are they the right strengths?
– Are the strengths that fit the opportunities tomorrow, or are they the
strengths that fitted those yesterday?
– Are we deploying our strengths where opportunities no longer are, or
perhaps, never were?
– And finally, what additional strengths do we have to acquire?”
– (Drucker in Grant, 2016)

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VRIO

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 VRIO

– Fits within Resource Based View

– Value, Rareness, Imitability, and Organsiationally Relevant
– So VRIO is one of many theoretical frameworks to help us conceptualize
and organization’s resources and in turn, competitive advantage.
– We will come to others during the semester, but VRIO is a good example of
a theory that fits within the RBV

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 VRIO in a table

– Adapted from Black and Boal (1994)

Resources & capabilities lead to competitive advantage when they are:

They allow the firm to exploit opportunities or neutralise threats

Valuable
in external environment & customers cannot substitute them

Rare Possessed by few (if any) current or potential competitors

Other firms either cannot obtain them, or must obtain them at a

Imitatatble
much higher cost

Organisationally The firm must be organised appropriately to obtain the full

relevant benefits

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 Using VRIO

– Create a list of resources and capabilities

– Then for each, go through the flow chart.
– (Rothaermel in Jurevicius, 2013)

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 A VRIO analysis often leads us to…

– Often, a VRIO analysis produces a summary table such as the below

– This would of course, need to be paired with explanation/discussion
Resource/Capability V R I O
X x
Y x x
Z x x
A x x x
B x x x x
C x x x x

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 Example Application

– Starbucks in the Context of Australia

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 Critiques and Limitations of the VRIO Framework

– It fails to address and acknowledge that these resources do not exist

separately and in isolation.
– Networks
– Cause and effect relationships
– Catalysts
– It also fails to address the creation and development of resources
– It assumes, resources are already there
– Where does innovation sit in this?

– Grant (2016) presents another framework within the resource based view.

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 The Resource Based View will be back…

– As you would have seen in your readings, Grant (2016) clearly links
strengths to strategy
– We will be talking about strategy specifically in Week 6
– This idea of resources and capabilities as pivotal for organizational
strategy was popularized in the 1990s (Grant, 2016)
– The Resource Based View (RBV) is something you will come across a great
deal in your studies.
– Lacks the fourth dimension a.k.a. time

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SWOT

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 SWOT

– Strengths, Weaknesses, Opportunities, and Threats

– “SWOT analysis came from the research conducted at Stanford Research
Institute from 1960-1970.” (Humphrey, 2005, p. 7)
– Based on a substantial body of work.
– Initially designed for project evaluation
– Is most commonly used to examine and organization as a whole
– At the time, Corporate Planning was in vogue but as it was mainly interested
in long-term planning, it was “not working” (Humphrey, 2005, p. 7)

– Its important to remember that while the S and W are very internally
focused, the O and T are outwardly focused.
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 SWOT

(SWOT Analysis, 2017)

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 Example Application

– Starbucks in the Context of Australia

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 Critiques of SWOT

– While we know the world is complex, SWOT in many ways blinds us to

complexity.
– Its fairly one dimensional insofar as you simply create lists under each (Hill
& Westbrook, 1997).
– Research would suggest that people do these SWOT analyses, then never
actually use the outputs. (Hill & Westbrook, 1997).
– It never critically questions the objective(s) in the first place (Chermack &
Kashanna, 2007)
– You can do an insightful and comprehensive SWOT analysis, for a
terrible idea. However, it could be argued that this is a strength of
SWOT – you could do a SWOT for a collection of ideas.
– Lacks the fourth dimension a.k.a. time
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Limitations of analysis

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 There is two notable limitations of most analyses

– People
– Human error
– People are not omnipotent
• All analyses are missing some things, likely a lot of things.
– There isn’t a spreadsheet or app (so far) that can apply these
frameworks and conduct these analyses.
– Often, it comes down to a judgement call.

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 There is two notable limitations of most analyses

– People can
 Make mistakes
 Miss something
 Forget
 Have a bad day
 Be prone to hubris

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 There is two notable limitations of most analyses

– Time
– The second you complete an analysis – its out of date.
– Even changes that occur during your analysis will go unconsidered
– Any analysis is a snapshot or a picture

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FAQs and a few tips for your
Case Study

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 FAQs and a few tips for your Case Study

– Next week we will be discussing the Value Net Model which you will be
using in your case study to do your Value Net Analysis
– We will also talk about a few ways of using it for your assessment

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 FAQs and a few tips for your Case Study

– [To be discussed in lecture]

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Key points from today

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 Questions we answered

– What are levels/layers?

– What kind of analysis tools can we use?
– What is the Value Chain?
– What is VRIO?
– What is SWOT?
– Thinking critically about analysis
– Assessment tips

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 What should I do now?

– Remember that we are here to help you succeed.

– Familiarize yourself with Canvas
– Make a start on your assignment
– Questions?
– Always go to your tutor first – but they point you to
– Discussion Board Q&A on Ed
– or
– Steven.Hitchcock@sydney.edu.au

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 References
– Johnson, G., Scholes, K. & Whittington, R. (2008) Exploring corporate strategy: text & cases. Harlow, England: Pearson Education.
– Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
– Porter, M. E. (1985). Competitive advantage: creating and sustaining superior performance. 1985. New York: FreePress
– Humphrey, A. (2005). History Corner. SRI Alumni Association Newsletter, December 2005. Retrieved 24 March 2017, from
https://www.sri.com/sites/default/files/brochures/dec-05.pdf
– SWOT analysis. (2017). En.wikipedia.org. Retrieved 23 March 2017, from https://en.wikipedia.org/wiki/SWOT_analysis
– Hill, T., & Westbrook, R. (1997). SWOT analysis: it's time for a product recall. Long range planning, 30(1), 46-52.
– Chermack, T. J., & Kasshanna, B. K. (2007). The use and misuse of SWOT analysis and implications for HRD professionals. Human Resource Development
International, 10(4), 383-399.
– Black, J. A., & Boal, K. B. (1994). Strategic resources: Traits, configurations and paths to sustainable competitive advantage. Strategic management journal, 15(S2), 131-
18
– Jurevicius, O. (2013). Is the VRIO Framework a Key to Competitive Advantage?. Strategic Management Insight. Retrieved 24 March 2017, from
https://www.strategicmanagementinsight.com/tools/vrio.html
– The Starbucks Story | Starbucks Coffee Australia. (2017). Starbucks Coffee Australia. Retrieved 10 August 2017, from https://www.starbucks.com.au/The-Starbucks-
Story.php

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