Tools of Internal Analysis

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Rojers P Joseph - IIM Ranchi

Source: Strategic
Management Insight
(2013)

How much is
the impact?
Firm, Industry
& Remote
environments

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 Changes since the 1980s?

• 1) Competition
• 2) Globalization
• 3) Technological changes
• The focus gradually shifted to
building a competitive advantage

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The core competence of the
corporation: How companies
cultivate the skills and
resources for growth
C.K. Prahalad
and Gary
Hamel (1990)

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 The core competence

hondapic1

HS928TA

Type_R_Front

Honda’s internal
combustion engines and
propulsion systems

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 Competencies in Honda’s
engine technology

• Honda Advanced Technology

Program (from 1980s)
– i-VTEC
– Transmission technology
– Earth Dreams Technology
(Lower emissions and more
fuel efficiency)
– High safety standards
– Engine components are made
with high quality materials,
which are lightweight and easy
to fix
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 7
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Rojers P Joseph - IIM Ranchi
 Core competence

• Collective learnings in the organization:

the capacity to coordinate diverse
production skills and integrate streams of
technologies
• These collective learnings are widely
shared in the organization
• Core competence provides potential
access to a wide variety of markets,
contribute to the customer benefits of
the product, and are difficult for
competitors to imitate

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 Casio

• Core competence?

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 Casio

Core
competencies

Microprocessor Material Ultrathin

Miniaturization
design science precision casing

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Casio’s core
competence
Rojers P Joseph - IIM Ranchi

• The tangible link between core

competencies and end products
Core products • E.g.: Casio’s Miniature Display
Systems

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 The diversified corporation

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Rojers P Joseph - IIM Ranchi

1) Core competence provides potential

access to a wide variety of markets
2) Core competence should make a
Test for core significant contribution to the perceived
competence customer benefits
3) Core competence should be difficult for
competitors to imitate

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 • Competence: An activity that a firm does
better than the other activities it
performs
• Core competence: An activity that is
central to the core of its business
• Distinctive competence: A competency
that differentiates a firm from its
competitors

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 RBV
Rojers P Joseph - IIM Ranchi

• To provide sustained competitive advantage, a resource needs to

be (1) valuable, (2) rare, (3) hard to imitate, or (4) not easily
substitutable
• Rare resources are resources that other competing firms do not
possess
• If many firms have the same resource, then those firms will likely
implement similar strategies, thus giving no one firm a
sustainable competitive advantage

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 RBV
Rojers P Joseph - IIM Ranchi

• It is also important that these same resources be difficult to

imitate. Even if a firm employs resources that are rare, a
sustainable competitive advantage may be achieved only if other
firms cannot easily obtain these resources
– e.g.: SW Airlines, Starbucks
• The third empirical indicator that can make resources a source of
competitive advantage is non-substitutability
• e.g.: De Beers
• Even if a competing firm cannot perfectly imitate a firm’s
resource, it can still obtain a sustainable competitive advantage
of its own by obtaining resource substitutes
• e.g.: Honda vs. Tesla (Tesla is using a resource substitute)

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 VRIO Framework
Is the Resource or Capability

No
Valuable? Competitive disadvantage

Yes
No
Rare? Competitive parity

Yes
No
Costly to Temporary competitive
imitate? advantage
Yes

Organized to No
capture Temporary competitive
value?
advantage
Yes
Sustained competitive
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 • Identify the strengths
and weaknesses of
MEM and Tata Motors
in the Indian EV car
market

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 Strengths and Weaknesses of MEM
Strengths
First-mover advantage
Strong brand
Large investment in R&D and Manufacturing (EV + Battery)
Acquisitions and alliances
Partnership with Ford and LG Chem
New EV models (4 models of EVs + Sports EV + 3-wheelers + Vans)
Strong backing of the parent company
Leadership Support
Large orders from EESL
Weaknesses
Limited success of MEM’s EVs so far
Lack of home-grown technology
Dependence on imports (Technology and R/M)

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 Strengths and Weaknesses of TM in the EV segment
Strengths
Strong brand
Plan to develop EV architecture
Strong backing of the parent company
Large orders from EESL
Plan for complete turnkey solutions
Many new EV models in the passenger car segment
Weakness
Focus on commercial vehicles
Lack of home-grown technology
Dependence on imports (Technology and R/M)
Range issues with its current EV models

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 Internal Factor Evaluation (IFE) Matrix

• List key internal factors as identified in the internal-audit

process. Use a maximum of 10 to 20 internal factors, including
both strengths and weaknesses (List strengths first and then
weaknesses. Be as specific as possible, using percentages, ratios, and
comparative numbers)
• Assign a weight that ranges from 0.0 (not important) to 1.0
(all-important) to each factor. The weight assigned to a given
factor indicates the relative importance of the factor to being
successful in the firm’s industry (The sum of all weights must equal
1.0)
• Assign a 1-4 rating to each factor

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Rojers P Joseph - IIM Ranchi

• Strengths
– Major Strength: 4
– Minor Strength: 3
• Weaknesses
Rating scale – Minor weakness: 2
– Major weakness: 1
• Ratings are firm-based, whereas weights
are industry-based

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 Weighted IFE score
Rojers P Joseph - IIM Ranchi

• Multiply each factor’s weight by its rating to

determine a weighted score for each variable
• Sum the weighted scores for each variable to
determine the total weighted score for the
organization

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 Internal Factor Evaluation (IFE) Matrix for MEM
Strengths Weight Rating Rati Weighte
onal d Score
e

Weaknesses

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 Internal Factor Evaluation (IFE) Matrix for MEM
Strengths Weight Rating Rationale Wtd. Score

First-mover advantage 0.10 3 0.30

Strong brand 0.10 4 0.40
Large investment in R&D and Manufacturing 0.05 4 0.20
Acquisitions and alliances 0.05 3 0.15
Partnership with Ford and LG Chem 0.10 3 0.30
New EV models (EV cars + 3-wheelers + Vans) 0.10 4 0.40
Strong backing of the parent company 0.10 4 0.40
Leadership Support 0.05 4 0.20
Large orders from EESL 0.05 3 0.15
Weaknesses
Limited success of MEM’s EVs so far 0.10 1 0.10
Lack of home-grown technology 0.10 1 0.10
Dependence on imports (Technology and R/M) 0.10 1 0.10
Total 1.00 2.80
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 IFE Matrix for TM in the EV segment
Strengths Weight Rating Ration Weighted
ale Score

Weaknesses

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 IFE Matrix for TM in the EV segment
Strengths Weight Rating Ration Weighted
ale Score
Strong brand 0.15 4 0.60
Plan to develop EV architecture 0.10 3 0.30
Strong backing of the parent company 0.10 4 0.40
Large orders from EESL 0.10 4 0.40
Plan for complete turnkey solutions 0.10 3 0.30
Introduced many EV models of passenger cars 0.15 4 0.60
Weaknesses
Focus on commercial vehicles 0.05 1 0.05
Lack of home-grown technology 0.10 1 0.10
Dependence on imports (Technology and R/M) 0.10 1 0.10
Range issues with its current EV models 0.05 2 0.10
Total 1.00 2.95

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 • The median score in IFE analysis is
2.5
• If the score is above 2.5 the
company has more strengths than
Interpreting weaknesses
the IFE • If the IFE score is more than 3.0,
the company has significant
value strengths to negate its weaknesses
• If the score is below 2.5, the
company has more weaknesses to
overcome compared to its
strengths

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