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CHAPTER FIVE
ORGANIZATIONAL ANALYSIS AND COMPETITIVE ADVANTAGE
This chapter completes the section on environmental scanning by examining the internal environment of a
corporation. Often called organizational analysis (to contrast it with industry analysis), internal scanning is a key
part of the resource-based view of the firm—the view that a company’s sustained competitive advantage is primarily
determined by its resource endowments. The chapter contrasts the industry value chain from the corporate value
chain. Following the popular functional approach, the chapter breaks the internal environment down into the
corporation’s structure, culture, and resources. The chapter proposes that to the extent that a corporation’s present
structure and culture are compatible with present or potential strategies, they can be considered strengths or
weaknesses. Corporate resources are discussed in terms of marketing, finance, research and development,
operations, human resources, and information systems. The point is made that a corporation’s resources include not
only measurable assets, such as buildings and people, but also the skills and competencies of the people within the
functional areas. The chapter ends with a suggested way to summarize internal factors through the use of an IFAS
Table.
LEARNING OBJECTIVES
1. Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive
competencies.
2. Explain company business models and how they can be imitated.
TOPICS OUTLINE COVERED
1. A Resource-Based Approach to Organizational Analysis—VRIO
a. Core and Distinctive Competencies
b. Using Resources to Gain Competitive Advantage
2. Business Models
3. Value-Chain Analysis
a. Industry Value-Chain Analysis
4. Basic Organizational Structures
a. Corporate Culture: The Company Way
b. Strategic Marketing Issues
SUGGESTED ANSWERS TO MYMANAGEMENTLAB QUESTIONS
5-1. How does the resource-based view of the firm provide a superior means of evaluating a company’s
competitive advantage?
A resource-based approach to organizational analysis highlights the resources of the firm with which it can confront
5-2. Explain how using an IFAS Table impacts the understanding of a company’s internal resources and
capabilities.
An IFAS (Internal Factor Analysis Summary) is one way to organize the internal factors into strengths and
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
5-3. What is the relevance of the resource-based view of the firm to strategic management in a global
environment?
The resource-based view of the firm is an attempt to bring attention to the importance of a corporation’s resources in
strategic management. For much of the 1980s, Porter’s concepts of industry analysis and competitive strategy
dominated the field of strategic management to such an extent that many felt that industry structure alone seemed to
5-4. How can value-chain analysis help identify a company’s strengths and weaknesses?
Value-chain analysis, as proposed by Porter, is a way of examining the nature and extent of the synergies that do or
5-5. Why is organizational culture important for a business to effectively formulate its strategy?
Organizational culture shapes the behavior of people in a corporation, thus affecting corporate performance.
Firms with sustained superior financial performance typically are characterized by a strong set of core organizational
cultural values that define the ways in which they conduct business. Organizational culture as a company resource
5-6. How are organizational resources linked to the competitive advantages and corporate performance of
an organization?
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Organizational resources are closely related to the competitive advantages and strategy of an organization. Corporate
performance is based primarily on the possession and utilisation of organizational resources. It depends not only on
5-7. How is the possession of valuable and scarce resources of an organization related to the planning and
formulation of its corporate-level strategy for enhancing its competitive advantages in the market?
The possession of valuable and scarce resources is closely related to the formulation of organizations’ corporate
level strategy. When the primary concern of the strategy is the selection and positioning of the organization in a
ADDITIONAL DISCUSSION QUESTIONS FOR INSTRUCTORS
These are not found in the text and may be used by the instructor for classroom discussion or exams.
A5-1. What kind of internal factors help managers determine whether a firm should emphasize the
production and sales of a large number of low-priced products or a small number of high-priced
products?
The number of factors that can be discussed in answering this question is enormous. A few of the most important
factors can be brought out by going through each functional area. For example, under marketing, a strong market
research group may be able to identify the kinds of niches available to the products or services under consideration.
In terms of finance, the production of a large number of low-priced products suggests a large capital-intensive
A5-2. Why should information systems be included in the analysis of a corporation’s strengths and
weaknesses?
Although not always considered a major part of the traditional, functionally organized business corporation,
information systems have become very important to those corporations operating in a dynamic and complex
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SUGGESTIONS FOR STRATEGIC PRACTICE EXERCISE
Can you analyze a corporation by using the Internet?
This is a good exercise to develop Internet research skills. The students are placed into teams and asked to conduct
research on a company of their choice using the Internet only. By examining corporate websites (among other
