Strategic Management

PGCBM-18, Course no: SMUB10-2, Session 3

Internal Organizational
Environment
• Culture & Dominant Logic

• Structure and Routines

• Resources and capabilities

•Porter’s Value Chain Framework

 Culture
DEFINITION
• Pattern of basic assumptions and beliefs shared by all
• Set of shared value and norms
• Philosophy that guides organization’s policies
• Way things are done

Central theme – shared meaning of what the organization is,

control of employees behavior
Creation – founder and original top management team (TMT)
Maintenance – selection; socialization (stories, rituals/ceremonies,
language, symbols), structure, TMT action

Changing – Crises, leadership change, organization age, size,

structure
 Dominant Top Management Logic

Dominant logic is a world view / concept of business and

administration tools to accomplish goals and take business
decisions

• Cognitive map (set of schemas)

• Of leaders or shared within top management

• Learned problem solving behavior

– Reinforced behavior through business success
– Conventional wisdom
– Cognitive bias through simplification
– Pattern recognition
 Organizational Structure

Organizational Structure is the firm’s formal reporting

relationships, procedures, controls, authority and decision
making process

• Formal and informal structure

• Enables strategy implementation – influences how work is done

• Imparts stability – consistency, predictability & efficiency

• Strategic control – to emphasize and execute critical activities

• Strategy-structure fit – co-evolution

 Organizational Structure

DIMENSIONS OF ORGANIZATION STRUCTURE

Complexity – degree of horizontal, vertical and spatial

differentiation; requires integration

Formalization – degree to which job is standardized; rules and

norms

Centralization – degree of concentration of decision making

 Organizational Routines
DEFINITION

• Recurrent behavioral pattern of collective for accomplishing

task (like habit for individuals) – stability

• Rules - standard operating procedures, heuristics, efficiency

• Organizational disposition to energize conditional patterns of

behavior within a collective - triggered by stimulus/context,
learned
 Organizational Routines
CHARACTERISTICS EFFECTS
• Patterns • Coordination and control

• Recurrence • Truce

• Collective • Economizing on cognition

• Process • Reducing uncertainty

• Embeddedness & specificity • Stability

• Path dependence • Storing Knowledge

• Trigger
 Resources and Capabilities
DEFINITION
Resources are inputs to the firm’s operation
Capabilities are abilities of firms to integrate resources into a
bundle to achieve a specific task
• Resources can be tangible and intangible; capabilities are
intangible only and requires knowledge beyond the resources
• Resources, with capabilities determine what a firm can do
• Firms create value by innovatively bundling and leveraging
their resources capabilities to satisfy customers needs
• Unique bundles of resources and capabilities can generate
competitive advantage
 Resources and Capabilities
RESOURCES
Tangible Resources
•Can be seen and quantified
– financial, organizational,
physical, technological
•Easy to establish property right –
exchanged easily
•Cannot be leveraged easily
•Easily valued
•Can be acquired or internally
generated
•Easy to understand, imitate or
substitute
Intangible Resources
•Cannot be seen or quantified
- Human and organizational
capabilities, ideas, reputation
• Difficult to establish PR - not
easily exchanged, spillover
•Easily leveraged
•Difficult to value
•Usually internally generated,
rooted in history
•Difficult to understand, imitate or
substitute – competitive advantage
 Resources and Capabilities

CAPABILITIES

Dynamic Capabilities are capabilities to achieve new

resource configuration.

• Capabilities and dynamic capabilities reside in organizational

routines.

Absorptive Capability is the ability to recognize the value of

new, external information, assimilate it and apply it for
commercial ends

• Function of prior level of knowledge

• Path dependency
 Porter’s Value Chain

Firm Infrastructure
Support Human Resource Management M Cu
ar
Activities g in sto
Technology Development m
er
Procurement

M
ar

u S
Primary Inbound Operation Outbound Marketing Services

r
in

pl
u
Activities Logistics Logistics and Sales

s
Factor Payments
Value Addition
Value Creation

Value appropriation Value appropriation

by firm by customer
 Porter’s Value Chain
PRIMARY ACTIVITIES

• Inbound Logistics – material handling, warehousing, inventory control

• Operation – conversion of inputs to final products

• Outbound Logistics – collecting, storing and distributing final products

• Marketing and sales – induce customers to buy products and

provide them means to do so – ad & promotion, distribution channel,
sales

• Services – to enhance the value of main product – installation,

repair, training, adjustments services, spares, etc.
 Porter’s Value Chain

SUPPORT ACTIVITIES

• Procurement – purchase/rent raw material, supplies, etc.

• Technology Development – to improve products and processes

– equipment, licensing, R&D, acquisition, collaboration, joint venture

• HRM – recruiting hiring, training, development and compensation

• Firm Infrastructure – general management, planning, finance,

accounting, legal support, government relations, environment scanning