The internal factors of an organization such as resources and capabilities are very important and need to be analysed in order to define the company’s identity. This provides the management team a solid starting point for their strategy. The exercise of ranking the identified resources and capabilities enables the organization to have a clearer picture of these existing internal factors. The result is to see if they can offer a sustainable competitive advantage for the outcome of generating profit or if adjustments are necessary.
There is a concept called the value chain which was best described by Porter to determine the connection between the various internal systems and their activities within a business. This model known as Porter’s Value Chain (MindTools, n.d.) illustrated below offers an appreciation and understanding of how a company creates value and how these activities are executed regulating the costs which affect profit.
There are links that exist between an organization’s resources, its capabilities and the probability of competitive advantage. For example, a company may find there are opportunities for improvement in various business activities such as the intangible and human categories of resources. It also may be apparent that reputation and culture need to be enhanced which are considered to be within the intangible resources category. Additionally, there may have been noticeable issues within the human resources category due to a low capacity for communication and collaboration which will also negatively influence employee motivation.
These weak areas within these resources will impair a company’s capabilities leading to the inability in meeting the industry’s performance indicators ultimately resulting in the misalignment of the business strategy. As a response, the management team may implement several initiatives in an effort to improve employee collaboration and motivation throughout the organization. These can be in the forms of corporate cultural alignment training and cash incentive programs.
The indication of weak areas in this instance is an apparent absence of alignment within an organization. This can be seen in team members not supporting the company’s strategy in unison which damages the business’ reputation in the process and therefore not gaining the best competitive advantage.
MindTools. (n.d.). Porter’s Value Chain – Understanding How Value Is Created Within Organizations. Retrieved from https://www.mindtools.com/pages/article/newSTR_66.htm