Internal Analysis

Understand what really makes a company “tick”.

– Charles R. Scott

The secret of success is to be ready for opportunity when it comes.

– Benjamin Disraeli

If a company is not “best in world” at a critical activity, it is sacrificing competitive advantage by performing that activity with its existing technique.

– James Brian Quinn

While many companies may concentrate their efforts on tangible assets or develop strategies that focus purely on external factors such as competitive moves and countermoves, there are some companies who recognize the potential competitive advantage of their brands and use them to create a competitive advantage.

A brand has the potential to become one of the most valuable and sustainable sources of competitive advantage. Brands are intangible assets and as such are difficult to imitate by competitors. Cash flow streams can be assigned to brands so that a net present value of the brand may be calculated. For example, the Coca Cola Company owns some of the world’s most valuable brands, including the following: Fruitopia, Barg’s, Fanta, Fresca, Sprite, Surge, Mello Yello, and Coca Cola.

In the early 1990s, some analysts claimed that given only the brand as collateral, CocaCola would be able to borrow $100 billion. After some imagetainting quality problems in 1999, this value has fallen, but it still remains well above number two Microsoft ($57 billion).

However, to date, young Internet shoppers are not brand loyal, they prefer site/product utility features to simple branding. In the future, however, the Internet should be able to generate value through brands.

Rank	Company	Brand Equity   US$ Bn.
1.	Coca Colo	83.8
2.	Microsoft	56.7
3.	IBM	43.8
4.	GE	33.5
5.	Ford	33.2
6.	Disney	32.3
7.	Intel	30.0
8.	McDonald	26.2
9.	AT&T	24.2
10.	Marlboro	21.0

As Table above points out, brands can be an extremely valuable asset to a company and its global competitiveness. This table lists the top 10 global brands by value, reporting the brand name and its ranking, and the value of the brand.

Companies such as CocaCola, Goldman Sachs, Sony Corporation, Nike, and McDonald’s have implemented value creating strategies using their unique resources, capabilities, and core competencies. In particular, they have developed unique capabilities related to the management of their brands.

The ultimate goal of such strategies is for the companies to achieve a sustainable competitive advantage that will enable them to earn above average returns. To achieve strategic competitiveness and earn above average returns, companies must leverage their core competencies to take advantage of emerging opportunities in the external environment.

Several features of the global economy, such as technological changes, can result in the erosion of the competitive advantage of established competitors. The Internet is undermining the competitive advantage of pure brick and mortar rivals. Scanners at the checkout provide retailers with information regarding the effects of price promotions on sales. Global players undermine the local players in their home turf.

The Sustainability of a Competitive Advantage is a Function of three Factors.

• The obsolescence of a core competence, the basis of the value creating strategy, as a result of environmental changes.
• The availability of substitutes for the core competence, or the extent to which competitors can use different core competencies to overcome value created by the original core competence.
• The limitability of the core competence, or the abilities of competitors to successfully develop the same core competence.

To sustain a competitive advantage, companies must be able to manage current core competencies while simultaneously developing new competencies. In other words, strategists must continuously make investments that will both enhance the value of current competencies while striving to develop new ones. Failure to develop or sustain a competitive advantage, or at least to maintain competitive parity, means that a company is likely to go out of business.

The sustainability of any competitive advantage achieved will be determined by how successfully other companies imitate a company’s strategies. Thus, a major challenge is that companies must continuously search for additional sources of competitive advantage and continuously implement them to stay ahead of competitors.

Analysing the external environment enables a company to identify what it might do by identifying what opportunities exist. Analyzing the internal environment enables a company to identify what it can do or is capable of doing. The challenge is for companies to achieve a match between what the company might do and what it can do. This match allows the development of a company’s strategic intent and strategic mission, as well as the subsequent implementation of value creating strategies that will result in strategic competitiveness and above average returns

Thus, the outcomes of the external and internal analyses of a company’s environment must be linked and not treated as separate and distinct. Analyzing the external environment enables strategists to identify opportunities that the company can choose to pursue if it is capable of doing so successfully. This capability is determined by a careful analysis of the company’s internal environment, or by determining whether or not it has the resources, capabilities, and core competencies that will enable it to successfully implement value creating strategies that fit with its strategic mission and strategic intent.