Internal analysis of the business environment

Key Aspects of Internal Analysis
Resources and Capabilities:
This involves examining tangible assets like financial, physical, and technological resources, as well as intangible ones such as human capital, innovation, reputation, and culture.
Strengths and Weaknesses:
The core purpose is to pinpoint specific areas where the organization excels and where it falls short in relation to its market and customers.
Internal Factors:
The analysis focuses on factors within the company's control, such as management practices, operational workflows, marketing effectiveness, and the corporate culture.
Strategic Importance:
Internal analysis is a crucial step in strategic formulation because it allows a company to understand its unique competencies and how to leverage them to achieve competitive advantage.
Why It's Important
Informed Decision-Making:
It provides the data and insights necessary to make sound decisions that align with the company's strategic goals.
Efficient Resource Allocation:
By identifying key strengths and weaknesses, management can optimize the distribution of resources where they will have the most positive impact.
Foundation for Strategy:
It serves as a critical starting point for building a business plan that capitalizes on internal capabilities and addresses internal limitations.
Competitive Advantage:
Understanding what makes a company unique (its core competencies) helps in developing strategies to stand out in the market.
Tools and Frameworks
SWOT Analysis:
A popular tool that analyzes internal strengths and weaknesses alongside external opportunities and threats.
Resource-Based View (RBV) / VRIN Tests:
Evaluates if resources are valuable, rare, inimitable (hard to copy), and non-substitutable, which contributes to a sustainable competitive advantage.
McKinsey 7S Framework:
Assesses the alignment of strategy, structure, systems, shared values, skills, style, and staff within the organization

1. Module 3 - Internal Analysis Department of Busin ess Administration STRATEGICMANAGEMENT Module - 3 InternalAnalysis

2. Module 3 - Internal Analysis Module3 Internal A nalysis Describe strategic Vision, mission, Goals, Long term objectives, short term objectives and discuss their value to the strategic management process . Resources capabilities competencies Resource Based View (RBV) of the firm Balanced Score Card SWOC Analysis Value Chain Analysis Bench marking

3. Module 3 - Internal Analysis Strategic Vision A st rat egi c v isi on descri bes v iews and aspi ration s for t he fut ure di recti on and t he course and di recti on chart ed to achi ev e t hem . A st rat egi c vi sion outlin es aspi rations for t he business , prov i din g a pan orami c v iew of we are and a co nv in cing rat i onal e for why t hi s makes good busi ness sense for t he compan y . A st rat egi c v isi on t hus poin t s an organiz ati on in a parti cular direct ion , chart s a st rat egi c path for it to follow , b ui lds commi tmen t to the fut ure course of act i on, and mol ds organi zat i onal i dent i t y . A clearly arti culat ed st rat egi c v isi on communi cates aspi ration s to st akeholders (c u st omers , emp loyees , st ock hol ders , suppli ers , e t c . ) and h elp s st eer the energies of compan y personnel in a commo n di recti on . Well - conce iv ed v isi ons are dist inct ive and specif ic to a parti cular organi zat ion .

4. Module 3 - Internal Analysis It must be effect iv ely communi cat ed do wn the line to lower - lev el managers and emp loyees . Can di rect , i nspire and energi se emp loyees onl y if ev eryone is fami liar wit h it and see commi t men t . Expl aining t he basi s for t he new di recti on , ad dressi ng emp loyee concerns head - on , calmi ng fears , li fting spi rit s , an d prov i din g updat es and progr ess report s as ev ents unfold all become part of t he t ask in mobi lizing support for t he vi si on and wi nning commi t men t to needed act i ons . Wi nn in g t he support of organi zation mem bers for t he v isi on means put ti ng the v i sion in writi ng , di st ri butin g t he st at ement organizati on wi de, and hav in g t op execut iv es personall y explain t he vi sion and it s rationale to as many people as feasi ble . I deall y , executiv es shoul d presen t t heir v i sion for the compan y in a man ner t hat reaches out and grabs peop le . An engagi ng and conv i nci ng st rat egi c v i si on has eno rmous mot i v ation al v alue .

5. Module 3 - Internal Analysis Factors to decid eVision Ext ern al facto rs t o con si deri n dev el op i n ga St rat egi cVi si on : Doe st h e curren t st rat egi ccourse pre sen t suffi ci en t op po rt uni t ie s? Are cha n ges unde rway i n t h ema rket wh i ch wi ll en h an ceor wea ken t h e Wh at n ew product s , ma rket s, cust om ers sh oul d t h e com pa n y con si der? Sho uld i t exi t from an y pro duct , ma rket , cust om er gro ups? Int ern al facto rs: Wi ll t h e curren t busi n essgen erat e eno ugh growt h an d pl ease sh areh ol ders? What organi sat i onalst rengt hsne ed t o be le v eraged?

6. Module 3 - Internal Analysis Why a Sound, Well - Communicat ed Strat egic Vision Matt ers A well - thought - out, forcefully communicated strategic v ision pays off in sev eral respects : ( 1 ) It crystallizes senio r own v iews about the long - term direction ; ( 2 ) it reduces the risk of rudderles s decisio n making ; ( 3 ) it is a tool for w inning the support of organization members to help make the v ision a reality ; ( 4 ) it prov ides a beacon for lower - lev el managers in setting departmental objectiv es and cra fting departmental strategies that are in s ync with the o v erall strategy ; a nd ( 5 ) it helps an organi zation prepare for the future . Whe n top executives are able to demonstrate signific ant progress in achiev ing these fiv e benefits, the firs t step in organizational di rection setting has been successfully completed .

7. Module 3 - Internal Analysis Mission A miss i on sta tement de scri bes th e pres ent busi nes s and purpos e we are, what we do, and why we are here . It is purely descri pti ve . Id eally, a com pany mi ssi on statem ent ( 1 ) i denti fi es th e prod ucts an d/o r servi ces, ( 2 ) speci fi es th e buyer n eeds that the company seeks to sati sfy and the custom er grou ps or markets th at it serv es, a nd ( 3 ) gi ves t h e com pany i ts own i denti ty . The mi ssio n stat em ents t h at on e finds in com pany annua l report s or post ed on com pany w ebsi tes are typi call y qui te bri ef ; some do a bett er j ob tha n oth ers of conv eyi ng wh at the enterpri se is all about .

8. Module 3 - Internal Analysis Va lues Ma ny compani es hav e dev eloped a se t of v alues to gui de the acti ons and beh avi or of company personnel in conducti ng the busi ness and pursui ng i ts strateg i c v i si on and mi ss i on . By values (or core v alues, as they are often called ), we m ean certai n desi gnated beli efs , t rai ts , and behavi oral norms that management has determi ned shou ld gu i de the pursu i t of i ts v i si on and mi ss i on . Values relate to su ch thi ngs as fai r treat ment , honor and i nteg ri ty, ethi cal behavi or, i nnov ativ eness , tea mwork , a passi on for top - notc h quali ty or su peri or cust omer servi ce , s oci al res ponsi bi li ty, and commu ni ty ci ti zenshi p . Mos t com pani es hav e articula ted fou r to ei ght core v alues that company personnel are expected to di splay and that are suppose d to be mi rrored in how the company conducts i ts busi ness .

9. Module 3 - Internal Analysis Goals and Objectives Goals are the o utco mes that a firm intends to achi ev e , whereas objecti ves are the spec ific actions an d me as ur abl e steps that a firm needs to take to achi ev e a goal . For exam pl e, for v acci ne producer Pfizer, goal is to achi ev e breakthro ugh s tha t chang e liv es . The mana g erial purpose of se tting objectives is to conv ert the v is ion and miss io n into specific performance targets . Ob jectiv es refl ect aspi rations for company perform a nce in li ght of the prev ail ing econ omic an d competitiv e conditions and the internal capabi l ities . We l l - sta te d ob jectiv es mus t be specif ic, quan t ifiable or me as ura ble, and challen ging an d m us t con tai n a dea dlin e f or achi evement .

10. Module 3 - Internal Analysis Two di stin ct t ypes of performance t arget s are requi red : t hose relati ng to finan ci al performance and t hose relating to st rat egi c performance . Fina ncial obje cti ves communi cat e goals for finan ci al performance . S trate gic obje cti ves are goals concernin g a market i ng st andi ng and compet i t i v e posi t i on . A set of fin anci al and st rat egi c objectiv es shoul d in clude bot h near - t erm and lon ger t erm performance t arget s . Short - term (q uart erly or annual) objectiv es focus at tention on deli v erin g performance i mprovem ent s in t he current peri od and sat i sfy shareh older expect at i ons for near - t erm progress . Lo nger - t erm t arget s (t hree to fiv e years off) for ce m anagers to consi der what to do now to put t he compan y in posi tion to perform bet ter later . Lo ng - t erm object iv es are c riti cal for achi ev ing opti mal lon g - t erm performance and st and as a barri er to a near sigh t ed man agement ph i loso phy and an undue focus on short - t erm result s [U 3 A 2 ]

11. Module 3 - Internal Analysis Resources and capa bilities as competitive assets The resource and capabilit ies represent it s competit ive a ssets and are determinant s of it s competitive ness a nd ability to succeed in the market place Two step process ( 1 ) identify resources and capab ilities - ( 2 ) Ascertain which are mo st competit i vely important and can support a sustainabl e competit ive advan tage over riv al firms (using VRIN test)

12. Module 3 - Internal Analysis Resource is a productiv e input or a competitiv e asset owned by a company eg brands, R&D dept .. They v ary in their k ind and quality across f irms offering competitiv e adv antage - coke brand, R&D of Xerox Capability (competence) is the capacity of the firm to perform internal activ ities competently . They a lso v ary in form quality a nd competitiv e im portance eg American Expre ss in marketing, Star bucks in employee management, LinkdI n in software management I mportant to note that a capabilities come from resources they hav e . brand management capability comes from their knowledge of marketing and relationship with retailers .

13. Module 3 - Internal Analysis Types of res ources

14. Module 3 - Internal Analysis Ident ifyingCapab ilities Vi rt ually all organi zation al capabi liti es are kno wledge - based, residin g in peopl e and in a int ell ect ual capit al, or in organi zat ional processes and syst ems, whi ch emb ody t acit kno wledge . There are tw o app ro ach es t hat can make t he process of uncov erin g and i dent i fyin g a capabi li t ies more syst emat i c . The fi rst met hod t akes t he compl eted lis ting of a res ources as it s st artin g poi nt . Si nce capabi lities are bui lt from resou rces and u tili ze resources as t hey are exerci sed , a resources can prov i de a st rong set of clues about the t ypes of capabi li ties t he fi rm is li kel y to hav e accumulat ed . The second met hod of i dentifyi ng a capa bi liti es t akes a functional app roach . Many cap abi liti es relat e to fai rly speci fi c fun ct ion s ; t hese draw on a li mited set of resources and t ypi cally i nv olv e a sin gle depart men t or organi zati onal unit . Thi s approach requi res man agers to surv ey t he v arious funct i ons a fi rm performs to fin d t he di fferent capabi liti es associat ed wit h each funct i on .

15. Module 3 - Internal Analysis Corecompetence anddistinctivecompetence Wh e n a prof i ci ency or capabi li ty ri ses from tha t of mere abi li ty to p erform an acti v i ty to th e poi nt of bei ng abl e to p erform it consi sten tl y wel l and at accep tabl e cost, it is sai d to hav e a competence a true capabi li t y , in other words . A core competence is a profi ci entl y perf ormed i nter n al acti v i ty tha t is cent ral to a strategy and competi ti v eness . A core compe te nce is a more competi ti v el y v al uabl e str e ng th than a compete nc e b ecau s e of th e key rol e in th e s trat egy and th e contri buti on it makes to th e market success and profi tabi l i ty . Ofte n , cor e c ompete nci es can be l ev eraged to cr ea te n e w marke ts or n e w prod uc t d emand , as the engi ne behi nd a growth . A distinctive competence is a competi ti v el y v al uabl e acti vi ty tha t a company perf orms bett er t han it s ri vals . A di sti ncti v e compete nce thu s si gni fi es greater profi ci ency tha n a core compete nc e . Becau s e a di sti ncti v e competence r epres en ts a l ev el of profi ci ency that ri v al s do not hav e, it qual i fi es as a compet i t i vely superi or st rengt h wi th competi ti v e adv antage potenti al . Thi s is parti cul arl y true wh en th e di sti nc ti v e compe te nce en a bl es a company to d eli v er sta ndo u t v alu e to cu s to mers (i n th e form of l o we r pri ces , b e tter produc t p erformance , or superi or serv i ce) .

16. Module 3 - Internal Analysis Resource Based View(RBV) The resource - based view (RBV ) is a managerial framework used to determine the strategic resources a firm can exploit to achieve sustainable competitive advantage . Th e RB V focus es m ana geri al atte n ti on on th e fi rm's i nter nal resourc es in an effort to i denti fy thos e ass ets , capabi li ti es and compete nci es wi th th e p otenti al to deli v er superi or competi ti v e adv antages . Th e compe ti ti v e po wer of a resource or capability is measured by ho w m a ny of four speci fi c tes ts it can p ass . 4 Th es e tes ts are r ef e rred to as th e V RIN tests for sustainable competitive advantage VRI N is a shorthand remi nder s tandi ng for Valuable, Rare, Inimitable, and Non - substitutable . The fi rst t wo te s ts de term i ne wh e th er a reso urce or capabi li ty can s uppor t a compe ti ti v e adv antage . The l ast two determi ne wh e th er the competi ti v e adv antage can be sustai ned . 1 . Is t he resource or capabi li t y compet i t i vely Valuable 2 . Is t he resource or capabi li t y Rare is it som et hi ng ri vals lack? 3 . Is t he resource or capabi li t y Inimitable is it hard to copy? 4 . Is t he reso u rce or capabilit y Non - substitutable is it i nvul n erabl e to t he t hreat of subst it ut i on f rom di f f erent t y pes of resources and capabi li t i es?

17. Module 3 - Internal Analysis BalancedScore Card 4 Perspe ctives

18. Module 3 - Internal Analysis Background to the Balanced Scorecard: Nosinglemeasurescangive a broad picture of the organisation'shealth. So, insteadof a singlemeasurewhy not a usea compositescore cardinvolvinga number of differentmeasures. KaplanandNortondevise da framework basedon fourperspec tives financial,customer,internal processesandlearningandgrowth. The organisationshouldse lectcritical measuresfor eachof thes eperspec tives

19. Module 3 - Internal Analysis BalancedScorecard Fi nanci al pe rspe c tiv e refers to all the fi nanci al param eters of the orga ni sa tion Cus tomer serv i ce perspectiv e meas ures su ch thi ngs as how customers vi ew the orga ni zati on, as well as cust omer retenti on and sa ti sfa ction . Bu si ness process i ndi cators focus on p r oducti on and ope r ating sta tisti cs, su ch as order fu lfi lment or cost per order . The fi nal component relates to the hum an resou rce - i ts potential to learn and grow . Thi s pe rspe cti v e seeks to focus on ho w well res ou rces and hum an capi tal are bei ng ma nag ed for the benefi ts . The balanced sc ore card provi des a balanced pi cture of current performa nce as well as the tri ggers for fu tu re performa nce . The sc o re card helps ma nag ers align thei r busi ness unit s , as well as thei r financi al, p hysi cal and hum an resou rces , to the overall strateg y .

20. Module 3 - Internal Analysis Balanc ed Scorecard Ka pla n& N orto n'sBa lancedSc oreca rdmodel was developedintheearly 1 99 0'sasan attempttohelp firms measurebu sinessperformance usingbo thfinancia land non - financia ldata . The aim ofthe Bala ncedSc oreca rdwa s "to align busin ess activitie s to the vis ion and strategy o f the bu sines s, improv e interna l and external c ommu nicatio ns, and monitor busin ess p erforma nce again ststrateg ic goals ." The ba lancedsco recardpro videsa releva nt range of financ ialand non - financ ial informa tion thatsup po rts effectiv ebu sinessmanagement.

21. Module 3 - Internal Analysis Balanced Scorecards

22. Module 3 - Internal Analysis In what way is the scorecard a balance? The scorecard p roduces a balance bet ween: Four key b usiness perspectives: financial, customer, internal processes and innovation. How the organisati on sees itself and how others see it. The short run and the long run The situation at a moment in t ime a nd change over a period of t ime

23. Module 3 - Internal Analysis Benefits and Drawbacks of Balanced Scorecard Mainbenefitsof using thebalanced scorecard Hel pscompaniesfocus on what hast obe done inorder t ocreat eabreakt hrough pe rformance Act sasanint egrat ingdev icefora v ariet yof corporat eprogramm es Make sst rate gyoperat ional byt ransl atingit int ope rformance me asu resandt arget s Hel psbreakdown corporat el ev el me asu resso t hat l ocalmanagersandem pl oyee s canse ewhat t he yne edt odo we l l if t he ywant t oimprov eorganisat ional effect ive ness Prov idesacomprehens iv ev iewt hat ov ert urnst het radit ionalidea oft heorganisat ion asacoll ect ionof isol at ed,indep en dent funct ionsanddepart me nts Somedrawbacks ofthebalanced scorecardmodel Adanger t hat abu sines swill hav e t oomanype rformance indicat ors Ne edt ohav ebal ancebe t we ent he four persp ect ives not eas y Seniormanagem en tmay st ill be t ooconcerned wit hfinancial pe rformance Ne edst obe up dat edregul arlyt obe us eful

24. Module 3 - Internal Analysis SWOT Analy sis A first - rate SWO T ana l ysis prov ide s the basis for craft ing a strate gy t hat cap it al ize s on the stre ngth s, ov e rcome s its we akne sses, aims squarely at captu ring t he best opportu nit ie s, and defe nds against compet it ive and m acro - e nv ironme nt al t hreat s . A strength is som ething a com pan y is good at doing or an at tribute th at enhan ce s its com petit ivene ss in t he m arketplace . A stre ngt hs depen d on t he qu al it y of it s res ource s and cap abil it ies . A weakness, or com pet iti ve def i ciency, is som ething a com pan y lacks or does poorly (i n c omparison to ot he rs) or a condit ion t hat puts it at a disadvantage in th e m arke tplace . A int e rnal we akn e sse s can rel at e to ( 1 ) infe rior or u np rove n skills, e xpe rt ise , or inte llectual cap ital in com petit ivel y important areas of t he bu sines s ; ( 2 ) deficie n cies in com petit ivel y import ant ph ysical , or gani zat ional , or i nt angible assets ; or ( 3 ) m issing or com pe t it ively infe rior cap abil it ies in ke y are as .

25. Module 3 - Internal Analysis Company weak nesse s are thus inte rna l sh ort coming s th at con stit ut e compet iti ve liabili ti es . Nearly al l comp anies h av e compet itive liabil it ies of one kind or an ot her . Whether a inte rnal wea knesse s make it c omp etit iv ely vul nerab l e de pends on how much th ey matt er in the market pla ce and whether the y are offset by the strengt hs .

26. Module 3 - Internal Analysis Market Opportunity is a b ig factor in shap ing a strategy . I ndeed, managers properly tailor stra tegy to the s ituation without first identifying its market opportunities and appraising the growth and profit potentia l each one holds . Managers hav e to guard against v iewing ev ery industry opportunity as a company opportunity . Rarely does a company have the resource depth to pursue all a v ailable market opportunities simultaneously without spreading itself too thin . T he market opportunities most relevant to a company are those that match up well w ith the competitive assets, offer the best prospects for growth and profitability, and present the most potential for competitive advantage .

27. Module 3 - Internal Analysis Often, certain factors in a external env ironment pose threats to its p rofitability and competitive well - being . Threats can stem from such factors as the emergence of cheaper or bett er technologies, the entry of lower - cost foreign competitors into a market stronghold, new regulations that are more burdensome to a company than to its competitors, unfav orable dem ographic shifts, and political upheaval in a foreig n country w here the company has facilities . [U 3 A 5 ]

28. Module 3 - Internal Analysis SWO T anal y si si nv ol v esmore than ma ki ngfour l i sts. The two mos t i mp ortant pa rts of S WO T anal y si sare drawi ng conclus i ons from the S WO T l i sti ngs ab out t ransl at i ngt heseconclus i ons i nt ost rat egi cact i ons to better i mp ortant weakness es, and to defend agains t external threats. pl aci ng heav y compet i ngsu ccess ful l y agains t riv al s. A sarul e, strategi es that pl aceheav y dema nds on areas where the compa ny i s weakest or has unprov encompetencies shoul d beav oided. Pl ai nl y ,ma nagers mus t l ook toward correcti n g competi ti v e weakness es that ma kethe compa ny v ul nerab l e,hol d down profi tab i l i ty , or dis qu al i fy i t from pu rsu i ng anattracti v e opp ortuni ty . performance hinges on how v ul nerab l ethe compa ny i s, whether defensi v e m ov escan b e taken to l ess enthei r i mp act, and wheth er the costs of u ndertaki ng su ch mov esrepresent the best us e of compa ny resou rces.

29. Module 3 - Internal Analysis ValueChain Ev ery bu si ness consi sts of a coll ecti on of acti v i ti es under tak en in th e course of produci ng, m arketi ng, d eli v eri ng, an d s uppor ti ng i ts product or s erv i ce . A ll th e v ari ous acti v i ti es that a company performs i nternal l y combi ne to form a value chain It is so cal l ed so beca us e th e u nd erl yi ng i nte n t of a a cti v i ti es is ul ti matel y to creat e value f or buy ers . a v al ue chai n consi sts of two broad c ategori es of acti v i ti es : th e pri mary acti viti es fore most in crea ti ng v al ue for cus tomers an d th e r equi si te s upport acti viti es that faci li tate and enhance the performance of the pri mary acti v i ti es . Wi th i ts focus on v al ue - creati ng acti vi ti es , th e v al ue chai n is an i deal tool for exami ni ng the worki ngs of a customer v al ue proposi ti on and busi ness model . It permi ts a de ep l ook at th e cost s truc ture a nd abi li ty to offer l o w p ri ces . It rev eal s th e e mphasi s tha t a company pl aces on acti v i ti es tha t e nha nc e di fferen ti ati on and s uppor t hi gher pri ces , such as s erv ice and marke ti ng . It al so incl ude s a profi t margi n compone n t, si nce profi ts are n ec essar y to compensat e th e o wn ers an d i nv estors , wh o bear ri sks and provi de capi tal . Tracki ng th e profi t margi n al ong wi th th e v al ue - crea ti ng acti v i ti es is cri ti cal becaus e u nl ess an e n terpri se succe eds in deli v eri ng cus tomer v alu e profi tabl y (wi th a suffi cie n t retur n on i nv este d capi tal ), it s urv iv e for l ong . A ttenti on to a profi t formul a in addi ti on to i ts cus to mer v al ue proposi ti on is the essence of a sound busi ness model . [U 3 A 6 ]

30. Module 3 - Internal Analysis Val u e chai n anal ysi s faci li tates a compari son of how ri v al s, acti v i ty by acti vi ty, d eli v er v al ue to cus tomers . Ev e n ri v al s in th e same i ndus try may di ffer si gni fi cantl y in terms of th e acti v i ti es th ey perform . For ins ta nc e , th e compone n t of th e v al ue chai n for a manufac turer tha t makes al l of i ts o wn par ts and componen ts and asse mbl es them i nto a fi ni shed product di ffers from th e of a ri v al producer th at b uys th e n e ed ed par ts and compon e n ts from ou tsi de suppl i ers and performs only assembl y operati ons . How eac h acti v i ty is performed may affect a rel ati v e cost posi ti on as wel l as i ts capaci ty for di fferen ti ati on . The combined costs of all the various primary and support activities constituting a value chain define its internal cost structure . Furth er , the c ost of e ach a cti v i ty contri bu tes to wh e th er th e ov eral l cos t posi ti on rel ati v e to ri v als is fav orabl e or unfav orabl e . Key purposes of value chain analysis and benchmarking are to develop the data for comparing a costs activity by activity against the costs of key rivals and to learn which internal activities are a source of cost advantage or disadvantage . Th e c ombi ned cos ts of al l th e v ari ous pri mary and support ac ti v i ti es consti tu ti ng a v al ue chai n defi ne i ts i nter nal cost str uc tur e . F urther , th e cost of each acti vi ty contri butes to wh e th e r th e ov erall cos t posi ti on rel ati v e to ri v al s is fav orabl e or unfav orabl e . Key purpos e s of v al ue ch ai n anal ysi s an d benchmarki ng are to dev el op th e data for compari ng a cos ts acti v i ty by acti vi ty agai nst th e c osts of key ri v al s and to l e a rn whi ch i nternal acti v i ti es are a so urce of cost adv antag e or di sadv antage .

31. Module 3 - Internal Analysis Va luechain system v al uechai nsand the v al uechai ns ofwha tev er whol e sal e di stri butors and retai l ers i tuses i ngetti ng i tsproduct or serv i ceto end users. Thi s value chai n sy st em has i mpl i cati onsthat extend far beyond v al uechai nsare rel ev ant because suppl i ersperform acti v i ti esand i ncurcosts i ncreati ng and - creati ngacti v i ti es.The costs, di fferenti ati oncapabi l i ti es.A nythi ng acompany can doto hel p i tssuppl i ersdri v edown the costs of thei rv al uechai nacti v i ti esor i mprov ethe qual i ty and performance of the i tems bei ng suppl i ed can enhance i ts own competi ti v eness a powerful reason forworki ng col l aborati v el ywi th suppl i ersi n - channel partners are rel ev ant because ( ul ti mateconsumer pays and ( 2 ) the acti v i ti esthat di stri buti onal l i esperform affect sal es v ol umesand customer sati sfacti on. For these reasons, compani es normal l ywork cl osel y wi th thei r di stri buti onal l i es(who are thei r di rect customers) to perform v al uechai nacti v i ti esi nmutual l y benefi ci al ways. A saconsequenc e , chai nact i vi t i est hroughout t he ent i re value chai n sy st em f ordeli veri ng i t sproduct s orservi ces t o end - use cust omers. [U3A7]

32. Module 3 - Internal Analysis Benchma r king entai l s comp ari ng how dif ferent comp ani es (and dif ferent t ypes of com pa nies) perform v ari ous v al uechain acti v i ti es how m ateria l s are purchas ed, how i nv entories are m anaged, how products are ass em bl ed, how fas t the com pa ny can get new products to m arket, how cus tomer orders are fi l l edand s hip ped and then m aki ng cross - comp any comp ari sons ofthe costs and eff ecti v eness of these acti v i ti es. 16 The objecti v es ofbenchm arki ng are to i denti fy the best p racti ces i nperformi ng anacti v i ty and to em ul ate those best p racti ces. A bes t pr actice i s am ethod of p erform i ng anacti v i ty or bu si ness p rocess that consi stentl y del i v ers su perior resu l ts comp ared to other ap proaches. To qu al i fy as al egi ti m ate best pra cti ce, the m ethod m us t hav ebeen em pl oy ed by at l eas tone enterpri se and s hown to be unus ual l y eff ect i ve i nl owering costs, im prov ingqual ity or performance, shortening tim e requi rements, enhancing saf ety , or achiev ing som eother highl y pos i ti v eoperati ng outcome. Best pra cti ces thus i denti fy apa th to operati ng excel l encewi th resp ect to v al uechain acti v i ti es. A comp any that does a fi rst - rat ejob of m anaging i ts v al uechain acti v i ti es rel at i ve t ocomp et i t ors - creati ng acti v i ti escan off er acomp eti ti v e adv antagei n one of two way s (or both): 1. They can contrib ute to greater eff i ciency and l ower costs rel ati v eto comp eti tors. 2. They can p rov i de aba si sfor di ff erenti ati on, so cus tomers are wi l l i ng to pa y rel ati v el y m ore for the