Internal Analysis and SWOT Analysis (c)

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Internal Analysis and SWOT Analysis
Background
The Case in this course is an ongoing exercise, meaning that we will be taking an intensive look at one company over the course of our five modules. This session, we will be conducting a strategic analysis of the Kraft Foods Group. The best preparation for doing well on the Case Assignments is to complete the Background information reading and the SLP before writing the Case.
The outcome of this Case is to complete an internal analysis of the Kraft Foods Group. In doing so, you will partially use the RBV framework in your assessment of the organization’s strengths and weaknesses. Your internal analysis will lead to the completion of a SWOT analysis (which you will finalize in Module 4).
Required Reading
SWOT analysis: Lesson. (2009). Retrieved on November 6, 2012, from: http://marketingteacher.com/Lessons/lesson_swot.htm
Zahorsky, D. (2009). A business owner’s secret weapon: SWOT analysis. Retrieved on November 6, 2012, from: http://sbinformation.about.com/cs/bestpractices/a/swot.htm
Assignment
The completion of an internal profile can be an extensive undertaking, requiring far more time and resources than we have for this course. So—as in prior modules—limit your analysis to the identification and evaluation of one or two key items in each element of the model, as described in the Background reading.
Keys to the Assignment
• Step One: Conduct a critical and thorough internal analysis of the Kraft Foods Group, assessing as many of the company’s internal strengths and weaknesses as you can. Incorporate the results of your RBV analysis from the SLP exercise into your discussion. Also, consider the operations, customer service, finance, human resources management, and marketing functions. See the following website, as it will help you decide which strengths and weaknesses you might wish to evaluate: http://www.businessballs.com/swotanalysisfreetemplate.htm
• Step Two: In a 5-page paper, present the results of your internal analysis, leading to conclusions about the strengths and weaknesses facing the Kraft Foods Group as revealed by your analysis.
• Step Three: Synthesize your internal analysis with your external environmental analysis (from Module 2 provided below) and complete an overall SWOT analysis. In essence, you are to recommend—based on your SWOT—specifically what the company should do. Give your overall analysis—does the company have more strengths than weaknesses? More weaknesses than strengths? Whatever you decide, you need to recommend (with explanations) a company strategy—in response to your collective assessment of the organization’s strengths, weaknesses, opportunities, and threats.
• Step Four: Consider the Case as a formal business report that you are developing for the Board of Directors and CEO as the Kraft Foods Group’s consultant. This is a professional document. Follow the format below:
o Executive summary: This is a synopsis of the main points, conclusions and recommendations made in the longer report. If you would like a refresher on writing an executive summary, check this website: http://www.highendfinance.com/CommercialLoans/Docs/07-4%20ES%20Guidelines.doc
o Introduction: State the main purpose of the paper (thesis statement), what you hope to accomplish, and how you will go about doing it.
o Main Body: The “meat” of the paper. Emphasize analysis, not just description. Delineate separate topics or sections with section headings.
o Conclusion: Summarize your paper in the light of your thesis statement.
Assignment Expectations
The paper will be evaluated on the following seven points:
• Precision – Does the paper address the question(s) or task(s)?
• Breadth – Is the full breadth of the subject (i.e., the Keys to the Assignment) addressed?
• Depth – Does the paper address the topic in sufficient depth and include the background readings and other background resources as references?
• Critical thinking – Is the subject thought about critically, that is, accurately, logically, relevantly, and precisely?
• Clarity – Is the writing clear and are the concepts articulated properly? Are paraphrasing and synthesis of concepts the primary means of responding to the questions or are points conveyed through excessive use of quotations?
• Organization – Is the paper well written? Are the grammar, spelling, and vocabulary appropriate for graduate-level work? Are headings included in all papers longer than two pages?
• Referencing (citations and references) – Does the paper include citations and quotation marks where appropriate? Are the references from the background readings and assignment present and properly cited? Are all the references listed in the bibliography present and referred to via citation?

 

Background Information
Internal Analysis and SWOT Analysis
One of the criticisms of Porter’s Five Forces Model (and external analyses in general) is that while Five Forces can certainly help in the identification of problems and difficulties that firms are likely to encounter in a given industry, the model does not provide insight into what a particular company can do to manipulate those forces in its favor, thus gaining a competitive advantage.
In Module 3, we will focus on an analysis of the internal environment, or the internal company. At the conclusion of this process, we will have what is sometimes referred to as a “company profile” or an “internal profile.” Two useful frameworks that will help us to focus on the essential factors for analysis of the internal environment are Porter’s Value Chain and the Resource Based View framework (RBV).
After conducting an analysis of an organization’s internal environment, you will be in a position to complete the last two elements of the SWOT analysis: identification of the strengths and weaknesses of a company.
Internal Analysis Components
Before we introduce the analytical models we will be using in this module, some background information will be helpful. A company has (A) primary activities and (B) support activities.
A company’s primary activities are:
• Research and Development (R&D)
• Production (manufacturing)
• Marketing and Sales
• Customer Service
A company’s support activities include:
• Materials Management
• Human Resources
• Information Systems
• Infrastructure
A. Primary Activities
• Research and Development (R&D) includes development and design of products and production processes. Many manufacturing companies have separate R&D departments. For highly innovative companies (such as 3M), this may be one of the most important departments in the organization. Some service companies may include R&D activities as a part of marketing or customer service functions. For instance, banks introduce new products to attract customers.
• Production is in charge of creating goods or services. Some companies manufacture products. Banks make loans. Retail companies sell products. These are instances of production.
• Marketing and Sales plays several roles. It advertises and positions the brand, identifies marketing needs, and sets pricing.
• Customer Service provides after-sale service.
B. Support Activities
• Materials Management manages the logistics of moving materials from procurement of inputs to production and then moving outputs through distribution to customers. Inventory management is part of the Materials Management support activity.
• Human Resources is focused on employing the necessary skills mix to carry out the organization’s mission, and to motivate, train, and compensate the workforce.
• Information Systems refers to computer support in processing functions and supporting company operations, as well as Internet.
• Infrastructure refers to organizational structure, controls, and culture. The infrastructure must be capable of supporting the primary activities of the organization and must also be compatible with its strategy.
Presentation on the Internal Environment
Review the following presentation by Dr. Connelley. For Part Two of the narrated slide presentation on strategic situation analysis, click on the title below. This slide presentation focuses on the importance of optimizing the internal functions of an organization to create added value to the firm’s products or services: Strategy for the Internal Environment
Porter’s Value Chain
Porter’s Value Chain is a widely used framework for organizing and interpreting an internal analysis. It is pictured below and is also discussed in the previous PowerPoint presentation. You can see that the Value Chain considers both primary and support activities, although it may use slightly different labels and definitions. By managing the various components of the value chain, companies can achieve a cost advantage over competitors, or distinguish themselves from competitors by offering a distinctively better product or service. Read more about Value Chain analysis at:
The Value Chain. (2007). Retrieved on November 6, 2012, from: http://www.netmba.com/strategy/value-chain/

While the Value Chain can be a valuable tool for breaking down and streamlining costs and creating maximum value, it is a complicated process that typically involves considerable quantitative analysis. Refer back to the reading for Module 2 for a review of the various types of financial ratios that are used to determine the value of various components of the chain.
The Resource Based View
The Resource Based View (RBV) arose in direct response to the criticism mentioned previously, that is, the external analysis is much less useful to a company seeking to attain a competitive advantage than are its internal capabilities and resources.
“Instead of focusing on the accumulation of resources necessary to implement the strategy dictated by conditions and constraints in the external environment (I/O model), the resource-based view suggests that a firm’s unique resources and capabilities provide the basis for a strategy. The business strategy chosen should allow the firm to best exploit its core competencies relative to opportunities in the external environment.”
Source: “Strategic Management – Competitiveness and Globalization”, M. A. Hitt, R. D. Ireland, R. E. Hoskisson
Central to this analytical view is the notion that a firm’s core competencies and resources are more critical to the development of a strategy than the external environment. In reality, the truth probably lies somewhere in between, with a balance between external demands and internal capacities leading to the most successful competitive position. This is the essence of a SWOT analysis, and RBV can certainly inform an analysis of strengths and weaknesses.
For an excellent review of the basics of the Resource Based View, read the following chapter:
Henry, A. (2007). The Internal Environment: A Resource Based View of Strategy. Understanding Strategic Management. Oxford University Press. Retrieved on November 6, 2012, from http://www.oup.com/uk/orc/bin/9780199288304/henry_ch05.pdf
Required Reading
Connelley, D. Strategy for the internal environment. Power Point presentation.
Henry, A. (2007). The Internal Environment: A Resource Based View of Strategy. Understanding Strategic Management. Oxford University Press. Retrieved on November 6, 2012, from http://www.oup.com/uk/orc/bin/9780199288304/henry_ch05.pdf
The Value Chain. (2007). Retrieved on November 6, 2012, from: http://www.netmba.com/strategy/value-chain/
The following presentation is a good overview of internal analysis:
Bramha, D. (2011). Internal Analysis in Strategic Management. Retrieved on November 6, 2012, from: http://www.slideshare.net/guestd507e7/internal-analysys-of-strategic-management-presentation
Case Reading
SWOT analysis: Lesson. (2009). Retrieved on November 6, 2012, from: http://marketingteacher.com/Lessons/lesson_swot.htm
Zahorsky, D. (2009). A business owner’s secret weapon: SWOT analysis. Retrieved on November 6, 2012, from: http://sbinformation.about.com/cs/bestpractices/a/swot.htm
PREVIOUS MODULE 2 CASE ASSIGNMENT
Executive Summary
Kraft Foods International is a company, which is involved in the supply of food and beverages in North America. The company has been supplying food and beverages for years but not without a number of challenges, which result from customers, competitors, and even suppliers. The company is seeking ways to increase the opportunities that are presented by innovations in the food and beverage industry while, at the same time, find possible ways of countering the threats presented by emerging new competitors in this type of industry.
Introduction
There are many models of studying the external environment in relation to any business. In this study, the focus will be on porter’s five forces, which will be used in analyzing the external environment in Kraft Foods International. The study will use Porter’s Five Forces and PEST Analysis to analyze the market and financial position at Kraft Food International
Porter’s Five Forces
The five forces that are described by Michael Porter in the analysis of the external environment are rivalry, threat of new entry, substitutes, bargaining power of suppliers, and bargaining power of customers (Vedder, 2008).
Rivalry
Kraft Food Inc. has been the largest distributor of food and beverages in North America. However, in recent times, the company has been experiencing stiff competition from newcomers in the industry. The results of this competition can be either positive or negative in terms of profits made. Therefore, the company should seek ways of having a competitive advantage over their rivals. It is said that competition is the major cause of rivalry among firms. Unfortunately, Kraft Food Inc. did not foresee that new competitors in the market would change the market swift of their products. This is because the new competitor concentrates on innovations that have revolutionized the food and beverage industry. Furthermore, these new companies have reduced the market share that was held largely by Kraft Food Inc. for decades in North America. The straightforward question here is how to change the current market situation in line with the new competition. The company can adopt a number of ways that can work to their own advantage. Firstly, the company can change the prices of its products. Increasing prices is only possible if the company has loyal customers as this would mean that the company would continue to sell its products despite the challenges that are being experienced. Consequently, lowering of prices might increase sales while, at the same time, maintain their market share. However, this has its disadvantage in that consumers could view this as a reduction in quality of the product and services. Furthermore, this can be countered by maintaining proper campaigns in terms of the advertisement or other professional marketing schemes. Secondly, the company can try to improve on the product features. Thirdly, Kraft Food Inc. can concentrate on creating new distribution channels that will ensure the availability of their products in the market (Harrison & Caron, 2010). This is something that Wal-Mart has capitalized on.
Threat of New Entry
This force is inevitable in any industry as it is the main cause of new competition. However, industries need to be prepared for new competition and should formulate ways of countering competition. In reality, the ability to enter and exit a market is prominent in all industries. However, Kraft Food Inc., which has the largest markets share, has formulated ways of protecting their profit level. In turn, this discourages new rivals from entering the market. These characteristics of inhibiting new entry are known as barriers to entry. Kraft Food Inc. has a reputation of producing quality products in North America. This reputation has helped the company survive the threat of entry by lowering prices of its product and services. In doing so, their profits remain marginal; hence, discouraging the entry of new firms (Bohm, 2009).
Threat of Substitutes
Kraft Food Inc.’s focus is the production of packed food and beverages. These foods are packed in sustainable packaging that ensures a long shelf life of the product. However, retailers and resellers have found ways of storing food in order to maintain its freshness. The use of refrigeration in supermarkets is one such form of preventing food and beverages from perishing. This has presented a major threat to companies like Kraft food Inc. since customers prefer to take fresh food and beverages as compared to canned products. Furthermore, the threat tends to affect the prices of these commodities since the packaging cost is eliminated (Harrison, & Caron, 2010).
Buyer Power
Buyer power can be either powerful or weak since it is the impact that purchases have on a producing company. When the buyer power is strong, this can only lead to three instances: firstly, there are a few buyers with significant market share; secondly, buyers purchase a significant number of outputs; or thirdly, buyers possess a credible backward integration threat. When the buying power is strong and the demand comes from one source, the producing industry is known as a monopsony. When this condition occurs, the buyers tend to control the price. On the other hand, buyers are weak if; producers threaten forward integration, significant buyers tend to switch because the products are not standard, buyers are fragmented, or producers supply critical portions of buyers. The buyer power, with regard to Kraft Foods Inc., is weak and as a result, the company controls the prices (Bohm, 2009).

 

Supplier Power
Supply power is very delicate in averting the market trends of producing industries. This is because producing industries require raw materials to facilitate the manufacture of their final products. Kraft Foods Inc. has an advantage over other companies producing food and beverages because its concentration is in North America where there is the availability of raw materials; hence, making the supplier power weaker. This means that the supplier has no control on the prices of raw materials (Henry, 2008).
PEST Analysis
A strategy consultant uses PEST Analysis in the understanding of macro environment under which the firm operates. However, it is pertinent for consultants to note that, although PEST Analysis plays an important role in value creation opportunities of a strategy, these factors are beyond the control of any firm. Therefore, they can be considered as mere opportunities. PEST stands for the following four factors: political, economic, social, and technological.
Political Environment
The political environment encompasses factors that are inclusive of taxes, licenses, consumer protection, employment laws, competition regulation, and political as well as social stability. In the case of Kraft Food Inc., the company concentrates more on the production of food and beverages. However, the company has to be keen on the health effect of its products because failure to do so may lead negative publicity in regards to protecting consumers healthy as a whole. In addition, there are rules and regulations set by the government such as the law of licensing, which can lead to the revocation of a license if a firm does not act in accordance to the law proper laws governed by the Food and Drug Administration (FDA).

Economic Environment
The economic environment includes factors, which influence economic growth, interest rates, government spending, exchange rate, inflation, stage of the business cycle, and consumer confidence. When a country is registering slow economic growth, the monetary value of the country in question is affected. This means that the country is spending more than it can actually produce. In the end, it means that the producers of goods and services will have to pay more to acquire raw materials if the said raw materials are imported. This, in turn, will translate to an increase in the price of goods and services such as the case with Kraft Food International (Bohm, 2009).
Social Environment
Social environment factors are related to income, demographic and population growth rate, labor and social mobility amongst other factors. Kraft Food International enjoys a large market share in North America because there is availability of labor and raw materials in this region. In addition, there is a large population of people living and working in North America; hence, there is availability of market (Vedder, 2008). Kraft Foods also takes advantage of the company being an American company and in today’s social environment of “Buy American” patriotism; it’s effective.
Technological Environment
There are evolving new technologies, on a daily basis. This means that companies like Kraft Foods Inc. have to be ahead of the power curve with innovations in order to prevent the extinction of old products in the market. As a result, there is a massive improvement on the designs and quality of products in order to increase sales (Bohm, 2009).

Overall Impression
Kraft Foods Inc. has been up to date with current developments as this is seen in the improvement of their product designs and quality. This allows them to stay relevant in the food industry. In addition, the evolving innovations present a better platform for Kraft Foods Inc. to improve on the quality of their product.
Conclusion
Porter’s five forces are an important tool that Kraft Foods International needs to use in the analysis of the external environment of the firm. Furthermore, PEST Analysis helps in the analysis of those factors, which the firm has no control of but are inevitable.

Description

The SWOT analysis model is a useful tool that can be utilized by different business entities to understand several internal and external issues that affect the running of the organization. SWOT is an acronym that stands for Strength, Weaknesses, Opportunities, and Threats. A SWOT analysis represents a tool that companies use in order to understand what they do well and where they could improve. Furthermore, it enables them to get insights into the market. Strengths and weaknesses portray the internal perspective of a company and can be controlled and influenced. Opportunities and threats on the other hand are concerned with the market and represent factors that cannot be controlled. In this study a SWOT analysis will be conducted on key issues concerning Kraft Foods International in order for the company to be able to cope with future changes (Zahorsky, 2009).