Internal Analysis
Internal Analysis
Introduction
According to David (2011), every organization has weaknesses and strengths in its functional areas. Organizations have several functional areas depending on the industry they operate in. A firm that seeks competitive advantage against rivals must build on its distinctive competencies, which are inimitable strengths that others cannot replicate. Similarly, it is important to build on weaknesses and to turn them into strengths. The process of internal analysis, therefore, involves establishing the company’s strengths and weaknesses within key functional areas. Once completed, an internal analysis helps employees to understand and perform their roles within the larger organizational context. This in turn improves communication, a crucial aspect of management (Dess et al, 2012).
This paper presents an internal analysis of Time Warner Cable Company (TWC). It is a telecommunication giant in the United States and globally. Headquartered in the US, this firm is involved in production of films, television production and broadcasting, and entertainment in general. The firm came into being in 1990 when Time Inc. and Warner Inc. merged. Among its renowned trademarks are Warner Books, CNN, Cartoon Network, Castle Rock Entertainment, Boomerang and New Line Cinema (Time Warner, 2013). It has operations in almost 30 states. Time Warner Inc. has strong competitors like Sony, CBS Corporation, Comcast, 21st Century Fox, Walt Disney and Viacom, to name a few (Warner, 2016). From the foregoing, it is important for the firm to devise strategies to remain competitive. Rivals firms often study the weaknesses of competitors to identify areas that can be exploited to take away the respective market share. The strengths of a company like Time Warner can also be replicated or improved by competitors. For this reason, this firm needs to carry out an internal analysis of its systems (David, 2011).
Dess et al (2012) identify three key areas of an internal analysis of an organization. Firstly, Resources Based View (RBV) analysis is based on the rationale that internal resources play a greater role in determining competitive advantage than external resources, thus demanding critical scrutiny and optimization of the former. Secondly, value chain analysis encompasses all the activities involved in designing, producing, marketing, supporting and delivering products and services to the consumer. Lastly, core competency analysis involves scrutiny of organizational capabilities and Key Success Factors (KSF).
According to David (2011), a firm should invest more in analyzing its internal resources if it is to increase its market share. Dess et al (2012) opine that this perspective is based on the rationale that a company’s competitive advantages stem from possession of strategic resources that are valuable, exceptional, expensive to replicate and organizational capability. This approach includes both internal phenomena and the competitive environment of the industry. Moreover, RBV analyzes tangible and intangible resources and the capabilities of the organization. RBV can help to explain the relative success of one competitor over the other by analyzing the manner in which both are utilizing and optimizing their resources. It can also assist firms to create strategies for individual enterprises and diversified firms by showing how a firm’s core competencies can be useful in creating new products and exploiting novel markets. A firm’s resources are the capabilities, assets, information, organizational process, knowledge and so on, that a firm possesses and which are useful in creating and implementing strategies that add value to the firm.
Tangible Resources
Financial ratios
Source: Stock Analysis on Net (2016).
The resources that one can identify easily are said to be tangible. Material and financial assets that are used in the creation of value for customers are tangible in nature. The liquidity ratio entails current and quick ratios. Current ratio is derived by calculating current assets over current liabilities. Time Warner’s current ratio improved between 2013 and 2015, rising from 0.41 to 0.62). On the other hand, quick ratio is derived by computing cash and temporary investments and received products against current liabilities. From the table above, between 2013 and 2015, the quick ratio of this firm appreciated from 0.28 to 0.53). The analysis of both ratios shows that the firm has the ability to pay its liabilities.
The activity ratio is described in two categories: net fixed assets turnover and equity turnover. The former is calculated by dividing the revenue of a firm with the value of all fixed assets. It is evident that the net fixed assets turnover of this company ameliorated between 2013 and 2015 (from 7.79 to 10.83), which indicates the company was profitable and competitive. Similarly, the equity turnover, which is calculated by dividing total revenue with the equity of the shareholders, improved in the three years (from 1.1. to 1.19). This indicates that the firm was not only profitable but also worth to invest in.
The following two profitability ratios illustrate the competiveness of Time Warner Company. The ROE, which is arrived at by dividing net income with shareholders equity, improved from 12.34% to 16.23% within the three years. This means shareholders were getting good value for the investment. Similarly, the operating profit margin, which is calculated by dividing operating income with revenue, appreciated from 22.17% to 42.55% between 2013 and 2015. This implies that the company was making a steady profit over that period and was, therefore, competitive.
Physical resources
Physical resources include equipment, plants and machinery but can encompass geographical closeness to suppliers and customers. Financial resources include accounts receivables, cash and creditworthiness. Organizational resources comprise the process of planning in an organization as well as how employee capacity is built, performance evaluation and concomitant reward systems. Finally, examples of technological resources are patents, trade secrets and copyrights (David, 2011).
Technological resources
Time Warner Cable Inc. is a renowned company in media entertainment industries and it has a gigantic studio to take care of its filming needs. The company has invested in modern equipment to ensure it produces the best movies and that it remains profitable in a highly competitive industry. Further, the company, whose headquarters is in Atlanta, Georgia, has other outlets in Los Angeles, New York, London and Hong Kong. All these are prime areas for acting movies and broadcasting news. Moreover, movies stars and film lovers are likely to visit these cities since they are known for their affluence and attraction of millions of visitors every year. Despite this effort, Time Warner is still not the best firm in some segments
Intangible Resources
Dess et al (2012) asserts that it is not easy to identify intangible resources or to account for them since they are entrenched in in imitable practices and routines such as innovation resource, human resources and reputation resources, which have been in place over the years. The difficulty of identification applies to both internal managers and competitors. Innovation resources encompass scientific and technical know-how; human resources comprise trust, capability of workers, effectiveness in performance and experience, while reputation resources include favorable reputation with customers and suppliers for reliability and quality of services or products. Moreover, organizational culture can be an important intangible resource that contributes to competitive advantage.
Intangible resources also contribute immensely to competitive advantage for Time Warner Company. Over the years, employees of this firm have garnered a lot of experience and this has helped the company to remain profitable and in operation for many years. The low rate of employee turnover at the firm is indicative of the high regard with which the firm is held by its workers. In 2013, Time Warner Company was ranked seventh among the best employers in the US (Smith, 2013). Employees’ satisfaction acts as a spur for competitive advantage in the firm. The firm is also renowned for its innovativeness as evidenced by the countless movies, television programs, magazines, animations and other products it has released over the years. A case in point is the many awards that CNN has won over the years for exemplary journalism. Time Warner Company’s competitive advantage also emanates from its favorable reputation as a conglomerate that has deep roots in the industry it operates in. For example, Time Magazine is still one of the most reputable newspapers on the planet despite the emergence of equally-strong competitors. The organizational culture of the firm, which emphasizes innovation and attention to customer demands, is also responsible for the company being a leader among its peers. Time Warner Company has a diverse workforce from different gender, racial and cultural backgrounds thus giving it a favorable reputation across the globe (Smith, 2013).
Value Chain Analysis
A value chain entails looking at the organization as a series of interrelated activities that create value. The value chain concept is important in appreciating how competitive advantage is built. Porter (1985) views value as the cost consumers want to pay to get the value that a firm is offering. A firm’s total revenue, the prevailing price of the firm’s product in the market and the volumes the company sells are the measures of the value of that company. When a firm’s value is more than the money it used to produce the product, the firm is said to be profitable and competitive. Porter described two types of activities that contribute to organizational competitiveness: primary and secondary activities.
Primary activities
Inbound logistics is concerned with receiving, keeping and issuing inputs in the production process. It encompasses handling the raw materials, putting them in a warehouse, managing the inventory, scheduling vehicles and communicating with the supplier (Dess et al, 2012). A good example of inbound logistics is JIT (Just in Time) which ensures materials are received just hour before they are to be used. Time Warner Company is involved mainly in the media and entertainment world where information and fun is packaged for the client in a manner that elicits excitement and relaxation. In essence, the issue of inbound logistics may not play a great role in determining competitive advantage since the firm does not handle bulky items. However, the firm has in place mechanisms in all its studios to take care of any materials and equipment delivered by different suppliers.
According to David (2011), operations entail each and every activity undertaken in the process of manufacturing raw materials into finished products. These include machine work, packing, assembling, analysis and printing. Competitive advantage can be achieved when a firm manufactures products in a manner that minimizes damage to the environment. Time Warner Company produces information, documentaries, movies etc. and packages them in various formats such as newspapers and DVDs. However, owing to modern technology and the increasing role of the internet in communication, most of the firm’s products are distributed electronically, whereby people read Times Magazine on websites or stream news via the internet.
The focus of outbound logistics is gathering, storing and dispatching the finished product or service to the consumer. The activities involved in outbound logistics are handling finished goods, keeping them in a warehouse, ensuring they are delivered to the right place, processing orders and scheduling (Dess et al, 2012). Outbound logistics at Time Warner Company involve distributing information and entertainment to consumers and this is done over the internet, with information being stored in databases. This increases competitive advantage in that not much money is used in distribution.
Marketing and sales involves users or buyers paying to have the service or product, as well as the strategies to be used to persuade them to buy. The activities involved here are promotion, advertising, quoting, sales force, pricing and channel selection and relations. Product placement is a modern approach in marketing that seeks to meet the needs of buyers who are averse to mainstream advertising (David, 2011). Time Warner Company has created well-known trademarks and brand names that do not require a lot of marketing. Being owners of renowned media outlets, Time Warner Company subsidiaries actually make profits through publicizing others. HBO, CNN, Cartoon Network and Time Magazine do not require advertising to be bought. Brand loyalty, therefore, increases competitive advantage.
Service encompasses the provision of service in a manner that improves or maintains the worth of the item in question. These activities include installation, maintenance, supply of parts, training and making pertinent changes to products (Dess et al, 2012). One of the ways in which Time Warner Company excels in competitive advantage is in allowing their customers to restart live coverage on some channels. Moreover, Time Warner Company advertisement services are highly regarded because of their wide coverage and responsiveness to customer needs.
Secondary activities
Procurement entails buying the inputs needed within the supply chain of the firm. Such inputs include consumable items in the process of production, assets, office and lab equipment, buildings and raw materials (Dess et al, 2012). Time Warner Company is involved in procurement when it contracts movie actors or documentary creators to come up with movies or programs. Its large scale of operation and coverage come in handy when convincing content suppliers to work with Time Warner Company and not competitors such as Disney. This is a form of competitive advantage.
Technology Development implies that there is no value activity that does not require automation. There are many uses of technology in a firm especially in the processes of manufacturing, communication and transport. The value chain depends on effective use of technology, while individual processes also require technology to succeed. Time Warner Company is a technology-based company, which means all its processes depend on how well the internet and other information communication technologies work. Competitive advantage is evident here when one considers that market leadership of Time Warner Company, the subsidiary that offers high-speed data services.
Human resource management (HRM) entails the activities that help to bring the right kind of people to aid the production and other functions in the firm. They include recruiting, employing, training and development and various kinds of remuneration. HRM helps with individual primary activities and support activities as well as the value chain in its entirety. For example, the HR manager hires engineers for particular jobs but the firm also deals with labor unions on employment issues respectively. Time Warner Company hires the best talent especially because it is focused on satisfying its customers and also because it can pay high salaries. Working for CNN, for example is considered a lucrative venture and one full of prestige. This magnetic attraction of the best talent is a form of competitive advantage (Smith, 2013).
General Administration entails management, controlling, financing and respective accounting, managing quality, dealing with state and legal matters and managing information systems. The entire value chain is supported by administration. Administration is not just an overhead; it plays a great role in achieving competitive advantage (Dess et al, 2012). One of the indisputable strengths of Time Warner Company is leadership and management. Over the years and through numerous mergers and buyouts, the firm remains among the best managed to the extent that people rarely know who is in charge.
Core Competency Analysis
Organizational Capabilities
In addition to tangible and intangible resources, organizational capabilities exist in an organization and are crucial in determining competitive advantage. Organizational capabilities are skills or competencies used by a company in the process of changing inputs into outputs. Another way of understanding these capabilities is to realize that they represent the capacity of a firm to position both intangible and tangible resources over a period of time. These resources are deployed together in order to control organizational capabilities in the quest for specified goals. Agile manufacturing procedures, superior product improvement abilities, top-notch innovation procedures and exceptional customer care are examples of organizational capabilities. In essence, the organization must possess specific knowledge and skills over and above what rivals have if the former is to have competitive advantage (David, 2011).
Time Warner Company thrives because of its ability to diversify its portfolio, something which most of its competitors are unable to replicate. This firm has over the years created a niche for itself in all the sectors it operates in. The firm offers advertising, high speed data services, entertainment and movies and so on. The synergy created through engaging in all these activities plus the lessons derived by the company make it more competitive than its rivals. Moreover, years of operation have resulted in a rapport with customers to the extent that the firm can predict, with a high degree of certainty, what a certain niche of clients will receive and enjoy.
VRIO analysis
According to Dess et al (2012), it is important, however, to realize that resources by themselves do not create competitive advantage. Moreover, any competitive advantage derived from tangible and intangible resources is not sustainable on long term basis. For example, certain resources can help a firm lower the cost of production or to augment profits, but rivals will replicate such a strategy or create a substitute product, and the firm will lose its competitive advantage. It is crucial, therefore, to infuse resources with some attributes if these resources are to yield sustainable competitive advantage to the organization. To this end, there are important four qualities of a resource, which are summarized in the acronym – VRIO.
V stands for Valuable. If a resource is valuable, it will contribute significantly to long-term competitive advantage. A valuable resource is a tool in the formulation and execution of policies and plan that ameliorate the effectiveness and efficiency of the firm. According to the SWOT Analysis, firms can become more efficient if they maximize on their opportunities while neutralizing threats. Only a valuable attribute is regarded as a resource. However, under RBV, resources are supposed to acquire additional characteristics in order to contribute to continuous competitive advantage (Dess et al, 2012). For Time Warner Company valuable resources are those that the firm has had for many years and which competitors are unable to copy. For example, CNN is now a global brand that few can challenge. It is arguably the most valuable brand of the firm. The same can be said of Time Magazine. It is the pinnacle of success and a confirmation of celebrity status for one to appear on the cover of this prestigious publication. In essence, CNN and Time are valuable resources that no other institution can replicate thus giving Time Warner Company a competitive advantage.
R represents the attribute “Rare”. In a case where competing firms have the same resource none of them has competitive advantage over the other. If the methods of exploitation of that resource by the same firms are also similar, no company will have a significantly larger market share. Only the firm that has a resource that others do not possess has sustainable competitive advantage. Rarity can also be understood in the context of bundling together a number of resources in a unique way to create a product or resource that competitors cannot replicate. For example, a firm can amalgamate tangible and intangible resources and organizational capability to produce strategies and policies that other firms cannot copy (David, 2011). While Time Warner Company does not have a single resource that can be said to be rare, its business strategy is indeed rare. The fact that the firm is involved a range of businesses and industries means that losses in some sectors can be leveraged by gains in other business segments. In addition, Time Warner Company business is largely carried out over the internet unlike some of the competitors who still rely on mainstream media to reach their clients. It is important to cite the global reach of CNN and Time as a rare resource that rivals may never replicate.
“I” stands for Inimitability or Imperfectly Imitable Resource. It is evident that an organization with a valuable and rare resource is likely to have competitive advantage over rivals. However, if competitors can easily create substitutes of the same products then competitive advantage will be lost. Inimitability is, therefore, important because the product will have no viable rival in the market. Despite this, competitors eventually will find a way to copy the product or service. Firms must, therefore, find strategies to profit maximally from the product before it is imitated. Moreover, companies can also use other strategies to sustain competitive advantage based on a resource that is difficult to copy. One of these approaches is having a product with a unique physical appearance (Dess et al, 2012). For example the brand names and logos of CNN, HBO, Cartoon Network and Time are not easily replicable. Another approach is path-dependency, which implies that customers have for a long time depended on a product or service that has unique characteristics and name to the extent that a competitor cannot replicate brand loyalty and experience garnered over time. An example of this kind of dependency is the fact that billions of people rely heavily on CNN for global news as opposed to other broadcasting companies. Causal ambiguity also contributes to inimitability in products. This is because competitors cannot establish how the inimitable resource is created or the multifaceted nature of the elements that create it. For Time Warner Company, the different products have created their own paths and strategic directions to the extent that it is not possible to establish exactly how to challenge their market leadership positions. It is almost impossible for a competitor to come up with a replica of CNN. In addition, social complexity refers to close personal relationships between different players in a resource (like a firm), in a manner that a competitor cannot replicate. Time Warner Company and its brands have existed for many years and this means people within the organization and those who have left have created personal networks that continue to feed the organization with information and synergies in a manner that competitors cannot replicate.
Finally, O in VRIO stands for Organization. It is crucial that all the other strategies, procedures and policies should be in tandem with the requirement to exploit the resource that is valuable, rare and inimitable. Even when the organization has a resource that meets all the other criteria for sustainable competitive advantage, lack of support from employees or management may lead to failure to overcome competition. Workers, for example, must understand the importance and impacts of the roles they play and the interrelationship with other organizational functions. Time Warner Company has created an organizational culture that encourages individual independence in pursuing corporate god, interdependence among employees and innovation. Every employee understands the need to work in tandem with others to create and maintain a positive image of the organization. The firm also creates policies that help to push the organizational agenda irrespective of the type of business involved.
Key Success Factors (KSFs) of Time Warner Company
Time Warner Company is a highly competitive firm in a market that is replete with strong competitors. In each of the market segments the company participates in, it is one of the market leaders, thanks to a number of key success factors.
1. Product differentiation: Time Warner has diversified into several sectors and this gives it competitive advantage. The firm is involved in providing internet service, publishing, television broadcasts, movies and entertainment, advertising and animation among others. This approach gives the firm competitive advantage because it does not have to rely on one product in the market. The firm remains profitable because not all sectors can fail at the same time. Moreover, it is possible to invest profits from one sector into another.
2. Brand entrenchment: Time Warner Company has over the years created or acquired, through buyouts and mergers, a number of high profile brand names. With greater investment and aggressive advertising, these products and services have become household names to the extent that people cannot imagine how life would be without such brands as CNN. Once a brand is entrenched and has come to be associated with excellence, it become difficult for competitors to replicate it or create stronger substitutes. Time Warner Company thrives on this strategy.
3. Quality products and services: Time Warner Company is famous for its quality products and services. Time Magazine or a cartoon series are released into the market people to find a ready market. Documentaries on the firm’s television channels are widely acclaimed because people believe the firm has the goodwill to produce quality. Being interviewed on any of the channels is a privilege that many people look forward to, including political leaders, business magnates, movie stars, sports icons and so on.
4. A Global outlook: Another key success factor that contributes to Time Warner Company’s competitive advantage is the global outlook that the firm has adopted. While it has a powerful role to play at home, the firm does not shy away from the global marketplace. Its products are distributed in all corners of the world, which means the firm does not have to rely on the American market. CNN, for example, has more than a dozen bureau offices in a number of big cities in the world. Every time there is breaking news, one is likely to get it on CNN, irrespective of where the event is happening. The news channel has transcended America to become a global brand. Time Warner Company’s competitors at home may take a share of the high speed internet revenue but they cannot interfere with the global dominance of one of the arms of the firm – CNN.
5. Motivated workforce: Working for any of the Time Warner Company subsidiaries is a privilege that many crave. To begin with, the firm is renowned and gives one global publicity and exposure. Secondly, the company encourages its workers to be creative and innovative, which is a way of promoting career development. Thirdly, Time Warner Company is a preferred employer because of the remuneration and working conditions it gives its workers. This human resource has now become a powerful source of competitive advantage because employee retention is high and institutional memory is sustained.
6. Synergy from diversification: This a key success factor because as employees relate and exchange ideas across different subsidiaries, they create unique ways of developing the firm beyond what competitors can replicate. For example, Times Magazine employees can use information on television channels to make their stories more informative while CNN news reporters can gain greater insights through news gathered by their counterparts in the magazine section. The management of the high speed data marketing wing will be of great importance when movies are supposed to be produced and released. Technology will be shared and this will cut down costs. None of the competitors can replicate this because they are involved in few lines of production.
Conclusion
References
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