What Are the Internal Factors That Strongly Affect an Organisation’s Present and Future Performance? Critically Evaluate the Role of Firm-Specific Resources as an Element of an Organisations Strategy Formulation and Implementation

Topics: Strategic management, Strategic planning, Organization Pages: 11 (3057 words) Published: October 12, 2012
There have been numerous papers written on the subject of firm specific resources and their link to sustainable competitive advantage for a firm. I will start by explaining some key terms that will be used in the analyses of firm-specific resources. I will then outline the internal factors, and their effect on an organisations performance. Finally I will focus on the resource-based view of the firm in order to critically evaluate the role of firm specific resources.

Strategy Formulation
Strategy formulation is a process in which an organisation must; • Evaluate current performance
• Review corporate governance
• Scan the external environment
• Scan the internal environment
• Analyse internal and external factors
• Generate, evaluate and select the best alternative strategy

Strategy Implementation is the sum total of activities and choices required for the execution of a strategic plan. It is the process by which strategies are put into action through the development of programmes, budgets and procedures (Wheelen and Hunger 2004)

1. Internal Factors

1. Corporate Governance
Internally, an organisation consists of Top Management and a Board of Directors who act as internal mechanisms. Top management’s responsibilities are to provide executive leadership and vision and manage the strategic planning process. The Board of Directors on the other hand must monitor top management, evaluate them, and formulate strategy. Every board of directors has five responsibilities; 1. Setting corporate strategy, overall direction, mission or vision 2. Hiring and firing the CEO and top management 3. Controlling, monitoring, or supervising top management 4. Reviewing and approving the use of resources 5. Caring for Shareholder interests

(Wheelen and Hunger, 2005)
However, here is a continuum of Board of Directors involvement, ranging from “phantom boards with no real involvement’ to “catalyst boards with a very high degree of involvement” (Wheelen and Hunger, 2005), which determines the extent of their influence of strategy formulation. Due to this difference of participation by the board, Corporate Governance is necessary, if we take the agency theory view. Corporate Governance is the mechanism for managing the relationship between the different stakeholders. It determines the direction and performance of the firm (Johnson and Scholes, 2002) because it is the method by which stakeholders influence strategy and consequently performance. It has a positive impact on the organisation as it reduces the risk of firms getting into trouble, thus potential investors have more faith in the firm as they believe it is well managed. In addition, it improves stock prices; there is a 16% premium.

In our evaluation of firm-specific resources, we will examine Corporate governance as an integral part of strategy formulation and implementation. Corporate governance alone cannot be a source for sustained competitive advantage. However, not implementing corporate governance can lead firms to not fully realize the benefit of the sources they control (Barney, 2001). It can therefore be concluded that corporate governance is a necessary internal mechanism in strategy formulation and implementation, with a positive effect on firm performance.

2. Internal Environment Scanning

As per the strategy formulation structure, after reviewing corporate governance, a firm must scan the external environment. However as the scope of this essay only demands an investigation into the internal factors of an organisation, we shall instead look at internal environment scanning.

Environment Scanning is the monitoring, evaluating, and disseminating of information from the internal and external environments to key people within...
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