An ‘inside-out’ method was referred by De Wit and Meyer (2005), which is one of the most significant approaches in organisational strategy. Moreover, two different environments are involved in this strategy process: internal environment and external environment. The aim of this essay is to explain the meaning of the ‘inside-out’ approach and discuss the main features of internal environment which critically succeed in strategy. Firstly, a definition of strategy will be explained in this section. Secondly, the differences between external and internal environments will be distinguished. Thirdly, the convincing argument will fully identify and explain the features of organisations internal environment which are critical to strategic success. Finally, a case study will be introduced and it will indicate the reasons for the successful strategy of internal environment.
Strategy is one of the most important proportions in a long-term objective, which organisations or companies should consider seriously when they desire to increase profitability. As Mintzberg (2003) points out, the strategy can be defined in five Ps: plan, ploy, pattern, position and perspective. Firstly, strategy is a plan, a type of action which deliberately prepare in the process, a guideline to deal with a circumstance. Secondly, it can be a ploy, a special “maneuver” intended to outsmart a rival or opponent. Thirdly, strategy is a pattern, specifically, a pattern which flows in the action. Fourthly, it is a position, the location of an organisation in the environment. Finally, it is a perspective, the content of strategy consisting not only just of a selected position, but also of an entrenched approach of perceiving the world. (Mintzberg, 2003) In spite of a strategy is involved many operations which they are thoughtful and complicated, a successful one could make the target clear and increasingly evolve company’s capabilities, competitive power and profitability.
According to the strategic management model (Pearce & Robinson, 1994: XXX), in the strategy process, before the strategic choice has been decided, there are two crucial environments which firm would focus on firstly: external and internal environments. A firm’s external environment is comprised of all the forces and conditions that influence on its strategic choice and identify its competitive circumstance. Moreover, the internal environment also means company profile, describing the quantity and quality of the firm’s financial, human and physical resources, identifying firm’s strengths and weaknesses in its management and organisational structure (Pearce & Robinson, 1994).
The main difference between external and internal environments is the distinct extent of the environment. In the external analysis, all of factors concern about the environment which concentrates on outside of the firm. For instance, PEST (EL) analysis relates to the remote external environment (macro-environment), economic, social, political, technological, and ecological factors (Pearce & Robinson, 1994). However, the internal environment is an opposite position of analysis for external environment. It involves the environment which focuses on inside of the company. Such as the firm’s tangible and intangible resources and company’s core competence (this three terms will be explained in the followed argument), they are considered in the interior extent of company. Therefore, the distinction between external and internal environment are separated in different position.
Despite of both environments are significant in the strategy process, this essay concentrates on the discussion of the internal environment and explains its key features. The Inside-out perspective is one of most crucial approaches in internal environment which could to success. It is that strategies should be established around a firm’s strengths, not around its external opportunities. In addition, the inside-out approach is that the company firstly concentrates on its resource-based, after that base on it to select market positions and step by step to achieve the strategy (De Wit & Meyer, 2004).
(refer also call comparative advantage) Resource-based is one of the most significant approaches in strategy which is based in the internal analysis and strongly supports the inside-out perspective (De Wit & Meyer, 2004). It describes the firm’s competitive advantage is explained by the uniqueness of its capabilities (Johnson, Scholes & Whittington, 2006). The uniqueness is the key item in the resource-based approach, which means firm can be developed more distinctiveness in the market. In the resource-based approach, resource, capabilities and competences and core-competence are three basic factors to instruct how to become unique.
Firstly, resource is an extremely important element in resource-based approach, which is also reflected in the internal environment. According to the pie chart of types of firm resources (De wit & Mayer, 2004: 243), the resource is separated in two different categories resources: tangible and intangible resources. The tangible resources mean that company’s available resources can physically be touched or seen, such as land, building, materials and money. Conversely, the intangible resources are the ‘software’ of the company’s which means can not be touched but frequently relates to the people (De wit & Mayer, 2004). In addition, the intangible resources include relational resources: relationships and reputation, and competences: knowledge, capabilities and attitude. The essential practice is that company should consider carefully the resource base in itself to compare other firm’s resources to decide their comparative strengths (De wit & Mayer, 2004). After that, it uses to recognise company’s competence and capabilities. Different resources are separated significantly, to identify what importance the firm have and are an efficient way to look itself, prepare a suitable strategy.
Secondly, to identify some of the most important process in the firm’s strategy of internal analysis, capabilities and competences are the best aspects to achieve it. Capabilities mean the consequences of resources which cooperate to attain effectively target. Specifically, a successful capability is that a firm exactly understands what they are good at and then develops a strategy to achieve (Craig & Grant, 1993). Similarly, competences mean the process and activities which a firm organise its resources effectively. During the process of competences, it emphasises not only what resources the company has but also how they deploy (Johnson, Scholes & Whittington, 2006). Concentrating the resources of the organisation is just the first step of internal analysis. More significant in the next stage is the firm can create its owned competences and capabilities to target the strategy.
Finally, core competences are the further crucial element of company’s strategy in internal environment. It means the processes and activities through which resources are organised in a way as to achieve competitive advantage in the approaches that rivals can not mimic or gain (Johnson, Scholes & Whittington, 2006). In this step, after the identification of resources and capabilities and competences, firm must straightforward concentrate on the aspects which relate to the development of its advantage to identify its core competences. As Hamel and Prahalad (1994) points out, a core competence is a bundle of skills and technologies that the firm supplies an essential benefit to customers (Hamel & Prahalad, 1994). The skill and technologies can be recognised the uniqueness which is owned by company, difficult to imitate, and are more attractive than its competitors. Therefore, if the firm positively developed its core competences, it is an important step in the strategy critical to success.
The Ordnance Survey (OS) is a national mapping agency, which has well developed its internal environment. In 1999, the organisation transformed from a government status to a trading fund and after that it makes a great number of profits. The main achievement is that OS had improved its unique resources not only for mapping but also in high technology of computer information, and there are several processes to reach. First of all, OS can license its data to gain the competitive advantage. It worked with some partners who integrate OS information into their software products. Second, Innovation was the concentration of OS. It offered a comprehensive service through its Solution Centre, which function as a consultancy. Third, as computerised data played a crucial role in business. OS used this method for collecting data, which had provided services to a number of private organisations and public. Lastly, OS had established an e-strategy from telecom industry to change its map into digital data for using mobile phone, mapping websites, and in-car navigation systems (Johnson, Scholes & Whittington, 2006). The contribution of OS is that the resources was utilised and deployed effectively and had become uniqueness and success.
In conclusion, as De Wit and Meyer referred the ‘inside-out’ strategic approach, external and internal environments are involved in the strategy process. Specifically, the internal analysis is concentrated and more important. Firstly, according to Mintzberg five Ps, the explanation of strategy can be identified by plan, ploy, pattern, position and perspective. Secondly, in the strategy process, external and internal environment are the two crucial elements and differences between them can be distinguished as the dissimilar extent and relationship. Thirdly, resource based is an essential approach which strongly supports the inside-out approach and tightly relates in the internal environment. Three fundamental elements through the resource based approach were explained particularly, which are resources, capabilities and competences, and core competence. Finally, an example of the Ordnance Survey had well developed its resources and became uniqueness present the success of deployment in its internal environment. The demonstration of successful internal analysis can be made that organisations initially establish their internal resources and become uniqueness is one of essential part in strategy. Moreover, firms should consider about what they have and how they can do to organise and develop their resources.