Sm 3-internal Analysis 3b2x3m
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Approaches to Internal Analysis 1. SWOT Analysis
2. Value Chain Analysis
3. Financial Analysis -- Liquidity Ratios (current/Quick) -- Leverage Ratios (Debt-equity/Interest coverage/Proprietary/Debt to Assets -- Activity Ratios (Assets turnover/Fixed Assets turnover/Working Capital turn over/Debtors turnover/Inventory turnover)
-- Profitability Ratios (Gross Profit/Net Profit/Operating/EPS etc.,)
4. Strategic Advantage Profile (SAP)
Strategic Advantage Profile (SAP) • SAP tries to find out Organizational Strengths and weaknesses in relation to the CRITICAL SUCCESS FACTORS within a particular industry •CRITICAL SUCCESS FACTORS are small but extremely important factors that are essential for successfully gaining and maintaining Competitive Advantage •CRITICAL SUCCESS FACTORS have significant bearing on the overall growth of a firm within an industry. The four major sources of CRITICAL SUCCESS FACTORS : --- Industry Characteristics --- Competitive Position --- General Environment --- Organizational Development
Strategic Advantage Profile (SAP)
Matching the Strengths and Weaknesses • After the analyses of External and Internal Environments, the analysts must try to find the FIT between Corporate internal strengths and external opportunities . One of the means useful in doing this is ETOP.
ETOP ETOP is the acronym for environmental threat and opportunity profile .It is nothing but a summarized picture of the environmental factors and their likely impact on the organization
The preparation of ETOP helps a firm to identify the segments in a chosen field of activity, presenting excellent growth opportunities
ETOP
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Inbound Logistics
Activities
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Operations
Inbound Logistics
Activities
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Outbound Logistics
Operations
Inbound Logistics
Activities
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Primary Activities
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Primary Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Activities
Primary Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Procurement
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Technological Development
Primary Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Procurement Inbound Logistics
Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Human Resource Management Technological Development
Primary Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Procurement Inbound Logistics
Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Firm Infrastructure Human Resource Management Technological Development
Primary Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Procurement Inbound Logistics
Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Firm Infrastructure
Primary Activities
Service M A RG IN
Marketing & Sales
Outbound Logistics
Operations
Procurement Inbound Logistics
Activities
Human Resource Management MA R G IN Technological Development
Outsourcing
Strategic Choice to Purchase Some Activities From Outside Suppliers
Firm Infrastructure
Primary Activities
Service M A RG IN
Marketing & Sales
Outbound Logistics
Operations
Procurement Inbound Logistics
Activities
Human Resource Management MA R G IN Technological Development
Outsourcing Strategic Choice to Purchase Some Activities From Outside Suppliers
Firm Infrastructure
Human Resource Management
Operations
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Outbound Logistics
Primary Activities
Service M A RG IN
more efficiently
Procurement Inbound Logistics
Activities
M Human Resource Management Firms often purchase a portion A Technological R activities of their value-creating G suppliers Development from specialty external IN Technological Development Procurement who can perform these functions
Marketing & Sales
Service
Value Creating Activities Common to a Cost Leadership Business Level Strategy Simplified Planning Practices to Reduce Planning Costs Consistent Policies to Reduce Turnover Costs
Relatively Few Management Layers to Reduce Overhead
M A
Effective Training Programs to Improve Worker Efficiency and Effectiveness Easy-to-Use Manufacturing Investments in Technology in Technologies order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find Frequent Evaluation Processes the Lowest Cost Products to to Monitor Suppliers’ Purchase Raw Materials Performances Highly Efficient Efficient Plant Delivery Small, Highly Effective Product Systems to Link Scale to Schedule that Trained Sales Installations to Suppliers’ Minimize Reduces Costs Force Reduce Frequency and Products with Manufacturing Selection of Low Products Priced Severity the Firm’s Costs Timing of Asset Cost Transport to Generate Production of Recalls Purchases Carriers Sales Volume Processes
Human Resource Management Technological Development
R G IN
Organizational Learning
Interrelationship s with Sister Units
Primary Activities
National Scale Advertising
M Service A R G IN
Located in Close Policy Choice of Efficient Order Plant TechnologySizes Proximity with Suppliers
Marketing & Sales
Outbound Logistics
Operations
Procurement
Inbound Logistics
Activities
Firm Infrastructure
Cost Effective MIS Systems
How to Obtain a Cost Advantage 1. Determine and Control Cost Drivers 2. Reconfigure the Value Chain as needed Alter production process Change in automation New distribution channel New advertising media Direct sales in place of indirect sales
New raw material Forward integration Backward integration Change location relative to suppliers or buyers
Core Competencies--Cautions and Reminders Never take for granted that core competencies will continue to provide a source of competitive advantage All core competencies have the potential to become Core Rigidities Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats
Competitive Advantage
Discovering Core Competencies
Gained through
Core Competencies
Strategic Competitiveness
Core Competencies
Discovering Core Competencies
Above-Average Returns
Sources of Competitive Advantage
Capabilities
Criteria of Sustainable Advantages
Teams of Resources
Resources * Tangible * Intangible
* * * *
Valuable Rare Costly to Imitate Nonsubstitutable
Value Chain Analysis
* Outsource
Formulating Long term Strategies • Concentration • Market Development • Product Development • Horizontal Integration • Vertical Integration • Tapered Integration • Quasi Integration • Diversification
• Tapered integration is a combination of Vertical integration and market exchange. • In addition to making a particular input in-house, a firm also buys from outside. • Coke and Pepsi having their own bottling units and also have s with outside bottlers. • Adv: at low costs. Use external sources as yardstick for bench marking • Disadv: lack of economies of scale difficult coordination & monitoring
Quasi Integration refers to the establishment of a relationship between vertically related businesses • Can be long term contracts to full ownership • Some of the forms are: Minority equity investment, Loans or Loan guarantees, Pre-purchase credits, exclusive dealing agreements, Cooperative R&D etc., Adv: Can achieve the benefits of vertical integration without incurring all costs, can create greater interest between the parties lowering unit costs and reducing the risk of demand /supply interruptions Quasi integration does not require full capital investment for achieving integration
Qualitative Factors in the Strategy Evaluation and Selection Process • Qualitative Factors in the Strategy Evaluation and Selection Process: This process requires the decision makers to constantly reassess the future, to find new congruencies as they unfold, and to blend the organization’s resources into new balances to meet the constantly changing conditions. Under this evaluation process, the following factors need to be studied:
Qualitative Factors in the Strategy Evaluation and Selection Process i. Managerial attitudes toward risk ii. Environment of the organization iii. Organizational culture and power relationships iv. Competitive actions and reactions v. Influence of previous organizational strategies vi. Timing considerations
2. Value Chain Analysis
3. Financial Analysis -- Liquidity Ratios (current/Quick) -- Leverage Ratios (Debt-equity/Interest coverage/Proprietary/Debt to Assets -- Activity Ratios (Assets turnover/Fixed Assets turnover/Working Capital turn over/Debtors turnover/Inventory turnover)
-- Profitability Ratios (Gross Profit/Net Profit/Operating/EPS etc.,)
4. Strategic Advantage Profile (SAP)
Strategic Advantage Profile (SAP) • SAP tries to find out Organizational Strengths and weaknesses in relation to the CRITICAL SUCCESS FACTORS within a particular industry •CRITICAL SUCCESS FACTORS are small but extremely important factors that are essential for successfully gaining and maintaining Competitive Advantage •CRITICAL SUCCESS FACTORS have significant bearing on the overall growth of a firm within an industry. The four major sources of CRITICAL SUCCESS FACTORS : --- Industry Characteristics --- Competitive Position --- General Environment --- Organizational Development
Strategic Advantage Profile (SAP)
Matching the Strengths and Weaknesses • After the analyses of External and Internal Environments, the analysts must try to find the FIT between Corporate internal strengths and external opportunities . One of the means useful in doing this is ETOP.
ETOP ETOP is the acronym for environmental threat and opportunity profile .It is nothing but a summarized picture of the environmental factors and their likely impact on the organization
The preparation of ETOP helps a firm to identify the segments in a chosen field of activity, presenting excellent growth opportunities
ETOP
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Inbound Logistics
Activities
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Operations
Inbound Logistics
Activities
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Outbound Logistics
Operations
Inbound Logistics
Activities
Primary Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Primary Activities
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Primary Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Activities
Primary Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Procurement
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Technological Development
Primary Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Procurement Inbound Logistics
Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Human Resource Management Technological Development
Primary Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Procurement Inbound Logistics
Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Firm Infrastructure Human Resource Management Technological Development
Primary Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Procurement Inbound Logistics
Activities
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Firm Infrastructure
Primary Activities
Service M A RG IN
Marketing & Sales
Outbound Logistics
Operations
Procurement Inbound Logistics
Activities
Human Resource Management MA R G IN Technological Development
Outsourcing
Strategic Choice to Purchase Some Activities From Outside Suppliers
Firm Infrastructure
Primary Activities
Service M A RG IN
Marketing & Sales
Outbound Logistics
Operations
Procurement Inbound Logistics
Activities
Human Resource Management MA R G IN Technological Development
Outsourcing Strategic Choice to Purchase Some Activities From Outside Suppliers
Firm Infrastructure
Human Resource Management
Operations
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Outbound Logistics
Primary Activities
Service M A RG IN
more efficiently
Procurement Inbound Logistics
Activities
M Human Resource Management Firms often purchase a portion A Technological R activities of their value-creating G suppliers Development from specialty external IN Technological Development Procurement who can perform these functions
Marketing & Sales
Service
Value Creating Activities Common to a Cost Leadership Business Level Strategy Simplified Planning Practices to Reduce Planning Costs Consistent Policies to Reduce Turnover Costs
Relatively Few Management Layers to Reduce Overhead
M A
Effective Training Programs to Improve Worker Efficiency and Effectiveness Easy-to-Use Manufacturing Investments in Technology in Technologies order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find Frequent Evaluation Processes the Lowest Cost Products to to Monitor Suppliers’ Purchase Raw Materials Performances Highly Efficient Efficient Plant Delivery Small, Highly Effective Product Systems to Link Scale to Schedule that Trained Sales Installations to Suppliers’ Minimize Reduces Costs Force Reduce Frequency and Products with Manufacturing Selection of Low Products Priced Severity the Firm’s Costs Timing of Asset Cost Transport to Generate Production of Recalls Purchases Carriers Sales Volume Processes
Human Resource Management Technological Development
R G IN
Organizational Learning
Interrelationship s with Sister Units
Primary Activities
National Scale Advertising
M Service A R G IN
Located in Close Policy Choice of Efficient Order Plant TechnologySizes Proximity with Suppliers
Marketing & Sales
Outbound Logistics
Operations
Procurement
Inbound Logistics
Activities
Firm Infrastructure
Cost Effective MIS Systems
How to Obtain a Cost Advantage 1. Determine and Control Cost Drivers 2. Reconfigure the Value Chain as needed Alter production process Change in automation New distribution channel New advertising media Direct sales in place of indirect sales
New raw material Forward integration Backward integration Change location relative to suppliers or buyers
Core Competencies--Cautions and Reminders Never take for granted that core competencies will continue to provide a source of competitive advantage All core competencies have the potential to become Core Rigidities Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats
Competitive Advantage
Discovering Core Competencies
Gained through
Core Competencies
Strategic Competitiveness
Core Competencies
Discovering Core Competencies
Above-Average Returns
Sources of Competitive Advantage
Capabilities
Criteria of Sustainable Advantages
Teams of Resources
Resources * Tangible * Intangible
* * * *
Valuable Rare Costly to Imitate Nonsubstitutable
Value Chain Analysis
* Outsource
Formulating Long term Strategies • Concentration • Market Development • Product Development • Horizontal Integration • Vertical Integration • Tapered Integration • Quasi Integration • Diversification
• Tapered integration is a combination of Vertical integration and market exchange. • In addition to making a particular input in-house, a firm also buys from outside. • Coke and Pepsi having their own bottling units and also have s with outside bottlers. • Adv: at low costs. Use external sources as yardstick for bench marking • Disadv: lack of economies of scale difficult coordination & monitoring
Quasi Integration refers to the establishment of a relationship between vertically related businesses • Can be long term contracts to full ownership • Some of the forms are: Minority equity investment, Loans or Loan guarantees, Pre-purchase credits, exclusive dealing agreements, Cooperative R&D etc., Adv: Can achieve the benefits of vertical integration without incurring all costs, can create greater interest between the parties lowering unit costs and reducing the risk of demand /supply interruptions Quasi integration does not require full capital investment for achieving integration
Qualitative Factors in the Strategy Evaluation and Selection Process • Qualitative Factors in the Strategy Evaluation and Selection Process: This process requires the decision makers to constantly reassess the future, to find new congruencies as they unfold, and to blend the organization’s resources into new balances to meet the constantly changing conditions. Under this evaluation process, the following factors need to be studied:
Qualitative Factors in the Strategy Evaluation and Selection Process i. Managerial attitudes toward risk ii. Environment of the organization iii. Organizational culture and power relationships iv. Competitive actions and reactions v. Influence of previous organizational strategies vi. Timing considerations
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