Internal Environmental Analysis
Transcript of Internal Environmental Analysis
LOGO
Internal Environmental Analysis
Prepared for : Prof Dr Ajay ChauhanPrepared by : 1. Logeswari d/o Uthama Puthran 808844
2. Mohd Faiz bin Zalwi @ Alwi 808856
BPMN 6023 STRATEGIC MANAGEMENT
Contents
Internal scanning: Organization analysis
Resource-based View
Business Model
Scanning Functional Resources
Value-Chain Analysis
Scanning Functional Resources and Capabilities
The Strategic Audit: A Checklist for Organization analysis
Synthesis of Internal Factors
Introduction
What is an Internal Analysis?Internal Analysis
Identifies and evaluates resources, capabilities, and core competencies
Looks at the organization’soCurrent visionoMissionoStrategic objectivesoStrategies
Why Do an Internal Analysis? It is the only way to identify an organization’s
strengths and weaknesses
It’s needed for making good strategic decisions
INTERNAL SCANNING: ORGANIZATION ANALYSIS
•Critical strength and weaknesses to determine if firm able to take advantage of opportunities and avoid threats
Internal strategic factors
•Concerned with identifying and developing an organization’s resources and competencies
Organizational analysis
RESOURCE-BASED VIEW
Resources
• Asset (tangible and intangible), competency, process, skill or knowledge controlled by the corporation
Capabilities
• A corporation ability to exploit its resources
RESOURCE-BASED VIEW
Competency
Core competency
Distinctive
competen
cy
Barney, VRIO framework
RESOURCE-BASED VIEW
Value•Does it provide competitive
advantage?
Rareness•Do other competitors posses
it?
Imitability•Is it costly for other to
imitate?
Organization •Is the firm organized to
exploit the resource?
Using resources to gain competitive advantage
RESOURCE-BASED VIEW
Identify and classify resources in terms of strengths and weaknesses
Combine the firm’s strengths into specific capabilities and core competencies
Appraise profit potential- Are there any distinctive competencies?
Select the strategy that best exploits the firm’s capabilities and competencies relative to external opportunities
Identify resource gaps and invest in upgrading weaknesses
Determine the sustainability of an advantage
RESOURCE-BASED VIEW
Durability
• The rate at which a firm’s underlying resources, capabilities, or core competencies depreciate or become obsolete
• Eg: Air Asia - Low cost airline in Asia
Imitability
• The rate at which a firm’s underlying resources, capabilities, or core competencies can be duplicated by others
RESOURCE-BASED VIEW
Imitability Determined By
Transparency The speed at which
other firms under the relationship of resources and
capabilities support a successful strategy
Eg: Gillette’s Sensor razor design
TransferabilityThe ability of
competitors to gather the resources and
capabilities necessary to support a
competitive challenge
Eg: French Winery’s key resources
ReplicabilityThe ability of
competitors to use duplicated resources and capabilities to imitate the other
firm’s success
Eg: Procter & Gamble’s
coordination mechanism
RESOURCE-BASED VIEWExplicit knowledge- knowledge that can be easily
articulated and communicated
Tacit knowledge- knowledge that is not easily communicated because it is deeply rooted in employee experience or in the company’s culture
BUSINESS MODEL
Business model
Company method for making money in current business
It includes key structural and operational characteristics of a firm – how it earns revenue and makes profit
AIR ASIA (LOW COST CARRIERS BUSINESS MODEL)
VALUE-CHAIN ANALYSIS
Value chain- a linked set of value creating activities that begin with basic raw materials coming from suppliers, moving on to a series of value-added activities involved in producing and marking a product or service, and ending with distributors getting the final goods into the hands of the ultimate consumer
Raw materia-
ls
Primary manufa-cturing
Fabricat-ion
Product procedu-
resRetailer
VALUE-CHAIN ANALYSIS
VALUE-CHAIN ANALYSIS
Corporate Value Chain Analysis
Examine each product line’s value chain in terms of the various activities involved in producing the
product or service
Examine the linkages within each product line’s value chain
Examine the potential synergies among the value chains of different product lines or business units
SCANNING FUNCTIONAL RESOURCES
Basic Organizational Structures
SIMPLE
Small or entrepreneur-dominated company
One or two product line operates
FUNCTIONAL
Medium-sized firm
Product line in one industry
DIVISIONAL
Large corporation
Many product line in several industry
STRATEGIC BUSINESS
UNITS (USBS)
Division or group of division composed of independent product market segmant
Eg: KFC
CONGLOMER-ATE
Large corporation / holding company Product line in several unrelated industry
Eg:
SCANNING FUNCTIONAL RESOURCESBasic Organizational Structures
SCANNING FUNCTIONAL RESOURCES
Corporate Culture: Attributes
Cultural intensity
The degree of which members of a unit accept the norms, values and other cultural content associated with the unit.• Shows the depth of
the culture• Eg: Air Asia
Cultural integration
The extent of which units throughout the organization share a common culture.• Shows the breadth of
the culture• Eg: Arm force
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
MANAGEMENT
STRATEGIC MARKETING ISSUES
STRATEGIC FINANCIAL ISSUES
STRATEGIC RESEARCH AND DEVELOPMENT (R & D) ISSUES
STRATEGIC OPERATION ISSUES
STRATEGIC HUMAN RESOURCES ISSUES
MANAGEMENT Management is a process of coordinating activities,
which comprises of five functions:
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
MANAGEMENT
1
4
3
3
2ORGANIZING
PLANNING
MOTIVATING
STAFFING CONTROLLING
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC MARKETING ISSUE
1. Market Position and Segmentation - “Who are our Customer?” – in terms of market, product, and geographic locations.
2. Marketing Mix – refers to the particular combination of key variables (product, place, promotion and price); to affect demand & to gain competitive advantage
3. Product Life Cycle -is a graph showing time plotted against the monetary sales of a product as it moves from introduction through growth and maturity and to decline.
4. Brand and Corporate Reputation – A Brand is a name given to a company’s product which identifies that item in the mind of the consumer.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC MARKETING ISSUE1. Market Position and Segmentation - “Who are our Customer?” –
in terms of market, product, and geographic locations. To discover what niches to seek, which new types of products to develop,
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC MARKETING ISSUE2. Marketing Mix – refers to the particular combination
of key variables ( 4P’s :Product, Place, Promotion and Price); under a corporation’s control that can be used to affect demand & to gain competitive advantage.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC MARKETING ISSUE1. Product Life Cycle -is a graph showing time plotted against the
monetary sales of a product as it moves from introduction through growth and maturity and to decline.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC MARKETING ISSUE
1. Brand and Corporate Reputation – A Brand is a name given to a company’s product which
identifies that item in the mind of the consumer. - Over time and with proper advertising, a brand connotes various characteristics in the consumer’ mind. - For example, Disney stands for family entertainment, BMW means high-performance autos
- A Corporate Reputation is a widely held perception of a company by the general public. It consists of two attributes:
1) Stakeholders’ perception of a corporation’s ability to produce quality goods and;
2) A Corporation’s prominence in the minds of stakeholders. A good corporate reputation can be a strategic resources.
STRATEGIC FINANCIAL ISSUES To Identify a Company’s Strengths and Weaknesses from the
financial perspective.
1. Financial LeverageThe concept of financial leverage (the ratio of total debt to total assets) is helpful in describing how debt is used to increase the earnings available to common shareholders.
2. Capital BudgetingCapital Budgeting is the analyzing and ranking of possible investments in fixed assets such as land, buildings, and equipment in terms of the additional outlays and additional receipts that will result from each investment. *Hurdle point
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES To Identify a Company’s Strengths and Weaknesses from the
financial perspective. Question concerning the financial position of the company, it’s
stability and competitiveness could only be answered after a thorough and detailed financial analysis.
Adequate capital is the basic foundation to run any business. It is essential to control cash flow within the organization to ensure conformity with its intended use
Budgeting plays important role to ensure that all allocation of cash is appropriately distributed.
Determining of financial strengths and weakness is important for effective strategy formulation activities and to compliment other departments within the company such as the operation, management and marketing division.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES1. Financial Ratios
The five main ratios is used in evaluating the company’s financial positions;
1. Liquidity Ratios2. Leverage Ratios3. Activity Ratios4. Profitability Ratios5. Growths Ratios
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES1. Financial RatiosLiquidity ratios measure a firm’s ability to
meet its current financial obligations.
Liquidity Ratios include:
Net working capital
Current Ratio
Quick Ratio
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES Net Working Capital While not technically a ratio, Net Working Capital (NWC) is a key element for
internal control. The higher this number the better. NWC is found by subtracting current liabilities from current assets. This is a sign of growing assets while keeping their liabilities stable.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES Current Ratio The Current Ratio is a direct evaluation of a
company’s liquidity. The higher this value, the more liquid a
firm’s resources are. Current Ratio is found by dividing current
assets by current liabilities. This could be improved by lowering the
reliance on debt financing.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES
Quick Ratio The Quick Ratio is comparable to the Current
Ratio except that it takes inventory levels into consideration.
This is found by subtracting inventories from current assets and then dividing by current assets.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES
Activity Ratio Analysis Activity Ratios are used to measure the
speed with which accounts are converted into cash.
Activity Ratios include: Inventory Turnover Average Collection Period Total Asset Turnover
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES Inventory Turnover Inventory Turnover is measurement of a firm’s
inventory liquidity.
This is found by cost of goods sold(COGS) by inventory.
Generally a lower number is better.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES Total Asset Turnover Total Asset Turnover illustrates the firm’s ability and
proficiency in using its assets to generated sales.
It is found by dividing sales by total assets, and is measured in times per year
When using cross-sectional analysis, a company must take special care in comparing Total Asset Turnover because new assets tend to have lower turnover.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES Debt Ratio Analysis A company’s debt position is a measure of how much of the
firm’s profits are generated using money borrowed from other companies or individuals.
Debt Ratios include: Financial Leverage Multiplier Debt Ratio Interest Coverage Ratio
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES Financial Leverage Multiplier The Financial Leverage Multiplier (FLM) is used to
convert the company’s Return On Assets to its Return on Equity. This reflects the impact of leverage, or use of debt, on owners’ return.
It is the ratio of total assets to stockholders’ equity.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES Profitability Ratio Analysis
Profitability Ratios evaluate a company’s earnings with respect to sales, assets, owner’s investments and share values.
Profitability Ratios include Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Total Assets Return on Equity
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES Gross Profit Margin
The Gross Profit Margin(GPR) is the percentage of each sales dollar that remains after the firm has paid for the goods sold.
It is found by subtracting COGS from sales and dividing by sales.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES Net Profit Margin Net Profit Margin(NPR), one of the most
popular indicators of company health, measures the percentage of sales revenue remaining after ALL expenses are paid.
NPR is found by dividing net profits by sales
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES Return on Total Assets
Return of Total Assets(ROA), also known as return on investment, measures a firm’s effectiveness at generating profits with its assets.
ROA is found by dividing the net profits after taxes by total assets.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES Return on Equity The Return on Equity(ROE) is extremely important to
potential investors.
ROE is found by dividing net profit by owner’s equity.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC FINANCIAL ISSUES
STRATEGIC RESEARCH AND DEVELOPMENT (R & D) ISSUES
1. R & D Intensity, Technological Competence, and Technology Transfer -The Company must make available the resources necessary for effective research and development. A Company’s R & D intensity is a principal means of gaining market share in global competition. The amount spent on R & D often varies by industry.
2. R & D Mix - Basic R & D is conducted by scientists in well-equipped laboratories where the focus is on the theoretical
problem areas. Product R & D- concentrates on marketing and is concerned with product or product packaging improvements
3. Engineering R & D - concerned with engineering, concentrating on quality control, and the development of design specifications and improved production equipment
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC RESEARCH AND DEVELOPMENT (R & D) ISSUESImpact of Technological of Discontinuity on Strategy
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
In the corporate planning process, it is generally assumed that incremental progress in technology will occur. But pass developments in a given technology cannot be extrapolated into the future because every technology has its limits. The key to competitiveness is to determine when to shift resources to a technology that has more potential.
STRATEGIC OPERATION ISSUES
1. Experience Curve - unit production costs decline by some fixed percentage each time the total accumulated volume of production units doubles
2. Flexible Manufacturing for Mass Customization – The use of Computer-Assisted Design and Computer-Assisted Manufacturing (CAD/CAM) and robot technology means that learning time is shorter and products can be manufactured in small, customized batches in a process call mass customization – the low cost production of individually customized goods and services.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC OPERATION ISSUES
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
BUSINESS PROCESS AND OPERATIONAirAsia has fostered a dependency on Internet technology for its operational and strategic management, and provides an online ticket booking services to traveler online. The following shows the home page of AirAsia.com as the company key channel of marketing and sales.
STRATEGIC OPERATION ISSUES
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
BUSINESS PROCESS AND OPERATION
STRATEGIC HUMAN RESOURCE (HRM) ISSUES
1. Increasing Use of Teams2. Union Relations and temporary/Part-Time
Workers3. Quality of Work Life and Human Diversity4. Impact on Performance5. Supply Chain Management
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC HUMAN RESOURCE (HRM) ISSUES1. Increasing Use of Teams
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
Teams
Autonomous (self-managed)- a group of people working together without a supervisor to plan, coordinate and evaluate their work
Cross-functional work teams- various disciplines are involved in a project from the beginning
Concurrent engineering- specialists work side-by-side and compare notes constantly to design cost-effective products with features customers want
STRATEGIC HUMAN RESOURCE (HRM) ISSUES1. Increasing Use of Teams
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
Virtual Teams - groups of geographically or organizationally dispersed coworkers that are assembled using a combination of telecommunications and information technologies to accomplish organizational tasks.
STRATEGIC HUMAN RESOURCE (HRM) ISSUES
2. Union Relations and temporary/Part-Time Workers - If the corporation is unionized, a good human resource manager should be able to work closely with the union. To save jobs, Unions are increasingly willing to support new strategic initiatives and employee involvement. To increase flexibility, avoid layoffs, and reduce labor costs, corporations are using more temporary (also known as contingent) workers.
3. Quality of Work Life and Human Diversity -Human Resource departments have found that to reduce employee dissatisfaction and unionization efforts (or, conversely, to improve employee satisfaction and existing union relations), they must consider the quality of work life in the design of jobs. To Improve the corporation’s quality of work life by(1) Introducing participative problem solving(2) Restructuring Work, (3) Introducing innovative reward systems, and (4) improving the work environmentHuman Diversity refers to the mix in the workplace of people from different races, cultures, and backgrounds.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC HUMAN RESOURCE (HRM) ISSUES
4. Impact on Performance – A current trend in corporate information systems/ technology is the increasing use of the internet for marketing, intranets for internal communication, and extranets for logistics and distribution.
INTRANET – is an information network within an organization that also has access to the external worldwide Internet.
EXTRANET – is an information network within an organization that is available to key suppliers and customers.
5. Supply Chain Management - is the forming of networks for sourcing raw materials, manufacturing products or creating services, storing and distributing the goods, and delivering them to customers and consumers.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
STRATEGIC HUMAN RESOURCE (HRM) ISSUES
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES
Evaluate people and partners in AirAsia The AirAsia Team have highly competitive and attractive
compensation packages.
In order to provide customer excellent service, AirAsia arrange a series of training course to their in-house flight attendant. The training courses include awareness on safety standards, aviation terminology, in flight service procedures, product knowledge and so on.
AirAsia chose many kinds of field partners as their complementors. Their partnership can divide into two main kinds: direct partners and indirect partners.
Direct partners have strong relationship with the airline, for example, hotels, travel agencies and so on. And indirect partner included Facebook, Twitter Koolred and Youtube.
AirAsia is company which rely on Internet a lot so with those communities, AirAsia can build strong connection with their customers
THE STRATEGIC AUDIT : A CHECKLIST FOR ORGANIZATIONAL ANALYSIS
STRENGTHS AND WEAKNESSES (SWOT)
–When all the factors related with internal analysis ascertained (management, marketing, financial and operation/production), the organisation is then able to see its position more clearly. In addition, the company’s strengths and weakness can also be identified.
www.themegallery.com Company Logo
AirAsia SWOT Analysis
Strengths• Low cost operations• Fewer management level, effective, focused and aggressive management• Simple proven business model that consistently delivers that lowest fares• Penetrate and stimulate to potential markets• Multi-skilled staffs means efficient and incentive workforce• Single type fleet minimize maintenance fee and easy for pilot dispatchWeaknesses• Service resource is limited by lower costs• Limited human resources could not handle irregular situation• Government interference and regulation on airport deals and passenger compensation• Non-central location of secondary airports• Brand is vital for market position and developing it is always a challenge• Heavy reliance on outsourcing• New entrants to provide the price-sensitive services
THE STRATEGIC AUDIT : A CHECKLIST FOR ORGANIZATIONAL ANALYSIS
SYNTHESIS OF INTERNAL FACTORS
INTERNAL FACTOR ANALYSIS SUMMARY (IFAS)
LOGO
Click to edit company slogan .
INTERNAL STRATEGIC FACTORS
Strength WeaknessLow cost carrier Service resource is limited by
lower costs
First mover advantage (first low cost airline in Asia)
Limited human resources
More seats per aircraft Regulation on airport
Single type fleet minimizemaintenance fee
Complaints from customers (flight delays)
Reduced staff numbers
Brand name
RESOURCES, CAPABILITIES, COMPETENCIES
Resources Constructive and supportive managementHighly skilled employeesCapabilities to reduce cost
Capabilities Quick turnaround timeLow-cost short haulHigh rate aircraft utilization
Competencies The strategic decision in using one type of aircraftThe synergy between AA management and its employeesThe capabilities themselves
BUSINESS MODEL
VALUE-CHAIN ANALYSIS: KFC
VALUE-CHAIN ANALYSIS: AIR ASIA