SM 3-Internal Analysis
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Transcript of SM 3-Internal Analysis
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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)
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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 ofCRITICAL SUCCESS FACTORS :
--- Ind us try Character ist ics
--- Compet i t ive Pos it ion
--- General Enviro nm ent
--- Organ izational Developm ent
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Strategic Advantage Profile (SAP)
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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 achosen field of activity, presenting excellent growth opportunities
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ETOP
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Support
Activities
Primary Activities
Inbound
Logist
ics
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
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Support
Activities
Primary Activities
Inbound
Logist
ics
Operations
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
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Support
Activities
Primary Activities
Inbound
Logist
ics
Operat
ions
Outbound
Logist
ics
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
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Support
Activities
Primary Activities
Inbound
Logist
ics
Operat
ions
Outbo
und
Logist
ics
Market
ing
&
Sales
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
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Support
Activities
Primary Activities
Inbound
Logist
ics
Operat
ions
Outbo
und
Logist
ics
Market
ing
&
Sales
Se
rvice
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
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Support
Activities
Primary Activities
Inbound
Logist
ics
Operat
ions
Outbo
und
Logist
ics
Market
ing
&
Sales
Se
rvice
Procurement
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
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Support
Activities
Primary Activities
Inbound
Logist
ics
Operat
ions
Outbo
und
Logist
ics
Market
ing
&
Sal
es
Se
rvice
Procurement
Technological Development
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
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Support
Activities
Primary Activities
Technological Development
Procurement
Inbound
Logist
ics
Operat
ions
Outbo
und
Logist
ics
Market
ing
&
Sal
es
Se
rvice
Human Resource Management
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
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Support
Activities
Primary Activities
Technological Development
Human Resource ManagementFirm Infrastructure
Procurement
Inbound
Logist
ics
Operat
ions
Outbo
und
Logist
ics
Market
ing
&
Sal
es
Se
rvice
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
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Support
Activities
Primary Activities
Technological Development
Human Resource ManagementFirm Infrastructure
Procurement
Inbound
Logist
ics
Operat
ions
Outbo
und
Logist
ics
Market
ing
&
Sal
es
Se
rvice
Value Chain AnalysisIdentifying Resources and Capabilities That Can Add Value
O t i
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Support
Activities
Primary Activities
Outsourcing
Technological Development
Human Resource ManagementFirm Infrastructure
Procurement
Inbound
Logist
ics
Operat
ions
Outbo
und
Logist
ics
Market
ing
&
Sal
es
Se
rvice
Strategic Choice to Purchase Some Activities From Outside
Suppliers
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Support
Activities
Primary Activities
Technological Development
Human Resource ManagementFirm Infrastructure
Procurement
Inbound
Logist
ics
Operat
ions
Outbo
und
Logist
ics
Market
ing
&
Sal
es
Se
rvice
Inbound
Logistics
Operations
Outbound
Logistics
Service
Marketing
& Sales
Technological
Development
Human Resource Management
Procurement
Firms often purchase a portion
of their value-creating activities
from specialty external suppliers
who can perform these functions
more efficiently
OutsourcingStrategic Choice to Purchase Some Activities From Outside Suppliers
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Support
Activities
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inboun
d
Logistics
Operat
ions
Outbound
Logistics
Marketing
&
Sales
Se
rvice
Cost
Effective MIS
Systems
Relatively Few
Management Layersto Reduce Overhead
Simplified
Planning Practicesto Reduce
Planning Costs
Consistent Policies
to Reduce Turnover
Costs
Effective Training
Programs to Improve
Worker Efficiency and
Effectiveness
Highly Efficient
Systems to Link
Suppliers
Products with
the Firms
Production
Processes
Timing of Asset
Purchases
Efficient Plant
Scale to
Minimize
Manufacturing
Costs Selection of Low
Cost Transport
Carriers
Delivery
Schedule that
Reduces Costs
National
Scale
Advertising
Products Priced
to Generate Sales
Volume
Small, Highly
Trained Sales
Force
Effective Product
Installations to
Reduce
Frequency and
Severity
of Recalls
Easy-to-Use Manufacturing
TechnologiesInvestments in Technology in
order to Reduce Costs
Associated with Manufacturing
ProcessesSystems and Procedures to find
the Lowest Cost Products to
Purchase Raw Materials
Frequent Evaluation Processes
to Monitor Suppliers
Performances
Located in Close
Proximity with
Suppliers
Policy Choice of
Plant Technology
Organizational
Learning
Efficient Order
Sizes
Interrelationship
s with Sister
Units
Value Creating Activ i t iesCommon to a
Cost LeadershipBusiness Level Strategy
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How to Obtain a Cost Advantage
1. Determine and Control Cost Drivers
2. Reconfigure the Value Chainas neede
Alter production process
Change in automation
New distribution channel
Direct sales in place ofindirect sales
New advertising media
New raw material
Backward integration
Forward integration
Change locationrelative to suppliers orbuyers
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Core Competencies--Cautions and Reminders
Never take for granted that core competencies will
continue to provide a source of competitiveadvantage
All core competencies have the potential tobecome Core Rigid i t ies
Core Rigidities are former core competencies thatsow the seeds of organizational inertia andprevent the firm from responding appropriately to
changes in the external environmentStrategic myopia and inflexibility can strangle thefirms ability to grow and adapt to environmentalchange or competitive threats
Competitive
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Resources
* Tangible
* Intangible
Capabilities
Teams ofResources
Sources of
CoreCompetencies
CompetitiveAdvantage
StrategicCompetitiveness
Above-AverageReturns
CompetitiveAdvantage
Gained throughCore Competencies
Discovering
Core
Competencies
Value
ChainAnalysis
Valuable
Rare
Costly to ImitateNonsubstitutable
*
*
** * Outsource
Criteria of
SustainableAdvantages
Discovering Core
Competencies
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Concentration
Market Development
Product Development
Horizontal Integration
Vertical Integration
Tapered Integrat ion
Quasi Integrat ion
Diversification
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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 contacts with outside bottlers.
Adv: at low costs. Use external sources as yardstick for
bench marking
Disadv: lack of economies of scale
difficult coordination & monitoring
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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 interruptionsQuasi integration does not require full capital investment
for achieving integration
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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 newcongruencies as they unfold, and to blend
the organizations resources into new
balances to meet the constantly changingconditions. Under this evaluation process,
the following factors need to be studied:
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Qualitative Factors in the Strategy
Evaluation and Selection Process
i. Managerial attitudes toward risk
ii. Environment of the organization
iii. Organizational culture and powerrelationships
iv. Competitive actions and reactions
v. Influence of previous organizationalstrategies
vi. Timing considerations