Download - 6 org appraisal
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INTERNAL ANALYSIS:
Organizational Appraisals
Dr.L.Prakash Sai
Financial Analysis - Ratio Analysis, EVA, ABC
Value Chain Analysis
Business Process Analysis
VRIO framework (Resource Based View)
Organizational Capability Analysis
Organizational Appraisal: Methods & Techniques Used
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Financial Capability
(a) Sources of funds
(b) Usage of funds
(c) Management of funds
Marketing Capability
(a) Product related
(b) Price related
(c) Promotion related
(d) Integrative & Systematic
Information Management
(a) Acquisition & retention of info
(b) Processing & synthesis of info
(c) Retrieval& usage of info
(d) Transmission & dissemination
(e) Integrative, systemic & supportive
Operations Capability
(a) Production system
(b) Operation & Control system
(c) R&D system
Personnel Capability
(a) Personnel system
(b) Organization/employee characteristics
(c) Industrial Relations
General Management
(a) General Management Systems
(b) External Relations
(c) Organization climate
Organizational Capability Profile (OCP)
Capability Factor Values:
Weakness(-5), Normal (0), Strength (+5)
Strategic Advantage Profile (SAP)
Capability Factor Competitive Strength/Weakness
Finance High cost of capital, reserves & surplus unsatisfactory
Marketing Fierce competition, company position secure at present
Operations Plant & m/c; captive sources of parts & components
Personnel Management & staff on par with competition
General Highly experienced top management - proactive stance
Management
[Example of a Bicycle Company]
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Strategy: the plan devised to maintain and build competitive advantage
over the competition.
Structure: the way the organization is structured and who reports to
whom.
Systems: the daily activities and procedures that staff members engage in
to get the job done.
McKinsey’s 7S Framework
Style: the style of leadership adopted.
Staff: the employees and their general capabilities.
Skills: the actual skills and competencies of the
employees working for the company.
Shared Values: (called "superordinate goals“) the
core values evidenced in the corporate culture
and the general work ethic.
McKinsey’s 7S Framework
Structure
Shared
Values
Strategy
Skills
System
Style
Staff
To diagnose causes of
organizational problems
& formulate programs
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Generating Alternative Strategies
From SWOT
SWOT analysis is a tool for helping assess the
current situation for the firm.
However, we need to be able to combine the
information in the SWOT analysis in a meaningful
way to generate alternative strategies that we
might pursue.
The TOWS matrix is a tool designed to match
external opportunities and threats with our
internal strengths and weaknesses
SWOT Analysis
Opportunities
1.
2.
3.
Strengths
1.
2.
3.
Threats
1.
2.
3.
Weaknesses
1.
2.
3.
Internal
Environment
External
Environment
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Strengths
Advantages of proposition?
Capabilities?
Competitive advantages?
USP's (unique selling points)?
Resources, Assets, People?
Experience, knowledge, data?
Financial reserves, likely returns?
Marketing – reach/distribution/awareness?
Innovative aspects?
Location and geographical?
Price, value, quality?
Accreditations, qualifications, certifications?
Processes, systems, IT, communications?
Cultural, attitudinal, behavioural?
Management cover, succession?
Philosophy and values?
Disadvantages of proposition?
Gaps in capabilities?
Lack of competitive strength?
Reputation, presence and reach?
Financials?
Own known vulnerabilities?
Timescales, deadlines and pressures?
Cashflow, start-up cash-drain?
Continuity, supply chain robustness?
Effects on core activities, distraction?
Reliability of data, plan predictability?
Morale, commitment, leadership?
Accreditations, etc.?
Processes and systems, etc?
Management cover, succession?
Weaknesses
Opportunities Market developments?
Competitors' vulnerabilities?
Industry or lifestyle trends?
Technology development & innovation?
Global influences?
New markets, vertical, horizontal?
Niche target markets?
Geographical, export, import?
New USP's?
Tactics: e.g., surprise, major contracts?
Business and product development?
Information and research?
Partnerships, agencies, distribution?
Volumes, production, economies?
Seasonal, weather, fashion influences?
Political effects?
Legislative effects?
Environmental effects?
IT developments?
Competitor intentions - various?
Market demand?
New technologies, services, ideas?
Vital contracts and partners?
Sustaining internal capabilities?
Obstacles faced?
Insurmountable weaknesses?
Loss of key staff?
Sustainable financial backing?
Economy - home, abroad?
Seasonality, weather effects?
Threats
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TOWS Matrix
Technique used in strategy formulation
for combining
– External analysis
• Opportunities
• Threats
– Internal analysis
• Strengths
• Weaknesses
TOWS Matrix
Threats:
1.
2.
3.
Opportunities:
1.
2.
3.
ST Strategies
Take advantage of
Strengths to
avoid Threats
SO Strategies
Use Strengths to
take advantage
of Opportunities
Strengths:
1.
2.
3.
WT Strategies
Defensive strategies
to minimize
weaknesses and
avoid threats
WO Strategies
Use Opportunities to
overcome
Weaknesses
Weaknesses:
1.
2.
3.
From
External Analysis
From Internal Analysis
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Str
ate
gic
An
aly
sis
:
TO
WS
Matr
ix
TO
WS
matr
ix:
Vo
lksw
ag
en
(1973-7
5)
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SPACE Matrix
[Strategic Position & Action Evaluation Matrix]
Aggressive
Conservative
Defensive
Competitive
Two Internal Dimensions
Financial Strength (FS)
Competitive Advantage (CA)
Two External Dimensions
Environmental Stability (ES)
Industry Strength (IS)
Strategic Posture
Dimension
Aggressive Competitive Conservative Defensive
ENVIRONMENT Stable Unstable Stable Unstable
INDUSTRY Attractive Attractive Unattractive Unattractive
COMPETITIVENESS Strong Strong Weak Weak
FINANCIAL
STRENGTH
High Weak High Weak
APPROPRIATE
STRATEGIES
• Growth- possibly
by acquisition
• Capitalize on
opportunities
• Innovative to
sustain comp. adv.
• Cost reduction;
Productivity
improvement;
Raising more
capital to follow
opportunities
and strengthen
competiveness
• Possible merge
with a less
competitive but
cash-rich
organization.
• Cost reduction
and
product/service
rationalization
• Invest in search
for new
products,
services and
competitive
opportunities
• Rationalization
• Divestment as
appropriate
Strategic Postures
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Internal Strategic
Position
External Strategic
Position
Internal Strategic
Position
External Strategic
Position
Financial Strength
(FS)
Environmental
Stability (ES)
Competitive
Advantage (CA)
Industry Strength
(IS)
Return on
investment
Leverage
Liquidity
Working capital
Cash flow
Technological
changes
Rate of inflation
Demand
variability
Price range of
competing
products
Barriers to entry
Competitive
pressure
Price elasticity of
demand
Ease of exit from
market
Risk involved in
business
Market share
Product quality
Product life cycle
Customer loyalty
Competition’s
capacity
utilization
Technological
know-how
Control over
suppliers &
distributors
Growth potential
Profit potential
Financial stability
Technological
know-how
Resource
utilization
Ease of entry into
market
Productivity,
capacity
utilization
SPACE Factors
Steps to Developing a SPACE Matrix
1. Select a set of variables to define FS, CA, ES, & IS
2. Assign a numerical value:
From +1 to +6 to each FS & IS dimension
From -1 to -6 to each ES & CA dimension
3. Compute an average score for each FS, CA, ES, & IS
4. Plot the average score on the appropriate axis
5. Add the two scores on the x-axis and plot the point. Add the two
scores on the y-axis and plot the point. Plot the intersection of the
new xy point
6. Draw a directional vector from the origin through the new
intersection point.
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SPACE Matrix: Example
SPACE Matrix: Example
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Corporate Strategy Business Portfolio Analysis
Market Growth rate of the industry:
Expressed in % increase in sales
Relative market share of a firm:
Market share in industry / market share of the largest other competitor
Assumptions:
Other things being equal - growing market is attractive
Market leader influences the average costs
BCG (Boston Consulting Group) Matrix
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Hig
h
Lo
w
High
Low
Market
Growth Rate
Relative Market
Share
BCG (Boston Consulting Group) Matrix
[10%]
< 1 > 1 > 1 indicates market leader
BCG Matrix: Question Marks (Problem Children: Low Market Share / High Market Growth)
Investment:
heavy initial capacity expenditures and high R&D
costs
Earnings: negative to low
Cash-flow: negative (net cash user)
Strategy Implications:
if possible to dominate segment, go after share.
If not, redefine the business or withdraw.
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BCG Matrix: Stars (High Market Share / High Market Growth)
Investment:
continue to invest for capacity expansion
Earnings: low to high earnings
Cash-flow: negative (net cash user)
Strategy Implications:
continue to increase market share - even at the
expense of short-term earnings
Petrochemicals
Telecom
BCG Matrix: Cash Cows (High Market Share / Low Market Growth)
Investment
capacity maintenance
Earnings: high
Cash-flow: positive (net cash contributor)
Strategy Implications:
maintain market share and cost leadership until
further investment becomes marginal
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BCG Matrix: Dogs (Low Market Share / Low Market Growth)
Investment:
gradually reduce capacity
Earnings: high to low
Cash-flow:
positive (net cash contributor) if deliberately
reducing capacity
Strategy Implications:
plan an orderly withdrawal to maximize
cash flow
Indian Cotton Textiles
Anchoring
Systems
Powder Actuated
Tools
Cable Tray
Systems
Electric Power
Tools
Concrete Lifting
Systems
Lo
w
High
Low
Market
Growth Rate
Relative Market
Share
BCG Matrix: Example of a Fastener Supplier
Note that the Anchoring System SBU is forecasted to move to a new position
Hig
h
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GE Portfolio Matrix
Originally developed by GE’s planners drawing on McKinsey’s approaches
Market attractiveness is based on as many relevant factors as are appropriate in a given context
Business-position assessment also made on a many factors
SBU needs to be rated on each factor
Industry Attractiveness:
Market size & growth rate, industry profit margin, competitive intensity, pricing
practices, opportunities / threats
[Scale 1 – 5: “Very unattractive” to “Very attractive”]
Company’s Business Strengths or Competitive Position:
Market share, technological position, profitability, size, strengths & weakness,
management calibre
[Scale 1-5: “Very weak” to “Very strong”]
Industry Attractiveness
High
High
Medium
Medium
Low
Low
Invest / Grow
Select / Earn
Harvest / Divest
Protect
Position
Invest to
Build Build
selectively
Build
selectively
Selectively
manage for
earnings
Limited
expansion or
harvest
Protect &
refocus Divest
Manage for
earnings
GE
Portfolio
Matrix
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Industry Attractiveness
High
High
Medium
Medium
Low
Low
GE
Portfolio
Matrix
Invest / Grow
Select / Earn
Harvest / Divest
Quadrant IV
1. Concentric diversification
2. Horizontal diversification
3. Conglomerate diversification
4. Joint ventures
Quadrant III
1. Retrenchment
2. Concentric diversification
3. Horizontal diversification
4. Conglomerate diversification
5. Liquidation
Quadrant I
1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal integration
7. Concentric diversification
Quadrant II
1. Market development
2. Market penetration
3. Product development
4. Horizontal integration
5. Divestiture
6. Liquidation
RAPID MARKET GROWTH
SLOW MARKET GROWTH
WEAK
COMPETITIVE
POSITION
STRONG
COMPETITIVE
POSITION
Grand Strategy Matrix
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Quadrant IV
1. Strong competitive position
2. Slow-growth industry
3. Diversification to more
promising growth areas
Quadrant III
1. Compete in slow-growth
industries
2. Weak competitive position
3. Drastic changes quickly
4. Cost & asset reduction
(retrenchment)
Quadrant I
1. Excellent strategic position
2. Concentration on current
markets/products
3. Take risks aggressively
when necessary
Quadrant II
1. Evaluate present approach
2. How to improve
competitiveness
3. Rapid market growth
requires intensive strategy
RAPID MARKET GROWTH
SLOW MARKET GROWTH
WEAK
COMPETITIVE
POSITION
STRONG
COMPETITIVE
POSITION
Grand Strategy Matrix
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information
Systems
Strategy 3 Strategy 2 Strategy 1 Weight Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Strategic Alternatives
Quantitative Strategic Planning Matrix (QSPM)
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PIMS Program (Profit Impact of Market Strategy)
PIMS holds 6 areas of info on each biz:
1. characteristics of the biz environment
2. competitive position of the business
3. structure of the production process
4. how the budget is allocated
5. strategic movement
6. operating results.
The PIMS project was started by Sidney Schoeffler with GE in the 1960s
Administered by the Strategic Planning Institute since 1975
Uses multi dimensional cross-
sectional regression studies of
profitability of over 3000 businesses.
Provides industry characteristics,
average profitability, and compares it
with performance of the company
concerned.
The key strategic factors
influencing business performance
Market Environment
Marketing/Sales
Customer Concentration
Customer Purchase Amount
Industry Concentration
Capital and Operating Structure
Investment / Sales
Investment / Value Added
Gross Book Value of P&E / Total Investment
Operating Effectiveness
Receivables / Investment
Capacity Utilization
Value Added / Sales
Stage of Lifecycle
New Products/Sales
R & D/Sales
Real Market Growth
Competitive Position
Market Share
Relative Market Share
Relative Quality
Relative Price
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PIMS: Strategic Benchmarks
The experience of PIMS businesses, situationally comparable
to a business under study, is used to establish strategy and
performance benchmarks.
www.pimsonline.com includes:
Profitability (Return on Sales, and ROI)
Change in market share
Marketing budget (Sales force, Advertising, Promotion
and Other Marketing Expenses)
Market attractiveness / competitive strength
PIMSONLINE.COM
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Corporate Governance Issues
1. No more than 2 directors current or former company executives
2. No directors do business with the company
3. Audit, compensation, and nominating committees made up
of outside directors
4. Each director attends at least 75% of all meetings
5. Audit committee meets at least four times a year
6. CEO is not also the Chairperson of the Board
7. Shareholders have considerable power and information to
choose & replace directors
8. Stock options are considered a corporate expense
9. No interlocking directorships
Business Week’s “principles of good governance”