sm 3-internal analysis

7/30/2019 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



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Support

Activities

Primary Activities

Inbound

Logist

ics

Operat

ions

Outbound

Logist

ics



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Support

Activities

Primary Activities

Inbound

Logist

ics

Operat

ions

Outbo

und

Logist

ics

Market

ing

&

Sales



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Support

Activities

Primary Activities

Inbound

Logist

ics

Operat

ions

Outbo

und

Logist

ics

Market

ing

&

Sales

Se

rvice



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Support

Activities

Primary Activities

Inbound

Logist

ics

Operat

ions

Outbo

und

Logist

ics

Market

ing

&

Sales

Se

rvice

Procurement



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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



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Support

Activities

Primary Activities


Procurement

Inbound

Logist

ics

Operat

ions

Outbo

und

Logist

ics

Market

ing

&

Sal

es

Se

rvice

Human Resource Management



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Support

Activities

Primary Activities


Human Resource ManagementFirm Infrastructure

Procurement

Inbound

Logist

ics

Operat

ions

Outbo

und

Logist

ics

Market

ing

&

Sal

es

Se

rvice



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Support

Activities

Primary Activities



Procurement

Inbound

Logist

ics

Operat

ions

Outbo

und

Logist

ics

Market

ing

&

Sal

es

Se

rvice


O t i


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Support

Activities

Primary Activities

Outsourcing



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



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


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


19/27Primary Activities

Support

Activities



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


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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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

sm 3-internal analysis

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