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This is a Presentation In Business Strategic Management. An Complete Internal Analysis of a firm in Strategic Management.
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Business Strategy – Internal Analysis of the
Company
Prepeared By Debashish Bramha.
Please Click Debashish Bramha’s Blog: http://debashishbramha.blogspot.com
What do we mean by strategy? Strategy refers to the plans made and
action taken to enable an organization to fulfill its indented objectives
Strategy is management’s game plan for strengthening the organization’s position, pleasing customers, and achieving performance targets.http://debashishbramha.blogspot.com
Without a strategy, managers have:
No thought-out course to follow
No roadmap to manage by
No action program to produce the intended result
http://debashishbramha.blogspot.com
Good strategy andgood strategy execution
are the most trustworthy signs
of good management.http://debashishbramha.blogspot.com
Components ofStrategic Management
Process Vision Company Mission Company Profile Recognizing and evaluating external and
internal environment. Strategic Analysis and Choice Strategy Formulation Strategy Implementation Evaluation of performance
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which are required for firms to which are required for firms to achieve:achieve:
Above-Average Above-Average ReturnsReturns
Strategic Strategic CompetitivenessCompetitivenessSustained Competitive Sustained Competitive AdvantageAdvantage
The Strategic Management The Strategic Management ProcessProcessInvolves the full set of:Involves the full set of:
ActioActionsns
CommitmentCommitmentss
DecisiDecisionsons
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Sustained Competitive Sustained Competitive AdvantageAdvantage
Above-Average Above-Average ReturnsReturnsReturns in excess of what an investor Returns in excess of what an investor
expects to earn from other expects to earn from other investments with similar riskinvestments with similar risk
Occurs when a firm develops a strategy Occurs when a firm develops a strategy that competitors are not simultaneously that competitors are not simultaneously implementingimplementing
Provides benefits which current and Provides benefits which current and potential competitors are unable to potential competitors are unable to duplicateduplicate
Strategic Strategic CompetitivenessCompetitivenessAchieved when a firm successfully Achieved when a firm successfully
formulates and implements a formulates and implements a value-creating strategyvalue-creating strategy
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What does a company’s strategy consist of?
How to satisfy customers Broad or narrow product line? Amount of customer service provided?
How to grow the business Concentrate on a single business strategy? Diversify into related or unrelated
industries? Expand globally?
Company strategies concern:
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How to respond to changing industry and market conditions
How best to capitalize on new opportunities How to manage each functional piece of the
business How to achieve strategic and financial
objectives
What does a company’s strategy consist of?
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What is an Internal Analysis?
Internal Analysis Identifies and evaluates resources,
capabilities, and core competencies Looks at the organization’s
o Current visiono Missiono Strategic objectiveso Strategies
Why Do an Internal Analysis?
1. It is the only way to identify an organization’s strengths and weaknesses
1. It’s needed for making good strategic decisionshttp://
debashishbramha.blogspot.com
Value Chain Analysis The premise behind value chain analysis is
that customers demand value from goods and services they obtainCustomer value Product is unique and different Product is low priced Quick response to specific or distinctive
customer needs A value chain is a systematic way of
examining organization’s functional activities
http://debashishbramha.blogspot.com
http://debashishbramha.blogspot.com
General administration
Human resource management
Technology development
Procurement
Inbound logistics
OperationsOutbound logistics
Marketing and sales
Service
The Value Chain
Value Chain Analysis
Inbound LogisticsInbound Logistics•••
Materials control systemInventory control systemRaw material handling and warehousing
OperationsOperations••••
Equipment comparison to competitorsPlant layoutProduction control systemLevel of automation in production processes
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Value Chain Analysis
Outbound LogisticsOutbound Logistics••
Timeliness and efficiency of finished products delivery
Warehousing of finished productsMarketing and SalesMarketing and Sales
••••••••
Marketing researchSales promotions and advertisingAlternative distribution channelsCompetency and motivation of sales forceOrganization’s image of qualityOrganization’s reputationBrand loyalty of customersDomination of various market segments
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Value Chain Analysis
Customer ServiceCustomer Service•••••
Customer input for product improvementsHandling of customer complaintsWarranty and guarantee policiesEmployee training in customer education &
service issuesReplacement parts and services
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Value Chain AnalysisProcurementProcurement
•••••
Alternate sources for obtaining needed resourcesTimeliness of resources procurementProcurement of large capital expenditure
resourcesLease-versus-purchase decisionsLong-term relationships with reliable suppliersTechnological DevelopmentTechnological Development
••••••
R&D activities in product and process innovationsRelationship between R&D and other
departmentsMeeting deadlines in technological development
activitiesQuality of labs and other research facilitiesQualifications of lab technicians and scientistsCreativity and innovation in organizational
culture http://debashishbramha.blogspot.com
Value Chain AnalysisHuman Resource ManagementHuman Resource Management•••••••
Recruiting, selecting, orienting, and training employees
Employee promotion policiesReward systems to motivate and challenge
employeesAbsenteeism and turnoverUnion-organization relationsEmployee participation in professional
organizationsEmployee motivation, job commitment, and
satisfaction
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Value Chain Analysis
Firm InfrastructureFirm Infrastructure•••••••
Identification of external opportunities and threats
Accomplishing goals with strategic planning system
Coordination and integration of value chain activities
Low-cost capital expenditures & working capital funds
IS support for strategic and operational decisionsRelationships with stakeholdersPublic image as a responsible corporate citizen
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The Analysis Process
Within the organization's strategic context specify the decisions to be made,
Select, gather and analysis the most relevant data about the organization, its environment, operations and people.
Based on these data, formulate conclusions about the organization its environment, operations and people.
Determine and appraise feasible alternatives, weighing risks and opportunities.
Select the most appropriate alternative. Implement the selected alternative and monitor
results.
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Interrelationships among Value-Chain Activities within and across Organizations
Interrelationships among activities within the firm
Relationships among activities within the firm and with other organizations (e.g., customers and suppliers)
HR
M
MIS
Rand MD
P/O
F
ENVIRONMENTAL
INPUTS
ENVIRONMENTAL
OUTPUT
INTERRELATIONSHIPS AMONG FUNCTIONAL AREAS
ENVIRONMENT
ENVIRONMENT
STRATEGIC INTERNAL FACTORS
Relatively easy to identify, and include physical and financial assets used to create value for customers Financial resources
Firm’s cash accounts Firm’s capacity to raise equity Firm’s borrowing capacity
Physical resources Modern plant and facilities Favorable manufacturing locations State-of-the-art machinery and equipment
Tangible Resources
Technological resources Trade secrets Innovative production processes Patents, copyrights, trademarks
Organizational resources Effective strategic planning processes Excellent evaluation and control systems
Tangible Resources
Innovation and creativity Technical and scientific skills Innovation capacities
Reputation Effective strategic planning processes Excellent evaluation and control systems
Intangible Resources
Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in unique routines and practices that have evolved over time
HumanExperience and capabilities of employeesTrustManagerial skillsFirm-specific practices and procedures
Intangible Resources
Competencies or skills that a firm employs to transform inputs to outputs, and capacity to combine tangible and intangible resources to attain desired end Outstanding customer service Excellent product development capabilities Innovativeness of products and services Ability to hire, motivate, and retain human capital
Organizational Capabilities
For a strategic capability to be a Core For a strategic capability to be a Core Competency, it must be:Competency, it must be:
Core CompetenciesCore Competencies
ValuableValuable
RareRare
Costly to ImitateCostly to Imitate
No substitutableNo substitutable
What a firm Does...that is Strategically Valuable
Is the Resource Valuable?Organizational resources can be a source of competitive advantage only when they are valuable Enable a firm to formulate and implement strategies
that improve its efficiency or effectiveness
Is the Resource Rare?Organizational resources also possessed by competitors are not sources of competitive advantage Common strategies based on similar resources give
no one firm an advantage Competitive advantages are gained only from
uncommon resources, resources that are rare to other competitors
Can the Resource be Imitated?Difficulty in imitating resources is key to value creation because it constrains competition Profits generated from inimitable resources are more
likely to be sustainable Physical uniqueness Path dependency Causal ambiguity Social complexity
Are Substitutes Readily Available?
There must be no strategically equivalent valuable resources that are themselves not rare or inimitable Substitutability may take at least two forms
Competitor may be able to substitute a similar resource that enables it to develop and implement the same strategy
Very different firm resources can become strategic substitutes (such as e-business as a substitute for physical retail facility)
Criteria for Sustainable Competitive Advantage and Strategic Implications
Valuable Rare Difficult Without Implications to Imitate Substitutes for Competitiveness
No No No No Competitive disadvantage
Yes No No No Competitive parity
Yes Yes No No Temporary competitive advantage
Yes Yes Yes Yes Sustainable competitive advantage
Is a resource or capability…
Source; Adapted from J. Barney, “Firm Resources a Sustained Competitive Advantage, ‘ Journal of Management 17 (1991), pp. 99-120.
Challenge of Internal Analysis How do we effectively manage current core How do we effectively manage current core
competencies while simultaneously developing competencies while simultaneously developing new ones?new ones?
How do we assemble bundles of resources, How do we assemble bundles of resources, capabilities and core competencies to create value capabilities and core competencies to create value for customers?for customers?
How do we learn to change rapidly?How do we learn to change rapidly?
What a firm Does...
Capabilities Represent:
The firm’s capacity or ability to integrate individualfirm resources to achieve a desired objective.
Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees.
Capabilities become important when they are combined Capabilities become important when they are combined in in unique combinations unique combinations which create core competencies which create core competencies which havewhich have strategic value strategic value and can lead toand can lead to competitive competitive advantageadvantage..
CapabilitiesCapabilities
Human Resource Development Initiations
Measures :- Employee Motivation For Strategic Effectiveness
Developed in-built appraisal system like–
(a) Productivity Honorarium Scheme
(b) Quarterly Incentive Scheme
(c ) Group Incentives for cohesive team working &
(d) Reward and Reconviction Scheme.
Coverage and Evaluation of Ratios
The different types of financial ratios in Financial Strategic Management includes: Liquidity Activity Debt Profitability
04/08/23 40
Liquidity Ratio Analysis Liquidity ratios measure a firm’s ability to
meet its current financial obligations. Liquidity Ratios include:
Net working capital Current Ratio Quick Ratio
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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.
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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.
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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.
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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
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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.
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.
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
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.
Profitability Ratio AnalysisProfitability 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
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.
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
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.
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.