A View from the TopChapter 5

Analyzing an Organization’s Strategic Resource Base

Team IIIM Isabel Castaneda

Cal WallacePatrick McGregor

Introduction Assessing strategic resources and

capabilities is important when determining a companies strategy.

Analyzing a company’s internal strategic environment has two principal components: Cataloging and valuing current resources and

core competencies for creating competitive advantages.

Identifying internal pressures for change and forces for resistance.

Strategic Resources

A company’s strategic resource base is composed of physical financial, human resource, and organizational assets.

To evaluate the relative worth of a company’s strategic resources four questions must be asked.

Physical Assets

A company’s physical assets can affect its competitiveness.

i.e. Airline companies, the average age of the fleet affects customer perceptions, routine flexibility, and operating and maintenance costs.

Analyzing a Company’s Financial Resource Base

For the corporate level, evaluations of the financial position involves thorough analysis of the company’s financial statements.

Financial ratio analysis can provide an overview of an organization’s current and past profitability, liquidity, leverage, and activity.

Profitability Ratios

Measure how well a company is allocating its resources.

Ratios Gross Profit Margin Net Profit Margin Return on Assets Return on Equity

Liquidity Ratios

Measure cash flow generation and ability of an organization to meet its current obligations.

Ratios Current Ratio Quick Ratio Inventory to Net Working Capital

Leverage

Can indicate potential improvements in the financing of operations.

Ratios Debt-to-assets ratio Debt-to-equity ratio Long-term debt-to-equity ratio

Activity Ratios

Measure productivity and efficiency

Ratios Inventory Turnover Fixed Asset Turnover Average Collection

DuPont Formula

Used to analyze an organization’s return on assets directly links operating variables to financial performance.

Accounting-based measures have generally been found inadequate indicators of a business unit’s economic value.

Shareholder Value Analysis Focuses on cash flow generation to

determine economic value. It is helpful to answer the following

questions: Does the current strategic plan create

shareholder value. How does the business unit’s performance

compare with others in the corporation. Would an alternative strategy increase

shareholder value more than the current.

Economic Value Added Economic value added and market

value added have supplemented accounting based performance measures.

Advantages: Help align employee and owner interest

through employee compensation. Can be the basis for a single competitive

performance measure called MVA. Indicates if returns lag the cost of capital

Analyzing a Company’s Financial Resource Base

Cost analysis deals with identification of strategic cost driver.

Cost benchmarking is useful in assessing a firm’s cost relative to those competing firms, or for comparing a company’s performance against best-in-class competitors.

Human Capital: A Company’s Most Valuable Strategic Resource

Firms are run by and for people. More focus on attracting,

developing, and retaining. Continuous employee development

is critical Ex- Fed Ex has an 11 week training

and “Leadership Institute”

Organizational Strategic Resources

Knowledge Intellectual Capital Base Reputation with customers,

partners, and suppliers and financial community

Specific competencies, processes, and skill sets

Corporate Culture

Organizational Strategic Resources Continuation

Intellectual Capital- hard to measure

Patents- protect and preserve competitive advantage

Knowledge- better knowledge » better performance and enhanced learning

The Importance of Brands

Brands provide guarantee of reliability and quality

Customers must trust the brands Ex- Ranking 100 Best Global

Brands by dollar value.

The Importance of Brands Continuation

Ranking 100 Best Global Brands by dollar value

Identifiable Qualities: Do not fear public flops Face your weaknesses Protect your culture

Core Competencies

Great capabilities that enable a company to build a competitive advantage.

Focus on creating a value, and change as customer’s requirements change

Hamel and Prahalad three tests for identifying core competencies

Internal Change Forces and the Capacity for Change  Internal Change Forces

Four basic forms of resistance 1. Structural, Organizational rigidities 2. Closed mind-sets reflecting support for

obsolete business beliefs and strategies 3. Entrenched cultures reflecting values,

behaviors, and skills that are not conductive to change.

4. Counterproductive change momentum that isn’t in tune with current strategic requirements

The Company Life Cycle  Founding

Establishment of: Vision and Purpose Direction Allocation of

Capital and Resources

Growth Requires

Organizational Learning

Delegation of Authority

Leadership challenges

Responding to external and internal change.

Working together as a cohesive unit

Mckinsey 7-S Model  Frameworks 

Strategy Structure Systems Skills Staff Style All link to Shared Values

Particulars of the Model 

Not hierarchical Change in one force

will occur a change in another

Fixing problems in one area without attention to others is counterproductive.

Align each factor accordingly for a desired direction of a particular goal.

Stakeholder Analysis 

What roles do they play? Internal or External Rights and Interest Returns Competition Laws and Regulations Demands of the Stakeholders

SWOT  SWOT- the sizing up of a company’s

strengths, weaknesses, external opportunities, and threats.

Strengths and Weaknesses are internal Opportunities and Threats are external

FIGURE 5-5 on page 69

Work Cited Kluyer, C (2006). Strategy: A View from the Top.

Upper Saddle River, New Jersey: Pearson Education.

Building Brands. Retrieved June 7, 2009, from Building Brands: Mckinseys 7-S Model Web site: http://www.buildingbrands.com/didyouknow/14_7s_mckinsey_model

Oxford Analytical, (2009, May, 27). Emerging Economies Must Maintain Social Programs. Forbes, Retrieved June 7, 2009, from http://www.forbes.com/2009/05/26/health-education-politics-business-oxford_print.html