MARSHAL HAROUN G 12HM22
INTERNAL ANALYSIS
OBJECTIVES
Understand the following approaches to Internal Analysis
SWOT analysis Value chain analysis Financial Analysis Key Factor Rating Functional Area Profile and Resource Deployment Matrix Strategic Advantage Profile
SWOT ANALYSIS
A traditional approach to internal analysis:
SWOT is an acronym for the internal Strengths and Weaknesses of a firm and the environmental Opportunities and Threats facing that firm
SWOT analysis is a historically popular technique through which managers create a quick overview of a companys strategic situation.
SWOT COMPONENTS
An opportunity is a major favorable situation in a firms environment A threat is a major unfavorable situation in a firms environment
A strength is a resource or capability controlled by or available to a firm that gives it an advantage relative to its competitors in meeting the needs of the customers it serves
A weakness is a limitation or deficiency in one or more of a firms resources or capabilities relative to its competitors that create a disadvantage in effectively meeting customer needs
EX. 6.2
SWOT ANALYSIS DIAGRAM
LIMITATIONS OF SWOT ANALYSIS
A SWOT analysis can overemphasize internal strengths and downplay external threats A SWOT analysis can be static and can risk ignoring changing circumstances
A SWOT analysis can overemphasize a single strength or element of strategy
A strength is not necessarily a source of competitive advantage
VALUE CHAIN ANALYSIS (VCA)
The term value chain describes a way of looking at a business as a chain of activities that transform inputs into outputs that customers value Value chain analysis (VCA) attempts to understand how a business creates customer value by examining the contributions of different activities within the business to that value VCA takes a process point of view
THE VALUE CHAIN
Service
PRIMARY ACTIVITIES IN THE VALUE CHAIN
Activities directly involved in producing, selling, distributing, and servicing product for buyer.
Inbound
logistics: Receiving, Storing, and Distributing inputs for production
All activities involved in transforming inputs into final
Operations:
products
Outbound
logistics: Collecting, Storing, Distributing product to final
buyer
Marketing
and Sales: company products
Activities used to get customers to buy
Service:
Installation, Repair, Support, Training for using a product
SUPPORT ACTIVITIES IN THE VALUE CHAIN
Activities that enable the performance of primary activities
Firm infrastructure: companywide support of entire value chain; includes quality of management, financial performance, strategy, organizational culture
Human resource management: recruiting, hiring, training, reward systems for employees
Research and development: design of products and processes that enhance company performance; not limited to equipment Procurement: purchasing and managing inputs used in operations; developing and managing supplier relations
CONDUCTING A VCA
1. 2. 3.
Identify activities Allocate costs VCA proponents hold that the activity-based VCA approach would provide a more meaningful analysis of the procurement functions costs and consequent value added than the traditional cost accounting approach
EX. 6.5 TRADITIONAL
COST ACCOUNTING VS ACTIVITY BASED COST ACCOUNTING
DIFFICULTY IN ACTIVITY-BASED COST ACCOUNTING
It is important to note that existing financial management and accounting systems in many firms are not set up to easily provide activity-based cost breakdowns The information requirements to support activity-based cost accounting can create redundant work The time and energy to change to an activity-based approach can be formidable
FINANCIAL ANALYSIS
Uses companys financial companys performance
results
to
assess
Requires comparisons of results over multiple years and against industry standards
Important tool to identify companys strengths and weaknesses and potential problem areas.
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TYPES OF RATIOS
Profitability
Activity Liquidity Leverage
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ANALYZING COMPETITIVE ADVANTAGE AND PROFITABILITY
Benchmarking company performance against that of competitors and the companys own historic performance Return on invested capital
ROIC
Net profit Invested capital
Net profit = Total revenues Total costs
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WAYS TO INCREASE ROIC
Increase the companys return on sales Reduce cost of goods sold Reduce spending on sales force, marketing, general, and administrative expenses Reduce R&D spending Increase sales revenue more than costs Increase sales revenues from invested capital Reduce the amount of working capital Reduce amount of fixed capital
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WHY COMPANIES FAIL
Inertia
Companies find it difficult to change their strategies and structures
Limit a companys ability to imitate and cause competitive disadvantage A company can become so specialized based on past success that it loses sight of market realities Craftsmen, builders, pioneers, salesmen
Prior strategic commitments
The Icarus paradox
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KEY SUCCESS FACTORS
Structure of the Industry Competitive Strategy, industry position and geographic location Environment Factors Temporal Factors
VARIOUS AREAS
Functional Areas Management Areas The Human Side
FUNCTIONAL AREAS
Marketing Finance & Accounting Production Engineering R&D Human Resources Logistics
MANAGEMENT AREAS
Planning Organizing Directing Staffing Motivating Communication Controlling
ANALYSIS OF MANAGEMENT AREAS
Function Planning Description Forecasting, devising strategies, developing policies and setting goals Resource allocation and priority determination Job specification, job description ,unity of command , span of control Leadership, communication, job satisfaction, employee and managers morals Informing, motivating, securing participation, feedback Wages , hiring, firing, training, management development Quality control, financial control, inventory control, expense control Important at stage Strategy Formulation
Directing Organizing Motivating
Strategy formulation Strategy Implementation Strategy Implementation
Communicatin g Staffing Controlling
Strategy Implementation Strategy implementation Strategy Evaluation
HUMAN SIDE
Individuals Personalities Values , ambitions and motivation
INTERNAL RESOURCE ANALYSIS
Functional Area Analysis
Management Area Analysis
Human Side Analysis
Interrelationship between 2 & 3
Comprehe nsive Internal Analysis
FUNCTIONAL AREA PROFILE & RESOURCE DEPLOYMENT MATRIX
Matrix of function areas with common characteristics
Indicates how the key function areas stand in relation to each other.
MATRIX
Functiona Resource l Area deployment & Focus Marketing Development outlay ( % ) Amount Focus of effort 2008 2009 2009-10 2010-2011 Next year
Production Development outlay ( % ) Amount Focus of effort Finance Development outlay ( % ) Amount Focus of effort
STRATEGIC ADVANTAGE PROFILE
Summary statement which provides an overview of advantages and disadvantages in key areas likely to affect future operations of the firm
SAP OF A COMPANY
Internal Area Strength / Weakness
Marketing
R&D
Capable sales force (+) Shrinking market (-)
No R & D breakthrough (-) Patents from the company which was acquired (+) Heavy reliance of bank loans (-) Public issue over subscribed ( +)
Finance