Strategic Management: Environments (know yourself) Dr David R Moore SU3001 Strategic Management: Environments (know yourself) Dr David R Moore

Analysing the Internal Environment: Resource Capability Prior to making strategic decisions, an organisation must recognise its own capabilities and core competencies (internal analysis) This requires an evaluation of the organisation’s strengths and weaknesses: Portfolio analysis Value-chain analysis SWOT analysis Portfolio analysis comprises: Recognition that all organisations need to assess the balance of their activities, products and services; Recognition that to be reliant on one product, service or customer carries high levels of risk.

Problem Children Dogs Stars Cash Cows Annual Rate of Market Growth Relative Market Share Earnings low, unstable. Cash Flow neutral or negative Earnings low, unstable, growing. Cash Flow negative Earnings high, stable, growing. Cash Flow neutral Earnings high, stable. Cash Flow high, stable P.A. matrix developed by Boston Consulting Group (BCG) in the 1970’s remains commonly used in strategic management.

Difficulties in P.A. include: Definition of market growth – high v. low? (Normally above and below 5%) Definition of the market – not always clear. Possible to make a product look like a market leader, if market is defined too narrowly. Assumes every business in a portfolio is independent – thereby denies synergistic rationale for a multi-business organisation. Perceived desirability of growth – not always appropriate: Possible to achieve high longer term profit with low growth levels. Competitors will not always ‘allow’ a change to be made – their portfolio analysis may lead to a plan to prevent changes by their competitors.

Dubious P.A. recommendations – Can an organisation really afford to eliminate Dogs? Possible that Dogs share production resources with Stars and Cash Cows. Eliminating Dogs could cause higher production costs for other products. Does not always clearly appreciate the nature of the value chain. The Value Chain: Organisations consist of activities that link together to form a chain of value for the business. These include purchasing, supplies, manufacturing, distribution and marketing of goods and services. Value (added) can be defined as: VA = sales revenue from output – cost of material inputs

Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Cost of Material inputs = wages/salaries + interest + rent + royalties/license fees + taxes + dividends + retained earnings (Retained earnings is the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business, or to pay debt) Human Resource Management Procurement Technology Development Firm Infrastructure Support Activities

Primary Activities: Inbound logistics – receiving goods from suppliers, storage and materials handling within the company until required by ops. Operations (ops) – production area of the organisation. Dependant upon product or service, this may be split further (reception, room service, restaurant, etc.). Outbound Logistics – distribution of the final product to the customer. Includes packaging, transport, warehousing, etc.(or equivalents)

Marketing & Sales – includes marketing intelligence, customer needs v Marketing & Sales – includes marketing intelligence, customer needs v. products supplied. Service – before and after sales. Training in the use of the product, installation, repair and after-sales back-up. Procurement – function of obtaining goods and raw materials used in the production process / service provision: highest quality goods at lowest prices. Function covers many parts of the organisation.

Support Activities: Technology Development – important area covering development of new products and services (R&D). Also fundamental to the innovative capacity of the organisation HRM – recruitment, training, succession planning and personal development plans. All essential to the organisation’s ability to function and prosper. Support activities add value, as with primary activities, but in a manner more difficult to link with a single part of the organisation

Also identify Core Competencies – critically underpin the organisation’s competitive advantage. Example: corner shops versus supermarkets (traditional) core competencies. Supermarkets’ C.C.’s are low cost supplies, bulk buying and electronic stock control. Corner shops’ C.C.’s are convenience, personal service, extended opening hours and informal credit facilities.

Differentiation (within the value chain) through added-value, products that meet customer needs, and superior customer service is difficult to imitate if sustained through the management of ‘unique’ linkages within the supply chain. The strategy could be to use this to create competitive advantage. Whichever strategy is considered, there will need to be a realistic assessment of strengths and weaknesses, opportunities and threats before a decision is made.

Strategic Management: Environments (know yourself) Dr David R Moore SU3001 Strategic Management: Environments (know yourself) Dr David R Moore