Strategic Analysis

Micro and Macro environmental changes Strategic analysis The basic frame work: Strategy as a link between the firm and its environment Micro and Macro environmental changes The firm Goals and values Resources and capabilities Structure and system Strategy Strategic fit Fundamental of strategy as the link between the firm and its external environment is the notion of strategic fit. For a strategy to be successful it must be consistent with the firm external environment and with its internal firm goals, resources and capabilities and the structure

Strategic analysis Strategic analysis Analysis of firm Goals, values and performance , analyzing capabilities and resources Analysis of macro , industry and competitive environment

Creating value Successful strategy is creating value Continuously creating customer value Firm value Shareholder value

Value Creation

The Basic Value Chain Margin Margin Technological Development Service Marketing & Sales Human Resource Mgmt. Support Activities Outbound Logistics Firm Infrastructure Procurement Operations Inbound Logistics Primary Activities

Value Chains are part of a Total Value System Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain 69

Diagnosing the firm current strategy Strategy formulation Assess the current situation Identify the current strategy of the firm and assess how well that strategy is doing in terms of financial performance Identify the inadequacies of firm value drivers and reason for deviations-Internally driven or external driven Strategic or operational level actions

Sales on capital employed Performance diagnosis Diagnosis is primarily starts from accounting based financial performance indicator of Return on capital employed or ROCE. Any disaggregation of ROCE in to fundamental of value drivers. Du point analysis reflects the value drivers and its impact on ROCE. ROCE Return on sales COGS/Sales Depreciation/Sales SGA/Sales Sales on capital employed Fixed asset turn over Inventory turn over Debtors turn over

Income statement for Ashanti plc for the year ending 31 March 2011 2010 2011 £m Revenue (Note 2) 2,240 2,681 Cost of sales (Note 3) -1,745 -2,272 Gross profit 495 409 Operating expenses -252 -362 Operating profit 243 47 Interest payable -18 -32 Profit before taxation 225 15 Tax -60 -4 Profit for the year 165 11 2010 (£m) 2011 (£m) Opening inventories 241 300 Purchases 1,804 2,378 2,045 2,678 Closing inventories -300 -406 Cost of sales 1,745 2,272 Notes: 2. All sales and purchases are made on credit 3. The cost of sales figure can be analyzed as follows:

Balance sheet of Ashanti plc., as at 31 March 2011 Non-current assets Property, plant and equipment (at cost less depreciation) Land and buildings 381 427 Fixtures and fittings 129 160 510 587 Current assets Inventories at cost 300 406 Trade receivables 240 273 Cash at bank 4 - 544 679 Total assets 1,054 1,266 Equity £0.50 ordinary shares (Note 1) Retained earnings 263 234 563 534 Non-current liabilities Borrowings - 9% loan notes (secured) 200 Current liabilities Trade payables 261 354 Tax due 30 2 Short-term borrowings (all bank overdraft) 76 291 432 Total equity and liabilities Notes: 1. The market value of the shares of the business at the end of the year was £2.50 for 2010, and £1.50 for 2011. 4. A dividend of £40m had been paid to the shareholders in respect to each of the years. 5. The business employed 13,995 at 31 March 2010 and 18,623 at 31 March 2011. 6. The business expanded its capacity during 2010 by setting up a new warehouse and distribution centre in the south of Wales