Organizational Analysis

Organizational Analysis
Internal Scanning: Organizational Analysis Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Learning Objectives Apply the resource-based view of the firm to determine core and distinctive competencies Use the VRIO framework and the value chain to assess an organization’s competitive advantage and how it can be sustained Understand a company’s business model and how it could be imitated After reading this chapter, you should be able to: • Apply the resource-based view of the firm to determine core and distinctive competencies • Use the VRIO framework and the value chain to assess an organization’s competitive advantage and how it can be sustained • Understand a company’s business model and how it could be imitated Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Learning Objectives Scan functional resources to determine their fit with a firm’s strategy Construct an IFAS Table that summarizes internal factors After reading this chapter, you should be able to: • Assess a company’s corporate culture and how it might affect a proposed strategy • Scan functional resources to determine their fit with a firm’s strategy • Construct an IFAS Table that summarizes internal factors Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

A Comprehensive Strategic Management Model
Feedback Perform external audit Develop Mission statement Establish long term objectives Generate, Evaluate, and select strategies Establish policies and annual objectives Allocate resources Measure and evaluate performance Perform internal audit Formulation Evaluation Implementation Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

SWOT -- Situational Analysis Internal External Strengths/Weaknesses
Opportunities/Threats Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra Prentice Hall 2006

Resource-Based Approach
Internal strategic factors: Critical strengths and weaknesses that are likely to determine if the firm will be able to take advantage of opportunities while avoiding threats. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Evaluating Key Resources
VRIO Framework Barney, in his VRIO framework of analysis, proposes four questions to evaluate a firm’s Competencies: Value: Does it provide customer value and competitive advantage? Rareness: Do no other competitors possess it? Imitability: Is it costly for others to imitate? Organization: Is the firm organized to exploit the resource? If the answer is yes to all it is considered distinctive competence. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Core and distinctive competencies
Capabilities: organization ability to utilize its resources. Its business process and routine. Competency: cross-functional integration and coordination of capabilities. E.g., new product development. The process is competent if it is highly integrated with other processes. Core-competency: collection of competencies that crosses divisional boundaries. E.g., new product development is a core-competency if it goes beyond one division. Distinctive competencies: when core- competencies are superior to those of the competitions. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Keys of Strategic Outsourcing Success
1- Understand the bus core competencies. ‘What it gives competitive Differentiation’ Core comp. Is the integration of technologies, constituent skills and collective learning cross divisions, which makes healthy bus. 2- Understand the type of the work of bus. 3- Mapping out the work of bus. 4- Requires trust between parties Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Competitive advantage analysis
Analyzing competences and core competences: The analysis here determines how resources are deployed Competitive advantage is built on the uniqueness of resources or on the core competences. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Strategic Outsourcing for Competitive Advantage
Used mainly for downsizing and cost reductions at corporations. Usually corps outsourcing non-essential work, why? To free valuable resources and focus on its areas of competitive advantage. To do this org. must know its core competences. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

5-Steps approach to strategy analysis: 1- Identify & classify firm’s resources What are the Strengths & weaknesses 2- Combine firm’s strengths into capabilities Core competencies Distinctive competencies Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

5-Step approach to strategy analysis: 3- Appraise the Profit potential of resources\capabilities. Includes, - Identify the competitive advantages. - Sustainable competitive advantage 4- Select strategy that best, Exploits firm’s resources relative to external opportunities 5- Identify resource gaps Invest in upgrading weaknesses Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Access to a Distinctive Competency
Asset endowment/available, e.g., patent. Acquired from someone else, e.g., buying distributing system. Shared with another business, e.g., alliance partner. Built and accumulated within the company. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Why some nations are more competitive than others?
M. Porter in his diamond, suggests that there are inherited reasons why some nations are more competitive, and there organizations are as well, than others. Porter believes that national home base of an organization influence the global success of organization. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Porter’s Determinants of National Advantage
There are four forces: 1- The conditions of the nation, availability of skills, infrastructure. 2- Home country’s demand for products. 3- The presence or absence of supporting industries. 4- The firm’s strategy, structure, rivalry, establishment process.. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Four Nation’s Distinct Strategies
S-O, or maxi-maxi S-T, or maxi-mini W-O, or mini-maxi W-T, or mini-mini Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Determining the Sustainability of an Advantage
Two characteristics determine the sustainability of a firms’ distinctive competency: durability and imitability. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Determining the Sustainability of an Advantage
Durability: how long core competency continues before it becomes obsolete. Rate at which a firm’s underlying\basic resources and capabilities (core competencies) depreciate or become obsolete. E.g., new technology can make the company core competency irrelevant. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Sustainability of an Advantage
Imitability: Rate at which a firm’s underlying resources and capabilities (core competencies) can be duplicated by others?. Competitors will do what they can to learn and imitate that set of skills and capabilities. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Core Competencies Imitability of core competencies determined by:
Transparency/clearly understood. Gillette’s razor design is very difficult to copy; complicated manufacturing equipment. Transferability. Ability of competitors to gather necessary resources and capabilities to support a competitive challenge. Replicability/ do it exactly by the competitors :imitate other firms’ success. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Core Competencies Is it easy to imitate another company’s core competency? Depends if it comes from: Explicit Knowledge: Knowledge that can be easily articulated and communicated. Tacit/unexpressed Knowledge: Knowledge that is not easily communicated because it is deeply rooted in employee experience or in a corporation’s culture . Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Resource Sustainability
Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Business models How firms earn revenue and make profit. This is based on business model used which is usually composed of 5 elements: Who it serves What it provides How it makes money How it differentiates and sustains competitive advantage. How it provides its products. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Competitive advantage analysis
Steps of analyzing competences: 1- Value chain analysis: describes the activities within and around the organization, and relates them to an analysis of the competitive strength of the organization. 2- the bases of core competences. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Corporate Value Chain Analysis steps:
Examine each product line’s value chain Core competencies & core deficiencies Examine the “linkages” within each product line’s value chain Connections between the way one value activity is performed and the cost of performance of another activity Examine the synergies among the value chains of different product lines or business units Economies of scope Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

How can value chain analysis help identify a company's strengths and weaknesses?
The systematic examination of individual value activities can lead to a better understanding of a corporation's strengths and weaknesses. Its advantage over other methods of analyzing a firm's internal environment is, its ability to visualize a company in terms of strings/sequences of product value chains. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Competitive advantages
When competitive advantage is materialized? When a firm earns persistently higher rate of profit over its rivals. Determinants of profit level 1- Value of company products in customers’ eyes. 2- Company production cost. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Competitive advantage
It can be created in certain industrial field, through the adoption of low-cost-differentiation strategy. However, M. Porter believes that the company should adopt one of these strategies other wise it will stuck in the middle. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

What is the success strategy
The strategy which enables organizations developing new advantages, or maintaining/sustaining the existing advantages. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Market segmentation analysis
It aims to identify similarities and differences between groups of customers or users . Not all customers are the same. Some criteria for market segmentation: Characteristics of customers (e.g., income, gender, age, education), Purchase situation (e.g., behavior, its size, importance, when purchasing), Users needs and preferences for product characteristics (e.g., quality, price, brand). Segment which was chosen must be growing, sizeable and profitable. This is why this tool is considered internal, because internal strategic decision. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

What is efficiency and effectiveness?
Management (cont.) elements of definition Efficiency - getting the most output from the least amount of inputs “doing things right” concerned with means Effectiveness - completing activities so that organizational goals are attained “doing the right things” concerned with ends 1-37 Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Boston Consulting Group Matrix
It portrays differences among divisions in terms of relative market share position and industry growth rate. The matrix allows multidivisional corp. to manage its portfolio of business effectively. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Boston Consulting Group Matrix مصفوفه بوستن
Relative market share الحصة السوقية 11 high low 0.5 0.0 20+ Question mark ? النجمة ٍStar الفخ النقدي Cash Trap البقرة النقدية Cash Cow high Industrial Growth Rate معدل نمو الصناعة % low 20- Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Benchmarking The benchmarking process typically follows four steps.
. Benchmarking is the search for the best practices among competitors or non-competitors that lead to their superior performance. The benchmarking process typically follows four steps. a. A benchmarking planning team is formed. The team’s initial task is to identify what is to be benchmarked, identify comparative organizations, and determine data collection methods. b. The team collects internal and external data. c. The data is analyzed to identify performance gaps and to determine the cause of the difference. d. An action plan is prepared and implemented. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Steps In Benchmarking Form a benchmarking planning team Best Practices
Gather internal and external data Best Practices Prepare and implement action plan Analyze data to identify performance gaps © Prentice Hall, 9-42 Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Suggestions for improving benchmarking
Link benchmarking efforts with strategic objectives. Have the right size team -6-8 persons. Involve those people who will be directly affected by the benchmarking. Focus on specific targeted issues rather than broad. Set realistic timetable. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Management Audit Checklist
Does the firm use strategic management concepts? Are objectives/goals measurable? Well communicated? Do managers at all levels plan effectively? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Do managers delegate well? Is the organization’s structure appropriate? Are job descriptions clear? Are job specifications clear? Is employee morale high? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Is employee absenteeism low? Is employee turnover low? Are the reward mechanisms effective? Are the organization’s control mechanisms effective? This checklist can help determine specific strengths and weaknesses. “No” answers indicate potential weaknesses, while “Yes” answers indicate areas of strength. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Marketing Marketing can be described as the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Marketing Marketing Functions Customer analysis
Selling products/services Product & service planning Pricing Distribution Marketing research Opportunity analysis Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Marketing Marketing Audit Checklist of Questions
Are markets segmented effectively? Is the organization positioned well among competitors? Has the firm’s market share been increasing? Are the distribution channels reliable & cost effective? Is the sales force effective? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Marketing Opportunity Analysis Does the firm conduct market research?
Are product quality & customer service good? Are the firm’s products/services priced appropriately? Does the firm have effective promotion, advertising, and publicity strategies? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Marketing Opportunity Analysis
Are the marketing, planning, and budgeting effective? Do the firm’s marketing managers have adequate experience and training? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Finance/Accounting Audit
Does the firm have sufficient working capital? Are capital budgeting procedures effective? Are dividend payout policies reasonable? Are the firm’s financial managers experienced & well trained? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Finance/Accounting Audit
Effective Financial Analysis Requires: Analysis of how the ratios have changed over time How the ratios compare to industry norms How the ratios compare with key competitors Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Production/Operations Audit
Are suppliers of materials, parts, etc. reliable and reasonable? Are facilities, equipment, and machinery in good condition? Are inventory-control policies and procedures effective? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Production/Operations Audit
Are quality-control policies & procedures effective? Are facilities, resources, and markets strategically located? Does the firm have technological competencies? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Research & Development Audit
Are the R&D facilities adequate? If R&D is outsourced, is it cost-effective? Are the R&D personnel well qualified? Are R&D resources allocated effectively? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Research & Development Audit
Are MIS and computer systems adequate? Is communication between R&D and other organizational units effective? Are present products technologically competitive? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Management Information Systems Audit
Do managers use the information system to make decisions? Is there a CIO or Director of Information Systems position in the firm? Is data updated regularly? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Do managers from all functional areas contribute input to the information system? Are there effective passwords for entry into the firm’s information system? Are strategists of the firm familiar with the information systems of rival firms? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Is the information system user-friendly? Do all users understand the competitive advantages that information can provide? Are computer training workshops provided for users? Is the firm’s system being improved? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

The Internal Factor Evaluation (IFE) Matrix
1. A summary step in conducting an internal strategic-management audit is to construct an IFE Matrix. This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among these areas. 2. Intuitive judgments are required in developing an IFE Matrix, so the appearance of a scientific approach should not be interpreted to mean this is an all-powerful technique. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Steps in developing Internal Factor Evaluation (IFE) Matrix
List key internal factors as identified in the internal-audit process. Use a total from ten to twenty internal factors including both strengths and weaknesses. Assign a weight ranging from 0 (not important) to 1.0 (very important). The weight indicates the relative importance of the factor to being successful in the firm’s industry. The sum of all the weights must equal 1.0. Assign a 1-4 rating to each factor to indicate whether that factor represents a major weakness (1), minor weakness (2), minor strength (3), or major strength (4). Multiply each factor’s weight by its rating to determine a weighted score for each variable. Sum the weighted scores for each variable to determine the total weighted score for the organization. Total weighted scores of below 2.5 indicate an internally weak organization. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Steps in developing Internal Factor Evaluation (IFE) Matrix (different calculation.
List key internal factors as identified in the internal-audit process. Use a total from ten to twenty internal factors including both strengths and weaknesses. Assign a weight ranging from 0 (not important) to 1.0 (very important). The weight indicates the relative importance of the factor to being successful in the firm’s industry. The sum of all the weights must equal 1.0. Assign a 1-5 rating to each factor to indicate whether that factor represents priority in management response. Multiply each factor’s weight by its rating to determine a weighted score for each variable. The total weighted score indicates how well the company is responding to its internal environment. The score can be used to compare the firm with other competitors. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Goals & Objectives Defined
Goals: The desired general ends towards which efforts are directed e.g., expand firm size. Objectives: are specific quantified, e.g., increase sales by 10% each year. “We may derive a number of objectives from a goal” Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Long-Term Objectives Objectives: Specific results an organization seeks to achieve in pursuing its basic mission. Long-term objective: More than 3 years. Objectives should be: challenging, measurable, consistent, reasonable and clear. Ex. Our objective is to achieve 20% return on equity. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Annual Objectives Short-term that the organization must achieve to reach long-term objectives. Objectives Characteristics: Measurable, quantitative, challenging, realistic, consistent and prioritized. Annual objectives are important for strategy implementation, whereas, long-term objectives are important for strategy formulating. Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Review How to use the "resource-based" approach in environmental analysis? Is it a tool for internal or external evaluation? How can we benefit from resource-based approach in enhancing the competitive advantages of business? Draw an example in your answer? Copyright © 2015 Pearson Education, Inc. Developed by Prof. Majed El-Farra

Organizational Analysis

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