1. Internal Environmental Analysis HCAD 5390

2. Assessing Organizational Ability to Make Strategy Analyze historical and current financial performance Review strategic assets – resources and competencies Breakdown and evaluate the internal value chain

3. Historical Financial Performance Sales, market share, and profits Free cash flow External capital sources Capital project hurdle rate Other capital demands Shareholder value

4. Increasing Shareholder Value Achieve existing profits with less capital Increase profits with no additional capital Decrease the cost of equity capital Invest more capital in strategic projects that earn above average rates of return

5. Current Financial Performance Balance sheet Operating or income statement Cash flow statement Statement of changes in owners’ equity (for- profit) or net assets (not-for-profit)

6. Ratio Analysis of Financial Statements - Liquidity Current ratio Average collection period Days cash-on-hand, short-term sources Average payment period

7. Ratio Analysis of Financial Statements - Profitability Operating margin Total margin Return on net assets

8. Ratio Analysis of Financial Statements – Operating Efficiency Total asset turnover Fixed asset turnover Inventory turnover

9. Ratio Analysis of Financial Statements – Capital Structure Net assets (or equity) to total assets Long-term debt to net assets (or equity) Debt service coverage

10. Non-Financial Operating Indicators for a Hospital Organization Average length of stay Occupancy rate Outpatient revenue as % of total revenue FTE employees per occupied bed

11. 11 External and Internal Analyses General Environment GeneralEnvironmentGeneral Environment Sociocultural Global Technological Political/Legal Demographic Economic IndustryEnvironment CompetitorEnvironment By studying the external environment, firms identify what they might choose to do Opportunities and threats

12. 12 By studying the internal environment, firms identify what they can do Unique resources, capabilities, and core competencies (sustainable competitive advantage) External and Internal Analyses

13. 13 Value Creation V P C C P-C V-P V=Value to Consumer P=Price C=Costs of Production V-P=Consumer Surplus P-C=Profit Margin

14. 14 Components of Internal Analysis Discovering Core Competencies Resources TangibleTangible IntangibleIntangible Capabilities CoreCompetencies CompetitiveAdvantage Value Creation Four Criteria of Sustainable Advantages ValuableValuable RareRare Costly to ImitateCostly to Imitate NonsubstitutableNonsubstitutable ValueChainAnalysis OutsourceOutsource

15. 15 Challenge of Internal Analysis How do we effectively manage current core competencies while simultaneously developing new ones? How do we effectively manage current core competencies while simultaneously developing new ones? How do we assemble bundles of resources, capabilities and core competencies to create value for customers? How do we assemble bundles of resources, capabilities and core competencies to create value for customers? How do we learn to change rapidly? How do we learn to change rapidly?

16. 16 Discovering Core Competencies Resources TangibleTangible IntangibleIntangible Resources are what an organization has to work with--its assets--including its people and the value of its brand name Resources represent inputs into an organization’s production process... such as capital equipment, skills of employees, brand names, finances and talented managers

17. 17 Discovering Core Competencies Resources TangibleTangible IntangibleIntangible Tangible Resources FinancialFinancial OrganizationalOrganizational PhysicalPhysical TechnologicalTechnological Intangible Resources HumanHuman InnovationInnovation ReputationReputation

18. 18 Discovering Core Competencies Capabilities Capabilities become important when they are combined in unique combinations which create core competencies which have strategic value and can lead to competitive advantage

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20. 20 Discovering Core Competencies Capabilities Capabilities are what an organization does, and represent the organization’s capacity to deploy resources that have been purposely integrated to achieve a desired end state

21. 21 Discovering Core Competencies CoreCompetencies Core competencies are resources and capabilities that serve as a source of competitive advantage over rivals Core competencies distinguish a company competitively and make it distinctive McKinsey and Co. recommends using three to four competencies when framing strategic actions

22. 22 Four Criteria of Sustainable Advantages ValuableValuable RareRare Costly to ImitateCostly to Imitate NonsubstitutableNonsubstitutable Discovering Core Competencies Valuable: Capabilities that help an organization neutralize threats or exploit opportunities

23. 23 Four Criteria of Sustainable Advantages ValuableValuable RareRare Costly to ImitateCostly to Imitate NonsubstitutableNonsubstitutable Discovering Core Competencies Rare: Capabilities that are not possessed by many others

24. 24 Four Criteria of Sustainable Advantages ValuableValuable RareRare Costly to ImitateCostly to Imitate NonsubstitutableNonsubstitutable Discovering Core Competencies Costly to imitate: capabilities that other organizations cannot develop easily, usually due to Unique historical conditions Causal ambiguity Social complexity

25. 25 Four Criteria of Sustainable Advantages ValuableValuable RareRare Costly to ImitateCostly to Imitate NonsubstitutableNonsubstitutable Discovering Core Competencies Nonsubstitutable: capabilities that do not have strategic equivalents Invisible to competitors Firm specific knowledge Trust-based working relationships between managers and nonmanagerial personnel

26. Categories of Strategic Resources Tangible (visible, touchable, measurable) Financial Organizational Physical Technological Intangible (unseen, amorphous) Human Creative Perceptual

27. Competencies Leading to Sustainable Competitive Advantage Valuable to the organization Unique among competitors Difficult or impossible to imitate No substitute competencies

28. Strategic Uses of Resources and Competencies Discovery (did not know we had them) Creation (make or acquire new ones) Combination (use them together) Preservation (maintain them) Concentration (use them for the right purpose)

29. Porter’s Generic Internal Value Chain InboundLogistics Operations OutboundLogistics Marketing & Sales Service Procurement Human Resource Management Technology Development Procurement SUPPORTSUPPORT ACTIVITIESACTIVITIES Primary Activities Profit Margin

30. Internal Value Chain for a Hospital

31. 31 After-Service Point-of-Service Pre-Service Firm Infrastructure Human Resource Mgmt. Technological Development Procurement Margin Service Activities Support Activities Hospital Value Chain

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34. How Resources and Competencies Become Competitive advantage Resources and Competencies ↓ are the basis of ↓ Individual Activities ↓ that can be managed to ↓ Reduce Costs or Provide Additional Value ↓ in order to gain ↓ Competitive Advantage

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