stratagic analysis anal… · strategic analysis •the basic frame work: strategy as a link...
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STRATAGIC ANALYSIS
MBA (Aus), ACMA (UK), ACMA (SL), CGMA, B B Marketing (Kelaniya)
Priyanka Darshana
Strategic Approach to the Business
Source : Chartered Institute of Management Accountants (CIMA-UK)
What is the main responsibility of the firmmanagement ?
To create and increase organizational value
(wealth maximization)
- If a PLC, increased share price
- Increased earning potential
- Increased profitability
- Increased cash generation
- Firm’s size
Creating value
Successful strategy is creating value
1. Continuously creating customer value
2. Firm value
3. Shareholder value
Value Creation
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound LogisticsFirm
Infr
astr
uct
ure
Hu
man
Res
ou
rce
Mgm
t.
Tech
no
logi
cal D
evel
op
me
nt
Pro
cure
me
nt
Primary Activities
Support
Activitie
s
The BasicValue Chain
Value Chains are part of a Total Value System
Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain
Strategic analysis
• The basic frame work: Strategy as a link between the firm and its environment
The firm • Goals and values • Resources and
capabilities • Structure and system
Strategy Micro and Macro
environmental changes
Strategic fit Fundamental of strategy as the link between the firm and its external environment is thenotion of strategic fit. For a strategy to be successful it must be consistent with the firmexternal environment and with its internal firm goals, resources and capabilities and thestructure
What do you analyze ?
• Firm’s Competencies
• Firm’s Environment
Strategic analysis
Strategic analysis
Analysis of firmGoals, values and
performance , analyzing
capabilities and resources
Analysis of macro , industry and competitive environment
Internal analysis External analysis
INTERNAL RESOURCES, CAPABILITIES, AND CORE
COMPETENCES
THE FIRM
Goals and
Values
Resources and
Capabilities
Structure and
Systems
THE MACRO
INDUSTRY
ENVIRONMENT
•Competitors
•Customers
•Suppliers
STRATEGYSTRATEGY
The
Firm-Strategy
Interface
The
Environment-Strategy
Interface
Strategy Analysis
STRATEGY
INDUSTRY KEY
SUCCESS FACTORSCOMPETITIVE
ADVANTAGE
ORGANIZATIONAL
CAPABILITIES
RESOURCESTANGIBLE INTANGIBLE HUMAN
•Financial
•Physical•Technology
•Reputation
•Culture
•Skills/know-how
•Capacity for
communication
& collaboration
•Motivation
The Links between Resources, Capabilities and Competitive Advantage
Resource-based strategy
The resource-based view (RBV) of strategy
asserts that the competitive
advantage and superior performance of an organisation is
explained by the distinctiveness of its
capabilities.
Resources and competences
• Resources are the assets that organisations have or can call upon (e.g. from partners or suppliers),that is, ‘what we have’ .
• Competences are the ways those assets are used or deployed effectively, that is, what we do well’.
Components of strategic capabilities
Threshold and distinctive capabilities
• Threshold capabilities arethose needed for anorganisation to meet thenecessary requirements tocompete in a given market andachieve parity withcompetitors in that market –‘qualifiers’.
• Distinctive capabilities things
that an organization does
particularly well relative to
competitors. (Selznick)
• – ‘winners’.
Core competences
Core competences are the set ofskills, activities and resourcesthat drive the competitiveadvantage
• deliver customer value
• differentiate a business from itscompetitors
• potentially, can be extended anddeveloped as markets change ornew opportunities arise.
Appraising Resources
RESOURCE CHARACTERISTICS INDICATORS
Financial Borrowing capacity, Profitability Debt/ Equity ratio
Internal funds generation, Efficiency, Credit rating
Tangible Net cash flow
Resources Physical Plant and equipment: Market value of size, location, technology fixed assets.
flexibility. Scale of plants
Land and buildings. Alternative uses for
Raw materials. fixed assets
Technology Patents, copyrights, know how No. of patents owned
R&D facilities. Royalty income
Intangible Technical and scientific R&D expenditure
Resources employees R&D staff
Reputation Brands. Customer loyalty. Company Brand equity
reputation (with suppliers, customers, Customer retention
government) Supplier loyalty
Human Training, experience, adaptability, Employee qualifications,
Resources commitment and loyalty of employees pay rates, turnover.
Firm’s CapabilitiesManagement skills , routines, leadership that deploy,
share and generate value form firm’s resources
• Research & Development (R&D)
• Marketing & Sales
• Manufacturing
• Logistics
• Reach / Distribution
• Leadership
Identifying Organizational Capabilities:
A Functional Classification
FUNCTION CAPABILITY EXEMPLARS
Corporate Financial management GE
Management Strategic control IBM, Samsung
Coordinating business units BP, P&G
Managing acquisitions
MIS Speed and responsiveness through Wal-Mart, Dell
rapid information transfer
R&D Research capability IBM
Development of innovative new products Apple, 3M
Manufacturing Efficient volume manufacturing MASS , Toyota
Continuous Improvement
Flexibility
Design Design Capability Apple, IKEA
Marketing Brand Management P&G
Quality reputation Johnson & Johnson
Responsiveness to market trends
Sales, Distribution Sales Responsiveness PepsiCo,
& Service Efficiency and speed of distribution Dell
Customer Service Singapore Airlines
Caterpillar
Analysis of the firm resources and capabilities through Value Chain
Porter's Value ChainUnderstanding How Value Is Created Within Organizations -1980
The Value
Chain
Value Creation = Market value of the output – Cost of it’s input
HOW ?
** Analysis on product line and NOT on Headquarters
HOW ?
Value Chain (Internal Resources
/Barriers)
Primary activitiesThere are five primary activities and they include all the actions that go into the creation of a business' offering.
1 Inbound Logistics
This is how materials and resources are gained from suppliers before the final product or service can be developed.
1. Operations
Operations are how the materials and resources are produced, resulting in a final product or service.
3. Outbound LogisticsOnce a product or service is finished, it needs to be distributed. Outbound logistics describes this delivery process.
4. Marketing and Sales
This is how your product or service is presented and sold to your ideal target market.
5. ServicesThis is the support a business provides for the customer which can include support and training for the product, warranties, and guarantees.
Support Activities
Support activities help the
competitors, and they include:
primary activities in creating an advantage over
1. Firm Infrastructure
This entails all the management, financial, and legal systems a business has in place to
make business decisions and effectively manage resources.
2. Human Resource Management
Human resource management encompasses all the processes and systems involved in
managing employees and hiring new staff.
3. Technology Development
Technology development helps a business innovate, increase efficiency or decrease
production costs.
4. Procurement
This is how the resources and materials for a product are sourced and suppliers are
found. The goal is to find quality supplies that fit the business' budget.
Integrated Value Chain / Value system within the firm
CASE 06 & 07
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
Income statement for Ashanti plc for the year ending 31 March 2011
2010 2011
£m £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
Notes:
2. All sales and purchases are made on credit3. The cost of sales figure can be analyzed as follows:
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
Balance sheet of Ashanti plc., as at 31 March 2011
2010 (£m) 2011 (£m)
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) 300 300
Retained earnings 263 234
563 534
Non-current liabilities
Borrowings - 9% loan notes (secured) 200 300
Current liabilities
Trade payables 261 354
Tax due 30 2
Short-term borrowings (all bank overdraft) - 76
291 432
Total equity and liabilities 1,054 1,266
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 center in the south of Wales
NOKIA Financial Performance :Reflection of strategic failure
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Slide 1.34
SWOT Analysis
• SWOT analysis is a process that identifies the strengths, weaknesses, opportunities and threats of an
organization. Specifically, SWOT is a basic, analytical framework that assesses what an organization can and
cannot do, as well as its potential opportunities and threats.
• A SWOT analysis takes information from an environmental analysis and separates it into internal
strengths and weaknesses, as well as its external opportunities and threats.
Internal
Capabilities & Resources Lack of Resources
Competencies Gaps in Capabilities
Value Creation Value Erosion
STRENGTHS WEAKNESSES
SWOT
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Slide 1.36
Turning firm SWOT analysis in to actionable
strategies -TOWS Analysis
• Extension of the SWOT analysis is TOWS and can be presented as TOWS matrix analysis to match the
internal factors with external factors of the business to define the strategic direction.
Sustainable Competitive Advantages
(SCAs)
A long-term competitive advantage that is not
easily duplicable or surpassable by competitors.
VRIN framework (Barny 1991)
V = Value
R = Rare
I = Costly to Imitate
N= Non substitutability