Internal Analysis Final

8/6/2019 Internal Analysis Final

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Internal Analysis

Navneet Kotwal


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VALUE OF SYSTEMATIC

INTERNAL ASSESSMENT

An internal analysis that leads to a

realistic company profile involves:

Trade-offs.

Value judgments

Informed and educated guesses.


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Value Chain Analysis

In this method of analysis, strengths andweaknesses are assessed by dividing a businessinto a number of linked activities, each of whichmay produce value for the customer. In valuechain analysis, managers divide the activities oftheir firms into sets of separate activities thatadd value.

Value chain analysis divides a firm's activitiesinto two major categories, i.e. primary andsupport activities


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Conducting a Value Chain Analysis

Company's operations are divided into specific

activities or business processes.

attempt to attach costs to each discrete activity

(Activity-based costing). Once the company's value chain has been

documented and costs determined, managers

need to identify the activities that are crucial tocustomer satisfaction and market success.

Meaningful comparison to use for evaluating the

role of an activity as a strength or weaknesses.


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Strengths of Value Chain Analysis

Firstly, it clearly highlights the importance of

customer value.

Secondly, it provides a sense of direction tomanagers by offering a generic checklist of whatto analyze when assessing a firm.

Lastly, it indicates that everything anorganization does can be managed to improve

the firm's overall ability to create value.


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STRATEGYAND INTERNAL ANALYSIS

The internal analysis process considers the firm'sresources, the business the firm is in, its

objectives, policies and plans, and how well theywere achieved. The important questions that are

answered by the process of internal analysis are:

Is this strategy consistent with the variousresources of the enterprise?

Are the available resources appropriate for any

changes in strategy or new strategies?


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The Analysis Process

The first part of the analysis process is gathering thedata, information and facts.

Once relevant information has been selected, analyzedand conclusions have been reached, it is necessary toconsider alternative solutions and actions.

The decisions finally arrived at must be made in the context of overall organizational strategy.


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Analytical Decision-Making Process:

Steps for Strategy Managers

Within the organization's strategic context, specify. thedecisions to be made.

Select gather and Analyze the most relevant data about

the organization, its environment, operations andpeople. Based on these data, formulate conclusions about the

organization, its environment, operations, people andother resources.

Determine and appraise feasible alternatives, weighingrisks and opportunities.

Select the most appropriate alternative. Implement the selected alternative and monitor results


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ANALYZING DEPARTMENTS AND FUNCTIONS

Production/OperationsTechnical

The basic objective of the production function is to ensure thatthe outputs produced have a value that exceeds the combinedcosts of the inputs and the transformational process. Theproduction strategies of small business units would be different

from those of large business units.Strategies for small business units

Small business units go for low initial investment in their plant,equipment, an long-term advertising, etc because they compete

in niche markets on price. The units that adopt the niche-differentiation strategy select anapproach the yields quality. These units also make low investments in semi-variable andvariable .


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Production/Operations /Technical

Strategies for large business units

The major advantage of large business units is thereduction in cost per unit of output due to economies ofscale. As a firm gains experience in producing a product,production/manufacturing costs can be systematicallyreduced. Moreover, three variables are generally presentin these units. They are:

1. Capital-labor substitution: Substituting capital for labor

and vice-versa.2. Economies of scale: Reductions in cost per unit of

output as volume of output increases.3. Learning: Understanding the role of specialization and its

advantages.


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Space Matrix

Financial Strength ROI

LEVERAGE

WorkingCapital

Cash Flow

Ease exit from the market Risk

Environmental Stability Technological stability

Rate of Inflation

Demand variability

Barriers to entry into the market

Competitive pressure Price elasticity to demand

Competitive Advantage

Market Share

Product Quality

PLC

Customer loyalty

Capacity Utilization

Technological know how

Suppliers and distributors

IndustryStrengthGrowth Potential

Profit potential

Financial stability

Technological know how

Resource utilization

Capital intensity

Ease of Entry

Productivity


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FS

CA IS

ES

-6

-6

6

6

-3 -2 -1-4-5 3 4 521

5

4

3

2

1

-5

-4

-2

-1

-3

ConservativeStay close to CA and take no risk

Market penetration

Market development

Product development

Concentric diversification

DefensiveRetrenchment

Divesture

Liquidation


CompetitiveBackward forward integration

JV

Aggressive

Take advantageMarket penetration

Market development

Product development


Conglomerate

Horizontal

Integration,

combinations

Documents

Internal Analysis Final