Internal Assessment

Internal Audit

• The process of gathering ,assimilating and evaluating information about the firm’s operation. Critical success factors consisting of both strength and weaknesses are identified and prioritized on the basis of the importance to the organization.

Strength & Weaknesses

Strength : It is an inherent capacity which an organization can

use to gain strategic advantage.Weakness: It is an inherent limitation or constraint which

creates strategic disadvantage.

Framework for the development of strategic advantage by an organization

Competency Core competency Differentiated competency

Competency refers to the ability of a firm to carry out an activity well. It is built and developed by firms consciously through experience and learning. A competency reside in people in the firm and not in physical assets.

A Core competency is an activity central to a firm's profitability and competitiveness that is performed well by the firm. Core competencies create and sustain firm's ability to meet the critical success factors of particular customer groups.

A distinctive competency is a competitively valuable activity that a firm performs better than its competitors. These provide the basis for competitive advantage. These are cornerstone of strategy. They provide sustainable competitive advantage because these are hard to copy.

Competitive Advantage

Competitive

Advantage Distinctive Competencies

Weakness

Strengths

Framework for the development of strategic advantage by an organization• Organizational capability: The inherent capacity or

potential of an organization to use its strength and overcome its weaknesses in order to exploit the opportunities and face the threats in its external environment. The capability is seen in different functional areas-

• Marketing• Finance• Operations• Personnel• IT • General management

Strengths of organizational factorsMarketing Finance operations

1. Wide variety of products2. Better quality of products3. Sharply focussed

positioning4. Low prices 5. Price protection due to

government policy6. High quality customer

service7. Effective distribution

system8. Effective sales promotion9. High profile advertising10. Favourable company and

product image11. Effective marketing MIS

1. Access to financial resources

2. Amicable relations with financial institutions

3. High level of credit worthiness

4. Efficient capita budgeting system

5. Low cost of capital as compared to competitors

6. High level of shareholder’s confidence

7. Effective management control system

8. Tax benefits due to various government policies

1. High level of capacity utilisation

2. Favourable plant location3. High degree of vertical

integration4. Reliable sources of supply5. Effective control of

operational costs6. Existence of good

inventory control system7. Availability of high calibre

R & D personnel8. Technical collaboration

with reputed firms abroad

Strengths of organizational factorsHR General

ManagementMIS

1. Low level of absenteeism2. Efficient and effective

personnel systems3. The organization perceived

as a fair and model employer

4. Excellent training opportunities and facilities

5. Congenial working environment

6. Highly satisfied and motivated work force

7. High level of organisational loyalty

8. Safe and statutory working conditions

1. Effective system of corporate planning

2. Control reward and incentive system for top managers geared to the achievement of objectives

3. Entrepreneurial orientation and high propensity for risk taking

4. Good rapport with the govt and bureaucracy

5. Favourable corporate image6. Development oriented

organisational culture

1. Ease and convenience of access to information resources

2. Widespread use of computerised information system

3. Availability and operability of high tech equipment

4. Positive attitude to sharing and disseminating information

5. Wide coverage and networking of computer systems

6. Sound security systems

Framework for the development of strategic advantage by an organization• Strategic advantage: Strategic advantages are the

outcomes of organizational capabilities. It is expressed in financial parameter such as profit or share holder value or market share. The strategic advantages are measurable in absolute terms.

• Competitive advantage: This is a special strategic advantage where rewards or penalties are drawn against the rivals. They are expressed in relative terms.

•Methods & Techniques For Organizational Appraisal

Methods and techniques in organizational appraisal

Internal analysis . RBV/VRIO frame work• Value chain analysis• Quantitative

analysis- a)Financial analysis b) Non-Financial analysis

• Qualitative analysis

Comparative analysis

• Historical analysis• Industry norms• Benchmarking

Comprehensive analysis

• Key factor rating• Business

intelligence systems

• Balanced score card

Resource-Based View ( RBV)

• The resource-based view (RBV) is a way of viewing the firm and in turn of approaching strategy. Fundamentally, this theory formulates the firm to be a bundle of resources. It is these resources and the way that they are combined, which make firms different from one another. It is considered as taking an inside-out approach while analysing the firm. This means that the starting point of the analysis is the internal environment of the organization.

Resource Based View(RBV)• RBV views organizational performance is

determined by internal resources that can be grouped into 3 categories-

• Physical resources- plant, equipment,raw material, location, technology and machines

• Human resources-employees, trainingknowledge, skill, abilities.

• Organizational resources-firm structure, Information system, trademarks, copyrights.

RBV/VRIO Internal analysis : The investigation of its strength

and weakness by focussing on factors that are specific to it.

1. VRIO framework-• VRIO framework is contributed by Barney.• VRIO stands for –• V-Valuable• R- Rare• I- Inimitable• O- organised for usage

RBV/VRIO Framework• Valuable-The organizational capabilities possessed

by the firm that help it to generate the revenue by capitalizing on opportunities and /or reduce cost by neutralising threats.

• Rare-The organizational capabilities used by firm exclusively .A few firms are using the same technique.

• Inimitable- the organizational capabilities which are very difficult to copy or can’t be imitated.

RBV/VRIO Framework• Organised for usage-The firms capabilities which

can be reused through proper channel of structure, business process, control system and reward system.

Matrix of VRIOValuable Rare Costly to

imitateOrganised for

usageStrength and weaknesses

No - - No Weakness

Yes No - Yes strength

Yes Yes No YesStrength and

distinctive competencies

Yes Yes Yes Yes Strength and sustainable distinctive

competence

CANON: COMPETING ON CAPABILITIES

• The competitive strategy that enabled the "camera company from Japan"1 not only to break down the monopoly enjoyed by Xerox in the copier business in the 1970s but also to grow into a highly diversified, multi-product and multinational premier company.

• Specifically, the report considers (1) the competitive strategy of Canon (2) the major resources and capabilities of Canon (3) management of the development and transfer of capabilities throughout the organisation (4) Canon's strategic perspective (5) is Canon successful? (6) conclusion and key learning points

CANON: COMPETING ON CAPABILITIES• Competitive strategy• The dominant generic competitive strategy adopted by Canon is

differentiation. The company deployed its technological capabilities and know-how in fine optics, precision mechanics, microelectronics and fine chemicals to develop innovative and state-of-the-art products, which were of better quality than those of its competitors. These products resulted mainly from the strong, decentralised research facilities of the company and the incredible ability of its engineers to convert research findings to new products and technological innovation. Although Canon succeeded in manufacturing products at low cost, it did not deliberately compete on the basis of low price. The quality of its products combined with significant amount of marketing and deliberate brand development efforts have established a sound reputation for Canon in the market and these underlie the competitive advantage of Canon.

CANON: COMPETING ON CAPABILITIES

• Resources and capabilities• The major resources of Canon are as follows:• (1) Financial capacity: product innovation and attendant

growth in sales and profits enabled provided Canon with the finance required for additional research and product development which resulted in further increases in revenue in a virtuous cycle.

• (ii) Decentralised R&D and new product development: in addition to the company's main research centre which supports state-of-the-art research in optics, electronics, new materials and information technology, each product division has development centres..

2. PORTER’S GENERIC VALUE CHAIN

Support Activities

Primary Activities

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

Outbound Logistics

Inbound Logistics

Operations

Marketing

& sales

Service

Profit Margin

Primary Activities

• Developed by Michael Porter in 1985, it was called value chain.

• A value chain is a set of interlinked value creating activities performed by an organization.

• This method is used for assessing strength and weaknesses of an organization based on series of activities it performs.

PORTER’S GENERIC VALUE CHAIN

Value Chain- These activities begin with-a)Procurement of basic raw material

b)Processing to the end product

c) Reaching to the consumer

PORTER’S GENERIC VALUE CHAIN

PORTER’S GENERIC VALUE CHAIN VALUE CHAIN OF MANUFACTURING FIRM

Primary Activities

•Inbound Logistics•Operations•Out bound logistics•Marketing and sales•Service

Support activities

•Firm infrastructure•Human resource Management•Technology development•Procurement

Primary Activities:• Inbound Logistics-The activities the organization uses for

receiving, storing and transporting inputs going into production process. For eg: warehousing, material handling and inventory control.

• Operations-The activities in which transformation of raw material to finished products

• Out bound logistics-All activities used for receiving, storing and transporting outputs which are out from the production process. For eg: warehousing, material handling and inventory control.

• Marketing and sales-All activities leading to marketing and sales of products to the consumers. For eg: Pricing, advertising

• Service- All activities used for enhancing and maintaining products value. For eg: after sales service, repair , installation

PORTER’S GENERIC VALUE CHAIN

Support activities:• Firm infrastructure-The activities related for

accounting, legal, planning etc.• Human resource Management-The activities

related with managing human resources like recruitment, training, compensation etc.

• Technology development- The activities related with product design, equipment design, servicing.

• Procurement-The activities related with procuring inputs needed to produce and provide services.

PORTER’S GENERIC VALUE CHAIN

• Profit margin: The profit margin the organization earns is depicted

through t he efficient usage of value chain.The value chain analysis requires-1. Identifying the activities of the organization and

dividing them into primary and support activities.2. Identify the activities which provide value for the

customer.3. Increasing the profit margin.

PORTER’S GENERIC VALUE CHAIN

3.Quantitative Analysis• The quantitative analysis is based on numbers , the

performance of the organization is interpreted in numerical values .The quantitative analysis is of two types-

Quantitative Analysis

Financial analysisEg: EVA (Economic value added analysis),ABC analysis(Activity

based costing)

Non Financial analysis Eg: employee turnover, service call

rates, Inventory units produced

4. Qualitative Analysis

• The performance analyzed on the basis of experts hunches, judgements ,opinion and intutions is called qualitative analyis .For eg: employee morale, corporate culture .

• In comparative analysis the analysis is purely relative or comparative . They are of three types-

a) Historical –When the comparison is drawn between the past performance of the organization and present status of the same organization.

b) Industry norms-When the different firms of the industry set their performance standards on the basis of competitors.

Comparative Analysis

Comparative Analysisc) Benchmarking-the process of benchmarking is

aimed at finding the best practices within and outside the industry to which organization belongs. The types of benchmarking are-

i. Performance Benchmarkingii. Process Benchmarkingiii. Strategic Benchmarkingiv. Internal Benchmarkingv. Competitive Benchmarkingvi. Functional Benchmarkingvii. Generic Benchmarking

Comprehensive Analysis

Business Intelligence systems

Key factor ratingBalanced score card

• Key factor rating: It is comprehensive method used with financial analysis .

• Financial capability factors: Sources of funds, Usage of funds, Management of funds

• Marketing capability: Product, price, promotion related

• Operations capability factors: Productions system, Operations, R&D

• Personnel capability factors: IR, Personnel system

Comprehensive Analysis

Comprehensive Analysis• Business intelligence system: A broad category of

application and technologies for gathering, storing, analysing and providing access to data to help enterprise users make better business decisions.

• Balanced score card-proposed by Kaplan and Norton. A set of measures that give top managers a comprehensive view of business it includes financial measures. Balanced Score card identifies four key performance measures-

• Customer perspective• Internal business perspective• Innovation and learning perspective• Financial perspective

Internal Factor Evaluation

Internal Factor Evaluation