ELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing), VNSGU CHAPTER 4 ORGANISATION ANALYSIS ZAP a CONCEPT OF ORGANISATIONAL ANALYSIS Organisational analysis is also known as corporate appraisal. It is a systematic evaluation of the organization's strengths and weaknesses. It is defined as, “Organisational analysis is the process through which managers analyse the various factors of their organization (internal factors) to evaluate their ths and weaknesses in order to ‘meet the opportunities and threats of environment” Managers analyse various organisational factors such proy 1 Magrkeking, finance, human resources, ‘management practices etc to identify strengths and weak ipared to the competitors. This is sense that organization tries ton overcoming its weaknesses Thus, the organizat example, if the activities rather 1 companies which are following such practice, for example, Indian Sewing Machines Ltd selling various sewing and knifling machines under its brand name but produced by others. Voltas limited, whose major revenues are from the marketing of the products from other companies. Similar marketing activities have been undertaken by various companies. Strengths are the qualities that enable us to accomplish the organization’s mission. These are the basis on which continued success can be made and continued/sustained. Strengths can be either tangible or intangible. These are what you are well-versed in or what you have expertise in, the traits and qualities your employees possess (individually and as a team) and the distinct features that give your organization its consistency. Strengths are the beneficial aspects of the organization or the capabilities of an organization, icludes human competencies, process capabilities, financial resources, products and services, customer goodwill and brand loyalty. Examples of organizational strengths are huge financial resources, broad product line, no debt, committed employees, etc. Organisational analysis also enables the managers to overcome their weaknesses. Overcoming a weakness starts with the identification of the weakness, whether of persons or organizations. The ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARIELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing), VNSGU analysis shows the weak areas of the organization and the organization can take various actions to overcome it ‘Weaknesses are the qualities that prevent us from accomplishing our mission and achieving our full potential. These weaknesses deteriorate influences on the organizational success and growth, ‘Weaknesses are the factors which do not meet the standards we feel they should meet. ‘Weaknesses in an organization may be depreciating machinery, insufficient research and development facilities, narrow product range, poor decision-making, etc, Weaknesses are controllable. They must be minimized and eliminated. For instance - to overcome obsolete machinery, new machinery can be purchased. Other examples of organizational weaknesses are huge debts, high employee turnover, complex decision making process, narrow product range, large wastage of raw materials, etc. It can adopt two methods. First, it can make its weakness as a strong point by reallocating the resources. Second, if the first approach is not possible, the organization can try the alternative methods in which it may withdraw it from the areas which are its weak points. aN a PROCESS OF ORGANISATIONAL Al The process of organizational analysis goes through cert relevant information is collected both from internal as well The process of organizational analysis will proceey identification of key factors identification of importance of fact assessing strengths and weakness preparing organizational capal relating organiz: onal analysis process starts with the identification of key ing strengths and weaknesses. The answer will vary among organizations. Thes S in the area of organization structure and management pattern, personnel, finance and accountigAnarketing, manufacturing, R&D etc. 2. Identification of Importance of factors: All the factors identified for the purpose of analysis may not have equal strategic importance. Their relative importance can be determined by finding out the contribution of each factor in the achievement of certain key results. Another method through which the relative importance of factors can be measured is to relate them with critical success factors (CSFs). 3. Assessing Strengths and Weaknesses on key factors: Identification of key strategic factors may Tead to the assessment of organizational strengths and weaknesses in respect of these factors Organizational strength on any factor can be defined as the contribution made by the factor towards the achievement of the organizational objectives 4, Preparing Organisational Capability Profile: On the basis of the assessment of organizational strengths and weaknesses, organizational capability profile is prepared which shows the various strong areas of the organization. This profile can show the strengths or weaknesses in terms of degree, either in quantity like 1 to 5 for various factors or definition like very strong to average. ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARIELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing), VNSGU 5. Relating Organisational capability to strategy: Organisational analysis is meaningless unless it provides a way to relate strengths to its strategy. In relating organizational strengths to strategy, the managers can proceed in two ways. First, they undertake activities which are consistent with their strategic strengths. Second, managers can undertake activities which convert their weakness into strength, Thus, many strategic actions can be taken to increase organizational strengths. i ORGAN ISANAL CAPABILITY PROFILE [OCP’ ‘OCP is a summarized statement which provides overview of strengths and weaknesses in key results areas (KRA) of an organisation, ‘These strengths and weaknesses can affect future operations of the organization, Informat this profile may be presented in qualitative terms or quantitative terms. ‘Where the information is presented in qualitative terms, sj in the form of statements. But these statements dodjot degree of strengths and weaknesses. Qualitative presentation of strengths ange: Npolves this problem. In the quantitative presentation, all the factors are 2R@@Ned dégree or values along a scale. Such values may be on 5 points scale with 5 domgging the’aighest value and 1 denoting the lowest value of strength and weaknesses. The values that are assigned to a f and Yr the perception and judgment of the appraiser. After the preparation of OCP,“ ion is in position to assess its relative strengths and weaknesses as compared ttpthe coniiigsitors. If there is any gap in any areas, then suitable action Hence we can say shows the overall capability of an organisation in different areas like marketing, financl Production, R&D etc. When an organisation understands its capabilities, it ition to develop and implement strategies. This is the biggest advantage of preparing an OCP. Another advantage of OCP is that after knowing the strength and weakness, an organisation is in a better position to understand how much better they are as compared to the competitors. This helps in taking appropriate strategy against competitors. Following chart shows the format of OCP of any organisation; ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARIELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing). VNSGU_ CAPABILITY FACTORS DEGREE OF STRENGTHS AND Financial capabilities factors «) sources of funds and cost b) usage of funds c) management of funds 2.) Marketing capabilities factors a) product related ») price related ) promotion related 4) distribution related 3.) Operations capability factors a) plant location ) production system ) operations and control system 4) R & D system 4.) Personnel capabilities factors ‘) personnel system b) organizational and _—_ employee characteristics ) industrial relations 4) quality and motivation of personnel 5.) General management capability fact 1) general management system ) external relation ) organizational climate |ANISATIONAL ANALYSIS There are two approaches for 1g organizational analysis; 1. Value chain approach 2. Functional approach 4. VALUE GHAIN APPROACH: Introduction: The value chain approach was developed by Michael Porter in the 1980s in his book “Competitive Advantage: Creating and Sustaining Superior Performance” (Porter, 1985). The concept of value added, in the form of the value chain, can be utilized to develop an organisation’s sustainable competitive advantage in the business arena of the 21st C. All organisations consist of activities that link together to develop the value of the business, and together these activities form the organisation's value chain. Such activities may include purchasing activities, manufacturing the products, distribution and marketing of the company’s products and activities. The aim of the value chain framework is to maximise value creation while minimising costs. ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARIELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing), VNSGU_ ‘Value chain analysis is a powerful tool for managers to identify the key activities within the firm which form the value chain for that organisation, and have the potential of a sustainable competitive advantage for a company. The primary and secondary activities of the firm are discussed in detail below; PRIMARY ACTIVITIES: The primary activities of the company include the following: Inbound logistics These are the activities concerned with receiving the materials from suppliers, storing these externally sourced materials, and handling them within the firm, Operations These are the activities related to the production of products and services. This area can be split into more departments in certain companies. For example, the operations in case of a hotel would include reception, room service etc. Outbound logistics These are all the activities concerned with distributing roduct and/or service to the customers. For example, in case of a hotel this acti fail the ways of bringing customers to the hotel. Marketing and sales: This functional area essentially analyses thoamgeds and Weetfts of customers and is responsible for creating awareness among the target at of the company about the firm’s products and services. Companies make use of jons tools like advertising, sales promotions etc. to attract customerg(to th Service ‘There is often a need to pragide seriges fike pre-installation or after-sales service before or after the sale of the product or A al Primary Activites ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARIELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing), VNSGU Support activities: The support activities of a company include the following Procurement ‘This function is responsible for purchasing the materials that are necessary for the company’s operations. An efficient procurement department should be able to obtain the highest quality goods at the lowest prices. ‘Human Resource Management This is a function concerned with recruiting, training, motivating and rewarding the workforce of the company. Human resources are increasingly becoming an important way of attaining sustainable competitive advantage. Technology Development This is an area that is concerned with technological innovation, training and knowledge that is crucial for most companies today in order to survive. Firm Infrastructure This includes planning and control systems, such as fi gcolfting, and corporate strategy ete. 1 is tha it describes an industrial organization which essentially buys raw materials these into physical products. It does not include service types of firms. ‘The limitations of the model inc that ‘value’ for the final customer is the value onl y in its theoretical context, and Fms. The real value of the product is assessed when the product reaches the final cust any assessment of that value before that moment is only something that is true’ EXAMPLE OF VALUEHAIN APPROACH BY TOYOTA COMPANY, Primary Activities Inbound Logistics: Here goods are received from a company's suppliers. They are stored until they are needed on the productionassembly line. Goods are moved around the organization, Toyota motors purchase their raw material from all around the world. In order to maximize their availability of raw material Toyota motors maintain good relationship with their suppliers. Toyota use JIT (Just in Time) approach for handling of raw material. Operations: This is where goods are manufactured or assembled. Individual operations could include organizing the parts to make new cars & the final tune for a new car's engine. Toyota motors are known. for their reliability which comes from efficient operations, Outbound Logistics: The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer. Toyota motors manage their own Show rooms in different countries, Toyota motors make their product easily assessable. ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARIELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing), VNSGU Marketing and Sales: In true customer orientated fashion, at this stage the Toyota motors prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix. Service: This includes all areas of service such as final checking, after-sales service, complaints handling, training and so on. Toyota values their customers. Support Activities Procurement: This function is responsible for all purchasing of goods, services and materials, The aim is to secure the lowest possible price for purchases of the highest possible quality. Toyota motors will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organizations), and e-Purchasing (using IT and web-based technologies to achieve procurement aims), Technology Development: Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain compeiitive advantage. Toyota motors implemented production technology, Internet marketing actividgs, Jlean manufacturing, Customer Relationship Management (CRM), and many other technologigae . Human Resource Management (HRM): Employees are arf expensiv@gnd vital resource. Toyota motors manage recruitment and 5 election, training and developni@ht, afi fewards and remuneration, Toyota motors consider their employees as HUMAN CARKLAL. ission and objectives of the Toyota motor is the driving force behind the HRM strats Toyota motors uses following techniques to ro@in ees: © Recruitment Selection Training and development Compensation Maintenance Firm Infrastructure: Thisctifity inblades and is driven by corporate or strategic planning. Toyota motors implemented Manage! formation System (MIS), and other mechanisms for planning and control in different departments 2. FUNCTIONAL APPROACH * Functional analysis is done to identify major strengths and weaknesses of an organization on the basis of major functional areas * Functional approach key strategic factors are as follows: Marketing Finance and accounting Production /operation/ technical Human resource development Organization of general management Marketing: Marketing deals with the following issues: * Organizations products / service; product life cycle and marketing strategy ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARIELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing), VNSGU Concentration of sales in few products or little customer segmentation Ability to gathered information about the market To know the market share or sub market share Product/service mix and expansion potential: to know the life cycle of key products; to know the profit or loss of the product/service. ‘To clearly know the channel of distribution; number, coverage, and control To maintain effective sales organization: to find out knowledge about the customer needs. To improve product/service quality with image and reputation of brand name. Efficient and effective utilization of available resource for effective sales promotion and advertising To aware of the pricing strategy and pricing flexibility. To effective monitoring and feedback of the marketing functions and expansion of product Effective implementation of after sales service and follow up To keep standards, goodwill and brand loyalty Example: Coca Cola’s strong market position in soft drinks market. Finance and Accounting: The strengths and weaknesses of an organization in finance funéyjon & the following areas; Ability to raises short term and long-term capital: ity. ‘To maintain good corporate level resource. To know the cost of capital relative to ind, tors Tax consideration To build up effective relationship w: westors, financial institution and stock holders. Effective cost control and service, Financial size of th@organizal Efficient and effective Atcoupring system for cost, budget, and profit planning of the organization, Example: The potential financial performance of a well-established, well-located and well-managed hotel whose popularity and positive reputation may generate a high degree of profitability and cash flow from high occupancy rate. Production/Operation/Technicals, + Following areas may be looked for strengths and weaknesses in the Production function of a company; To know the present raw material cost and availability Inventory control system of the organization. Location facilities; layout and utilization facilities. Technical efficiency and effective utilization of technical resource in the organization. Effective use and implementation of subcontracting Degree of vertical integration in terms of value added and profit margin of the product. ‘To know the efficient and cost benefit of production techniques. ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARIELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing), VNSGU Effective utilization and implementation of operation control procedure: design, scheduling, purchasing, quality control and efficiency To know the costs and technological competencies relative to industry and competitors. Research development, innovative, advance ethnological development. Patents, trademarks and similar legal protection for their organization product/service. an, Strengths and Weaknesses of an organization in HR function can be identified from the following areas; Effective management of the human resource in the organization, Improvement of employee skill and morale. Labor relations costs compared to industry and competition from present industry scenario. Efficient and effective formulation and implementation and controlling of the policies. Effective utilization of incentive to motivate employee’s performance. To know the ability to level peaks and valleys of employment. To regulate employee turnover and absenteeism. Specialized skills and experience Organization of general management refers to the flowing To know the organization structure. Organization image and prestige to publi Organization record for achieving go: 6, Effective utilization of resource ove ation control system. To effective monitoring organization culturdjetimate. Effective utilization of systemati ‘and tools and techniques in decision-making ‘To know the top manage ills Negpabilities and interest. Effective implementat; To keep and maintgjefWtra oMfanization synergy (multi-businesses) Organization is not likely to ci all of the factors are potential strengths or weakness. Strategist has to develop or review the tors which are important for successful of the organization. The above factors are important in future strategy decisions, CORE COMPETENCE Introduction: * The concept of core competencies was developed by Hamel and Prahalad + It was published in their book Competing for the Future, © This book became best seller in 1994. Definition “A core competence is those technical capabilities / skills that are important for achieving competitive advantage” ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARIELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing), VNSGU Meaning: * A core competence is a collection of skills that enables an organization to provide a particular benefit to customers or the organization. * A ccore competence is not for physical products only. It can be related to services also. * Iris the most important strength of the company. Examples: © Sony has core competence in making product smaller. For example walkman, camera etc. This capability of Sony is called miniaturization. Federal Express of USA has core competence in timely delivery of parcel delivery and hence they have their core competence is logistics management © Honda — core competence is in building world class engines for automobiles and generators. Characteristics: Important characteristics of core competence are: Core competence is that strength of an organization which It is difficult to copy by competitors ‘Companies can make use of their core competence in ications. For example Honda has core competence in engines. Hence it can makers in bikes, cars, generators etc. ‘The core competency must be unique or superior t Core competence is mostly in the field of technology / pro ADVANTAGES: Core competencies help an organis It helps in reducing the costs as c Ithelps in developing new Ichelps in building thelimag It helps in delivering qQlity pypducts to the customers. ZAP a DISTINCTIVE COMPETENCE Introduction: * The concept of distinctive competence was first put forward by Philip Sleznick in 1957 # Andrews further developed it in 1971 Definition * Distinctive competence of a firm is a collection of capabilities / skills that a company is able to perform better than its competitors and which gives it an advantage over them. Characteristics: * Core competence is in technical areas but Distinctive competence is in different area such as marketing activities, management capability, project management etc. ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARIELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing), VNSGU * According to Prahlad, core competences and distinctive competencies are different. Core competence must satisfy two additional criteria. One, it must be difficult to copy by competitors. Second, it should provide competitive advantage for more products and markets, Distinctive competence may change with time as competitors might have achieved the same strength, Sources of distinetive competency: * Distinctive competencies can come from cost, business processes, manufacturing processes, people, customer satisfaction ete. Examples of distinctive competency: © Toyota has a distinctive competency in lean manufacturing * GE has a distinctive competency in management development. Reliance has distinctive competency in project management. They can complete any project before time. Itis difficult to copy by the competitors. with the help of distinctive competence, companies can ac mpetitive advantage. It provides value to the customers It helps in building the image of the company Ichelps in competing against the competitors It helps in maintaining the leadership position in ma COMPETITIVE ADVANTAGE, Definition > An advantage that a firm has over its competitors that allows it to generate greater sales or margins and/or retains more customers than its competition is called competitive advantage. ‘There can be many types of competitive advantages including the firm's cost structure, product offerings, distribution network and customer support, Examples: 1. COCA-COLA: Apparently, Coca-Cola's advantage over any other soft drink company is due primarily to its brand image. The popularity of its image has caused many critics to get mind boggled and chose Coca-Cola as the better tasting product. Coca-Cola has created value through the media alone. Coca-Cola is seen in newspapers, magazines, on radio ads, sports events, and even movies. Advertising and marketing is this company's main advantage. APPLE: Apple pursues a differentiation advantage strategy since it started in 1976. Only one time ‘they offered a computer aiming for the mass market, but soon came back to their differentiation. strategy. This differentiation strategy is supported by a strong promotion campaign, with the goal of to differentiate the Macintosh in the PC industry. Apple's competitive advantages are its total control of software and hardware, marketing, digital asset management, retail strategy and product differentiation, Apple retails concept implements direct selling, creates firsthand experience to customers, customer education, after sales service ete ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARIELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing), VNSGU Apple has always been a very innovative computer manufacturer. Through excellent R&D, Apple always managed to launch PC innovations on the market. Apple designed its products typically from scratch, using the unique chips, disk drives and monitors. The critical attention ‘was given to user interface by mission to bring easy-to-use computers to market. There is also a heed to mention that Steve Jobs’ strategic decisions should be considered as a major differentiator and strong competitive advantage to Apple. Age M. Porter has identified 2 basic types of competitive advantage: cost and differentiation advantage. Cost advantage Differentiation advantage (Similar product at lower (Price premium from price) unique product) = Cost advantage. Porter argued that a company could achieve superior performance by producing similar quality products or services but at lower costs. In this case, company sells products at the same price as competitors but reaps higher profit margins because of lower production costs. The company that tries to achieve cost advantage (like Amazon.com) is adopting cost leadership strategy. Higher profit margins lead to further price reductions, more investments in process innovation and ultimately greater value for customers. Differentiation advantage: Differentiation advantage is achieved by offering unique products and services and charging premium price for that. Differentiation strategy is used in this situation and company positions itself more on branding, advertising, design, quality and new product development (like Apple Inc. or even Starbucks) rather than efficiency, outsourcing or process innovation. Customers are willing to pay higher price only for unique features and the best quality > The cost leadership and differentiation strategies are not the only strategies used to_gain competitive advantage. > Innovation strategy is used to develop new or better products, processes or business models that ‘grant competitive edge over competitors. Advantage 1. Marketin; Developing a competitive advantage means that the brand name becomes recognized in the marketplace as being the best. The advantage of that is the potency that your brand name adds to your marketing effort. Consumers will be interested in hearing about your new product because they recognize your company as an industry leader. In some cases, the consumer does not know why you are an industry leader but is familiar with your reputation. This adds efficiency to your marketing efforts ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARIELEMENTS OF STRATEGIC MANAGEMENT, TY BBA (Marketing), VNSGU Resources: As a company’s reputation grows as an industry leader, other companies will express an interest in creating valuable partnerships that can improve both companies’ standing in the marketplace. The competitive advantage causes developers and vendors to come to your company and express an interest in doing business with you. It increases the options you have to select quality vendors that can help you improve your standing in the marketplace. . Pricing: ZAP ‘When you establish a competitive advantage for your service or support, you can dictate your own pricing, Developing the reputation of offering the best service or support in the industry allows your company to charge more for your offering. If you sell product along with your service, then you can ask for higher prices than the competition because your reputation as an industry leader creates the feeling among consumers that whatever you have to offer is worth the price. New Markets: A reputation for being an industry leader creates demand in the markets where you are currently not offering products or services. It is important to plan your company’s growth and monitor the marketplace to make sure that you are not expanding too quickly, But it can be a great help to your company’s growth efforts when your competitive advantage creates a customer base for you in areas where you are not currently involved. It makes the unit to remain competi Every organisation wants to grow. As it grows its structure becomes less flexible and more rigid. Organisations develop several rigid factors as they grow, and therefore, they need to continuously manage themselves to remain competitive. Competitive advantage will help the company remain competitive in the long run, ZAP ZAP ZAP ZAP ZAP ZAP ZAP ZAP ZAP ZAP ZAP ZAP ZAP ZAP ZAP ZAP ZAKIR PATEL, NARAN LALA COLLEGE OF COMM & MNGT, NAVSARI