8 Organisational Analysis We don't believe in core competence; we believe in building competence around people and processes to create value. Mukesh Ambani, Vice Chairman & MD, Reliance Industries Theme > To understand the role of organisational analysis in strategy formulation. > To identify the factors on the basis of which organisational strengths and weaknesses are identified. > To understand the mechanism of organisational analysis. Contents Q Concept of organisation analysis Role of organisational analysis Process of organisational analysis Q Strategic Factors in organisational analysis Value chain approach Functional approach Ansoff's grid approach Methods of organisational analysis Financial analysis method Key factor rating method Functional-area profile and resource-deployment matrix Organisational capability profile Q Core competence and distinctive competence Core competence Distinctive competence Q swoT analysis SWOT analysis of Asian Paints Scanned with CamScanner196 BUSINESS POLICY: STRATEGIC MANAGEMENT. As discussed in Chapter 5, strength, weakness, opportunity, and threat (SWOT) analysis ts the key clement in strategy formulation. SWOT analysis begins with environmental analysis which provides clue about the opportunities which an organisation may have. However, mere existence of these opportunities 1s of no use if the organisation does not have capabilities to capitalise those opportunities. For knowing whether the organisation has relevant capabilities or not, it has to analyse itself which is in the form of organisational analysis. Concept of Organisational Analysis oO isational analysis, also known as corporate appraisal, appraisal of internal factors, audit of organisational competence or appraising organisational competence and resources, is the systematic evaluation of the organisation's strengths and weaknesses. In a. more formal way, organisational analysis may be defined as follows: Organisational analysis is the process through which strategists and managers analyse the various factors of their organisation to evaluate their relative strengths and weaknesses so as to meet the opportunities and threats of environment. Managers take various organisational factors. such as production/operations, marketing, finance, human resources, management practices, etc. to identify its strengths and weaknesses vis-a-vis its competitors, and to match environmental requirements. ROLE OF ORGANISATIONAL ANALYSIS Organisational analysis can be considered as the beginning of the strategic management in the sense that organisation tries to relate itself to its environment by emphasising its strengths and overcoming its weaknesses. Thus, the organisation will appraise only those environmental factors which are relevant in the context of its strengths thereby limiting the scope of environmental variables for analysis. Thus, the organisational strengths may decide the business which it should undertake. For example, if the organisation is quite strong in marketing, it may concentrate on marketing activities rather than going for manufacturing and marketing both. There are several such companies which are following this practice, examples being Indian Sewing Machines Limited selling various sewing and knitting 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. This suggests that the companies can take advantages of their strategic strengths. Organisational analysis also enables the managers to overcome their weaknesses. Overcoming a weakness starts with the identification of the weakness, whether of persons or organisations. The analysis pinpoints the weak areas of the organisation and the organisation can take various actions to overcome it. It can adopt two methods. First, it can make its weakness as _a_strong_point by rearranging and _reallocating its resources. However, since the resources at the option of the organisation are limited, it Scanned with CamScannerORGANISATIONAL ANALYSIS CH cannot go for strengthening all factors but only critical ones. Second, if the first approach is not possible, the organisation can try the alternative methods in which it-may withdraw itself from the areas which are its weak points as-suggested-above., Thus, the organisation can take the advantages of limited resources. However, what will be the combination of both these ways of overcoming weakness depends on organisational philosophy and managerial personnel involved. Role of organisational analysis in long-term planning has been described by Hussey as follows: “The corporate appraisal should be one of the first steps in the process of preparing long-term plans, and should provide both the platform from which the corporate objectives are established and the baselines for the strategic plan. Attempting to plan without carrying out this fundamental step is rather like trying to reach the top floor of building without using the stairs or lift: the ascent is possible, but highly dangerous and calls for much more effort. Omission of the basic step may lead the company to adopt the wrong strategy, to take decisions which at best resirict achievement of its highest potential, and at worst lead on the road to ruin.” PROCESS OF ORGANISATIONAL ANALYSIS a mene ‘The process of organisational analysis goes through certain sequence of activities. This process is undertaken so that the organisation reaches at a point at which it can undertake strategic actions in the light of its strengths and weaknesses. For this purpose, the relevant information is collected both from internal as well as external sources. Generally, the organisation's strengths and weaknesses are measured in terms of its environment; otherwise, it is very difficult to suggest the degree to which a factor can be considered as strength or weakness. For adopting criteria in respect of these, the external information is quite helpful. For example, an organisation cannot say that its financial position is strong unless it ts aware about its direct or other competitors’ financial position. Thus, process of organisational analysis will proceed through a sequence of activities as shown in Figure 8.1 (page 198). 1, Identification of Key Factors. Organisational analysis process starts with the identification of key factors that can be evaluated for determining strengths and weaknesses. The analysis should cover all aspects of the organisation. However, what factors should be taken for consideration is a question, the answer of which may not be rigid and static. The answer will vary among organisations, and although a generalised list can be given, a real situation would call for critical selection. These factors may be in the area of organisation structure and management pattern, personnel, finance and accounting, marketing, manufacturing, research and development, etc. A detailed description of all these factors will be presented later in the chapter, ~~ Dose! E. Hussey, Corporate Planning: Theory and Practice, London: Pergamon Press, . p. 91. Scanned with CamScanner198 BUSINESS POLICY: STRATEGIC MANAGEMENT Identification of key factors for analysis Assessing importance of key factors on historical as well as future requirement Assessing strengths and weaknesses of key factors in the light of competitors’ and likely future scenarios Preparing organisational capability profile Relating organisational capability to strategy FIGURE 8.1: Organisational analysis process 2, Identification of Importance of Factors. All the factors identified for the purpose of analysis may not have equal strategic importance; some are more important, some are less important. The relative importance of the factors depends on the nature of organisation and its environment. Their relative importance can be determined by finding out the contributions of each factor in the achievement of certain key results. The key result areas for the organisation can be defined on the basis of organisational objectives towards which total efforts are directed. Another method through which the relative importance of factors can be measured is to relate them with critical success factors (CSFs). CSFs, as discussed in the next chapter, are those factors which are crucial for organisational success. The various factors can be compared with the requirements of CSFs. 3. Assessing Strengths and Weaknesses on Key Factors. Identification of key strategic factors may lead to the assessment of organisational strengths and weaknesses in respect of these factors. Organisational strength on any factor can be defined as the contribution made by the factor towards the achievement of the How value chain is useful in generating efficiency and effectiveness in an organisation can be seen by taking the example of Hero Cycles Limited, a Ludhiana-based Hero-Group company. The company was the most prominent one in the Group before the formation of much fancied Hero Honda Motors Limited. Exhibit 8.1 presents value chain and performance of various activities in the chain of Hero Cycles Limited. __ EXHIBIT 8.1: Value chain of Hero Cycles Hero cycles is a single product company and focuses itself on manufacturing bicycles. If started as a small-scale manufacturer of bicycles at Ludhiana in mid 1950s. Inspite of fierce competition since its inception from well-established names, it has grown to be number one in bicycle industry with more than 4.5 million bicycles per annum, leaving its nearest competitor by a very singificant margin. Hero Cycles has defined its product as low-priced but functionally useful for masses. Since its strategy is based on overall cost leadership and reaching to masses, it has adopted the commensurate strategy for all activities of value chain to become most competitive. In terms of value chain, company's activities are divided into two groups: primary activities and support activities. 3Michael Hamm . Syqichael Hammer and James Champy, Reengineering the Corporation, New York: Harper Business, 1993. Scanned with CamScannerORGANISATIONAL ANALYSIS bes Primary Activities. The first activitiy in value chain is inbound logistics. In the case of Hero cycles, this includes bringing materials of different types in the company. These materials have been divided into three categories: raw materials (mostly steel to be used in manufacturing process), components purchased from outside requiring further machining at the company's plant, and components and other materials (like tyres, tubes, and some minor accessories) which can be assembled without any further processing. The company saves costs in this part in several ways. First, except for few ctitical components, it procures components from a number of component manufacturers located in Ludhiana. All these manufacturers are in small-scale sector and enjoy cost advantage in the form of lower overheads. Therefore, the supply from these manufacturers is comparatively at competitive price. Second, the company pays them instantly and enjoys cash discount. Third, the company has trained many component manufacturers and since component manufacturing does not involve high technology, they produce quality components within reasonable cost. Fourth, the company is not required to. block its money in inventory execpt in few cases because various components are readily available locally through tie up. In operations, the company saves cost through higher productivity which is generated through enthusiastic and loyal workers. In few cases like rim manufacturing, automation has been employed. In the case of outbound logistics, the company has adopted the approach of just-in-time finished products in which bicycles are transported within the week of their manufacturing. The company has appointed stockists in almost all cities of the country and bicycles are transported by trucks. These truck operators charge a lower price because of assured deployment of their trucks by the company. In the area of marketing and sales, the company has reduced the number of intermediaries in its distribution channel by going through the process of manufacturer to stockist to customer rather than the usual channel of inserting CaF agent or dealer in between. For marketing and demand generation, the company's marketing department which is very thin maintains regular contacts with stockists and occasional visits are also undertaken. The company believes, and it is true even in the present competitive environment, that satisfied customers are the best source of publicity. Thus, the marketing and sales cost of the company is very insignificant. In the case of service, the company is not required to do much because bicycle is not a complicated Product. Support Activities. The company has undertaken various support activities in such a way that either it saves the money on these activities directly or they provide ample support to various primary activities. Firm infrastructure which includes general management, accounting, finance, etc. are performed quite satisfactorily. Various operational aspects of these activities have been computerised which is not of unique advantage to it because most of the companies do this. However, the company saves lot of money in finance area. Being a cash-rich and debt-free company, it has not to bear any interest burden. In the case of human resource management, the company enjoys far greater superiority than its industry competitors though its HRM practices can be envy for many organisations outside bicycle industry. The company’s HRM Practices are based on two basic values: employees even at the lowest level Scanned with CamScanner204 BUSINESS POLICY: STRATEGIC MANAGEMENT are at par with owners and shareholders and top-level managers; personnel always need to learn their jobs in order to get perfection. In the first case, every family member who is in the management team is expected to treat every worker as his colleague and not just as worker. Even the Chairman of the company takes round of the company almost every day and he remembers the names of workers and calls them by their names. This sends a signal of giving personal importance to the employees concerned. The company organises lunch meeting on yearly basis at the company's premises at its own costs. All the employees, their families, promoters/managers and their families participate in this lunch and meet each other. This gives a feeling of belongingness and develops loyalty and enthusiasm among employees. When any employee retires, top-level functionaries participate in farewel function irrespective of the level of employee. In the case of continuous learning, the company organises occasional technical training programmes but it emphasises learning through on-the-job training. In the area of technology development, the company has adopted the concept of informalisation rather than structuring various Processes and methods. Its R&D activities are always oriented to make bicycles more functionally useful rather than adding styles and colours which are reserved for bicycles for export. In the procurement, there are two centralised procurement systems for human resources and physical resources. Thus, it can be concluded that the company’s value chain provides value to its customers and to itself. This differentiates the company from its competitors. FUNCTIONAL APPROACH As against value chain approach, functional approach of organisational analysis takes into account various functional areas and evaluates these for identifying strengths and weaknesses. The major functional Production/operations, marketing, finance and accounting, and human resources. Each of these major areas is divided into subareas, for example, marketing Is divided into sales promotion, physical distribution, sales volume, and so on. Similar is the case with other functional areas. Besides these functional areas, organisation's general management factors are also taken into consideration. Thus, in functional approach of organisational analysis, following factors are evaluated to identify strengths and weaknesses: ‘ areas are Production/operations, Marketing, Finance, Human resources, and General management. In the discussion that follows, various features of these factors indicating strengths and weaknesses have been Presented. While using these features in respect of various factors, two points should be taken Inte consideration: 9 Pene 1. These features provide a normative and practice, these factors may vary depen organisations. $ suggestive list; in’ actual ding on the nature of Scanned with CamScanner