BPMN 6023 STRATEGIC MANAGEMENT LOGO Internal Environmental AnalysisPrepared for : Prof Dr Ajay ChauhanPrepared by : 1. Logeswari d/o Uthama Puthran 808844 2. Mohd Faiz bin Zalwi @ Alwi 808856
Contents Internal scanning: Organization analysis Resource-based View Business Model Value-Chain Analysis Scanning Functional Resources Scanning Functional Resources and Capabilities The Strategic Audit: A Checklist for Organization analysis Synthesis of Internal Factors
Introduction What is an Internal Analysis? Internal AnalysisIdentifies and evaluates resources, capabilities, and corecompetenciesLooks at the organization’s oCurrent vision oMission oStrategic objectives oStrategies Why Do an Internal Analysis? It is the only way to identify an organization’s strengths and weaknesses It’s needed for making good strategic decisions
INTERNAL SCANNING:ORGANIZATION ANALYSIS Internal • Critical strength and weaknesses to determine if strategic firm able to take advantage of factors opportunities and avoid threats • Concerned with identifying and Organizational developing an organization’s analysis resources and competencies
RESOURCE-BASED VIEW Resources Capabilities•Asset (tangible and intangible), •A corporation ability to exploit its competency, process, skill or resources knowledge controlled by the corporation
RESOURCE-BASED VIEW Barney, VRIO frameworkValue Rareness Imitability Organization• Does it • Do other • Is it costly • Is the firm provide competitors for other to organized competitive posses it? imitate? to exploit advantage? the resource?
RESOURCE-BASED VIEWUsing resources to gain competitive advantageIdentify and classify resources in terms ofstrengths and weaknesses Combine the firm’s strengths into specific capabilities and core competencies Appraise profit potential- Are there any distinctive competencies? Select the strategy that best exploits the firm’s capabilities and competencies relative to external opportunities Identify resource gaps and invest in upgrading weaknesses
RESOURCE-BASED VIEWDetermine the sustainability of an advantage Durability Imitability• The rate at which a • The rate at which a firm’s underlying firm’s underlying resources, capabilities, resources, capabilities, or core competencies or core competencies depreciate or become can be duplicated by obsolete others• Eg: Air Asia - Low cost airline in Asia
RESOURCE-BASED VIEW Imitability Determined By Transparency Transferability Replicability The speed at which The ability of competitors The ability of competitors other firms under the to gather the resources to use duplicatedrelationship of resources and capabilities resources andand capabilities support necessary to support a capabilities to imitate the a successful strategy competitive challenge other firm’s success Eg: Gillette’s Sensor Eg: French Winery’s key Eg: Procter & Gamble’s razor design resources coordination mechanism
RESOURCE-BASED VIEWExplicit knowledge- knowledge that can be easily articulated and communicatedTacit knowledge- knowledge that is not easily communicated because it is deeply rooted in employee experience or in the company’s culture
BUSINESS MODEL Business model Company method for making money in current business It includes key structural and operational characteristics of a firm – how it earns revenue and makes profit
VALUE-CHAIN ANALYSISValue chain- a linked set of value creating activities that begin with basic raw materials coming from suppliers, moving on to a series of value-added activities involved in producing and marking a product or service, and ending with distributors getting the final goods into the hands of the ultimate consumer Raw Primary Product Fabricat-materia- manufa- procedu- Retailer ion ls cturing res
VALUE-CHAIN ANALYSISCorporate Value Chain Analysis Examine each product line’s value chain in terms of the various activities involved in producing the product or service Examine the linkages within each product line’s value chain Examine the potential synergies among the value chains of different product lines or business units
SCANNING FUNCTIONALRESOURCES Basic Organizational Structures STRATEGIC CONGLOMER- SIMPLE BUSINESS ATE UNITS FUNCTIONAL DIVISIONAL (USBS) Small or Large entrepreneur- corporation / Medium-sized Large Division or dominated holding firm corporation group of company company division Product line in Many product composed of One or two independent Product line in one industry line in several product line product several operates industry market unrelated segmant industry Eg: KFC Eg:
SCANNING FUNCTIONALRESOURCESCorporate Culture: Attributes Cultural intensity Cultural integration The degree of The extent of which members of which units a unit accept the throughout the norms, values and organization share other cultural a common culture. content associated • Shows the breadth of with the unit. the culture • Eg: Arm force • Shows the depth of the culture • Eg: Air Asia
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES MANAGEMENT STRATEGIC MARKETING ISSUES STRATEGIC FINANCIAL ISSUES STRATEGIC RESEARCH AND DEVELOPMENT (R & D) ISSUES STRATEGIC OPERATION ISSUES STRATEGIC HUMAN RESOURCES ISSUES
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES MANAGEMENTManagement is a process of coordinating activities,which comprises of five functions: PLANNING 1 ORGANIZING 2 3 MOTIVATING MANAGEMENT STAFFING 4 3 CONTROLLING
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC MARKETING ISSUE 1. Market Position and Segmentation - “Who are our Customer?” – in terms of market, product, and geographic locations. 2. Marketing Mix – refers to the particular combination of key variables (product, place, promotion and price); to affect demand & to gain competitive advantage 3. Product Life Cycle -is a graph showing time plotted against the monetary sales of a product as it moves from introduction through growth and maturity and to decline. 4. Brand and Corporate Reputation – A Brand is a name given to a company’s product which identifies that item in the mind of the consumer.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC MARKETING ISSUE 1. Market Position and Segmentation - “Who are our Customer?” – in terms of market, product, and geographic locations. To discover what niches to seek, which new types of products to develop,
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC MARKETING ISSUE 2. Marketing Mix – refers to the particular combination of key variables ( 4P’s :Product, Place, Promotion and Price); under a corporation’s control that can be used to affect demand & to gain competitive advantage.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC MARKETING ISSUE 1. Product Life Cycle -is a graph showing time plotted against the monetary sales of a product as it moves from introduction through growth and maturity and to decline.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC MARKETING ISSUE 1. Brand and Corporate Reputation – A Brand is a name given to a company’s product which identifies that item in the mind of the consumer. - Over time and with proper advertising, a brand connotes various characteristics in the consumer’ mind. - For example, Disney stands for family entertainment, BMW means high-performance autos - A Corporate Reputation is a widely held perception of a company by the general public. It consists of two attributes: 1) Stakeholders’ perception of a corporation’s ability to produce quality goods and; 2) A Corporation’s prominence in the minds of stakeholders. A good corporate reputation can be a strategic resources.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES To Identify a Company’s Strengths and Weaknesses from the financial perspective. 1. Financial Leverage The concept of financial leverage (the ratio of total debt to total assets) is helpful in describing how debt is used to increase the earnings available to common shareholders. 2. Capital Budgeting Capital Budgeting is the analyzing and ranking of possible investments in fixed assets such as land, buildings, and equipment in terms of the additional outlays and additional receipts that will result from each investment. *Hurdle point
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES To Identify a Company’s Strengths and Weaknesses from the financial perspective. Question concerning the financial position of the company, it’s stability and competitiveness could only be answered after a thorough and detailed financial analysis. Adequate capital is the basic foundation to run any business. It is essential to control cash flow within the organization to ensure conformity with its intended use Budgeting plays important role to ensure that all allocation of cash is appropriately distributed. Determining of financial strengths and weakness is important for effective strategy formulation activities and to compliment other departments within the company such as the operation, management and marketing division.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES 1. Financial Ratios The five main ratios is used in evaluating the company’s financial positions; 1. Liquidity Ratios 2. Leverage Ratios 3. Activity Ratios 4. Profitability Ratios 5. Growths Ratios
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES 1. Financial RatiosLiquidity ratios measure a firm’s ability tomeet its current financial obligations.Liquidity Ratios include: Net working capital Current Ratio Quick Ratio
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES Net Working Capital While not technically a ratio, Net Working Capital (NWC) is a key element for internal control. The higher this number the better. NWC is found by subtracting current liabilities from current assets. This is a sign of growing assets while keeping their liabilities stable.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES Current Ratio The Current Ratio is a direct evaluation of a company’s liquidity. The higher this value, the more liquid a firm’s resources are. Current Ratio is found by dividing current assets by current liabilities. This could be improved by lowering the reliance on debt financing.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES Quick Ratio The Quick Ratio is comparable to the Current Ratio except that it takes inventory levels into consideration. This is found by subtracting inventories from current assets and then dividing by current assets.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES Activity Ratio Analysis Activity Ratios are used to measure the speed with which accounts are converted into cash. Activity Ratios include: Inventory Turnover Average Collection Period Total Asset Turnover
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES Inventory Turnover Inventory Turnover is measurement of a firm’s inventory liquidity. This is found by cost of goods sold(COGS) by inventory. Generally a lower number is better.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES Total Asset Turnover Total Asset Turnover illustrates the firm’s ability and proficiency in using its assets to generated sales. It is found by dividing sales by total assets, and is measured in times per year When using cross-sectional analysis, a company must take special care in comparing Total Asset Turnover because new assets tend to have lower turnover.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES STRATEGIC FINANCIAL ISSUES Debt Ratio Analysis A company’s debt position is a measure of how much of the firm’s profits are generated using money borrowed from other companies or individuals. Debt Ratios include: Financial Leverage Multiplier Debt Ratio Interest Coverage Ratio
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES Financial Leverage MultiplierThe Financial Leverage Multiplier (FLM) is used toconvert the company’s Return On Assets to its Returnon Equity. This reflects the impact of leverage, or useof debt, on owners’ return.It is the ratio of total assets to stockholders’ equity.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES Profitability Ratio Analysis Profitability Ratios evaluate a company’s earnings with respect to sales, assets, owner’s investments and share values. Profitability Ratios include Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Total Assets Return on Equity
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES Gross Profit MarginThe Gross Profit Margin(GPR) is thepercentage of each sales dollar that remainsafter the firm has paid for the goods sold.It is found by subtracting COGS from salesand dividing by sales.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES Net Profit Margin Net Profit Margin(NPR), one of the most popular indicators of company health, measures the percentage of sales revenue remaining after ALL expenses are paid. NPR is found by dividing net profits by sales
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES Return on Total Assets Return of Total Assets(ROA), also known as return on investment, measures a firm’s effectiveness at generating profits with its assets. ROA is found by dividing the net profits after taxes by total assets.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC FINANCIAL ISSUES Return on Equity The Return on Equity(ROE) is extremely important to potential investors. ROE is found by dividing net profit by owner’s equity.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIESSTRATEGIC RESEARCH AND DEVELOPMENT (R & D) ISSUES1. R & D Intensity, Technological Competence, and Technology Transfer -The Company must make available the resources necessary for effective research and development. A Company’s R & D intensity is a principal means of gaining market share in global competition. The amount spent on R & D often varies by industry.2. R & D Mix - Basic R & D is conducted by scientists in well- equipped laboratories where the focus is on the theoretical problem areas. Product R & D- concentrates on marketing and is concerned with product or product packaging improvements3. Engineering R & D - concerned with engineering, concentrating on quality control, and the development of design specifications and improved production equipment
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC RESEARCH AND DEVELOPMENT (R & D) ISSUES Impact of Technological of Discontinuity on StrategyIn the corporate planning process, it is generally assumed that incremental progress intechnology will occur. But pass developments in a given technology cannot be extrapolatedinto the future because every technology has its limits. The key to competitiveness is todetermine when to shift resources to a technology that has more potential.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC OPERATION ISSUES1. Experience Curve - unit production costs decline by some fixed percentage each time the total accumulated volume of production units doubles2. Flexible Manufacturing for Mass Customization – The use of Computer- Assisted Design and Computer-Assisted Manufacturing (CAD/CAM) and robot technology means that learning time is shorter and products can be manufactured in small, customized batches in a process call mass customization – the low cost production of individually customized goods and services.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC OPERATION ISSUESBUSINESS PROCESS AND OPERATIONAirAsia has fostered a dependency on Internet technology for its operationaland strategic management, and provides an online ticket booking services totraveler online. The following shows the home page of AirAsia.com as thecompany key channel of marketing and sales.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC OPERATION ISSUES BUSINESS PROCESS AND OPERATION
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC HUMAN RESOURCE (HRM) ISSUES1. Increasing Use of Teams2. Union Relations and temporary/Part- Time Workers3. Quality of Work Life and Human Diversity4. Impact on Performance5. Supply Chain Management
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES STRATEGIC HUMAN RESOURCE (HRM) ISSUES1. Increasing Use of Teams Teams Autonomous (self-managed)- a group of people working together without a supervisor to plan, coordinate and evaluate their work Cross-functional work teams- various disciplines are involved in a project from the beginning Concurrent engineering- specialists work side-by- side and compare notes constantly to design cost-effective products with features customers want
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES STRATEGIC HUMAN RESOURCE (HRM) ISSUES1. Increasing Use of Teams Virtual Teams - groups of geographically or organizationally dispersed coworkers that are assembled using a combination of telecommunications and information technologies to accomplish organizational tasks.
SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES STRATEGIC HUMAN RESOURCE (HRM) ISSUES2. Union Relations and temporary/Part-Time Workers - If the corporation is unionized, a good human resource manager should be able to work closely with the union. To save jobs, Unions are increasingly willing to support new strategic initiatives and employee involvement. To increase flexibility, avoid layoffs, and reduce labor costs, corporations are using more temporary (also known as contingent) workers.3. Quality of Work Life and Human Diversity -Human Resource departments have found that to reduce employee dissatisfaction and unionization efforts (or, conversely, to improve employee satisfaction and existing union relations), they must consider the quality of work life in the design of jobs. To Improve the corporation’s quality of work life by (1) Introducing participative problem solving (2) Restructuring Work, (3) Introducing innovative reward systems, and (4) improving the work environment Human Diversity refers to the mix in the workplace of people from different races, cultures, and backgrounds.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC HUMAN RESOURCE (HRM) ISSUES4. Impact on Performance – A current trend in corporate information systems/ technology is the increasing use of the internet for marketing, intranets for internal communication, and extranets for logistics and distribution. INTRANET – is an information network within an organization that also has access to the external worldwide Internet. EXTRANET – is an information network within an organization that is available to key suppliers and customers.5. Supply Chain Management - is the forming of networks for sourcing raw materials, manufacturing products or creating services, storing and distributing the goods, and delivering them to customers and consumers.
SCANNING FUNCTIONAL RESOURCES ANDCAPABILITIES STRATEGIC HUMAN RESOURCE (HRM) ISSUES Evaluate people and partners in AirAsiaThe AirAsia Team have highly competitive and attractive compensationpackages.In order to provide customer excellent service, AirAsia arrange a seriesof training course to their in-house flight attendant. The trainingcourses include awareness on safety standards, aviation terminology, inflight service procedures, product knowledge and so on.AirAsia chose many kinds of field partners as their complementors.Their partnership can divide into two main kinds: direct partners andindirect partners.Direct partners have strong relationship with the airline, forexample, hotels, travel agencies and so on. And indirect partnerincluded Facebook, Twitter Koolred and Youtube.AirAsia is company which rely on Internet a lot so with thosecommunities, AirAsia can build strong connection with their customers
THE STRATEGIC AUDIT : A CHECKLIST FORORGANIZATIONAL ANALYSIS STRENGTHS AND WEAKNESSES (SWOT) – When all the factors related with internal analysis ascertained (management, marketing, financial and operation/production), the organisation is then able to see its position more clearly. In addition, the company’s strengths and weakness can also be identified.
THE STRATEGIC AUDIT : A CHECKLIST FORORGANIZATIONAL ANALYSIS AirAsia SWOT AnalysisStrengths• Low cost operations• Fewer management level, effective, focused and aggressive management• Simple proven business model that consistently delivers that lowest fares• Penetrate and stimulate to potential markets• Multi-skilled staffs means efficient and incentive workforce• Single type fleet minimize maintenance fee and easy for pilot dispatchWeaknesses• Service resource is limited by lower costs• Limited human resources could not handle irregular situation• Government interference and regulation on airport deals and passengercompensation• Non-central location of secondary airports• Brand is vital for market position and developing it is always a challenge• Heavy reliance on outsourcing• New entrants to provide the price-sensitive services www.themegallery.com Company Logo
SYNTHESIS OF INTERNAL FACTORS INTERNAL FACTOR ANALYSIS SUMMARY (IFAS)
INTERNAL STRATEGICFACTORSStrength WeaknessLow cost carrier Service resource is limited by lower costsFirst mover advantage (first Limited human resourceslow cost airline in Asia)More seats per aircraft Regulation on airportSingle type fleet minimize Complaints from customersmaintenance fee (flight delays)Reduced staff numbersBrand name
RESOURCES, CAPABILITIES,COMPETENCIESResources Constructive and supportive management Highly skilled employees Capabilities to reduce costCapabilities Quick turnaround time Low-cost short haul High rate aircraft utilizationCompetencies The strategic decision in using one type of aircraft The synergy between AA management and its employees The capabilities themselves