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Strategic Analysis

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  • 1. BUSINESS STRATEGY 51110 LECTURE FOUR: Resources, competencies, strategic capability
  • 2. Module 4 Resources, competencies, strategic capability
    • Learning outcomes
      • Undertake a resource audit of an organisation
      • Explain the concept of core competences and identify core competences of a firm
      • Conduct a value chain analysis of an organisation
      • Explain the meanings of cost efficiency, linkages and benchmarking in strategic management Conduct a portfolio analysis; and
      • Undertake a full SWOT analysis
  • 3. Key words and concepts
    • Resource audit
    • Unique resources
    • Value-chain analysis
    • Primary activities
    • Support activities
    • Core competences
    • Cost efficiency
    • Effectiveness (level of value added achieved)
    • Leverage
  • 4. Key words and concepts
    • Historical analysis
    • Industry norm analysis
    • Benchmarking
    • Financial analysis
    • Portfolio analysis
    • SWOT analysis
    • Critical success factors
  • 5. Introduction
    • Strategy success is dependent on:
      • Strategic capability for required performance level
      • This requires:
        • Resources
        • Competence
        • Balance between resources, activities and business units
  • 6. Resource audit
    • ‘ A resource audit identifies and classifies the resources that an organisation owns or can access to support its strategies’.
    • Johnson & Scholes 1999, p.153.
    • Resources
      • Physical resources (eg. Buildings, machines)
      • Human resources (eg. Types of skills, adaptability, innovative)
      • Financial resources (eg. Obtaining capital, managing cash, relationships with shareholders and bankers)
      • Intangibles (eg. Brand names, corporate image, goodwill)
    • N.B Unique resources: those which create competitive advantage and are difficult to imitate
  • 7. Resource audit (Cont) Core competences Threshold competences COMPETENCES Unique resources Necessary resources RESOURCES Better than competitors and difficult to imitate Same as competitors or easy to imitate
  • 8. Analysing competences and core competences Identifying competences Value chain analysis Organisational competences Bases of competences Cost efficiency Value added Managing linkages Robustness
  • 9. Value chain analysis
    • Value chain analysis : ‘describes the activities within and around an organisation and relates them to an analysis of the competitive strengths of the organisation’.
    • Johnson & Scholes 1999, p.156.
    • The long-term competitive position of an organisation is concerned with its ability to sustain value-for-money products or services.
    • Need to consider primary activities and secondary activities
  • 10. Firm infrastructure Human resource management Technology development Procurement Support activities Primary activities Margin Inbound logistics Operations Outbound logistics Marketing and sales Service Margin Exhibit 4.4 The value chain Source: Adapted from M. E. Porter, Competitive Strategy, Free Press, 1985. Used with permission of The Free Press, a division of Macmillan, Inc. Copyright 1985 Michael E. Porter
  • 11. Identifying core competences
    • Core competences : ‘are those competences which critically underpin the organisations competitive advantage’.
    • Johnson & Scholes 1999, p.160.
  • 12. How core competences change over time: the world automobile industry
    • Market access
    • Global network
    • Overseas plants
    • Quality/ reliability
    • Production processes
    • Supplier management
    • Product features
    • (at low volume)
    • Lifestyle niche marketing
    • ‘ Agile’ production
  • 13. Analysing cost efficiency
    • Cost efficiency : ‘is a measure of the level of resources needed to create a given level of value’.
      • Johnson & Scholes 1999, p.165 .
    Cost efficiency Economies of scale Experience Supply costs Production / process design
  • 14. Analysing value added (effectiveness)
    • Effectiveness : ‘is a measure of the level of value which can be created from a given level of resources’.
    • Johnson & Scholes 1999, p.169.
    • Customer requirements
    • Product attributes
    • Service expectations
    • Price sensitivity
    • Value-added features
    • Product features
    • Service performance
    • Communication
    Degree of matching
  • 15. Managing linkages
    • Core competences are likely to be more robust and difficult to imitate if they relate to the management of linkages within the organisation’s value chain and linkages into the supply and distribution chains.
    • Leverage : ‘is a measure of the improvement in performance through the management of linkages between separate resources and activities’.
    • Johnson & Scholes 1999, p.171.
  • 16. Comparative analysis
    • Two different bases of comparison:
      • Historical analysis
        • ‘ Looks at the development of the resources and the performance of an organisation with previous years in order to identify any significant changes’.
      • Industry norms analysis
        • ‘ Compares the relative performance of organisations in the same industry (or public service) against an agreed set of performance indicators’.
  • 17. Benchmarking
    • Benchmarking : ‘seeks to assess the competences of an organisation against ‘best in class’ wherever that is to be found’.
    • Johnson & Scholes 1999, p.181.
  • 18. Financial analysis
    • Three different types of financial expectation:
      • Shareholders (quality of investment, payoff in dividends, capital growth)
      • Bankers (risk attached to their loans, competence in managing the loans)
      • Suppliers and employees (liquidity of the organisation)
  • 19. Financial analysis (Cont)
    • Issues on using financial analyses to assess organisational competence.
      • Financial ratios (implications of these ratios)
      • Financial analyses which relate to those activities which are core competences of the organisation will be particularly useful. Be selective in the use of ratios.
      • Core competences may change over time and the key financial measures have to be monitored.
  • 20. Assessing the balance of the organisation
    • Portfolio analysis : ‘analyses the balance of an organisation’s strategic business units (SBUs)’.
    • Johnson & Scholes 1999, p.186
    • BCG matrix (lecture 3)
    • Growth share matrix (as above)
    • Growth gain matrix
    • Product life cycle analysis
    • Market attractiveness- business position
    • Market response analysis
    • PIMS
  • 21. Internal Factor Evaluation (IFE) Matrix Developing the IFE matrix - Example
    • Key internal factors
    • Strengths
    • Strong brand name.
    • Increasing free cash flow by 3%.
    • Weaknesses
    • Little diversification.
    • Weak supplier and distributor networks.
    Weight 0.3 0.2 0.2 0.3 Rating 4 3 1 2 Weighted Score 1.2 0.6 0.2 0.6 Total 1.00 2.6
  • 22. SWOT analysis
    • SWOT analysis : ‘summarises the key issues from an analysis of the business environment and the strategic capability of an organisation’.
    • Johnson & Scholes 1999, p.190.
  • 23. Critical success factors (CSFs)
    • CSFs : ‘are those components of strategy in which the organisation must excel to outperform competition’.
    • Johnson & Scholes 1999, p.190.
    • Map out the core competences needed to support specific strategies.
  • 24. Lecture 4 review
      • Resources, competencies, strategic capability
        • Resource audit
        • Analysing competences and core competences
        • Value chain analysis
        • Identifying core competences
        • Cost efficiency, linkages and benchmarking
        • Portfolio analysis
        • SWOT analysis and CSFs
  • 25. Next week
      • Module 5:
      • Stakeholder expectations and organisational purposes.
      • (Study book: Module 5 - Text Chapter 5)
  • 26. Next week’s tutorial
    • Activity: Adopt the value chain framework (text p. 158) into the context of your case organisation
    • For extra help read BRW article “Crunch Time for Woolworths” November 5 1999, pp 78 – 81 and conduct a value chain analysis on them