Internal Analysis

1. ©2014JohnWiley&Sons
Chapter 6 - Internal Analysis PPT 6-1
Internal Analysis
Chapter Six
Copyright © 2014 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful.
Requests for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser
may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility
for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

2. ©2014JohnWiley&Sons
Chapter 6 - Internal Analysis PPT 6-2
Financial Performance – Sales and
Profitability
• Sales and Market Share
• Profitability
• Measuring Performance: Shareholder Value
Analysis

3. ©2014JohnWiley&Sons
Chapter 6 - Internal Analysis PPT 6-3
Shareholder Value Analysis
• Cost of equity—weighted average of cost of
capital and cost of debt
– e.g. Capital $1 billion (12%); Debt $3 billion (4%) then
the cost of capital is 6%
• Each business aims at ROA to exceed cost of
equity so shareholder can improve stock
investment

4. ©2014JohnWiley&Sons
Chapter 6 - Internal Analysis PPT 6-4
Shareholder Value Risks
• ROA estimate requires knowing the cash flow of
any investment and the assets employed—could
encourage short term results
• Reducing assets employed by outsourcing could
result in loss of control of business
• Reducing investment could affect offering
• Increasing debt to reduce cost of equity could be
risky

5. ©2014JohnWiley&Sons
Chapter 6 - Internal Analysis PPT 6-5
Performance Measures Reflecting
Long-Term Profitability
Customer Satisfaction/
Brand Loyalty
Relative Cost
Brand/Firm Associations
Product/Service Quality
New Product Activity
Manager/Employee
Capability/Performance
Long
Term
Profits
Current
Performance
Figure 6.1
Heritage and Values

6. ©2014JohnWiley&Sons
Chapter 6 - Internal Analysis PPT 6-6
Relative Cost vs. Relative
Performance - Strategic Implications
More Expensive
Less Expensive
Inferior Superior
Change
• Design
• Manufacturing/Systems
Ignore
Value Analysis
• Raise prices
• Promote
Cost Reduction
Value Analysis
• De-emphasize
• Upgrade
Value Analysis
• Emphasize/promote
• Leave it alone
Figure 6.2
Our Component is

7. ©2014JohnWiley&Sons
Chapter 6 - Internal Analysis PPT 6-7
Strengths and Weaknesses
• Strategies leverage strengths and neutralize
weaknesses
• Point of advantage vs. points of parity vs. liability

8. ©2014JohnWiley&Sons
Chapter 6 - Internal Analysis PPT 6-8
Threats & Opportunities
• Key output of external analysis
• Evaluate as to:
– Immediacy
– Impact

9. ©2014JohnWiley&Sons
Chapter 6 - Internal Analysis PPT 6-9
Structuring Strategic Decisions
Strategy Decisions
• Strategic Investment
• Value Proposition
• Assets and Competencies
• Functional Strategies and Programs
Figure 6.3
Organizational
Strengths and
Weaknesses
Competitor Strengths
and Weaknesses
Market Needs,
Attractiveness, and
Key Success Factors