Strategic Management :Unit II Environmental Scanning Industry Analysis Competitive Intelligence TOP Study, OCP, SAP Scanning, Corporate

Analysis, Resource based approach, Value-Chain Approach Scanning Functional Resources, Strategic Budget and Audit The role of environment and its components are very important for business firm as all the objectives and goals of the firm lie in the environment. The success and achievements of the firm are the outcomes of its interactions with the environment. Better the interactions better t h e results and performance of the firm and vice -versa. Better interactions n e e d s b e t t e r understanding of environment so that internal capabilities are perfectly matched with externalo p p o r t u n i t i e s a n d t h r e a t s . T h e m a j o r c h a l l e n g e o f e n v i r o n m e n t t o a b u s i n e s s f i r m i s i t s dynamism. Environmental Scanning: The study of all components of external environment is termed asenvironmental scanning. Through scanning a firm can be aware of: 1.Early signals of potential changes.2.Changes which are already going on.3 . S t r a t e g i e s o f C o m p e t i t o r s . 4 . C o u n t e r s t r a t e g i e s t o b e a d o p t e d . Strategy is a game plan for action i.e. the way of doing something.I t u s u a l l y i n c l u d e s t h e f o r m u l a t i o n o f Goal and set of Action plans forachievement of goal under competitive environment and against competitiveforces Strategy is the firms response and pattern of responses towardsoutside forces. The organizational goals as stated during planning stage are tobe achieved under threats and opportunities conditions created by outside forces.

Emergent StrategiesPlanningIntended WaysGoalCounter Strategies The concept of strategy has its roots in military and armed forced. The actions and reactions of the outside forces are the heart of modern approacho f s t r a t e g y . U n d e r c o m p e t i t i v e e n v i r o n m e n t w h e r e v e r t h e p l a n s a r e implemented they are countered by these forces. The actions / reactions of t h e o u t s i d e f o r c e s g e n e r a t e emergent s t r a t e g i e s o f t h e o r g a n i z a t i o n a n d followed by counter strategies on a continuous basis like a chain reactions Competitive and market analysis is also important part of strategy formulation. A successful analysis of competitive and market analysis helporganization to develop its own Sustainable Competitive Advantage whichp r o v e t o b e a

Distinctive Competence

( DC ) or uniqueness overcompetitors and market . Once the above objectives / steps are completed ther o l e o f H . R . b e g a n t o a c q u i r e a n d d e v e l o p t h e p e r s o n n e l o f o r g a n i z a t i o n t o achieve the D.C. through integrative efforts of different departments. Examining and Dealing with Environments for Strategic HRM: Although, the future is not perfectly p r e d i c t a b l e , b u t a c l o s e w a t c h o v e r t h e environmental forces and responding well a organization can visualize most probable o u t c o m e s . A H R m a n a g e r w h o i s f a i l t o v i s u a l i z e t h e opportunities and threats created by marketing environment is said to be ineffective . T h u s , o b t a i n i n g information, having a close watch over external forces and responding well is the basicpurpose of this chapter / topic. Environmental Monitoring Scanning and Analysis are best tools to respond and key success parameters. Environmental Scanning is the process of collecting informations aboutthe forces in the marketing environment, scanning involves observation, perusal of secondary source of dates (Business, Trade and Government) and research efforts

. Environmental Analysis is the process of assessing and interpreting the informationsgathered through scanning . T h i s h e l p t o p r e d i c t f u t u r e a n d c r e a t e s t r a t e g i e s . T h e potential threats and potential opportunities can be visualized through EnvironmentalScanning and Analysis . Responding to Environmental Forces: An Strategic Approach: There are two general approaches to respond environmental forces: 1.View Environmental Forces as totally uncontrollable and difficult t o predict: Here, the organization adopts a passive and reactive approach torespond i.e. organization does not try to influence the different forces but tryto adjust the affect of forces. 2 . V i e w E n v i r o n m e n t a l f o r c e s a s c h a l l e n g e s a n d t a k i n g a g g r e s s i v e sta nds i.e. reactive and proactive approach: HR manager can use the porter model of 5 forces to evaluate the outsideforces which may guide HR department for creating HR strategies. Threats of PotentialEntrantsBargainingPower of SuppliersIndustryEnvironmentsBargainingPower of CustomersThreats of SubstituteProducts /Services Industry Analysis: A p a r t i c u l a r i n d u s t r y i s s a i d t o b e a m a r k e t w h e r e v a r i o u s f i r m s a r e pursuing their strategies to compete with similar offerings and enjoying their own market 2

share, product acceptability, competitive position, brand loyalties, and profitability are theresults of their strategies and competitors strategies.. A continuous watch over the market ismust to grow, sustain, and survive in the dynamic environment. There are two basic aims behind strategic industry analysis:1 . A n a l y s i s o f r e l e v a n t i n d u s t r y , i t s c o m p o n e n t s , d e g r e e a n d n a t u r e o f competitiveness i.e. opportunities & threats.2.Analysis of available internal resources, competencies, strengths and weakness.StrengthsO p p o r t u n i t i e s T h r e a t s WeaknessThe environments of industry to industry is quit different. A firm operating in a particular industry generally has following environment components:Micro EnvironmentOR Immediate EnvironmentMega Environment 1. The Mega Environment: Consists of following: - D e m o g r a p h i c - P o l i t i c a l L e g a l - S o c i a l - C u l t u r a l E c o n o m i c

the most luxury car with multiple comforts. On the basis of above classification firms of theindustry design their products and other Ps strategically to suit and match the requirements of a particular customer class. Implications of Strategic Groups within Industry Analysis of Strategic Group within an industry provides useful informations as under:1.There are different strategic groups within an industry and the firms presuming same strategies

are comparatively close and facing intense competition.2 . M e m b e r s o f o n e s t r a t e g i c g r o u p p o s e h i g h c h a l l e n g e s a n d t h r e a t s t o e a c h o t h e r a n d hence their decisions and strategies are not independent.3.There are chances of price war between members of one strategic group.4 . M e m b e r s o f d i f f e r e n t s t r a t e g i c g r o u p s a r e n o t d i r e c t l y a f f e c t e d b y e a c h o t h e r a n d hence their decisions and strategies are independent.5 . A v e r y strong brand and customer loyalties of a particular firm creates a very h i g h entry barrier to the members of other strategic group.6 . T h e r e i s a s t r o n g i m p a c t o f e n v i r o n m e n t o n d i f f e r e n t s t r a t e g i c g r o u p s a n d s o m e t i m e only a few firm or groups are influenced by environmental changes.7 . T h e p o s i t i o n o f f i r m s w i t h i n a g r o u p i s d y n a m i c a n d l i k e l y t o c h a n g e d u e t o environmen tal change, or strategies of other firms. Industry Analysis:SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) As the firm operates under dynamic environment and strategic fit of internal strengths andweaknesses with external opportunities and threats is a must and a matter of constant andregular exercise of the firm. Without this a firm can not be able to create a perfect match of its capabilities with external demands. The approach to match internal capabilities withenvironmental opportunities and threats are known as SWOT analysis. The basic aim of S W O T i s t o p r o v i d e a n i n s i g h t t o t h e m a n a g e r s t h e a b i l i t i e s o f t h e f i r m ( S t r e n g t h a n d Weakness) in terms of handling opportunities and threats. The SWOT provides a framework within which a firm can develop and alter its strategies and shape the actions of functionaland other levels of firms.I n t e r n a l a n a l y s i s reveals the strength and weaknesses of the organization in term of i t s internal capabilities, competencies, efficiencies, financial position, track record, experience. Strengths: a re resources, skills or other advantages relative to competitors. Strength is a DCthat gives a firm comparative advantage in the market and competition.For Exp. Financial Resources, image, market leadership etc.5

Weaknesses: limitations or deficiencies in resources, skills and capabilities of the firm thatseriously affect the firms performance under competition i.e. Disadvantages. Opportunities: Major favorable situations in the firms environments. Opportunities may occur due to poor performance of competitors, consumer demand shift, government policies,unique raw materials, technological changes, better buyer-supplier relationships etc. Threats:

major unfavorable situations in the firms environment which may affect firms current and potentials performance. A particular threat may be an opportunity for competitor and vice versa. Strategic Management Process: Analysis of Internal Environment for Strength and WeaknessExternal Environment for Opportunities and ThreatsFormulation andStatement of Vision, Mission The ultimate goalsObjective Market to CompeteStrategies & Competencies to dev elopP o l i c i e s a n d m a j o r A c t i o n s Implementationof best fit organization s t r u c t u r e , r e s o u r c e s , c u l t u r e a n d o p e r a t i o n control.Evaluation &ControlDeveloping counter strategies if necessary.Effectiveness of HR, level of commitments, loyalties (all quantitative and qualitative) to compete with the rival firms within industry are counted as Strength. Firms weaknesses arei n t e r n a l d e f i c i e n c i e s i n t e r m o f a b o v e . T h e d e f i c i e n c i e s a r e r e g a r d e d a s o r g a n i z a t i o n a l constraints and disadvantages to compete and fight with rival firms. When a firm analyzes itsinternal capabilities as stated above the process is known as SAP (Strategic AdvantageProfile). On the other hand , analysis of external environment to find out opportunities and threats areknown as ETOP Analysis (Environmental Threats and Opportunities Profile ). Thus wecan say SWOT is a function of SAP & ETOP. Implications of SWOT Analysis:1. SWOT provides the basis for exploiting the opportunities out of its internal strengthsand capabilities. These Strategies are called as Exploitative or DevelopmentalStrategies.2. Environmental Threats and their impacts can be minimize through m i n i m u m exposures of weaknesses these strategies are called Blocking strategies.3. If firm is able to recover and repair its weaknesses these strategies are called as Remedial Strategies. S S N 6 T O I R P T E P I N O E G R S T T H U

Firm

- Clear vision & Mission- Increasing Income- Better Financial PositionBetter Education- Better Track Record- Developeds SocietyState of Art Technology- Govt. Support-Better Network for MarketingAbsence of StrongCompetitors- Un-served MarketSegmentation WEAKNESSES THREATS - Poor Selling & Marketing Team- Potential Rivalry- Poor StrategiesHigh Rate of Tech.- Weak Customer Services in FuturePoor Understanding with channel membersMNCs Threats dueto Policies of Govt. Fig:SWOT Model 4. Cost Efficiencies Strength of a firm can be used to increa se market share throughappropriate pricing strategy. 5. Firms internal and external situations and its strategic match can put the firm in aunique position in market. 6. As stated above SWOT provides a strategic framework to firm within which it can p l a n t o c o m p e t e i n m a r k e t . A s shown in the figure below, there are 4 cells representing respective strategies. Various Opportunities CELL 3 CELL 1

TurnaroundAggressive Growth OrientedStrategyStrategy i.e. Offensive Stra tegies Comparative InternalSubstantialWeakness Strength

CELL 4 CELL 2 DefensiveDiversification & DefensiveStrategiesStrategies Major Environmental Threats CELL 1: Represent most favorable situation with various opportunities and firms internalStrengths. Under these situations a firm can choose aggressive growth oriented strategies. CELL 2: Shows the mixed situation with substantial internal strengths to face major environmental threats. Firms strength can be used to exploit long term opportunities and tocop with threats. CELL 3: Various opportunities are there but the firm is unable to cash due to its internalweaknesses. CELL 4: is just opposite to the cell -1 i.e. most unfavorable situation under thesecondition withdrawal or reduced operations is suggested in product market.8

SAP Analysis:

Internal assessment of the firm is critical for developing successful business and better strategies. Internal analysis began with the identification of organiza tions resourcesallocations. Resources allocation convert financial resources into organizational, Human and Physical resources and ultimately into the ability to interact and compete in the market. Successful market interaction generates great financial resources which are again convertedinto Human and other Physical resources with greater abilities to fight in the market. This islike a chain reaction of firms internal resources to generate and re-generates greater amount of financial, physical, Human (tangible resources) and better capabilities to compete in themarket with added strength as show in the figure below.SAP is the process by which firms resources and capabilities of key functional areas areexamined to determine its strengths and weaknesses.The key functional areas may be:1. Organization Itself Culture- Form and Structure- Top Management Skills & Interests- Planning System2. Personnel (HR)Or Human Capital-Attitude- S k i l l s C o m p e t e n c i e s - L o y a l t i e s P e r c e p t i o n s
Internal Analysis for SAP and Resources Conversion Process 9

FirmsFinancialResourcesOrganizationsH.R.ResourcesOrganizationsPhysicalResourcesGreater Financi alResourcesReallocationand Greater Capabilities tocompete i.e.STRENGTH

3. Marketing- Size of the Sales Force- Product Quality- Image- Product Line- Customer Services4. Technical- Production FacilitiesProduction Techniques- Product Development abilities/skills- R & D5. Finance- Financial Strength- Potential Financial Strength- Revenue PotentialsBy analyzing the above a firm is in a position to decide its Competitive Advantages and Distinctive Competencies (DC or Uniqueness) over competitors in the market. Internalanalysis consists of examining Qualitative and Quantitative resources viewing allavailable resources in term of Tangible Resources and Intangible Resources

Steps in Developing Firms SAP Step 1Step 2 FavorableUnfavorableStrength Weakness Step 3

Provide an edge Necessary Skills/ Necessary SkillsOver competitors o ther Requirements and other require-ments are not possibleCompetitive Basic BusinessCompetitiveAdvantages Requi rements Disadvantages11

Identification of Strategic internalfactors and value activitiesHow do these activities and factorsfit with current conditions andfirms past history of performance?How do these Strength & Weaknesscan be utilize to compete in marketHow do these Strength & Weaknesscompare with capabilities andresources of main competitors? Necessary inputs available for strategy formulation Step 4

The Value Chain Approach: The value chain approach to diagnose firms key str e n g t h s a n d w e a k n e s s w a s developed by Michael Porter . Value chain is an excellent framework by which a firm can determine its strengths and weaknesses through parts of its operations that create value and those do not. A firm can earn above-average return only when the value it creates is greater than the costs incurred to create that value. The value chain analysis is a systematic way toanalyze the series of activities a firm perform to provide a product to its customers. The valuechain disaggregates a firm into its activities in order to understand the behavior of the firmc o s t a n d i t s e x i s t i n g o r p o t e n t i a l s o u r c e o f d i f f e r e n t i a t i o n ( c o m p e t i t i v e e d g e o v e r competitors). The disaggregated activities are called as Key internal factors more cheaper or better than its competitors. As shown in the figure the firm value chain is divided into twotypes of activities. 1 . P r i m a r y A c t i v i t i e s :

T h es e a c t i vi t i es a r e i n v o l v ed i n p r o d u c t s p h ys i c a l c r ea t i o n , i t s s a l es a n d d i s t r i b u t i o n t o customers, marketing, and after sales support. 2. Support Activities: Which provide inputs, infrastructure and assistance to primary activities to take place. SUPPORTIVE ACTIVITIES

The value chain shows how the raw materials are converted into final products and marketed.It is vary apparent that human skills, knowledge and willingness in involved at every part of the chain.Using value chain analysis a firm can identify its strengths in terms of Core Competencies,Key Result Areas (KRAs), and DCs.The term margin which covers both primary activities and supportive activities in the figuredenotes how an organization is capable to generate profit margin with the linkage of both theactivities. Resource Based Approach of Internal Analysis(Care: Before Value Chain) Success of a business firm heavily depend how well firm have a set of DC and resourceswhich are significantly different from those of its competitors. For a successful corporatestrategy a firm has to identify resources that systematically distinguished the firm in a waythat no other competitor can easily imitate or duplicate (asset s, skills, technologies,capabilities etc.). The resources based approach to analyze firms suggest that the availableresources must be unique in term of: 1)Quantity, quality, durability2)Not easy to imitate or duplicate 3) Highly specialized and durable (such asbrand name and patent) Such a unique mix of resources provides long term sustainability and competitive edge over its competitors. Following figure shows the

Resources Competencies Framework whichenables a firm to show its strategic capabilities and competencies over competitors.

Value chain analysis is one of the best resource based internal analysis tool.

ETOP Analysis: A profile of environmental threats and opportunities is considered to be a very useful deviceand is a summarized depiction of environmental factors and their impact on future functionsof firm under competitive environment. The environment is a significant source of changeand is highly dynamic in nature. Some organizations become victim of the change anddynamism of environment. Basic Characteristics of Environment:1. Uniqueness 2. Dynamic in Nature 3.

Variability of Control 4. Environment Carries Risk, Uncertainties and OpportunitiesOn the basis of impact on a business house we can divide the environment into 4 categories:1. The Mega Environment or Broader Environment:a) Demographic Factors b) Political Factorsc) Legal & Regularityd) SocioCulturale) Economic2. The Micro or Immediate Environment or Industry Environment: This environment and its components are very close to the firm; in fact the firm operateswithin this environment. Therefore, the intensity of negative or positive effects are directlyhit the firm and its strategies/decision making. Porter Model of 5 Forces is the best tool toevaluate this environment. Porters 5 Forces Effects on Industry Profitability and Functioning High RivalryLow ProfitabilityHigh Power of Suppliers Low Profitabilit yLow Power of BuyersHigh ProfitabilityThreats of Potential RivalHighLow Profitability inFuture and UnattractiveIndustry15

Corporate Analysis, OCP and SAP Scanning

Internal Analysis

INTRODUCTION

Strategic Analysis Professionals from different organizations suggest that a firms overall strengths and weaknesses and its ability to execute are often found more important to its

performance than environmental factors. Internal capabilities and process execution at times allow firms to gain competitive edge over competitors even with relatively lesser resources and lesser advantageous position.

TYPES OF RESOURCES There are three types of resources assets, capabilities and competencies, which have been identified under Resource Based View of the firm (RBV). Strategic thinkers explaining the RBV suggest that the organizations are collections of tangible and intangible assets combined with capabilities to use those assets. These help organizations develop understanding these three types of resources and help us to know how a firms internal strength and weaknesses affect its ability to compete. Assets

The factors of production used by firms in providing its customers with valuable goods and services are called assets. These assets are of two types- tangible assets and intangible assets. Any physical means a firm uses to provide value to its customers form its tangible assets. Similarly, intangible assets are equally valuable for firms but their physical presence cannot be felt or seen. For example, a brand name is a very important resource for any organization even though it is intangible.

Few examples of tangible assets l Firms property and equipment l R & D firms patents l Distribution network l IT network system

Few examples of intangible assets are: l Brand name, which is trusted l Knowledgeable workforce l Robust Organization structure l Organizational Culture

Capabilities In order to take full advantage of its assets the organization needs to develop skills, as experience suggests that with similar assets two different firms may add value of different amount for themselves. This difference can only be explained by the differences these organizations carry their capabilities in utilizing these assets. For example, in a sector like management education, in a typical segment you will find institutions more or less with similar resources and infrastructure, however, the quality of their output in terms of new professionals for business may be starkly different for different institutions. This is greatly reflected in the type of organizations that pick them up for employment and the kind of job responsibilities they are offered. This difference in output can be explained on account of the skills which these institutions carry with themselves. This position has been found true in case of many Indian companies as well as the multinational corporations.

Competencies Most simply put, it refers to the ability to perform. Experts from field of strategy, using the term distinctive competencies refer to the critical bundle of skills that an organization can draw on to distinguish itself from competitors. However, in order to have a better understanding of the concept, you need to understand first the resources, which are available to an organization and how they differentiate themselves as competencies or core competencies.

Strategic Importance of Resources Internal Analysis ( IT IS THE PART OF RESOURCE BASED APPROACH )

1) Available Resources: are those resources that are basic to the capability of any organization which can be listed broadly as:

Physical Resources: Few examples may be buildings, machinery or operational capacity. However, the specific condition and capability of each resource determines their usefulness.

Human Resources: Traditionally or in todays knowledge economy both, people are considered as the most valuable asset of an organization. Knowledge and skill of people together prove to be a great asset.

Financial Resources of an organization may lie in capital, cash, debtors and creditors and providers of money.

Intellectual capital: Intangible resources include the knowledge that has been captured in patents, brands, business systems and relationships with associates. In knowledge economy intellectual capital is considered as a major asset of many organizations.

Figure shows a relationship between the resources, competencies and the competitive advantange.

2) Threshold Resources Organizations need a set of threshold resources to perform in any market and there is a continuous need to improve such resources to stay in business. This becomes inevitable because of the competitors and sometimes the new entrants. We can think of many industries in India like automobile, durable goods, telecom etc. which with the foreign players had to acquire new sets of resources as their threshold resources to survive.

3) Unique Resources Unique resources as defined in strategy texts are those resources, which critically underpin competitive advantage. Their ability to provide value in product is better than competitors resources and are difficult to imitate. Just think of a big music stores like Planet M or the ones from RPG group, the scale and range of collection of music provides uniqueness to these stores as compared to any of the traditional music shop. Some organizations have patented products or services that give them advantage for some service organizations, unique resources may be particularly the people working in that organization.

4) Core Competencies Above, we learnt that competencies refer to the ability to perform. The difference in performance between organisations in the same market is rarely explainable by differences in their resource base, since resources can usually be imitated or traded. Superior performance are actually determined by the way in which resources are

Strategic Analysis deployed to create competences in the organisations activities. An organization needs to achieve a threshold level of competence in all of the activities and processes. Core competencies are activities or processes that critically underpin an organizations competitive advantage. They create and sustain ability to meet the critical success factors of particular customer groups better than other provides ways that are difficult to imitate. Again as put forward by the resource based view, a series of guidelines are discussed below, which you can use to asses what constitutes a valuable asset capability or competence.

Key issues in Resource Based Analysis are: Scarcity : This is a very basic test to understand its resource value. Just in case any resource is widely available, then its not likely to be a source of competitive advantage.

In-imitability : A resource that is easy to imitate is of little competitive advantage because it will be widely available from a variety of sources. e. g. services / design etc. Inimitability however does not last for long and at some point competition matches or even betters any offering. However, firms should make an effort which may temporarily limit imitation. Physical uniqueness, causal ambiguity or scale deterrence are few ways how organizations attempt doing this.

Durability : Hyper competitive market conditions have a tendency to make competitive advantage less and less sustainable. Durability in such situations become a more stringent test for valuing resources, capabilities and competencies. Superiority : Competencies are valuable only if they manifest themselves as competitive advantages and this means that they are superior to those held by rivals.

Being good is not enough and a firm must be better than its competitor.

The above points lead to determining how a firms internal resources might be linked to producing a competitive advantage and which resources actually fit in so as to produce a competitive advantage.

THE CRITICAL SUCCESS FACTOR (CSF) Critical success factors are those which contribute to organizations success in a competitive environment and therefore the organization needs to improve on them since poor results may lead to declining performance. Organizations depending on the environment they operate in and their own internal conditions can identify relevant critical success factors. However, literature on strategy suggests few general sources Internal Analysis of critical success factors that have been identified based on empirical research. They are as follows:

Industry Characteristics: Industry specific critical success factors are factors critical for the performance of an industry. For example in hospitality industry excellent and customized service, wide presence and an excellent booking and reservation system is critical. Similarly for an airline industry fuel efficiency, load factors and an excellent reservation system are critical.

Competitive Position: Critical success factors for a firm may also be determined by its relative position with respect to its competitors. In some instances, industry is dominated by few large players and their actions lead to determining the critical success factors for the industry which smaller players have to ensure for their success. For example, for the pathological laboratory centers earlier the CSF

was authentic, hygienic and scientific testing facilities until few big players added service features like door to door sample collection or home delivery of reports. Very soon approachability and ease became the additional CSFs for the players.

General environment viewed from any of the dimensions may determine the CSFs. Most simply put in years of drought, availability of water is at premium and having access to assured source of water can become the critical success factor for many industries like tanneries etc. For the same industry considering environmental norms, adhering to anti pollution standards becomes critical success factor. Organizational Developments On many occasions developments within the organizations, force internal considerations to become temporary critical success factors.

THE VALUE CHAIN FRAMEWORK (IT IS THE PART OF VALUE CHAIN APPROACH)

This is the other framework most commonly used to guide analysis of any firms strengths and weaknesses. In this framework, any business is seen as a number of linked activities, each producing value for the customer. By creating additional value, the firm may charge more or is able to deliver same value at a lower cost, either of this leading to a higher profit margin. This ultimately adds to the organizations financial performance.

The value chain framework as shown in Figure is a typical value chain within an organization. Using this framework, it is possible to analyze the organizations

contributions of individual activities in a business and how they add up to the overall Strategic Analysis level of customer value, the firm produces. It is divided into two parts i.e. primary activities and support activities. The primary activities constitute of the following:

Figure: The Value Chain Framework

a) Inbound Logistics are activities concerned with receiving, storing and distributing the inputs to the product or service. They include materials handling, stock control, transport etc.

b) Operations Transform these various inputs into the final product or service machining, packaging, assembly testing etc.

c) Outbound Logistics collect, store and distribute the product to customers. For tangible products this would be warehousing, materials handling, transportation etc. In the case of services they may be more concerned with arrangements for bringing customers to the service if it is a fixed location (e.g. entertainment show).

d) Marketing and Sales makes consumers/ users aware of the product or service so that they are able to purchase it. This includes sales administration, advertising, selling and so on.

e) Services activities helps improving the effectiveness or efficiency of primary activities.

Each of the groups of primary activities is linked to support activities which are as follows: a) Procurement: This is a process for acquiring the various resource inputs to the primary activities and this is present in many parts of the organization. b) Technology Development: There are key technologies attached to different activities which may be directly linked with the product or with processes or with resource inputs. c) Human Resource Management: This is an area involved with recruiting, managing, training, developing and rewarding people within the organization. This categorization of the activities as primary or support may be found true for organizations in general, however it is always better to have

ones own judgment in identifying activities for particular firms in consideration.

The Balance Scorecard This concept offers a well-rounded evaluation that views the firm from different complimentary perspectives as is shown below: The four perspectives of the Balanced Scorecard

1. Financial .................................E V A / Profitability / Growth 2. Customer ................................Differentiation / Cost / Quick Response 3. Operations Product.................. Development / Demand Management / Order Fulfillment 4. Organizational ..........................Leadership / Organizational Learning / Ability to change Source: Adapted from Miller Allex, Strategic Management

Looking at the flow chart we can very well understand that performance as assessed in one perspective supports performance in other areas and therefore we need to consider all four perspectives in carrying out a complete internal analysis.

Methods of assessing internal strengths and weaknesses Having understood the two frameworks which guide managers for assessing any organizations strengths and weaknesses, now we will discuss quantitative and qualitative factors, which help in the internal assessment of any organization. However, since every organizations creation of wealth is the primary goal, any

assessment has to focus on measuring the variety of means that contribute to the creation of wealth. The creation of wealth depends largely on providing superior value for customers and this is possible when the organizations have efficient and effective operations with necessary capabilities. The required capabilities depend on the employees, their skills and motivation levels.

Normally any quantitative analysis starts with financial analysis, yet in order to have an in-depth assessment of a firms strengths and weaknesses, managers go deeper into the information available on other areas as well which contribute to the firms financial performance. Some of these require qualitative measurement while others may require qualitative assessment.

Internal Analysis QUANTITATIVE ASSESSMENT

As mentioned above, financial data is only the most basic and universally accepted approach in assessing a firm. However we must understand that such an analysis is only the beginning for a thorough internal analysis. It is often found useful to go beyond the financial analysis to fully quantify organizations strengths and weaknesses and therefore it is discussed in detail here. Financial Quantitative Analysis

Traditionally financial analysis emphasizes on the study of financial ratios which is commonly known as ratio analysis.

i) Profitability ratios provide information regarding a firms overall economic

performance. ii) Liquidity ratios measure a firms capacity to meet its short term financial obligations iii) Leverage ratios indicate a firms financial risk that is the relative proposition of its debt to its equity.

The first enables to assess the financial returns of a firm and the associated risk with it is assessed by its financial liabilities or debt. The latter is measured by liquidity or leverage ratios.

iv) Activity ratios reflect a firms efficient or inefficient use of its resources. The operational part is analyzed by the activity ratios. Inspite of their wide acceptability, financial analysis does not provide insights into aspects like development time for new products or brand recall value which are also important in understanding strengths and weaknesses from other perspectives. Few of such non-financial quantitative meaures can be listed as number of patents; quality assessment; new product development; customer complaints; employees turnover, etc.

QUALITATIVE ASSESSMENT Often it has been found that quantitative analysis alone is not sufficient to understand any organizations strengths and weaknesses. Particularly the factors related to human resources, organizational culture and its temperament towards creativity and innovation are few which can be understood only through qualitative information. Qualitative information also supplements quantitative data in uderstanding basic concepts of what customers value and how they feel about a given product. The

exhibit provides you with few relevant guiding points to assess a broad range of important qualitative factors.

COMPARISON STANDARDS In order to arrive at some meaningful conclusion regarding strengths and weaknesses, the above analysis should be supported by appropriate standards for comparison, for example, Industry norms, Historical performance and Benchmarks. These are three commonly accepted comparison standards which are often found useful for internal analysis by the organizations.

Industry Norms The industry norms compare the performance of an organization in the same industry or sector against a set of agreed performance indicators. Data on industry norms are widely available and can be found from several published sources. Using such data and comparing an organization against others in its industry helps the organization

Strategic Analysis understand its true position. In case of the healthcare sector, such indicators can be mortality index, doctors per 100 beds, nurses per 100 beds, waiting time per inpatients treatment, waiting time per outpatient treatment, patients trust in doctors. The danger of industry norms comparison is that the whole industry may be performing badly and losing out competitively to other industries. Another problem with such comparisons may also arise as the boundaries of industries are coming down through competitive activity and industry convergence. For example publishing houses are evolving into multiple media groups working around the infotainment industry. Moreover talking of industry norms, it is an average indictor and organizations must

endeavour in beating them rather meeting them. In order to understand how they have been doing so it is always suggested that industry norm comparisons are supplemented with analysis on organizations own historical performance.

Historical Comparisons Historical comparisons look at the performance of an organization in relation to previous years in order to identify significant changes. Organizations must endeavour to improve their performance over time in order to remain competitive and overpower the performance of comeptitors. It must try to beat its own best in future, which would call for continuous improvement. However in case of the historical comparison it also entails scope for complacency since the organizations compare their rate of improvement over years with that of competitors and it is possible that the latter may itself be operating at a relatively lower average. Such historical trends can even be misleading when they entail changes made on a very small base.

Benchmarking Benchmarking compares an organizations performance against best in class performance wherever that is found. Managers seek out the best examples of a particular practice in other companies as part of an effort to improve the corresponding practice in their own firm. When the search for best practices is limited to competitors, the process is called competitive benchmarking. Other times managers may seek out the best practices regardless of what industry they are in, called functional benchmarking. Benchmarking provides the motivation annd the means many firms need to seriously rethink how their organizations perform certain tasks.

A comprehensive internal analysis of an organizations strengths and weaknesses must however utilize all three types of comprison standards. For instance, an organization can study industry norms to assess where it stands in terms of number of complaints generated regarding defects during guarantee period of a product. Then it could benchmark the organization that is best at controlling the defects. Based on the benchmarking results it could implement major new programmes and track improvements in these programmes over time using, historical comparisons.

SWOT Analysis SWOT stands for Strengths, Weaknesses, Opportunites and Threats. A SWOT analysis summarizes the key issues from the external environment and the internal capabilities of an organization those which become critical for strategy development. The aim through this is to identify the extent to which the strengths and weaknesses are relevant to and capable of dealing with changes in the business environment. It also reflects whether there are opportunities to exploit further the cometencies of the organization.

SUMMARY Understanding of the strengths and weaknesses of an orlganization comes through the internal analysis. This is important for any organization in order to respond effectively to its environment both micro and macro. Also understanding them enables the organization to stretch its capabilities and create new opportunies for themselves. However managers have to work hard in assessing the capabilities using frameworks like Critical success factors and the Value chain analysis and analyzing them through

quantitative or qualitative analysis. The end result goes as an important input for SWOT analysis.

REFERENCES AND FURTHER READINGS Johnson Gerry & Scholes Kevan. (2004), Exploring Corporate Strategy, Sixth edition, Prentice-Hall of India, New Delhi. Jr. Thomson A. Arthur, III Strickland A.J. (2003), Strategic Management, Concepts and Cases, Thirteenth edition, Tata McGraw Hill Publishing, New Delhi. Miller Alex, Strategic Management, Third edition, Irwin McGraw Hill.

Source / Further Readings: www.ignou.edu