Assessment of organization s internal strength and weakness
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Assessment of Organization’s Internal Strength and Weakness. Session 4 15 October 2011 Civil Service College Dhaka Presentation by Dr. Muhammad G. Sarwar Email: [email protected] Cell: 01821443741. Strategic Management: course outline. Presentation Contents of 3 rd Session.

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Assessment of organization s internal strength and weakness

Assessment of Organization’s Internal Strength and Weakness

Session 4

15 October 2011

Civil Service College Dhaka

Presentation by

Dr. Muhammad G. Sarwar

Email: [email protected]

Cell: 01821443741


Strategic management course outline

Strategic Management: course outline


Presentation contents of 3 rd session

Presentation Contents of 3rd Session

  • Defining External Environment / Audit of an Organization

  • Nature of External Audit

  • Major External Forces

  • Process of Performing External Audit

  • Competitive Analysis: Porter’s FF (Five Forces) Model

  • Industry Analysis: EFE (External Factor Evaluation) Matrix

  • CP (Competitive Profile) Matrix


Stages of strategic management

Stages of Strategic Management

Strategic Management process consists of 3 stages:

  • Strategy formulation,

  • Strategy implementation, and

  • Strategy evaluation.


Strategy formulation

Strategy formulation

Strategy formulation includes:

  • Developing a vision and mission statements

  • Identifying organization’s external opportunities and threats

  • Indentifying internal strengths and weaknesses

  • Establishing long-term objectives

  • Generating alternative strategies

  • Analyzing alternative strategies and choosing particular strategy.


Presentation contents of 4th session

Presentation Contents of 4th Session

  • Defining Organization’s Internal Audit

  • Key Functional Areas

  • Process of Performing Internal Audit

  • Resource-Based View (RBV)

  • Analyzing Six Functional Areas-

    • Management

    • Marketing

    • Finance/Accounting

    • Production/Operation

    • R&D (Research and Development)

    • MIS (Management Information System)

    • SWOT Analysis

    • Value Chain Analysis (VCA) and Benchmarking

    • IFE (Internal Factor Evaluation) Matrix


Internal strategic management audit

Internal Strategic Management Audit

  • Internal Strategic Management Audit focuses on identifying and evaluating strength and weakness in functional areas of an organization like management, marketing, finance /accounting, production/operation, R&D, MIS, etc.

  • Internal strength/weakness, coupled with external opportunities/threats and a clear vision/mission statements provide the basis for setting organization’s objectives and strategies.


Key functional areas of an organization

Key Functional Areas of an Organization

  • Six Core Areas

    • Management

    • Marketing

    • Finance /accounting

    • Production/operation

    • R&D (Research and Development)

    • MIS (Management Information System

    • Sub-areas, say under Marketing

      • Customer Service

      • Advertising

      • Warranties,

      • Packaging

      • Pricing


Process of performing internal audit

Process of Performing Internal Audit

  • Internal audit process is similar to External audit in terms of involving as many managers and employees as possible to make it participatory.

  • Performing an Internal audit requires gathering, assimilating, and evaluating information about the organization's operation.

  • Internal audit process is a highly interactive process that require effective communication / coordination among the functional areas of the organization.


Resource based view rbv

Resource-Based View (RBV)

  • RBV is a popular approach for Internal audit for an organization.

  • RBV is a competitive advantage analysis of an organization that contends that internal resources are more important for an organization than external factors in achieving and sustaining competitive advantage.

  • Internal resources are grouped as:

    • Physical resources

    • Human resources, and

    • Organizational resources.


Resource based view rbv contd

Resource-Based View (RBV) contd.

RBV theory asserts that for a long term competitive advantage, character of resources should be:

  • Rare,

  • Hard to imitate, and

  • Not easily substitutable.

    Organization having more the above types of resource, more would be its competitive advantage.


Analyzing functional areas management

Analyzing Functional Areas:Management

  • Management consists of 5 basic activities:

    • Planning for achieving set objectives

    • Organizing resources to achieve set objectives

    • Motivating employees to work hard towards achieving organizational objectives

    • Staffing properly HR to achieve objectives

    • Controlling operations towards attaining set objectives


Analyzing functional areas marketing

Analyzing Functional Areas:Marketing

  • Marketing is a process of defining, anticipating, creating and fulfilling customers’ needs / wants for products and services.

  • Seven basic activities of Marketing are:

    • Customer analysis

    • Selling products / services

    • Product / service planning

    • Pricing

    • Distribution

    • Marketing research, and

    • Opportunity analysis.


Analyzing functional areas finance accounting

Analyzing Functional Areas:Finance /Accounting

  • Functions of Financing / Accounting comprise making 3 decisions for an organization:

    • Investment decision,

    • Financing decision, and

    • Dividend decision.


Analyzing functional areas finance accounting contd

Analyzing Functional Areas:Finance /Accounting (contd.)

5 types of financial ratios:

  • Liquidity Ratios

    • Current Ratio = Current assets / Current liabilities

    • Quick Ratio = Current assets – inventory / Current liabilities

    • Leverage Ratios

      • Debt to Total Asset Ratio = Total debt / Total assets

      • Debt to Equity Ratio = Total debt / Total stockholders’ equity

      • Long term Debt to Equity ratio = Long term debt / Total stockholders’ equity

      • Times Interest Earned ratio = Profit before interest and taxes / Total interest charges


Analyzing functional areas finance accounting contd1

Analyzing Functional Areas:Finance /Accounting (contd.)

  • Activity Ratios

    • Inventory Turnover = Sales / Inventory of finished goods

    • Fixed Assets Turnover = Sales / Fixed Assets

    • Total Assets Turnover = Sales / Total assets

    • Account Receivable Turnover = Annual credit sales / account receivable

    • Average Collection Period = Account Receivable / Total credit sales / 365 days


Analyzing functional areas finance accounting contd2

Analyzing Functional Areas:Finance /Accounting (contd.)

  • Profitability Ratios

    • Gross Profit Margin = Sales – Cost of goods sold / Sales

    • Operating Profit Margin = Earnings before interest and taxes / sales

    • Net Profit Margin = Net Income / Sales

    • Return to Total Assets = Net Income / Total assets

    • Return on stockholders’ Equity = Net Income / Total stockholders’ equity

    • Earning Per Share = Net Income / No of shares of common stock outstanding

    • Price Earning Ratio = Market price per share / Earning per share


Analyzing functional areas finance accounting contd3

Analyzing Functional Areas:Finance /Accounting (contd.)

  • Growth Ratios

    • Annual 5 growth in total sales

    • Annual % growth in profit

    • Annual % growth in EPS

    • Annual 5 growth in dividends per share

      Financial Ratio analysis in 3 Fronts:

      • Trend analysis of financial ratios over time

      • Comparison of financial ratios with Industrial average

      • Comparison of financial ratios with key competitors.


Analyzing functional areas production operations

Analyzing Functional Areas:Production / Operations

Basic Functions of Production Management:

  • Process: Designing physical production system like production location, choice of technology, production layout, flow analysis, process control, transportation.

  • Capacity: Determining optimum output level including facilities planning, forecasting, scheduling, queuing analysis.

  • Inventory: Managing the level of raw materials, work in progress and finished goods.

  • Workforce: Managing human resources including job design, work management, job enrichment, motivation, etc.

  • Quality: Ensuring high quality production through quality control, sampling, testing, etc


Analyzing functional areas r d

Analyzing Functional Areas:R&D

  • R&D investment leads to competitive advantage by developing superior product / service.

  • R&D can take two basic forms –

    • Internal R&D

    • Contract R&D

    • R&D budgeting –

      • percentage of sales method

      • similar to competitors’ R&D budget

      • estimating the required R&D budget.


Analyzing functional areas mis

Analyzing Functional Areas:MIS

  • MIS ties organization’s all functions together and provides the basis of all strategic management.

  • An effective MIS utilizes computer hardware, software, models for analysis and database.

  • CheckMATE is a popular strategic planning software that is used SPACE (Strategic Position and Action Evaluation) analysis, SWOT (Strengths-Weaknesses-Opportunities –Threats) analysis, IE (Internal-External) analysis, GSM (Grand Strategy Matrix) analysis.


Swot analysis

SWOT Analysis


Swot analysis contd

SWOT Analysis (contd.)

SWOT analysis leads to:

  • Drawing conclusions from the SWOT listings about overall situation of an organization; and

  • Translating these conclusions into strategic actions to better match organization’s strategy to its resource strengths and market opportunities, and to correct the weaknesses and to defend from external threats.


Value chain analysis vca

Value Chain Analysis (VCA)

  • VCA refers to the process whereby a firm determines the costs associated with disaggregated activities of an organization from purchasing raw materials to producing goods and services and to marketing those goods and services.

  • VCA of an organization includes:

    • Procurement costs

    • Production costs

    • Distribution costs

    • Sales and marketing costs

    • Customer Service costs

    • Management costs


Benchmarking

Benchmarking

  • Benchmarking is an analytical tool used to determine whether an organization’s value chain activities are competitive compared to its rivals.

  • Benchmarking enables an organization to take action to improve its competitiveness by identifying value chain activities where rival organizations have comparative advantage in costs.


Ife internal factor evolution matrix

IFE (Internal Factor Evolution) Matrix

  • IFE Matrix is a management strategy formulation tool that summarizes and evaluates major strengths and weaknesses in functional areas of the organization.

  • Five steps to construct IFE Matrix:

    • List key strengths and weaknesses

    • Assign weight ranging from 0.0 (not important) to 1.0 (all important)

    • Assign rating from 1 (major weakness) to 4 (major strength)

    • Multiply weights and rating to get weighted score

    • Sum the weighted score to get total weighted score for the organization.


An example of ife matrix

An example of IFE Matrix


Strategic management references

Strategic Management: references

  • Fred R. David (2008), Strategic Management: Concepts and Cases, 11th Edition, Prentice Hall (Chapter 4)

  • Arthur A. Thompson, Jr. (2010) Crafting and Executing Strategy: the quest for comparative,16th Edition, McGraw Hill (Chapter 4)


Thanks

Thanks


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