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ORGANIZATIONAL ANALYSIS OF STRENGTHS AND WEAKNESSES HAS OUR ORGANIZATION BEEN FINANCIALLY COMPETITIVE ? SCRUTINIZE FINANCIAL STATEMENTS WERE OUR STRATEGIC MARKETING OBJECTIVES ACHIEVED ? STRATEGIC CORPORATE OBJECTIVES ARE OUR PRICES AND COSTS COMPETITIVE ? VALUE CHAIN ANALYSIS

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organizational analysis of strengths and weaknesses
ORGANIZATIONAL ANALYSISOF STRENGTHS AND WEAKNESSES
  • HAS OUR ORGANIZATION BEEN FINANCIALLY COMPETITIVE?
      • SCRUTINIZE FINANCIAL STATEMENTS
  • WERE OUR STRATEGIC MARKETING OBJECTIVES ACHIEVED?
      • STRATEGIC CORPORATE OBJECTIVES
  • ARE OUR PRICES AND COSTS COMPETITIVE?
      • VALUE CHAIN ANALYSIS
  • WHAT ARE OUR DISTINCTIVE COMPETENCIES & RESOURCES?
      • PERSONNEL, STRUCTURE, PHYSICAL RESOURCES, DEPARTMENTS
  • HOW STRONG IS OUR COMPETITIVE POSITION?
      • COMPETITIVE ASSESSMENT WITH KEY SUCCESS FACTORS
  • HOW WELL ARE OUR PRESENT STRATEGIES WORKING?
      • COMPETITIVE, CORPORATE, FUNCTIONAL

IN SUMMARY, WHAT ARE THE TOP STRENGTHS AND THE GREATEST WEAKNESSES THIS ORGANIZATION POSSESSES?

organizational audits
ORGANIZATIONAL AUDITS

FINANCIAL & MARKET PERFORMANCE (Strengths/Weaknesses)

FINANCIAL INDICATORS

  • RATIOS, FINANCIAL COMPARISONS, TRENDS

STRATEGIC MARKET INDICATORS

  • MARKET SHARE, PENETRATION, TRENDS

INTERNAL ORGANIZATION (Distinctive Competencies/Weaknesses)

PERSONNEL -- Top Management, Professional Expertise

STRUCTURE -- Authority, Accountability, Communication, Decision-Making

CORPORATE CULTURE -- Norms, Historic ways of doing things

PHYSICAL RESOURCES -- Equipment, Buildings, Locations

COMPETENCE OF KEY DEPARTMENTS -- Mktg, R&D, Operations, IS

OBJECTIVES & STRATEGIES (Successes/Failures)

CLARITY AND FOCUS OF MISSION/VISION

PRECISION AND LOGIC OF STRATEGIC CORPORATE OBJECTIVES

“FIT” & SUCCESS OF COMPETITIVE (Business-level) STRATEGIES

“FIT” & SUCCESS WITH CORPORATE (Investment-level) STRATEGIES

SUCCESS WITH IMPLEMENTING DEPARTMENTAL STRATEGIES

SUMMARY OF ORGANIZATIONAL CONDITION

Summarize the distinctive competencies and strengths and the glaring organizational weaknesses and failures you’ve detected at this firm.

obvious indicators of strategic and financial performance
OBVIOUS INDICATORS OF STRATEGIC AND FINANCIAL PERFORMANCE

MARKET SHARE AND RANKING

PROFIT MARGINS INCREASING? COMPARISONS WITH RIVALS?

TRENDS IN NET PROFITS (NP) & RETURN ON TOTAL ASSETS (ROA) COMPARISONS WITH RIVALS? …WITH THE INDUSTRY?

CREDIT RATING

SALES GROWING? FASTER OR SLOWER THAN THE INDUSTRY?

REPUTATION WITH CUSTOMERS? IMAGE?

IS THIS COMPANY A LEADER IN ANYTHING?

INNOVATION, TECHNOLOGY, QUALITY, CUSTOMER SERVICE, ETC?

financial statement analysis
FINANCIAL STATEMENT ANALYSIS

SCRUTINIZE THESE STATEMENTS…

BALANCE SHEET

INCOME STATEMENT

CASH FLOW (POSITION) STATEMENT

IF A SERIES OF ANNUAL STATEMENTS IS AVAILABLE, SELECTIVELY COMPARE RESULTS TO SEE ORGANIZATIONAL TRENDS. (GRAPH RESULTS?)

NOTE THE PERCENTAGE CHANGES THAT OCCUR IN INDIVIDUAL CATEGORIES FROM YEAR TO YEAR.

CREATE COMMON SIZE BALANCE SHEETS AND INCOME STATEMENTS TO MORE EASILY SEE CATEGORICAL SHIFTS AND CHANGES. (MAKE TOTAL ASSETS = 100% AND NET SALES = 100%)

IF INFLATION HAS BEEN SIGNIFICANT, MAKE APPROPRIATE ADJUSTMENTS TO UNMASK THE TRUE OR “REAL” CHANGES & TRENDS IN THE ORGANIZATION.

assessing organizational performance
ASSESSING ORGANIZATIONAL PERFORMANCE

ORGANIZATIONAL TRENDS

HISTORIC PERFORMANCE COMPARISONS OVER TIME

ARE THESE TRENDS LIKELY TO CONTINUE INTO THE FUTURE?

ARE ADJUSTMENTS NEEDED FOR INFLATION?

COMPARISONS WITH SIMILAR FIRMS

A--INDUSTRIAL AVERAGES (SIC Codes)

CAN WE DETERMINE THE CORRECT CODE FOR OUR INDUSTRY?

B--COMPARISONS WITH KEY COMPETITORS

WHO ARE OUR TOP THREE COMPETITORS?

CAN WE GET GOOD DATA ON THEIR RECENT PERFORMANCE?

ORGANIZATIONAL OBJECTIVES

STRATEGIC OBJECTIVES (Stockholder’s Reports & Meetings)

WERE ANY OBJECTIVES SET?

ARE THE OBJECTIVES PRECISE ENOUGH TO BE EVALUATED?

HAVE WE MET OR EXCEEDED OUR OBJECTIVES?

ratio analysis 1
RATIO ANALYSIS - 1

LIQUIDITY RATIOS

ABILITY TO MEET SHORT-TERM FINANCIAL OBLIGATIONS

CURRENT RATIO

How much of our current assets are available to cover short-term obligations?

(Current Assets/Current Liabilities) CA/CL

QUICK (Acid-Test) RATIO

Ability to pay short-term obligations without liquidating inventories

(Current Assets - Inventories)/Current Liabilities (CA-Invent)/CL

CASH RATIO

How much of the current obligations can be paid with cash?

(Cash + Cash Equivalents)/Current Liabilities (Cash + Equiv)/CL

ratio analysis 2
RATIO ANALYSIS - 2

LEVERAGE RATIOS

AMOUNT OF BORROWING AND INDEBTEDNESS

DEBT TO ASSETS RATIO

How much of the company assets are basically financed by all forms of borrowing and indebtedness?

Total Liabilities/Total Assets TL/TA

DEBT TO EQUITY RATIO

Measures the funds provided by all forms of borrowing vs the funds provided by owners

Total Liabilities/Total Equity TL/TE

CURRENT LIABILITIES TO EQUITY RATIO

Measures the extent of short-term financing provided by owners

Current Liabilities/Total Equity CL/TE

ratio analysis 3
RATIO ANALYSIS - 3

ACTIVITY RATIOS

EFFECTIVE MANAGEMENT OF CORPORATE RESOURCES

INVENTORY TURNOVER

The number of times that finished goods inventory was sold or cleared out in a year

Cost of Goods Sold/Avg Finished Goods Inventory COGS/FGI

AVERAGE COLLECTION PERIOD

Indicates the average amount of time (in days) it takes to collect on a credit sale

(Accounts Receivable x 365)/Annual Sales (net) (ARx365)/Tot Sales

NET WORKING CAPITAL TURNOVER

Measures how effectively working capital is used to generate sales

Net Sales/(Current Assets – Current Liabilities) Tot Sales/(CA-CL)

ASSET TURNOVER

Measures utilization of total assets. How many sales are generated by each dollar of assets?

Net Sales/Total Assets Tot Sales/TA

ratio analysis 4
RATIO ANALYSIS - 4

PROFITABILITY RATIOS

DEGREE OF SUCCESS IN ACHIEVING DESIRED PROFIT LEVELS

NET PROFIT MARGIN (NP)

How much after-tax profit is generated by each dollar of sales?

Net Profit (after taxes)/Net Sales NP/Tot Sales

RETURN ON ASSETS (ROA)

A measure of management efficiency. The rate of return on total assets before interest and taxes.

Operating Income (before int + tax)/Total Assets Oper Inc/TA

RETURN ON EQUITY (ROE)

Measures the rate of return on the total book value of equity in the company

Net Profit (after taxes)/Total Equity NP/TE

ratio analysis 5
RATIO ANALYSIS - 5

OTHER RATIOS

EARNINGS PER SHARE (EPS)

Shows after tax earnings generated for each share of common stock

(Net Profit – Preferred Dividends)/Avg # Shares (NP-Pref Div)/# Shares

PRICE/EARNINGS RATIO

How much the investor is willing to pay for each dollar of earnings?

Share Market Price/Earnings Per Share Stock Price/EPS

DIVIDEND PAYOUT RATIO

The percentage of profit that is paid out in dividends

Dividends (per share)/Earnings Per Share Div (per share)/EPS

DIVIDEND YIELD

The dividend rate of return to common stockholders at the current market price

Dividends (per share)/Share Market Price Dividend/Stock Price

altman s z bankruptcy ratio altman journal of business strategy fall 1983
ALTMAN’S Z (Bankruptcy Ratio)Altman, Journal of Business Strategy. Fall, 1983.

Z = 1.2(A) + 1.4(B) + 3.3(C) + .6(D) + 1.0(E)

ORIGINAL Z = FOR PUBLIC MANUFACTURERS

A = WORKING CAPITAL/TOTAL ASSETS

B = RETAINED EARNINGS/TOTAL ASSETS

C = (EARNINGS BEFORE INTEREST + TAXES)/TOTAL ASSETS

D = MARKET VALUE OF EQUITY/TOTAL LIABILITIES

E = SALES REVENUES/TOTAL ASSETS

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IF Z > 3.0 THE FIRM ISFINANCIALLY STRONG

IF Z < 1.8 THE FIRM IS IN SERIOUS TROUBLE

altman s z bankruptcy ratio for private firms models a and b
ALTMAN’S Z (Bankruptcy Ratio)FOR PRIVATE FIRMS (MODELS A and B)

Z = .717(A) + .847(B) + 3.107(C) + .42(D) + .998(E)

MODEL A = PRIVATE MFRS…..MODEL B = PRIVATE - GENERAL MANAGEMENT

A = WORKING CAPITAL/TOTAL ASSETS

B = RETAINED EARNINGS/TOTAL ASSETS

C = (EARNINGS BEFORE INTEREST + TAXES)/TOTAL ASSETS

D = MARKET VALUE OF EQUITY/TOTAL LIABILITIES

E = SALES REVENUES/TOTAL ASSETS

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MODEL A VALUESMODEL B VALUES

IF Z > 2.90 THE FIRM ISFINANCIALLY STRONG IF Z > 2.60

IF Z < 1.23 THE FIRM IS IN SERIOUS TROUBLEIF Z < 1.10

index of sustainable growth bangs managing by the numbers upstart publ 1992 pp 106 107
INDEX OF SUSTAINABLE GROWTHBangs, Managing by the Numbers, Upstart Publ, 1992, pp 106-107

How much sales growth can be sustained by internally-generated funds?

G* =_P (1 – D) (1 + L)___

T – P (1 – D) (1 + L)

P = (NET PROFIT BEFORE TAXES / NET SALES) x 100

D = TARGET DIVIDENDS / PROFIT AFTER TAXES

L = TOTAL LIABILITIES / NET WORTH

T = (TOTAL ASSETS / NET SALES) x 100

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IF PLANNED GROWTH RATE > G*

EXTERNAL CAPITAL WILL BE NEEDED TO FUND GROWTH

consumer price index for all items us bureau of labor statistics monthly labor review
CONSUMER PRICE INDEX (for all items)US Bureau of Labor Statistics, Monthly Labor Review

YEAR = CPI (1967=100)____YEAR = CPI (1982/84 = 100)

1967 100.0 1980 246.8 1993 144.5

1968 104.2 1981 272.4 1994 148.2

1969 109.8 1982 289.1 1982 96.2 1995 152.4

1970 116.3 1983 298.4 1983 99.6 1996 156.9

1971 121.3 1984 311.1 1984 103.9 1997 160.5

1972 125.3 1985 322.2 1985 107.6 1998 163.0

1973 133.1 1986 328.4 1986 109.6 1999 166.6

1974 147.7 1987 340.4 1987 113.6 2000 172.2

1975 161.2 1988 354.3 1988 118.3 2001 177.1

1976 170.5 1989 371.3 1989 124.0 2002 179.9

1977 181.5 1990 391.4 1990 130.7 2003 184.0

1978 195.4 1991 408.0 1991 136.2 2004 188.9

1979 217.4 1992 420.3 1992 140.3 2005

illustrated inflation adjustment
ILLUSTRATED INFLATION ADJUSTMENT

OREGON CONFERENCE TITHES

”THE LORD HAS GREATLY BLESSED…TITHES HAVE GROWN 18.2% DURING THE PAST TWO YEARS.”

1979 $35 Million

1980 $38 Million

1981 $41.4 Million

CPI INDICES

1979 217.4

1980 246.8

1981 272.4

TITHES CONVERTED TO CONSTANT 1979 DOLLARS

1979 $35 Million

1980 $33.47 Million

1981 $33.04 Million

WHEN ADJUSTED FOR INFLATION, TITHES HAVE DECLINED BY 5.6% DURING THE PAST TWO YEARS.

assessing the organization a reminder
ASSESSING THE ORGANIZATION—A REMINDER

ORGANIZATIONAL TRENDS

HISTORIC PERFORMANCE COMPARISONS OVER TIME

ARE THESE TRENDS LIKELY TO CONTINUE INTO THE FUTURE?

ARE ADJUSTMENTS NEEDED FOR INFLATION?

COMPARISONS WITH SIMILAR FIRMS

A--INDUSTRIAL AVERAGES (SIC Codes)

CAN WE DETERMINE THE CORRECT CODE FOR OUR INDUSTRY?

B--COMPARISONS WITH KEY COMPETITORS

WHO ARE OUR TOP THREE COMPETITORS?

CAN WE GET GOOD DATA ON THEIR RECENT PERFORMANCE?

ORGANIZATIONAL OBJECTIVES

STRATEGIC OBJECTIVES (Stockholder’s Reports & Meetings)

WERE ANY OBJECTIVES SET?

ARE THE OBJECTIVES PRECISE ENOUGH TO BE EVALUATED?

HAVE WE MET OR EXCEEDED OUR OBJECTIVES?

how well is the present strategy working
HOW WELL IS THE PRESENT STRATEGY WORKING?

WHAT IS THE CURRENT STRATEGY?

COST-LEADERSHIP

DIFFERENTIATION

FOCUS

HOW MANY STAGES IN THE CHAIN DO WE OPERATE IN?

AMOUNT OF VERTICAL INTEGRATION

SIZE & DIVERSITY OF GEOGRAPHIC MARKETS COVERED?

FUNCTIONAL STRATEGIES?

MARKETING

OPERATIONS & PRODUCTION

FINANCE

HUMAN RESOURCES

EVIDENCE OF SUCCESS?

RECENT STRATEGIC MOVES?

using organizational resources to gain competitive advantage
USING ORGANIZATIONAL RESOURCES TO GAIN COMPETITIVE ADVANTAGE

RESOURCES = What are our organizational assets?

CAPABILITY = We are able to function/perform adequately

COMPETENCY = Something we do exceedingly well

A CORE COMPETENCY = We do it well, all across the organization

A DISTINCTIVE COMPETENCY = We do it better than our competitors

Distinctive competencies may erode over time to become the minimum to compete in the industry, because competitors will try to copy or imitate successful firms.

evaluating competencies barney 2003
EVALUATING COMPETENCIESBARNEY 2003

VRIO ANALYSIS FRAMEWORK

VALUE

DOES IT PROVIDE OBVIOUS CUSTOMER VALUE AND COMPETITIVE ADVANTAGE?

RARENESS

DO OUR COMPETITORS WISH THEY HAD THIS RESOURCE, BUT THEY DON’T?

IMITABILITY

IS IT EXTREMELY DIFFICULT TO COPY OR IMITATE?

ORGANIZATION

IS OUR FIRM ABLE TO TAKE FULL ADVANTAGE OF (EXPLOIT) THIS RESOURCE?

IF THE ANSWER IS “YES” ON ALL OF THE ABOVE, WE HAVE FOUND A DISTINCTIVE COMPETENCE FOR OUR FIRM (A Clear Organizational Strength)

how we acquire distinctive competencies verdin williamson 94
HOW WE ACQUIRE DISTINCTIVE COMPETENCIESVERDIN & WILLIAMSON 94

WE INHERITED IT—IT’S ALWAYS BEEN A COMPANY ASSET

SOMETHING WE OBTAINED FROM THE FOUNDER…OWNERSHIP OF A UNIQUE LOCATION, PATENT, PRODUCT OR PROCESS.

WE ACQUIRED IT FROM SOMEONE ELSE

SOMEONE ELSE DEVELOPED IT, BUT WE BOUGHT IT

WE SHARE IT WITH SOMEONE ELSE

DEVELOPED BY SOMEONE ELSE…A JOINT VENTURE OR ALLIANCE ALLOWS US ACCESS

WE BUILT IT OURSELVES

WE PAINSTAKINGLY DEVELOPED THIS RESOURCE “FROM SCRATCH.” THE DISTINCTIVENESS OF THIS COMPETENCY HAS EVOLVED OVER TIME.

sustainability of a competitive advantage
SUSTAINABILITY OF A COMPETITIVE ADVANTAGE

JUST BECAUSE YOU HAVE A DISTINCTIVE COMPETENCE OR COMPETITIVE ADVANTAGE DOESN’T MEAN YOU WILL BE ABLE TO KEEP IT.

HOW QUICKLY WILL YOUR ADVANTAGE ERODE?

HOW EASILY CAN COMPETITORS COPY YOUR ADVANTAGES?

IS THE KEY TO YOUR ADVANTAGE TRANSPARENT?

IS IT BASED ON EXPLICIT OR TACIT KNOWLEDGE?

IS IT TRANSFERRABLE? …REPLICABLE?

“OTHERS UNDERSTAND WHAT WE DO, BUT THEY CAN’T DO IT.” M Dell

A CONTINUUM OF SUSTAINABILITY

SLOW CYCLE – strongly shielded (patents, brand names)

STANDARD CYCLE – production processes are a bit complicated

FAST CYCLE – easily duplicated and idea-driven

Can’t sustain advantages unless you’re always first from the lab to the market

where does your firm make its money
WHERE DOES YOUR FIRM MAKE ITS MONEY?

WHAT IS YOUR BUSINESS MODEL?

WHERE DOES MOST OF YOUR PROFIT COME FROM?

FROM THE PRODUCT?

FROM UPGRADES?

FROM SERVICES?

FROM ADVERTISING?

A FEW EXAMPLES OF BUSINESS MODELS

BLOCKBUSTER

JUST A FEW KEY PRODUCTS THAT WE A HOLD A PATENT ON (NEAR-MONOPOLY)

PROFIT PYRAMID

COMPANY OFFERS A COMPLETE LINE OF PRODUCTS.

HIGHER PRICED (Luxury) MODELS ARE WHERE MOST OF THE PROFIT IS MADE

MULTI-COMPONENT SYSTEM

SELL COMPUTERS VIRTUALLY AT COST, MAKE MONEY ON PRINTERS & INK

ADVERTISING MEDIA

PRODUCT IS BASICALLY FREE TO THE PUBLIC (TV, RADIO, INTERNET) ADVERTISERS PAY FOR EXPOSURE OF THEIR ADS THROUGH THIS “FREE” VENUE

a reminder of what to consider
A REMINDER OF WHAT TO CONSIDER

FINANCIAL & MARKET PERFORMANCE (Strengths/Weaknesses)

FINANCIAL INDICATORS

  • RATIOS, FINANCIAL COMPARISONS, TRENDS

STRATEGIC MARKET INDICATORS

  • MARKET SHARE, PENETRATION, TRENDS

INTERNAL ORGANIZATION (Distinctive Competencies/Weaknesses)

PERSONNEL -- Top Management, Professional Expertise

STRUCTURE -- Authority, Accountability, Communication, Decision-Making

CORPORATE CULTURE -- Norms, Historic ways of doing things

PHYSICAL RESOURCES -- Equipment, Buildings, Locations

COMPETENCE OF KEY DEPARTMENTS -- Mktg, R&D, Operations, IS

OBJECTIVES & STRATEGIES (Successes/Failures)

CLARITY AND FOCUS OF MISSION/VISION

PRECISION AND LOGIC OF STRATEGIC CORPORATE OBJECTIVES

“FIT” & SUCCESS OF COMPETITIVE (Business-level) STRATEGIES

“FIT” & SUCCESS WITH CORPORATE (Investment-level) STRATEGIES

SUCCESS WITH IMPLEMENTING DEPARTMENTAL STRATEGIES

SUMMARY OF ORGANIZATIONAL CONDITION

Summarize the distinctive competencies and strengths and the glaring organizational weaknesses and failures you’ve detected at this firm.

organizational analysis of strengths and weaknesses24
ORGANIZATIONAL ANALYSISOF STRENGTHS AND WEAKNESSES
  • HAS OUR ORGANIZATION BEEN FINANCIALLY COMPETITIVE?
      • SCRUTINIZE FINANCIAL STATEMENTS
  • WERE OUR STRATEGIC MARKETING OBJECTIVES ACHIEVED?
      • STRATEGIC CORPORATE OBJECTIVES
  • ARE OUR PRICES AND COSTS COMPETITIVE?
      • VALUE CHAIN ANALYSIS
  • WHAT ARE OUR DISTINCTIVE COMPETENCIES & RESOURCES?
      • PERSONNEL, STRUCTURE, PHYSICAL RESOURCES, DEPARTMENTS
  • HOW STRONG IS OUR COMPETITIVE POSITION?
      • COMPETITIVE ASSESSMENT WITH KEY SUCCESS FACTORS
  • HOW WELL ARE OUR PRESENT STRATEGIES WORKING?
      • COMPETITIVE, CORPORATE, FUNCTIONAL

IN SUMMARY, WHAT ARE THE TOP STRENGTHS AND THE GREATEST WEAKNESSES THIS ORGANIZATION POSSESSES?

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