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A View from the Top Chapter 5 Analyzing an Organization’s Strategic Resource Base. Team III M Isabel Castaneda Cal Wallace Patrick McGregor. Introduction. Assessing strategic resources and capabilities is important when determining a companies strategy.
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A View from the TopChapter 5Analyzing an Organization’s Strategic Resource Base Team III M Isabel Castaneda Cal Wallace Patrick McGregor
Introduction • Assessing strategic resources and capabilities is important when determining a companies strategy. • Analyzing a company’s internal strategic environment has two principal components: • Cataloging and valuing current resources and core competencies for creating competitive advantages. • Identifying internal pressures for change and forces for resistance.
Strategic Resources • A company’s strategic resource base is composed of physical financial, human resource, and organizational assets. • To evaluate the relative worth of a company’s strategic resources four questions must be asked.
Physical Assets • A company’s physical assets can affect its competitiveness. • i.e. Airline companies, the average age of the fleet affects customer perceptions, routine flexibility, and operating and maintenance costs.
Analyzing a Company’s Financial Resource Base • For the corporate level, evaluations of the financial position involves thorough analysis of the company’s financial statements. • Financial ratio analysis can provide an overview of an organization’s current and past profitability, liquidity, leverage, and activity.
Profitability Ratios • Measure how well a company is allocating its resources. • Ratios • Gross Profit Margin • Net Profit Margin • Return on Assets • Return on Equity
Liquidity Ratios • Measure cash flow generation and ability of an organization to meet its current obligations. • Ratios • Current Ratio • Quick Ratio • Inventory to Net Working Capital
Leverage • Can indicate potential improvements in the financing of operations. • Ratios • Debt-to-assets ratio • Debt-to-equity ratio • Long-term debt-to-equity ratio
Activity Ratios • Measure productivity and efficiency • Ratios • Inventory Turnover • Fixed Asset Turnover • Average Collection
DuPont Formula • Used to analyze an organization’s return on assets directly links operating variables to financial performance. • Accounting-based measures have generally been found inadequate indicators of a business unit’s economic value.
Shareholder Value Analysis • Focuses on cash flow generation to determine economic value. • It is helpful to answer the following questions: • Does the current strategic plan create shareholder value. • How does the business unit’s performance compare with others in the corporation. • Would an alternative strategy increase shareholder value more than the current.
Economic Value Added • Economic value added and market value added have supplemented accounting based performance measures. • Advantages: • Help align employee and owner interest through employee compensation. • Can be the basis for a single competitive performance measure called MVA. • Indicates if returns lag the cost of capital
Analyzing a Company’s Financial Resource Base • Cost analysis deals with identification of strategic cost driver. • Cost benchmarking is useful in assessing a firm’s cost relative to those competing firms, or for comparing a company’s performance against best-in-class competitors.
Human Capital: A Company’s Most Valuable Strategic Resource • Firms are run by and for people. • More focus on attracting, developing, and retaining. • Continuous employee development is critical • Ex- Fed Ex has an 11 week training and “Leadership Institute”
Organizational Strategic Resources • Knowledge • Intellectual Capital Base • Reputation with customers, partners, and suppliers and financial community • Specific competencies, processes, and skill sets • Corporate Culture
Organizational Strategic Resources Continuation • Intellectual Capital- hard to measure • Patents- protect and preserve competitive advantage • Knowledge- better knowledge » better performance and enhanced learning
The Importance of Brands • Brands provide guarantee of reliability and quality • Customers must trust the brands • Ex- Ranking 100 Best Global Brands by dollar value.
The Importance of Brands Continuation • Ranking 100 Best Global Brands by dollar value • Identifiable Qualities: • Do not fear public flops • Face your weaknesses • Protect your culture
Core Competencies • Great capabilities that enable a company to build a competitive advantage. • Focus on creating a value, and change as customer’s requirements change • Hamel and Prahalad three tests for identifying core competencies
Internal Change Forces and the Capacity for Change • Internal Change Forces • Four basic forms of resistance • Structural, Organizational rigidities • Closed mind-sets reflecting support for obsolete business beliefs and strategies • Entrenched cultures reflecting values, behaviors, and skills that are not conductive to change. • Counterproductive change momentum that isn’t in tune with current strategic requirements
Founding Establishment of: Vision and Purpose Direction Allocation of Capital and Resources Growth Requires Organizational Learning Delegation of Authority Leadership challenges Responding to external and internal change. Working together as a cohesive unit The Company Life Cycle
Frameworks Strategy Structure Systems Skills Staff Style All link to Shared Values Particulars of the Model Not hierarchical Change in one force will occur a change in another Fixing problems in one area without attention to others is counterproductive. Align each factor accordingly for a desired direction of a particular goal. Mckinsey 7-S Model
Stakeholder Analysis • What roles do they play? • Internal or External • Rights and Interest • Returns • Competition • Laws and Regulations • Demands of the Stakeholders
SWOT • SWOT- the sizing up of a company’s strengths, weaknesses, external opportunities, and threats. • Strengths and Weaknesses are internal • Opportunities and Threats are external • FIGURE 5-5 on page 69
Work Cited • Kluyer, C (2006). Strategy: A View from the Top. Upper Saddle River, New Jersey: Pearson Education. • Building Brands. Retrieved June 7, 2009, from Building Brands: Mckinseys 7-S Model Web site: http://www.buildingbrands.com/didyouknow/14_7s_mckinsey_model • Oxford Analytical, (2009, May, 27). Emerging Economies Must Maintain Social Programs. Forbes, Retrieved June 7, 2009, from http://www.forbes.com/2009/05/26/health-education-politics-business-oxford_print.html