INTERNAL ANALYSIS

1. INTERNAL ANALYSIS

2. Strengths & Weaknesses • Corporate Strength • It refers to competitive advantages and other distinct competencies which a company can exert in the market place • Corporate Weakness • It refers to constraints or obstacles which check the movement in certain desired directions and may also inhibit organization in gaining a distinctive competitive advantage.

3. The criteria for determining Strengths & Weaknesses • The Historical Criterion • We compare the characteristics under examination with past performance • The Normative Criterion • Here the basis of judgment is “what ought to be” the level of performance to classify a particular element into a strength or a weakness.

4. The Competition Parity Criterion • This criterion uses the action of successful direct competitors or potential competitors.

5. Measuring Strengths & Weaknesses • Strengths and weaknesses exist in varying degrees • Some may view an organization as very strong which others may consider it not that strong • The same may apply to its weaknesses also. • So we need to measure strengths and weaknesses

6. There are three measures : • Attribute Measures • Effective Measures • Efficiency Measures

7. 1. Attribute Measures • This is developed to identify or list a characteristic or quality which an organization possess or its expected to possess in the near future. • Some examples of attribute measurements are “our key strengths is the high morale of our workers” or “our biggest weakness is the lack of centralization of control system”

8. 2.Effective Measures • In this approach, a characteristic is represented by a statement that identifies a capability of an organization that will help in the accomplishment of a particular task or objective. • For example, a statement of weakness could be “ the location of our plant entails more travel time to reach the market place, hence it dissuades our sales people to achieve their targets for field visits”.

9. 3. The Efficiency Measures • As the word “efficiency” suggests, it measures the productivity of an organization in converting inputs into desired outputs. Thus, ten percent rejection rates is a big loss to our production, is a statement of weakness hindering at poor quality control arrangements.

10. Internal Analytical Tools • The internal analysis can be done with the help of the following tools: • The Check List • BCG Matrix • GE 9 Cell Matrix • 7 ‘S’ Framework • Value Chain Analysis • Experience Curve Effect • Balanced Score Card

11. 1. The Check List • MARKETING • Firm’s products or service : breadth of product line • Ability to gather needed information from market • Market share • Product/Service Mix and expansion potential • Channel of distribution • Effectiveness of sales organization • Concentration of sales in fewer customers • Product/Service image or reputation • Effectiveness of sales promotion and advertising • Pricing strategy • Introduction of new products in the market • After sales services

12. 1. The Check List • FINANCE AND ACCOUNTING • Factors related to sources of funds • Capital structure • Procurement of capital • Financing pattern • Working capital availability • Capital and credit availability • Reserves and surplus • Relationship with lenders, bankers and financial institutions

13. 1. The Check List • FINANCE AND ACCOUNTING 2. Factors relating to usage of funds • Capital investment • Fixed asset acquisition • Current assets • Loans and advances • Dividend distribution • Relationship with shareholders

14. 1. The Check List • FINANCE AND ACCOUNTING 3. Factors related to management of funds • Financial accounting and budgeting system • Management control system • State of financial health, cash, inflation, credit • Risk management • Cost reduction and control • Tax planning

15. 1. The Check List • TYPICAL STRENGTHS THAT SUPPORT FINANCIAL CAPABILITY OF A FIRM • Access to financial resources • Amicable relationship with financial institutions • High level of creditworthiness • Efficient capital budgeting system • Low cost of capital as compared to the competitors • High level of shareholders confidence • Effective management control system • Tax benefits due to various government policies

16. 1. Check List : Operations Capability • Factors Related to Production System • Capacity, location and layout • Product or service design • Work systems • Degree of automation • Extent of vertical integration

17. 1. Check List : Operations Capability • Factors Related to Operations and Control System • Aggregate production planning • Materials supply • Inventory cost and control • Quality control system • Maintenance system and procedures

18. 1. Check List : Operations Capability 3. Factors Related to R & D System • R &D Personnel facilities • Product development • Patent rights • Level of technology used • Technical collaboration and support

19. 1. Check List : HR • Factors Related to Personnel System • Manpower planning • Recruitment and selection system • Compensation • Communication and appraisal • Position of the HR department within the organization • HR procedures and standards

20. 1. Check List : HR 2. Factors Related to Organizational and Employee Characteristics • Corporate images • Quality of managers • Perception about and image of the organization as an employer • Availability of developmental opportunities for employees • Working conditions inside the organization

21. 1. Check List : HR 3. Factors Related to Industrial Relations • Union management relationship • Collective bargaining • Safety and welfare measures • Employee satisfaction and morale

22. 1.Check List: General Management Capability • Factors Related to General Management System • Strategic management system • Process related to mission, purpose and objective setting • Strategy formulation and implementation machinery • Strategy evaluation system • Management information system • Corporate planning system • Rewards and incentive system

23. 1.Check List: General Management Capability 2. Factors Related to General Managers • Orientation • Risk propensity • Values , norms and personal goals • Competency and capacity to work • Track record • Balance of functional experience

24. 1.Check List: General Management Capability 3. Factors Related to External Relationship • Influence and rapport with the government, regulatory agencies and financial institutions • Public relations • Sense of social responsibility • Public image as a corporate citizen

25. 1.Check List: General Management Capability 4. Factors Related to Organizational Climate • Organizational culture • Use of power and political process • Introduction, acceptance and management of change • Nature of organizational structure and controls

26. Corporate Portfolio Analysis The Boston Consulting Group (BCG) Matrix The BCG business portfolio analysis analyzes a firm’s business units (SBUs) as though they were a collection of separate investments The technique locates SBUs on a market growth-relative market share matrix. Then the SBUs are classified as either “question marks,” “stars,”“cash cows,” or “dogs.”

27. Purpose of Portfolio Analysis • Aid in developing corporate strategy • View that a business is a series of investments with an expected profitable return • Vertical Axis: Industry attractiveness • Horizontal Axis: Unit’s capability or competitive position • Tools: • 4 cell BCG Growth-Share Matrix • Nine Cell GE Business Screen

28. Portfolio Analysis • Based on the assumption that the best way to assess a firm’s current situation is to look at what the company does best & where the opportunities are greatest. • Recommends that each product, SBU, or division be considered separately for purposes of strategy formulation.

29. BCG Growth-share Matrix • Steps: • Determine relative competitive position • Market share divided by that of the largest other competitor • Business growth rate: % by which sales of the particular line of products have increased • Plot product line/business unit position

30. Portfolio Analysis

32. Matrix dynamics • Stars • Considered as market leaders • Peak of product life cycle • Question Marks • New products with lots of potential but need cash investment • Cash Cows • High return but there is possibility of decline • Dogs • Low market share and potential

33. Disadvantage • Too simplistic • Growth is only one aspect of industry attractiveness • Misses all competitors • Market share one aspect of competitive position

35. The GE Matrix is a way of mapping a number of different factors to help in the understanding of markets. It is particularly useful for concurrently examining multiple markets or a portfolio of products. • It is also known by other names such as the GE Multi-factor Portfolio Matrix or the Directional Policy Matrix. It was developed for GE in the 1970s by McKinsey as an improvement on the Boston Matrix and is now one of the classic market analysis matrices taught at business schools around the world. • A typical matrix is shown below:

37. Clearly, the best position is to have high business strength, a very attractive market and a significant market share. • Yet business is not always like this and the chart can help with various decisions, such as shoring up strengths in attractive markets or getting out of unattractive small markets where only a limited share is held.

38. Business strength • Factors determining business strengths: • Soundness of financial structure, able to invest in markets and weather downturns. • Quality products that are both desirable and affordable within the market in question. • Flexibility in being able to adapt to market conditions. • Innovative ability in creating products and adapting marketing to compete well the target market. • The ability to grow quickly, for example with spare capacity at hand. • Fit with government concerns, such as lower energy usage.

39. Industry/market attractiveness • Factors determining industry or market attractiveness are: • Growth rate of market. • Potential for profit, both short-term and long-term. • Limited serious competition within market. • Good infrastructure and other factors.

40. Based on industry attractiveness and business strength, we can analyze the strategies that can be adopted by the company based on its internal strengths as well as weaknesses.