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STRATEGIC MANAGEMENT
Module II Strategic Analysis
Ramesh Bagla

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ENVIRONMENTAL ANALYSIS

Environmental Analysis is the process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends.

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Characteristics of Environment
Environment is complex Environment is dynamic Environment is multi faceted Environment has far reaching imapct

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Layers of Business Environment


Macro/Societal Environment Industry/Sector /Task Environment Market - Competition Environment Organisation/Internal Environment

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PESTEL Framework
Political Factors Economic Factors Sociocultural Factors Technological Factors Environmental Factors Legal Factors

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Macro Environment
Political Factors Government stability Political Philosophy & Dogmas Foreign Trade Regulations Social Welfare Policies Policy/Regulations for FDI Special Incentives Internal Security Terrorism Threat

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Macro Environment
Economic Factors World Economic Scenario GDP Trends Income Distribution/Disposable income Monetary Policy - Interest & Inflation Rates Currency Exchange Rates Regulation & Competition Fiscal Policy Wage/Price Controls Capital Markets Unemployment Levels

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Macro Environment
Socio-cultural Factors Demographics Life Style Changes Career Expectations Consumer Activism Attitudes to Work & Leisure Level of Education Life expectancy Public Health Framework Environmental Awareness Role of NGOs

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Macro Environment
Technological Factors Govt. Spending on R & D Industry Focus on R & D Level of Automation New Discoveries and Developments Speed of Technology Transfer Rate of Obsolescence Patent Protection Status of Technical Education

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Macro Environment
Environmental Factors
Weather & Climate Changes Societal Awareness and Concern for Environment Environmental Protection Laws Waste Disposal Energy Consumption

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Macro Environment
Legal Factors
Judicial System Law Enforcement Agencies Industry Related Laws
Laws Govering Companies and Factories Labour Laws Taxation Laws Consumer Laws Competition Laws

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SWOT Analysis
A SWOT analysis generates information that is helpful in matching an organization or groups goals, programs, and capacities to the environment in which it operates. It is an instrument within strategic planning. When combined with dialogue it is a participatory process

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SWOT: Internal Factors


Strengths
Positive tangible and intangible attributes, internal to an organization. They are within the organizations control.

Weaknesses
Factors that are within an organizations control that detract from its ability to attain the core goal. Areas which the organization should improve.

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SWOT: External Factors


Opportunities
External attractive factors that represent the reason for an organization to exist and develop. What opportunities exist in the environment, which will propel the organization? Should be identified by their time frames

Threats
External factors, beyond an organizations control, which could place the organization mission or operation at risk. The organization may benefit by having contingency plans to address them if they should occur. Should be classiified by their seriousness and probability of occurrence.

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Simple Rules for SWOT Analysis


Be realistic about the strengths and weaknesses of your organization or group. Distinguish between where your organization is today, and where it could be in the future Be specific: Avoid gray areas. Always analyze in relation to your core mission. Keep your SWOT short and simple. Avoid complexity and over analysis Empower SWOT with a logical conceptual framework.

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Caution!
SWOT analysis can be very subjective. Do not rely on it too much. Two people rarely come-up with the same final version of SWOT. Use it as guide and not a prescription.

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Environmental Threats & opportunities Profile(ETOP)


It involves identification of critical environmental factors that affect business Then impact of each of these factors is listed Organization has to see whether it has required strengths to succeed By knowing the impact and S/W analysis, strategies can be formulated

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Advantage of ETOP
It provides clarity about the factor(s) having favourable and unfavourable impact on the organization which helps interpret the result of environmental analysis. The organization can assess its competitive position. Appropriate strategies can be formulated to take advantage of opportunities and counter the threat.

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SAP
Strategic Advantage Profile (By Glueck) Meant for organizational appraisal Done along with OCP (Organizational Capability Profile) OCP can be summarized in the form of SAP SAP is compared vis--vis ETOP for making strategic choice

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SAP is the process by which firms resources and capabilities of key functional areas are examined to determine its strengths and weaknesses. The key functional areas may be:
1. Organization Itself - Culture - Form and Structure - Top Management Skills & Interests - Planning System

SAP

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SAP
2. Personnel (HR)or Human Capital -Attitude -Skills -Competencies -Loyalties -Perceptions 3. Finance - Financial Strength - Potential Financial Strength - Revenue Potentials
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4. Marketing - Size of the Sales Force - Product Quality - Image- Product Line - Customer Services 5. Technical - Production Facilities - Production Techniques - Product Development abilities/skills -R&D
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By analyzing the above a firm is in a position to decide its "Competitive Advantages Distinctive Competencies (DC or Uniqueness)over competitors in the market. Internal analysis consists of examining Qualitative and Quantitative resources in terms of Tangible Resources and Intangible Resources.
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Primary Value Chain Activities


Inbound Logistics: the receiving and warehousing of raw materials, and their distribution to manufacturing as they are required. (e.g. handling of raw materials, storing and inventory control) Operations: the processes of transforming inputs into finished products and services. (e.g. production, assembly and packaging) Outbound Logistics: the warehousing and distribution of finished goods. (e.g. warehousing of finished goods, processing of orders and delivery)

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Primary Value Chain Activities


Marketing and Sales: the identification of customer needs and the generation of sales. (e.g. advertising, promotion and distribution Service: the support of customers after the products and services are sold to them( e.g. after sales service, complaint resolution, replacements)

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Supports of the Primary Activities


The infrastructure of the firm: organizational structure, control systems, company culture activities which are not specific to any activity area such as general management, planning, finance and accounting Human resource management: employee recruiting, hiring, training, development, and compensation. Technology development: activities to improve the product and the process Procurement: purchasing inputs such as raw materials, consumables, equipment and labour

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Uses of Value Chain Analysis


VCA can be used to examine the various activities of the firm and how they interact in order to provide a source of competitive advantage by: - performing these activities better or - at a lower cost than the competitors

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Uses of Value Chain Analysis


The sources of the competitive advantage of a firm can be seen from its discrete activities and how they interact with one another. The value chain is a tool for systematically examining the activities of a firm and how they interact with one another and affect each others cost and performance.
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Applying the value chain to an Industry


The value chains of the different firms within an industry vary from one another In fact, the differences in the value chains among the different industry players provide the source of competitive advantages between these players.

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Applying the value chain to an Industry


Since the application of the value chain analysis to an industry will likely blur or hide these sources of competitive advantage, Dr. Porter therefore suggests that: The business unit is the correct level to construct a value chain The application to an entire sector or industry is not recommended.

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Resource Based View (RBV)


When the external environment is subject to rapid change, internal resources & capability offer a more secure basis for strategy formulation. Resources & Capabilities are the primary sources of profitability.

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Resource Based View


The Resource-Based View (RBV) is a business management tool used to determine the strategic resources available to a company. The fundamental principle of the RBV is that the basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm's disposal
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Resource Based View (RBV)


Asset is to Accounting as Resource is to Management Types of Assets or Resources
Physical: Plant & machinery, location, access to raw materials Human: Training, experience, judgment, decisionmaking skills, intelligence, relationships, knowledge Organizational: Culture, formal reporting structures, control systems, coordinating systems, informal relationships

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Defining Resources
Resources

Types
Tangible; balance sheet resources

Source
Acquired resources

Intangible; notional

Inherent

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Appraising Resources
Resource Financial resources Physical Resources Characteristics Borrowing capacity. Internal funds/ generation Plant & equipment: Size, location, technology, flexibility. Land & buildings. Raw materials Training,experience, adaptability,commitment and loyalty of employees Indicators Debt/equity Credit rating Net cash flow Market value of fixed assets. Scale of plants. Alternatives for fixed assets Employee qualifications, pay rates,turnover.

Human Resources

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Appraising Resources
Resource Technological resources Characteristics Patents, copyrights, know how, R&D facilities. Technical and scientific employees Brands. Stability of customer base. Reputation with suppliers. Indicators No. of patents owned. Royalty income. R&D expenditure. R&D staff Brand equity. Product price premium recognition

Reputation

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Capabilities
Capabilities refer to a cos ability to exploit its resources They consist of business processes that manage the interaction among resources to turn inputs into outputs A capability is functionally based and sits in a particular function When capabilities are constantly being changed and reconfigured to make them more adaptive to a changing environment, they are called dynamic capabilities

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Organizational Capabilities: Functional Approach


Function Corporate Management MIS Capability Financial control Strategic control Motivating and coordinating business units Speed and responsiveness thro rapid information transfer. Research capability. Development of innovative new products Research capability Development of innovative new products

R&D

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Organizational Capabilities: Functional Approach


Function Manufacturing Design Marketing Sales & Distribution Capability Efficient volume manufacturing. Continous improvement, Flexibility Design capability Brand management Promoting reputation, Responsiveness to market trends, Sales Promotion, Efficiency and speed of distribution, Customer service

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