Organizational Appraisal Techniques

Ms Ashita Chadha
 Considerations for Organisational
Appraisal
 Factors Affecting Org. Appraisal-The ability of the strategists, the

size of the organization, the internal environment

 Approaches to Org. Appraisal- Could be highly Systematic or Ad

hoc.
 Sources of Information- May be Verbal from employees and

customers or Written from company files and documents,

financial statements, MIS etc. Could be from Internal sources or
external sources
 METHODS AND TECHNIQUES USED FOR
ORGANISATIONAL APPRAISAL

A. Value chain analysis

B. Quantitative analysis
(i) Financial analysis
(ii) Non-financial quantitative analysis
C. Qualitative analysis
D. Comparative Analysis
(i) Historical Analysis
(ii) Industry Analysis and Benchmarking
E. Comprehensive Analysis
(i) Key Factor Rating
(ii) Balance Score Card
 A. Value Chain Analysis
A value chain is a set of interlinked value-creating
activities performed by an organization. These
activities may begin with the procurement of basic raw
materials, go through its processing in various stages, and
continue right up to the end products finally marketed to
the ultimate consumer.
 Porter's Generic Value Chain Primary activities
Inbound logistics Operations Outbound Marketing and Service
logistics sales

Warehousing Manufacturing Warehousing Pricing After-sale

Materials Transportation Distribution - service Training
handling Scheduling channel -
management -
promotion
Inventory Packaging Order
control Assembly processing
Scheduling Maintenance
 Support activities
Procurement Human resource Technology Infrastructure
development development

Purchasing •Recruiting Equipping •Organizational

physical •Rewarding Assimilation design
resources •Developing •Staff functions
•Retrenchment
Quantitative: financial analysis
Economic value-added (EVA) analysis
Activity-based cost (ABC) accounting
Economic Value-added (EVA)
Analysis
 EVA is the representation of the simple idea that an organisation
needs to earn more from a business than the cost of the capital
invested in it.
 EVA is defined as the system of corporate management that
defines profitability in terms of the returns on capital above the
cost of servicing the capital employed.
 EVA is the wealth an organization creates for its owners and is
expressed as the difference of the after-tax operating profits and
the total cost of capital.
 The calculation of EVA offers a yardstick to an organisation to
assess whether it has the required capability to take a strategic
action and whether the potential returns from such an action
are likely to be greater than the cost of capital required to take
it.
Activity-based Cost (ABC)
Accounting
ABC identifies the major activities in the value chain
within a firm and keeps a tab on the costs within
each activity.
Quantitative: Non-financial Analysis
Employee turnover, absenteeism, market

ranking, rate of advertising recall, total cycle

time of production, inventory units used per
period, service call rate, number of patents
registered per period
 C. Qualitative analysis
Qualitative analysis can be used best to express

mood of corporate culture, the ability to absorb and

assimilate knowledge, level of morale among
employees, etc.
 Comparative Analysis
 Strengths and weaknesses of an organisation and
its distinctive competencies defined with respect to
the competitors of an organisation.
The relativity is based on the uniqueness and
exclusivity of the strengths, weaknesses, and
distinctive competencies of an organisation in
comparison to its competitors.
 Historical analysis
Start with the historical analysis of one's own
organisation over a period of time. Historical
analysis is a good measure of how well or badly an
organisation has progressed with respect to its own
past performance.
 Limitations
 The focus should not only be on areas of bad performance
as it only shows where an organisation is lacking. The
analysts should go deeper to uncover the reasons for bad
performance so that corrective measures could be taken.
 Measurement of past performance on a small base could
show dramatic improvements that could turn out to be
illusory.
 Historical analysis is only meant to show up
improvements with regard to one's own performance
 Industry Standards
It is assumed that businesses in an industry operate
under a similar relevant environment and a comparison
could throw up significant information on the basis of
which to assess where one stands with respect to
others.
"Strategic groups are conceptually defined clusters
of competitors that share similar strategies and
therefore compete more directly with one another
than with other firms in the same industry".
 Limitations
 Comparisons based on industry norms aim at averages
and so could lead to erroneous conclusions regarding
one's capability. What is important is to learn how to
exceed the industry norms rather than simply conform to
them.
 Industry norms are aggregated figures of several
different types of firms in an industry. A firm should be
more interested in comparing itself with only those firms
that are of a similar nature.
 Industry norms are difficult to obtain as firms closely
guard information which could be of use to their
competitors.
 Benchmarking
A benchmark is a reference point for the purpose of
measuring. The process of benchmarking is aimed
at finding the best practices within and outside the
industry to which an organisation belongs.
The purpose of benchmarking is to find the best
performers in an area so that one could match one's
own performance with them and even surpass
them.
Performance benchmarking
Is to compare one's own performance with that of
some other organisation for the purpose of determining
how good one's own organisation is.
Process benchmarking
Is to compare the methods and practices for
performing processes
Strategic benchmarking
Is to compare the long-term, significant decisions and
actions undertaken by other organisations to achieve
their objectives.
 Against whom to compare oneself
 Internal benchmarking is a comparison between units or
departments of the same organisation.
 Competitive benchmarking is a direct comparison of one's
own performance against the best competitors.
 Functional benchmarking is a comparison of processes or
functions against non-competitive organisations within the
same sector or technological area.
 Generic benchmarking is a comparison of one's own
processes against the best practices anywhere in any type of
organisation.
Comprehensive Analysis

1. Balanced scorecard
2. Key factors rating
Balanced scorecard
 Among the newer techniques used to measure the performance of an
organisation is that of the balanced scorecard. Proposed by Robert S
Kaplan and David P Norton, a balanced scorecard
 attempts to do away with the bias in performance measures
towards financial indices and tries to build a holistic system of
measurement. Balanced scorecard is considered as "a set of
measures that gives top managers a fast comprehensive view of
the business . . . (It) includes financial measures that tell the results of
actions already taken. And it complements the financial measures on
customer satisfaction, internal processes, and the organization's
innovation and improvement activities—operational measures that are
the drivers of future financial performance".
 The balanced scorecard identifies four key
performance measures as follows:

1. Customer perspective: "How do customers see us?"

2. Internal business perspective: "What must we excel at?"
3. Innovation and learning perspective: "Can we continue
to improve and create value?"
4. Financial perspective: "How do we look at
shareholders?
 Key Factor Rating
 Rating depending on a number of key factors, each of
which is analysed on the basis of a series of
thoughtful and penetrating questions with regard to
the different functional areas.
For financial capability factors
For marketing capability factors
For operations capability factors
For personnel capability factors
For information management capability factors
For general management capability
 Structuring Organisational Appraisal

Prepare a company capability profile(OCP) as a

means for assessing a company's strengths and
weakness in dealing with the opportunities and
threats in the external environment .
Preparation of the strategic advantage profile (SAP)
where the results of organisational appraisal are
presented in a summarised form.
The organisational capability profile (OCP) is drawn
in the form of a chart. The strategists are required to
systematically assess the various functional areas
and subjectively assign values to the different
functional capability factors and sub factors along
a scale ranging from the values of-5 to +5.
 Capability factors Weakness Normal Strength
-5 0 +5
Strategic Advantage Profile (SAP) for a Bicycle Company