internal analysis final
TRANSCRIPT
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Internal Analysis
Navneet Kotwal
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VALUE OF SYSTEMATIC
INTERNAL ASSESSMENT
An internal analysis that leads to a
realistic company profile involves:
Trade-offs.
Value judgments
Informed and educated guesses.
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Value Chain Analysis
In this method of analysis, strengths andweaknesses are assessed by dividing a businessinto a number of linked activities, each of whichmay produce value for the customer. In valuechain analysis, managers divide the activities oftheir firms into sets of separate activities thatadd value.
Value chain analysis divides a firm's activitiesinto two major categories, i.e. primary andsupport activities
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Conducting a Value Chain Analysis
Company's operations are divided into specific
activities or business processes.
attempt to attach costs to each discrete activity
(Activity-based costing). Once the company's value chain has been
documented and costs determined, managers
need to identify the activities that are crucial tocustomer satisfaction and market success.
Meaningful comparison to use for evaluating the
role of an activity as a strength or weaknesses.
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Strengths of Value Chain Analysis
Firstly, it clearly highlights the importance of
customer value.
Secondly, it provides a sense of direction tomanagers by offering a generic checklist of whatto analyze when assessing a firm.
Lastly, it indicates that everything anorganization does can be managed to improve
the firm's overall ability to create value.
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STRATEGYAND INTERNAL ANALYSIS
The internal analysis process considers the firm'sresources, the business the firm is in, its
objectives, policies and plans, and how well theywere achieved. The important questions that are
answered by the process of internal analysis are:
Is this strategy consistent with the variousresources of the enterprise?
Are the available resources appropriate for any
changes in strategy or new strategies?
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The Analysis Process
The first part of the analysis process is gathering thedata, information and facts.
Once relevant information has been selected, analyzedand conclusions have been reached, it is necessary toconsider alternative solutions and actions.
The decisions finally arrived at must be made in the context of overall organizational strategy.
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Analytical Decision-Making Process:
Steps for Strategy Managers
Within the organization's strategic context, specify. thedecisions to be made.
Select gather and Analyze the most relevant data about
the organization, its environment, operations andpeople. Based on these data, formulate conclusions about the
organization, its environment, operations, people andother resources.
Determine and appraise feasible alternatives, weighingrisks and opportunities.
Select the most appropriate alternative. Implement the selected alternative and monitor results
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ANALYZING DEPARTMENTS AND FUNCTIONS
Production/OperationsTechnical
The basic objective of the production function is to ensure thatthe outputs produced have a value that exceeds the combinedcosts of the inputs and the transformational process. Theproduction strategies of small business units would be different
from those of large business units.Strategies for small business units
Small business units go for low initial investment in their plant,equipment, an long-term advertising, etc because they compete
in niche markets on price. The units that adopt the niche-differentiation strategy select anapproach the yields quality. These units also make low investments in semi-variable andvariable .
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Production/Operations /Technical
Strategies for large business units
The major advantage of large business units is thereduction in cost per unit of output due to economies ofscale. As a firm gains experience in producing a product,production/manufacturing costs can be systematicallyreduced. Moreover, three variables are generally presentin these units. They are:
1. Capital-labor substitution: Substituting capital for labor
and vice-versa.2. Economies of scale: Reductions in cost per unit of
output as volume of output increases.3. Learning: Understanding the role of specialization and its
advantages.
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Space Matrix
Financial Strength ROI
LEVERAGE
WorkingCapital
Cash Flow
Ease exit from the market Risk
Environmental Stability Technological stability
Rate of Inflation
Demand variability
Barriers to entry into the market
Competitive pressure Price elasticity to demand
Competitive Advantage
Market Share
Product Quality
PLC
Customer loyalty
Capacity Utilization
Technological know how
Suppliers and distributors
IndustryStrengthGrowth Potential
Profit potential
Financial stability
Technological know how
Resource utilization
Capital intensity
Ease of Entry
Productivity
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FS
CA IS
ES
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ConservativeStay close to CA and take no risk
Market penetration
Market development
Product development
Concentric diversification
DefensiveRetrenchment
Divesture
Liquidation
Concentric diversification
CompetitiveBackward forward integration
JV
Aggressive
Take advantageMarket penetration
Market development
Product development
Concentric diversification
Conglomerate
Horizontal
Integration,
combinations