outlines of internal analysis - module 2

8/8/2019 Outlines of Internal Analysis - Module 2

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Internal Analysis

Compiled by Dr. P . G . K . Murthy

sources :

1.Crafting and Executing Strategy by Thompson , Strickland , Gamble and Jain2.Exploring Corporate Strategy : Text and Cases by Gerry Johnson , Kevan

Scholes ,Whittington

3.Strategic Management by Ireland , Hoskisson , Hitt

Liberalisation and Globalisation

Indian Industry exposed to sudden spurt in competition due to

- reduction in Custom Tariffs

- removal of restrictions on imports

-new ventures by MNCs

- expansion and diversification by existing players

Necessity is the mother of invention To survive and grow in competition , Indian

Industry realised to focus on

Quality and Standardisation

Reduce costs

Become customer friendly

International business practices

Sources of Competitive Advantage

A low cost advantage may stem from such disparate sources as a low cost

physical distribution system , a highly efficient assembly process , or superior salesforce distribution .

Differentiation can stem from similarly diverse factors including the

procurement of high quality raw materials , a responsible order entry system , or

superior design system .

Single – Industry FirmDiversified Firm

McKinsey Co’s Business System Concept

A firm has a series of functions e.g R & D , manufacturing , marketing ,

channels and and each is performing relative to others .Value

Value is measured by total revenue a reflection of the price a firm’s product

commands and the units it can sell .

Value activities classified into Primary and Supportive .Primary Activities

Inbound Logistics : Activities associated with receiving , storing , and

disseminating inputs to the product such as material handling , warehousing , inventory

control , vehicle scheduling , and returns to suppliers .



Linkages exist not only within a firm’s value chain but between a firm’s chain

and the value chains of suppliers and channels .

The linkages between suppliers’ value chain and a firm’s value chain provide

opportunities for the firm to enhance its competitive advantage .

Channel linkages are similar to supplier linkages .

Competitive Scope and Value Chains Competitive scope can have a powerful effect on competitive advantage ,

because it shapes the configuration and economies of the value chain .

Segment scope : The product varieties produced and buyers served Vertical scope : The extent to which activities are performed in-house instead of by independent firms .

Geographic scope : The range of regions , countries or groups of countries in

which a firm competes with a coordinated strategy . Industry scope : The range of related industries in which the firm competes with

a coordinated strategy .Coalition and Scope

A firm can pursue the a broader scope internally or enter into coalitions withindependent firms to achieve some or all of the same benefits .Coalitions are long term

agreements among firms that go beyond normal transactions but fall short of mergers .

Examples : technology licenses , supply agreements , marketing agreements , and

joint ventures .

The Value Chain and Organisational Structure

The value chain provides a systematic way to divide a firm into its discrete

activities and thus can be read to examine how the activities in a firm are and could be

grouped .What is meant by Core Competence ?

Core Competence may be defined as inherent superior strength of an

organisation in a product or service line arising out of Technology , Governance

Process ( ability to work across business and functional unit boundaries ) and

Collective Learning :

Core competency

Core competences are activities that critically underpin an organisation’s

competitive advantage . They create and sustain ability to meet the critical success

factors of particular customer groups better than other providers in ways that are

difficult to imitate .Criteria for Core Competency

1. The competence must relate to an activity or process that fundamentally

underpins the value in the product or service features .

2.The competence leads to levels of performance from an activity or process

that are significantly better than competitors .

3.The competence must be robust .



Core Competencies for Consumer Goods

1. Brand 2. Innovation

Success : 1.Good Service 2.Reliable delivery:

1.Solving buyers’ problems – 1. Good personal relaions with buyers :

Accepting returned goods :3.Fast turnaround of orders .

Using sub contractors for transport

24 hour dispatch

What is meant by Competitive Strategy ?

A Strategy that gives advantage to compete successfully with competitors

could be under stood as Competitive Strategy .

Various functional areas in a Company

Corporate Planning

Purchases

Stores and Inventory Control

Production

Finance

Accounting and MIS

Marketing

Advertisement and Sales Promotion

Personnel and Administration

HR and Training

Various kinds of industries

Commodity Process Industries

Agro Commodities

Mineral and Metal Based industries

Chemical

Capital Goods Sector

Hi -Tech Industries Service Industries

Hospitality , Finance , Marketing , Consultancy , Education etc.

Inter-Related Aspects which make Core Competence

Production Technologies

Human Processes

Systems



Customer Synergies

Cost Efficiency

Cost efficiency is a measure of the level of resources needed to create a given

level of value . Sources are :

1. Economies of scale

2.Supply costs

3.Product or process design

4.Experience

Effectiveness

Effectiveness is the ability to meet customer requirements on product

features at a given cost . It will be achieved only if managers are able to do the

following :

Clear about which product feaures are valued by customers .

Drivers of uniquness within the organisaion Price that customers ready to pay for uniqueness

Product’s featurs are communicated .

Competitive advantage is more of product service rather than product per

se .

Critical Success Factors and Core Competencies that change over time

Market Access :1. Global network . 2. Overseas plants .

Quality / Reliability : 1. Production processes 2. Supplier management

Product features (at low volume ) : 1. Life style niche marketing .

2. ‘ Agile ‘ Production Historical Comparison

Historical comparison looks at the performance of an organisation in

relation to previous years in order to identify any significant changes .

Industry norms compare the performance of organisations in the same

industry or sector against a set of agreed performance indicators

Benchmarking Health Care

In January 2001 , Sunday Times -Hospital Guide (in association with Dr.

Foster ) published the first guide to hospitals in Britain :

Mortality Index :

Doctors per 100 beds Nurses per 10 beds

Waiting time for in-patient treatment

Waiting time for out-patient treatment

Patients trust in doctors

Sources of Robustness

A. Rarity : 1.Unique Resources .2. Preferred access . 3. Situation dependent :

4. Sunk costs .



B. Complexity : 1.Internal linkage :2. External linkages .3. Linked

technologies .

C. Causal ambiguity : Competitors are unclear about bases of success .

Culture : Culturally embedded comptences : Dificult to identify .

Knowledge creation and integration

Knowledge creation and integration

Socialisation : Honda set up ‘ brain storming campus ‘ .to solve problems in

developing projects .

Externalisation : In Canon’s case the origin of using a disposable drum came

from Hiroshi Tanaka – a team leader of task force .

Combination : EPOS –Electronic Point of Sale – produced a unique

classification of stores and shoppers and were capable of pinpointing who shopped

where and how

Internalisation : GE documented all customer enquiries and complaints

( more than 14, 000 per day ) and then programmed into 1.5 million potential

problems and their solutions . Spiral of knowledge creation :

Reliance Industries Ltd

Started trading in PFY

Manufacturing PFY

Refineriery

Oil exploration

A Back ward integration - Core Competence in Petrleun Technology andProcesses .

Using Core Competence as competitive strategy companies opted for

Expansions - Horizontal

Expansion - vertical - backward or forward .integration .

Merger and Amalgamation with a company engaged in same or similar

line -

Getting controlling stake in a company having similar product line and

technological strengths

Philips / Sony / BPL/Videocon

Radios

Tape Recorders

Televisions and VCRs

Washing machines

Pencil Bastteries

Mobile phones

Core competence Electronics and Targetting family segment businessBajaj / Hero/TVS

Scooters



Motor bikes

Mopeds

General Motors , Ford , Toyoto, Suzuki

Cars

Vans

TrucksAshok Leyland , TELCO, Mahindra & Mahindra

Trucks

Vans

Medium and Heavy Motor Vehicles .

Bayers , Du pont ,

Industrial Chemicals

Indian MNCs abroad

Swaraj Paul Capro group in steel industry group in UK

Mittals in different countries Difference old Pharma and nnew Pharma Groups of India .

Old Groups

Sarabhai

alembic

New Groups

Ranbaxy

Cipla

Sun Pharma

Dr Reddy Labs

Oberoi Hotel Industry

Indian Express /Times of India

Media Print

Media ) Electronic

CDSBusiness India Group

Print Medias - Business India

Electronic Media - Aaz Thak

MARG which merged with PRG became ORG MARG

Nirma Ltd

Washung Powder

Detergent Cake

Toilet Soaps

Caustic Soda

Plans to get in to Tea etc., using distribution network .



Shri Kumaram Birla of A V Birla group emphasing

Concentrate on Commodities like

Cement

Fertlisers

Textiles

Keeping that Grasim took shares of L & T

Want to get out of BATATA

Why companies diversify in to industries where they lack core competence

1. To spread risk over different industrial segments . rather than

concentrate on only one industry .

2. When a company has huge reserves and surpluses , promoters’ decide

to expand their industrial empire and they diversify in to new areas for the

following reasons :

a) Current industrial segment has reached saturation and has huge

capacities .

b) Find new sun rising industries where the growthpotentials are excellent .

When promoters are very big industrial houses . The industrial houses diversify in to new

areas

Promoters place themselves more as entrepreneurs leaving all managerial

functions to top class Professionals in the world . The best examples in the world

are

1. GE

2. 3 M

3. Lever

When promoters are very big industrial houses . The industrial houses diversify in to new

areas

In India , it is Government of India where industries spread over highly

capital intensive Oil and Petroleum to TVs ,

Many State Governments role of Promoter very effectively .

Tata Group

Birlas

Hindustan Lever

Industrialists also realised core competency does not ensure success always :Examples

are

Binny group which was wedded to only textiles .

Kirloskars by concentrating in Engineering and Electrical industries

To conclude Like any other strategy , Core Competence as Competitive Strategy

also to be used with caution : Care competence as strategy could fail in areas :

1. If over all demand is shrinking due slackness in demand like in case of jute and



cotton and handloom

2. If the overall performance in given industrial segment is below industrial

average for various reasons

outlines of internal analysis - module 2

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