Organizational Capability

Profile

Strategic advantage

Organizational capability

Competencies

Synergistic effects

Strength and weaknesses

Organizational behavior

Organization resources

ORGANIZATIONAL APPRAISAL

•Internal Environment - strength & weakness in different functional areasOrganization capability:

•Capacity & ability to use unique competencies to excel in a particular field.• Ability to use its ‘S’ & ‘W’ to exploit ‘O’ & face ‘T’ in its external environment.

Organization resources

•Physical & human cost, availability - strength / weakness

Organization behavior: •Identity & character of an organization leadership, Mgt. Philosophy, values, culture, Quality of work environment, Organization climate, organization politics etc.

Resource Behavior

Distinctive competence

Any advantage a company has over its competitor - it can do something which they cannot or can do better –

Opportunity for an organization to capitalize - low cost, Superior Quality, R&D skills etc.

METHODS & TECHNIQUES

Inclusive, long term:

Financial Analysis - Ratio Analysis, EVA, ABCKey factor rating - Rating of different factors through different questionsValue chain analysisVRIO framework

METHODS & TECHNIQUES

BCG, GE Matrix , PIMS, McKinsey7SBalanced ScorecardCompetitive Advantage ProfileStrategic Advantage profileInternal Factor Analysis Summary

SWOT ANALYSIS

• Identify & classify firm’s resources-S&W• Combine firm’s strength into specific capabilities –

Corporate capability- may be distinctive competence• Strategy that best exploits the firms resources• Identify resource gaps & Invest in upgrading

Organizational Capability Profile (OCP)

Financial Capability Profile

(a) Sources of funds(b) Usage of funds(c) Management of funds

Marketing Capability Profile

(a) Product related(b) Price related(c) Promotion related(d) Integrative & Systematic

Operations Capability Factor

(a) Production system(b) Operation & Control system(c) R&D system

Personnel Capability Factor

(a) Personnel system(b) Organization & employee characteristics(c) Industrial Relations

General Management Capability(a) General Management Systems(b) External Relations (c) Organization climate

EXAMPLES OF ORGANIZATIONAL CAPABILITY PROFILE

Financial Capability Bajaj - Cash Management LIC - Centralized payment, decentralized collection Reliance - high investor confidence Escorts - Amicable relation with FIS (world's top-ranked technology

provider to the banking industry) Marketing Capability Hindustan Lever - Distribution Channel IDBI/ICICI Bank - Wide variety of products Tata - Company / Product Image

Operations CapabilityLakshmi machine works - absorb imported technologyBalmer & Lawrie - R&D - New specialty chemicals

Personnel Capability Apollo tyres - Industrial relations problem

General management capabilityMalayalam Manaroma - largest selling newspaperUnchallenged leadership - Unified, stable Best edited & most professionally produced

VRIO FRAMEWORKResource- asset, competency, skill, knowledgee.g. patents, brand name,

• Value : Does it provide competitive advantage?• Rarity: Do other competitors possess it?• Imitability: Is it costly for others to reproduce?• Organization : Is the firm organized to exploit the resource?

A resource is an asset, skill, competency or knowledge controlled by the corporation.

A resource is a strength if it provides competitive advantage e.g. patents, brand name, economies of scale, idea-driven, standardized mass production

VRIO - STEPS

• Identify: firms resources- S&W.

• Combine: firms strength into specific capabilities.

• Appraise- profit potential, sustainable competitive advantage, ability to convert it to a profitable proposition

• Select strategy - firm’s resources& capability relative to external opportunity.

• Identify: resource gaps and invest in upgrading weaknesses

BALANCED SCORECARD- KAPLAN & NORTON

BALANCED SCORECARD- KAPLAN & NORTON

4 performance measures

• Customer perspective (View Point)• Internal business perspective• Innovation & learning perspective• Financial perspective

Purpose of Balanced Scorecard:

A method of implementing a business strategy by translating it into a set of performance.

Measures derived from strategic goals that allocate rewards to executives and managers based on their success at meeting or exceeding the performance measures.

BSC: Causal Relationships

Internal Process

Customer

Strategy

Financial

Learning

FINANCIAL ANALYSIS

• Ratio Analysis• Economic value added -NOPAT (Net Operating Profit After Tax)

-WACC (Weighted Average Cost Of Capital )

• Activity Based Costing – activity in Value chain _ specific activities

• COMPETITIVE ADVANTAGE PROFILE

• 50,00000 -India• 66.05-USA

1. What is the Competitive

Advantage?Competitive Advantage means

Something that places a company or a person above the competition

1. What is the Competitive Advantage?

Competitive Advantage

Cost advantage

DifferentiationAdvantage

Similar p

roduct

At lower c

ost

Higher price

For unique product

A Model of Competitive advantage

Resources

DistinctiveCompetencies

Capabilities

Cost advantageOr

Differentiation advantageValue

Creation

1. What is the Competitive Advantage?

COMPETITIVE ADVANTAGE PROFILE: A Case of Berger Paints

Marketing Factors

Market leader - 35% share in organized sector. Closest competitor - less than half of AP’s market share >20 yrs - leader Widest product range - product shades, pack sizes 40 diff. decorative paints - 150 shades, 8 different sizes in

packing, no. of brands-all segments Brands - quite powerful

90% accuracy in forecasting, 00 fastest moving Stock Keeping Units, monitored daily

Countrywide distribution - 13000 dealers - large network- regional offices, company

depots Physical distribution - far superior to competitors

strong in inventory control - (28 days) of sales (industry avg.51 days, service level - high, credit o/s – <25 days (comp 40 days)

Manufacturing/Operations factors

Size advantage in relation to competitors

Skill in production planning, scheduling, matching with marketing requirements

In – house production - no outsourcing – high reliability suppliers - superior quality assurance

Four production location - spread benefits Human Resources

High caliber HR

Professionals - MBAs more

Finance factors

Leader in profits & operating margins, ROI 40%, rest of industry 22%, Networth 204 cr, 58 cr - Nerolac, 41 cr – Berger

Cash rich

Corporate factors

Awards

High profile corporate image

Enviable track record in breaking away the position of MNCs in the Indian paint Industry

PORTFOLIO ANALYSIS

27% of fortune 500 companies use it in strategy formulation

Top management views its product lines and business units as a series of investment return

Product lines/Business units - a portfolio of investment – company constantly juggle - to get yield

BCG Matrix (Boston Consulting Group )

What is BCG

Its portfolio planning model developed by Bruce Henderson in 1970’s.

Based on observation combination of market growth and market share.

BCG matrix is to evaluate the strategic position of the business brand portfolio and its potential.

Star –

• Market leader, • Peak of product life cycle, • Enough cash to maintain high share (market),• More resources• Investment to support high growth• No immediate profits• Great potential – future• Medium risk category• If Growth rate slow - becomes cash cows

Strategic choices: Vertical integration, horizontal integration, market penetration, market development, product development

Question Marks

• (Problem children/wild cats) • New products with potential for success• More resources bit future uncertain• High risk category• Money taken from mature products & spent on ?• Slow growth - becomes dogs

Strategic choices: Market penetration, market development, product development, divestiture

Cash cows –

• More money needed for maintaining market share • Declining stage of life cycle Strategic choices: Product development, diversification, divestiture, retrenchment

Dogs –

• Weak market share,• low growth market cash trap of the company

Strategic choices: Retrenchment, liquidation,divestiture

BENEFITS OF THE MATRIX:

Easy to perform; Helps to understand the strategic positions of

business portfolio; It’s a good starting point for further more

thorough analysis.

MAIN LIMITATIONS :

Business can only be classified to four quadrants;

Does not include other external factors that may change the situation completely.

It denies that synergies between different units exist.

CELL MATRIX

General Electric Matrix (GE Cell Matrix)

• The GE Matrix overcomes a number of the disadvantages of the BCG Box.

• Firstly, market attractiveness replaces market growth as the dimension of industry attractiveness, and includes a broader range of factors other than just the market growth rate.

• Secondly, competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed.

• The diagram below illustrates some of the possible elements that determine market attractiveness and competitive strength by applying the GE Matrix to the UK retailing market:

UK retailing market:

PIMS The Profit Impact of Market Strategies (PIMS) is a comprehensive, long-term study of the performance of strategic business units (SBUs) in thousands of companies in all major industries.

The PIMS project began at General Electric in the mid-1960s. It was continued at Harvard University in the early 1970s, then was taken over by the Strategic Planning Institute (SPI) in 1975.

Since then, SPI researchers and consultants have continued working on the development and application of PIMS data.

• According to the SPI, the PIMS database is- • "a collection of statistically documented experiences drawn

from thousands of businesses, designed to help understand what kinds of strategies (e.g. quality, pricing, vertical integration, innovation, advertising) work best in what kinds of business environments.

• The data constitute a key resource for such critical management tasks as evaluating business performance, analyzing new business opportunities, evaluating and reality testing new strategies, and screening business portfolios.”

• The main function of PIMS is to highlight the relationship between a business's key strategic decisions and its results.

• Analyzed correctly, the data can help managers gain a better understanding of their business environment, identify critical factors in improving the position of their company, and develop strategies that will enable them to create a sustainable advantage.

• PIMS principles are taught in business schools, and the data are widely used in academic research. As a result, PIMS has influenced business strategy in companies around the world.

MCKINSEY’S 7S FRAMEWORK

Structure

Super ordinateGoals

Strategy

Skills

System

Style

Staff

• McKinsey 7s model was developed in 1980s by McKinsey consultants Tom Peters, Robert Waterman and Julien Philips with a help from Richard Pascale and Anthony G. Athos.

• Since the introduction, the model has been widely used by academics and practitioners and remains one of the most popular strategic planning tools.

• The goal of the model was to show how 7 elements of the company: Structure, Strategy, Skills, Staff, Style, Systems, and Shared values, can be aligned together to achieve effectiveness in a company.

• The key point of the model is that all the seven areas are interconnected and a change in one area requires change in the rest of a firm for it to function effectively.

The most common uses of the framework are:

• To facilitate organizational change.• To help implement new strategy.• To identify how each area may change in a future.• To facilitate the merger of organizations.

MCKINSEY’S 7S FRAMEWORK

Style

One of the seven handles, which top management can use to bring about organization Change with change of systems & procedures

- Style of functioning changes - Culture of organization changes

Staff :

Update knowledge & skills to keep quickness with change

Strategy

Includes purpose, mission, objectives, goal, action plans & policies,7S model emphasize - Development easy – execution

Systems

Procedures & methods framed by organization & followed by operational personnel in the respective functional area. Traditional systems Change in view of advanced technology & processes developed

Structure

Relationship between/among various positions and activities, Design of structure - critical task for top management.Need based structural changes - to cope with specific strategic tasks without abandoning basic structural divisions throughout the organizations.

Skills

Acquainted with state of the art technology & improvised methods & practices

MCKINSEY’S 7S FRAMEWORK - SKILLS

Procter & Gamble - Best known - Skills in product management

Hindustan Lever & Richardson Hindustan - Marketing skills

BHEL, TELCO, L&T - Engineering skills

DCL, Mecon & M.N. Dastur & Company - Project consulting skills

Super ordinate Goals

Fundamental ideas of business Main valuesBroad notions of future directions

In short MCKINSEY’S FRAMEWORK

“A set of values and aspirations that goes beyond the conventional formal statement of corporate objectives. All targets and attention of all activities and exercise of the other six levers of any organization should be directed towards accomplishment of the best possible goals” the ultimate & terminal point - where organization will have to reach ultimately.

Effective organizational changeMay be understood as a complex relationship between 7Ss.

TOWS Matrix or Analysis

A TOWS analysis involves the same basic process of listing

strengths, weaknesses, opportunities and threats as a SWOT

analysis, but with a TOWS analysis, threats and opportunities are

examined first and weaknesses and strengths are examined last.

After creating a list of threats, opportunistic, weaknesses and

strengths, managers examine ways the company can take

advantage of opportunities and minimize threats by exploiting

strengths and overcoming weaknesses.

TOWS Matrix

Internal

External

(S)List 5-10

Internal strengths

(W)List 5-10

Internal Weakness

(O)List 5-10External

Opportunities

(T)List 5-10

External Threats

SO StrategiesUse ‘S’ to take

advantage of ‘O’

WO StrategiesTake advantage of ‘O’ by overcoming ‘W’

ST StrategiesUse ‘S’ to avoid

‘T’

WT StrategiesMinimize ‘W’ and

avoid ‘T’

- Generate Alternative Strategies

Environmental Threat

and Opportunity

profile

(ETOP)

• Environment analysis results in a mass of information related to forces in the environment.

• They deal with events, trends, issues, and expectations.

• Structuring of environmental issues is necessary to make them meaning full for strategy formulation

• ETOP(Environmental Threat and Opportunity Profile) is a technique to structure environmental issues.

ETOP involves:

• Dividing the environment into different sectors.• Each sectors can be subdivided into sub sectors.• Analyzing the impact of each sector and subsector on the organization.• Describe the impact in the form of a statement

• .

Advantage of ETOP• It provides a clear of which sector and sub

sectors have favorable impact on the organization. It helps interpret the result of environment analysis.

• The organization can assess its competitive position.

• Appropriate strategies can be formulated to take advantage of opportunities and counter the threat.

• SWOT analysis (Strategic weakness, opportunities and threats.)