Organizational App 2

8/7/2019 Organizational App 2

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Ms Ashita Chadha

Organizational Appraisal

Techniques


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Considerations for Organisational

Appraisaly Factors Affecting Org. Appraisal-The ability of the strategists, the size of

the organization, the internal environment

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

y 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


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METHODS AND TECHNIQUES USED FOR ORGANISATIONAL

APPRAISAL

A.Value chain analysis

B.Quantitative analysis

(i) Financial analysis

(ii) Non-financial quantitative analysisC. Qualitative analysis

D. Comparative Analysis

(i) Historical Analysis

(ii) Industry Analysis and BenchmarkingE. Comprehensive Analysis

(i) Key Factor Rating

(ii) Balance Score Card


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A. ValueC

hain Analysis

y 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, gothrough its processing in various stages, and continue right up to

the end products finally marketed to the ultimate consumer.


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Porter's Generic Value Chain Primary

activities

Inbound logistics Operations Outbound

logistics

Marketingand

sales

Service

Warehousing

Materialshandling

Manufacturing Warehousing

TransportationScheduling

Order

processing

Pricing

Distribution -channel -

management -

promotion

After-sale

service Training

Inventory control

Scheduling

Packaging

Assembly

Maintenance


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Support activities

Procurement Human resource

development

Technology

development

Infrastructure

Purchasing

physical

resources

Recruiting

Rewarding

Developing

Retrenchment

Equipping

Assimilation

Organizational

design

Staff functions


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Quantitative: financial analysis

y Economic value-added (EVA) analysis

y Activity-based cost (ABC) accounting


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Economic Value-added (EVA) Analysis

y EVA is the representation of the simple idea that an organisation needs toearn more from a business than the cost of the capital invested in it.

y 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.y 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.

y

The calculation of EVA offers a yardstick to an organisation toassess 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.


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Activity-based Cost (ABC) Accounting

y ABC identifies the major activities in the value chain

within a firm and keeps a tab on the costs within

each activity.


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Quantitative: Non-financial Analysis

y 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


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C. Qualitative analysis

y 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.


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Comparative Analysis

y Strengths and weaknesses of an organisation and its

distinctive competencies defined with respect to

the competitors of an organisation.

yThe relativity is based on the uniqueness and exclusivity ofthe strengths, weaknesses, and distinctive competencies of an

organisation in comparison to its competitors.


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Historical analysis

y 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 ownpast performance.


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Limitations

y 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.

y Measurement of past performance on a small base couldshow dramatic improvements that could turn out to be

illusory.

y Historical analysis is only meant to show up

improvements with regard to one's own performance


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Industry Standards

y 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.

y "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".


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Limitations

y 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.y 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.y Industry norms are difficult to obtain as firms closely

guard information which could be of use to their

competitors.


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Benchmarking

y 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.y 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.


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Performance benchmarking

y 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.


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Process benchmarking

y Is to compare the methods and practices for performing

processes


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Strategic benchmarking

y Is to compare the long-term, significant decisions and

actions undertaken by other organisations to achieve their

objectives.


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Against whom to compare oneself

y Internal benchmarking is a comparison between units or

departments of the same organisation.

y Competitive benchmarking is a direct comparison of one's own

performance against the best competitors.

y Functional benchmarking is a comparison of processes or

functions against non-competitive organisations within the same

sector or technological area.

yGeneric benchmarking is a comparison of one's own processesagainst the best practices anywhere in any type of organisation.


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Comprehensive Analysis

1. Balanced scorecard

2. Key factors rating


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Balanced scorecardy 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

y 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 activitiesoperational measures that are the drivers of futurefinancial performance".


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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?


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Key Factor Rating

y 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.


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y For financial capability factors

y For marketing capability factors

y For operations capability factors

y For personnel capability factorsy For information management capability factors

y For general management capability


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Structuring Organisational Appraisal

y Prepare a company capability profile(OCP) as a meansfor assessing a company's strengths and weakness indealing with the opportunities and threats in the

external environment .y Preparation of the strategic advantage profile (SAP)

where the results of organisational appraisal arepresented in a summarised form.


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y The organisational capability profile (OCP) is drawn in the

form of a chart. The strategists are required to

systematically assess the various functional areasand subjectively assign values to the different

functional capability factors and sub factors along

a scale ranging from the values of-5 to +5.

y Capability factors Weakness Normal Strength

-5 0 +5


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Strategic Advantage Profile (SAP) for a Bicycle Company

Organizational App 2

Documents

Transcript of Organizational App 2