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STRATEGIC MANAGEMENT
Module II Strategic Analysis
Ramesh Bagla
ENVIRONMENTAL ANALYSIS
Environmental Analysis is the process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends.
Characteristics of Environment
Environment is complex Environment is dynamic Environment is multi faceted Environment has far reaching imapct
PESTEL Framework
Political Factors Economic Factors Sociocultural Factors Technological Factors Environmental Factors Legal Factors
Macro Environment
Political Factors Government stability Political Philosophy & Dogmas Foreign Trade Regulations Social Welfare Policies Policy/Regulations for FDI Special Incentives Internal Security Terrorism Threat
Macro Environment
Economic Factors World Economic Scenario GDP Trends Income Distribution/Disposable income Monetary Policy - Interest & Inflation Rates Currency Exchange Rates Regulation & Competition Fiscal Policy Wage/Price Controls Capital Markets Unemployment Levels
Macro Environment
Socio-cultural Factors Demographics Life Style Changes Career Expectations Consumer Activism Attitudes to Work & Leisure Level of Education Life expectancy Public Health Framework Environmental Awareness Role of NGOs
Macro Environment
Technological Factors Govt. Spending on R & D Industry Focus on R & D Level of Automation New Discoveries and Developments Speed of Technology Transfer Rate of Obsolescence Patent Protection Status of Technical Education
Macro Environment
Environmental Factors
Weather & Climate Changes Societal Awareness and Concern for Environment Environmental Protection Laws Waste Disposal Energy Consumption
Macro Environment
Legal Factors
Judicial System Law Enforcement Agencies Industry Related Laws
Laws Govering Companies and Factories Labour Laws Taxation Laws Consumer Laws Competition Laws
SWOT Analysis
A SWOT analysis generates information that is helpful in matching an organization or groups goals, programs, and capacities to the environment in which it operates. It is an instrument within strategic planning. When combined with dialogue it is a participatory process
Weaknesses
Factors that are within an organizations control that detract from its ability to attain the core goal. Areas which the organization should improve.
Threats
External factors, beyond an organizations control, which could place the organization mission or operation at risk. The organization may benefit by having contingency plans to address them if they should occur. Should be classiified by their seriousness and probability of occurrence.
Caution!
SWOT analysis can be very subjective. Do not rely on it too much. Two people rarely come-up with the same final version of SWOT. Use it as guide and not a prescription.
Advantage of ETOP
It provides clarity about the factor(s) having favourable and unfavourable impact on the organization which helps interpret the result of environmental analysis. The organization can assess its competitive position. Appropriate strategies can be formulated to take advantage of opportunities and counter the threat.
SAP
Strategic Advantage Profile (By Glueck) Meant for organizational appraisal Done along with OCP (Organizational Capability Profile) OCP can be summarized in the form of SAP SAP is compared vis--vis ETOP for making strategic choice
SAP is the process by which firms resources and capabilities of key functional areas are examined to determine its strengths and weaknesses. The key functional areas may be:
1. Organization Itself - Culture - Form and Structure - Top Management Skills & Interests - Planning System
SAP
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SAP
2. Personnel (HR)or Human Capital -Attitude -Skills -Competencies -Loyalties -Perceptions 3. Finance - Financial Strength - Potential Financial Strength - Revenue Potentials
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4. Marketing - Size of the Sales Force - Product Quality - Image- Product Line - Customer Services 5. Technical - Production Facilities - Production Techniques - Product Development abilities/skills -R&D
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By analyzing the above a firm is in a position to decide its "Competitive Advantages Distinctive Competencies (DC or Uniqueness)over competitors in the market. Internal analysis consists of examining Qualitative and Quantitative resources in terms of Tangible Resources and Intangible Resources.
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Defining Resources
Resources
Types
Tangible; balance sheet resources
Source
Acquired resources
Intangible; notional
Inherent
Appraising Resources
Resource Financial resources Physical Resources Characteristics Borrowing capacity. Internal funds/ generation Plant & equipment: Size, location, technology, flexibility. Land & buildings. Raw materials Training,experience, adaptability,commitment and loyalty of employees Indicators Debt/equity Credit rating Net cash flow Market value of fixed assets. Scale of plants. Alternatives for fixed assets Employee qualifications, pay rates,turnover.
Human Resources
Appraising Resources
Resource Technological resources Characteristics Patents, copyrights, know how, R&D facilities. Technical and scientific employees Brands. Stability of customer base. Reputation with suppliers. Indicators No. of patents owned. Royalty income. R&D expenditure. R&D staff Brand equity. Product price premium recognition
Reputation
Capabilities
Capabilities refer to a cos ability to exploit its resources They consist of business processes that manage the interaction among resources to turn inputs into outputs A capability is functionally based and sits in a particular function When capabilities are constantly being changed and reconfigured to make them more adaptive to a changing environment, they are called dynamic capabilities
R&D