internal environmental analysis hcad 5390. assessing organizational ability to make strategy analyze...
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Internal Environmental Analysis
HCAD 5390
Assessing Organizational Ability to Make Strategy
Analyze historical and current financial performance
Review strategic assets – resources and competencies
Breakdown and evaluate the internal value chain
Historical Financial Performance
Sales, market share, and profits Free cash flow External capital sources Capital project hurdle rate Other capital demands Shareholder value
Increasing Shareholder Value
Achieve existing profits with less capital Increase profits with no additional capital Decrease the cost of equity capital Invest more capital in strategic projects that earn
above average rates of return
Current Financial Performance
Balance sheet Operating or income statement Cash flow statement Statement of changes in owners’ equity (for-
profit) or net assets (not-for-profit)
Ratio Analysis of Financial Statements - Liquidity
Current ratio Average collection period Days cash-on-hand, short-term sources Average payment period
Ratio Analysis of Financial Statements - Profitability
Operating margin Total margin Return on net assets
Ratio Analysis of Financial Statements – Operating Efficiency
Total asset turnover Fixed asset turnover Inventory turnover
Ratio Analysis of Financial Statements – Capital Structure
Net assets (or equity) to total assets Long-term debt to net assets (or equity) Debt service coverage
Non-Financial Operating Indicators for a Hospital Organization
Average length of stay Occupancy rate Outpatient revenue as % of total revenue FTE employees per occupied bed
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External and Internal Analyses
General
General
Env
iron
men
t
Env
iron
men
t
GeneralGeneral
EnvironmentEnvironment
Gen
eral
Gen
eral
Environm
ent
Environm
ent
SocioculturalSociocultural
Global
Global
TechnologicalTechnological
Polit
ical
/Leg
al
Polit
ical
/Leg
al
Dem
ogra
phic
Dem
ogra
phic Econom
ic
Economic
IndustryIndustryEnvironmentEnvironment
CompetitorCompetitorEnvironmentEnvironment
By studying the external By studying the external environment, firms identify environment, firms identify what they what they might choose to domight choose to do
Opportunities and threatsOpportunities and threats
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By studying the internal By studying the internal environment, firms identify environment, firms identify what they what they can docan do
Unique resources, Unique resources, capabilities, and core capabilities, and core competenciescompetencies
(sustainable competitive (sustainable competitive advantage)advantage)
External and Internal Analyses
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Value Creation
V
PC C
P-C
V-P
V=Value to ConsumerP=PriceC=Costs of Production
V-P=Consumer SurplusP-C=Profit Margin
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Components ofInternal Analysis
Discovering CoreDiscovering CoreCompetenciesCompetencies
ResourcesResources• TangibleTangible• IntangibleIntangible
CapabilitiesCapabilities
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
Value CreationValue Creation
Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages
• ValuableValuable• RareRare• Costly to ImitateCostly to Imitate• NonsubstitutableNonsubstitutable
ValueValueChainChain
AnalysisAnalysis
• OutsourceOutsource
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Challenge of Internal Analysis
How do we effectively manage current core How do we effectively manage current core competencies while simultaneously developing competencies while simultaneously developing new ones?new ones?
How do we assemble bundles of resources, How do we assemble bundles of resources, capabilities and core competencies to create value capabilities and core competencies to create value for customers?for customers?
How do we learn to change rapidly?How do we learn to change rapidly?
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Discovering CoreDiscovering CoreCompetenciesCompetencies
ResourcesResources• TangibleTangible• IntangibleIntangible
Resources are what an Resources are what an organization has to work organization has to work with--its assets--including its with--its assets--including its people and the value of its people and the value of its brand namebrand name
Resources represent inputs into Resources represent inputs into an organization’s production an organization’s production process... such as capital process... such as capital equipment, skills of employees, equipment, skills of employees, brand names, finances and brand names, finances and talented managerstalented managers
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Discovering CoreDiscovering CoreCompetenciesCompetencies
ResourcesResources• TangibleTangible• IntangibleIntangible
Tangible ResourcesTangible Resources• FinancialFinancial• OrganizationalOrganizational• PhysicalPhysical• TechnologicalTechnological
Intangible ResourcesIntangible Resources• HumanHuman• InnovationInnovation• ReputationReputation
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Discovering CoreDiscovering CoreCompetenciesCompetencies
CapabilitiesCapabilities
Capabilities become important when they are combined Capabilities become important when they are combined in unique combinations which create core competencies in unique combinations which create core competencies which have strategic value and can lead to competitive which have strategic value and can lead to competitive advantageadvantage
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Discovering CoreDiscovering CoreCompetenciesCompetencies
CapabilitiesCapabilities
Capabilities are what an organization does, and represent Capabilities are what an organization does, and represent the organization’s capacity to deploy resources that have the organization’s capacity to deploy resources that have been purposely integrated to achieve a desired end statebeen purposely integrated to achieve a desired end state
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Discovering CoreDiscovering CoreCompetenciesCompetencies
CoreCoreCompetenciesCompetencies
Core competencies are resources and capabilities that serve Core competencies are resources and capabilities that serve as a source of competitive advantage over rivalsas a source of competitive advantage over rivals
Core competencies distinguish a company competitively Core competencies distinguish a company competitively and make it distinctiveand make it distinctive
McKinsey and Co. recommends using three to four McKinsey and Co. recommends using three to four competencies when framing strategic actionscompetencies when framing strategic actions
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Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages
• ValuableValuable• RareRare• Costly to ImitateCostly to Imitate• NonsubstitutableNonsubstitutable
Discovering CoreDiscovering CoreCompetenciesCompetencies
Valuable:Valuable: Capabilities that help an organization neutralize Capabilities that help an organization neutralize threats or exploit opportunitiesthreats or exploit opportunities
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Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages
• ValuableValuable• RareRare• Costly to ImitateCostly to Imitate• NonsubstitutableNonsubstitutable
Discovering CoreDiscovering CoreCompetenciesCompetencies
RareRare: Capabilities that are not possessed by many others: Capabilities that are not possessed by many others
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Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages
• ValuableValuable• RareRare• Costly to ImitateCostly to Imitate• NonsubstitutableNonsubstitutable
Discovering CoreDiscovering CoreCompetenciesCompetencies
Costly to imitate:Costly to imitate: capabilities that other organizations cannot capabilities that other organizations cannot develop easily, usually due todevelop easily, usually due to
• Unique historical conditions• Causal ambiguity• Social complexity
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Four CriteriaFour Criteriaof Sustainableof SustainableAdvantagesAdvantages
• ValuableValuable• RareRare• Costly to ImitateCostly to Imitate• NonsubstitutableNonsubstitutable
Discovering CoreDiscovering CoreCompetenciesCompetencies
Nonsubstitutable: capabilities that do not have strategic Nonsubstitutable: capabilities that do not have strategic equivalentsequivalents
• Invisible to competitors• Firm specific knowledge• Trust-based working relationships between managers
and nonmanagerial personnel
Categories of Strategic Resources
Tangible (visible, touchable, measurable) Financial Organizational Physical Technological
Intangible (unseen, amorphous) Human Creative Perceptual
Competencies Leading to Sustainable Competitive Advantage
Valuable to the organization Unique among competitors Difficult or impossible to imitate No substitute competencies
Strategic Uses of Resources and Competencies
Discovery (did not know we had them) Creation (make or acquire new ones) Combination (use them together) Preservation (maintain them) Concentration (use them for the right purpose)
Porter’s Generic Internal Value ChainPorter’s Generic Internal Value Chain
Inbound
Inbound
Logistics
Logistics
Operations
Operations
Outbound
Outbound
Logistics
Logistics
Marketing
Marketing
& S
ales
& S
ales
Service
Service
ProcurementProcurement
Human Resource ManagementHuman Resource Management
Technology DevelopmentTechnology Development
ProcurementProcurement
SSUUPPPPOORRTT
SSUUPPPPOORRTT
AACCTTIIVVIITTIIEESS
AACCTTIIVVIITTIIEESS
Primary ActivitiesPrimary ActivitiesPrimary ActivitiesPrimary Activities
ProfitProfit
Margin
Margin
Internal Value Chain for a Hospital
Referral and Follow-Up
Discharge Planning, Rehab/
LTC Referral
Tests, Diagnosis, Treatment, and
Referral
ER, Admitting, and Patient Intake
Marketing and Promotion
Facilities, Security, Maintenance, Housekeeping
Clinical, Financial, and Managemant Information Systems (EMR, CPOE)
Human Resource Management, Medical Staff Relations, Nurse Recruiting
Legal, Compliance, Patient Advocacy, Patient Satisfaction
Medical Research, Medical Student Training
Governance, Stakeholder and Public Relations
Financial Management, Payer Contracting, Billing
Risk Management, Case Management, Quality Assurance
SUPPLIERS(Physicians,
MCOs)
CUSTOMERS(Patients, payers,
employers)
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After-ServiceAfter-Service
Point-of-ServicePoint-of-Service
Pre-ServicePre-ServiceFirm
Inf
rast
ruct
ure
Firm
Inf
rast
ruct
ure
Hum
an R
esou
rce
Mgm
t.H
uman
Res
ourc
e M
gmt.
Tec
hnol
ogic
al D
evel
opm
ent
Tec
hnol
ogic
al D
evel
opm
ent
Pro
cure
men
tP
rocu
rem
ent
Margin Margin
Service ActivitiesService Activities
Sup
port
Act
ivit
ies
Sup
port
Act
ivit
ies
HospitalHospitalValue ChainValue Chain
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Internal Value Chain for a Pharmaceutical Company
Service (dealer support, customer
service)
Outbound Logistics (distribution)
Production (drug discovery, animal/
human testing, manufacturing)
Inbound Logistics (gene sequencing, target identification)
Marketing and Sales (physician
detailing, DTC ads)
Facilities, Security, Maintenance, Housekeeping
Financial and Managemant Information Systems
Human Resource Management
Legal, Compliance, Quality Control
Governance, Stakeholder and Public Relations
Financial Management, Billing
SUPPLIERS(raw materials,
drug patent licenses)
CUSTOMERS(distributors, large
purchasers)
How Resources and Competencies Become Competitive advantage
Resources and Competencies↓
are the basis of↓
Individual Activities↓
that can be managed to↓
Reduce Costs or Provide Additional Value↓
in order to gain↓
Competitive Advantage