internal environmental analysis

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Internal Environmental Analysis

Prepared for : Prof Dr Ajay ChauhanPrepared by : 1. Logeswari d/o Uthama Puthran 808844

2. Mohd Faiz bin Zalwi @ Alwi 808856

BPMN 6023 STRATEGIC MANAGEMENT

Contents

Internal scanning: Organization analysis

Resource-based View

Business Model

Scanning Functional Resources

Value-Chain Analysis

Scanning Functional Resources and Capabilities

The Strategic Audit: A Checklist for Organization analysis

Synthesis of Internal Factors

Introduction

What is an Internal Analysis?Internal Analysis

Identifies and evaluates resources, capabilities, and core competencies

Looks at the organization’soCurrent visionoMissionoStrategic objectivesoStrategies

Why Do an Internal Analysis? It is the only way to identify an organization’s

strengths and weaknesses

It’s needed for making good strategic decisions

INTERNAL SCANNING: ORGANIZATION ANALYSIS

•Critical strength and weaknesses to determine if firm able to take advantage of opportunities and avoid threats

Internal strategic factors

•Concerned with identifying and developing an organization’s resources and competencies

Organizational analysis

RESOURCE-BASED VIEW

Resources

• Asset (tangible and intangible), competency, process, skill or knowledge controlled by the corporation

Capabilities

• A corporation ability to exploit its resources

RESOURCE-BASED VIEW

Competency

Core competency

Distinctive

competen

cy

Barney, VRIO framework

RESOURCE-BASED VIEW

Value•Does it provide competitive

advantage?

Rareness•Do other competitors posses

it?

Imitability•Is it costly for other to

imitate?

Organization •Is the firm organized to

exploit the resource?

Using resources to gain competitive advantage

RESOURCE-BASED VIEW

Identify and classify resources in terms of strengths and weaknesses

Combine the firm’s strengths into specific capabilities and core competencies

Appraise profit potential- Are there any distinctive competencies?

Select the strategy that best exploits the firm’s capabilities and competencies relative to external opportunities

Identify resource gaps and invest in upgrading weaknesses

Determine the sustainability of an advantage

RESOURCE-BASED VIEW

Durability

• The rate at which a firm’s underlying resources, capabilities, or core competencies depreciate or become obsolete

• Eg: Air Asia - Low cost airline in Asia

Imitability

• The rate at which a firm’s underlying resources, capabilities, or core competencies can be duplicated by others

RESOURCE-BASED VIEW

Imitability Determined By

Transparency The speed at which

other firms under the relationship of resources and

capabilities support a successful strategy

Eg: Gillette’s Sensor razor design

TransferabilityThe ability of

competitors to gather the resources and

capabilities necessary to support a

competitive challenge

Eg: French Winery’s key resources

ReplicabilityThe ability of

competitors to use duplicated resources and capabilities to imitate the other

firm’s success

Eg: Procter & Gamble’s

coordination mechanism

RESOURCE-BASED VIEWExplicit knowledge- knowledge that can be easily

articulated and communicated

Tacit knowledge- knowledge that is not easily communicated because it is deeply rooted in employee experience or in the company’s culture

BUSINESS MODEL

Business model

Company method for making money in current business

It includes key structural and operational characteristics of a firm – how it earns revenue and makes profit

AIR ASIA (LOW COST CARRIERS BUSINESS MODEL)

VALUE-CHAIN ANALYSIS

Value chain- a linked set of value creating activities that begin with basic raw materials coming from suppliers, moving on to a series of value-added activities involved in producing and marking a product or service, and ending with distributors getting the final goods into the hands of the ultimate consumer

Raw materia-

ls

Primary manufa-cturing

Fabricat-ion

Product procedu-

resRetailer


Corporate Value Chain Analysis

Examine each product line’s value chain in terms of the various activities involved in producing the

product or service

Examine the linkages within each product line’s value chain

Examine the potential synergies among the value chains of different product lines or business units

SCANNING FUNCTIONAL RESOURCES

Basic Organizational Structures

SIMPLE

Small or entrepreneur-dominated company

One or two product line operates

FUNCTIONAL

Medium-sized firm

Product line in one industry

DIVISIONAL

Large corporation

Many product line in several industry

STRATEGIC BUSINESS

UNITS (USBS)

Division or group of division composed of independent product market segmant

Eg: KFC

CONGLOMER-ATE

Large corporation / holding company Product line in several unrelated industry

Eg:

SCANNING FUNCTIONAL RESOURCESBasic Organizational Structures

SCANNING FUNCTIONAL RESOURCES

Corporate Culture: Attributes

Cultural intensity

The degree of which members of a unit accept the norms, values and other cultural content associated with the unit.• Shows the depth of

the culture• Eg: Air Asia

Cultural integration

The extent of which units throughout the organization share a common culture.• Shows the breadth of

the culture• Eg: Arm force

SCANNING FUNCTIONAL RESOURCES AND CAPABILITIES

MANAGEMENT

STRATEGIC MARKETING ISSUES

STRATEGIC FINANCIAL ISSUES

STRATEGIC RESEARCH AND DEVELOPMENT (R & D) ISSUES

STRATEGIC OPERATION ISSUES

STRATEGIC HUMAN RESOURCES ISSUES

MANAGEMENT Management is a process of coordinating activities,

which comprises of five functions:


MANAGEMENT

1

4

3

3

2ORGANIZING

PLANNING

MOTIVATING

STAFFING CONTROLLING


STRATEGIC MARKETING ISSUE

1. Market Position and Segmentation - “Who are our Customer?” – in terms of market, product, and geographic locations.

2. Marketing Mix – refers to the particular combination of key variables (product, place, promotion and price); to affect demand & to gain competitive advantage

3. Product Life Cycle -is a graph showing time plotted against the monetary sales of a product as it moves from introduction through growth and maturity and to decline.

4. Brand and Corporate Reputation – A Brand is a name given to a company’s product which identifies that item in the mind of the consumer.


STRATEGIC MARKETING ISSUE1. Market Position and Segmentation - “Who are our Customer?” –

in terms of market, product, and geographic locations. To discover what niches to seek, which new types of products to develop,


STRATEGIC MARKETING ISSUE2. Marketing Mix – refers to the particular combination

of key variables ( 4P’s :Product, Place, Promotion and Price); under a corporation’s control that can be used to affect demand & to gain competitive advantage.


STRATEGIC MARKETING ISSUE1. Product Life Cycle -is a graph showing time plotted against the

monetary sales of a product as it moves from introduction through growth and maturity and to decline.


STRATEGIC MARKETING ISSUE

1. Brand and Corporate Reputation – A Brand is a name given to a company’s product which

identifies that item in the mind of the consumer. - Over time and with proper advertising, a brand connotes various characteristics in the consumer’ mind. - For example, Disney stands for family entertainment, BMW means high-performance autos

- A Corporate Reputation is a widely held perception of a company by the general public. It consists of two attributes:

1) Stakeholders’ perception of a corporation’s ability to produce quality goods and;

2) A Corporation’s prominence in the minds of stakeholders. A good corporate reputation can be a strategic resources.

STRATEGIC FINANCIAL ISSUES To Identify a Company’s Strengths and Weaknesses from the

financial perspective.

1. Financial LeverageThe concept of financial leverage (the ratio of total debt to total assets) is helpful in describing how debt is used to increase the earnings available to common shareholders.

2. Capital BudgetingCapital Budgeting is the analyzing and ranking of possible investments in fixed assets such as land, buildings, and equipment in terms of the additional outlays and additional receipts that will result from each investment. *Hurdle point


STRATEGIC FINANCIAL ISSUES To Identify a Company’s Strengths and Weaknesses from the

financial perspective. Question concerning the financial position of the company, it’s

stability and competitiveness could only be answered after a thorough and detailed financial analysis.

Adequate capital is the basic foundation to run any business. It is essential to control cash flow within the organization to ensure conformity with its intended use

Budgeting plays important role to ensure that all allocation of cash is appropriately distributed.

Determining of financial strengths and weakness is important for effective strategy formulation activities and to compliment other departments within the company such as the operation, management and marketing division.



STRATEGIC FINANCIAL ISSUES1. Financial Ratios

The five main ratios is used in evaluating the company’s financial positions;

1. Liquidity Ratios2. Leverage Ratios3. Activity Ratios4. Profitability Ratios5. Growths Ratios


STRATEGIC FINANCIAL ISSUES1. Financial RatiosLiquidity ratios measure a firm’s ability to

meet its current financial obligations.

Liquidity Ratios include:

Net working capital

Current Ratio

Quick Ratio


STRATEGIC FINANCIAL ISSUES Net Working Capital While not technically a ratio, Net Working Capital (NWC) is a key element for

internal control. The higher this number the better. NWC is found by subtracting current liabilities from current assets. This is a sign of growing assets while keeping their liabilities stable.


STRATEGIC FINANCIAL ISSUES Current Ratio The Current Ratio is a direct evaluation of a

company’s liquidity. The higher this value, the more liquid a

firm’s resources are. Current Ratio is found by dividing current

assets by current liabilities. This could be improved by lowering the

reliance on debt financing.



Quick Ratio The Quick Ratio is comparable to the Current

Ratio except that it takes inventory levels into consideration.

This is found by subtracting inventories from current assets and then dividing by current assets.



Activity Ratio Analysis Activity Ratios are used to measure the

speed with which accounts are converted into cash.

Activity Ratios include: Inventory Turnover Average Collection Period Total Asset Turnover


STRATEGIC FINANCIAL ISSUES Inventory Turnover Inventory Turnover is measurement of a firm’s

inventory liquidity.

This is found by cost of goods sold(COGS) by inventory.

Generally a lower number is better.


STRATEGIC FINANCIAL ISSUES Total Asset Turnover Total Asset Turnover illustrates the firm’s ability and

proficiency in using its assets to generated sales.

It is found by dividing sales by total assets, and is measured in times per year

When using cross-sectional analysis, a company must take special care in comparing Total Asset Turnover because new assets tend to have lower turnover.


STRATEGIC FINANCIAL ISSUES Debt Ratio Analysis A company’s debt position is a measure of how much of the

firm’s profits are generated using money borrowed from other companies or individuals.

Debt Ratios include: Financial Leverage Multiplier Debt Ratio Interest Coverage Ratio


STRATEGIC FINANCIAL ISSUES Financial Leverage Multiplier The Financial Leverage Multiplier (FLM) is used to

convert the company’s Return On Assets to its Return on Equity. This reflects the impact of leverage, or use of debt, on owners’ return.

It is the ratio of total assets to stockholders’ equity.


STRATEGIC FINANCIAL ISSUES Profitability Ratio Analysis

Profitability Ratios evaluate a company’s earnings with respect to sales, assets, owner’s investments and share values.

Profitability Ratios include Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Total Assets Return on Equity


STRATEGIC FINANCIAL ISSUES Gross Profit Margin

The Gross Profit Margin(GPR) is the percentage of each sales dollar that remains after the firm has paid for the goods sold.

It is found by subtracting COGS from sales and dividing by sales.


STRATEGIC FINANCIAL ISSUES Net Profit Margin Net Profit Margin(NPR), one of the most

popular indicators of company health, measures the percentage of sales revenue remaining after ALL expenses are paid.

NPR is found by dividing net profits by sales


STRATEGIC FINANCIAL ISSUES Return on Total Assets

Return of Total Assets(ROA), also known as return on investment, measures a firm’s effectiveness at generating profits with its assets.

ROA is found by dividing the net profits after taxes by total assets.


STRATEGIC FINANCIAL ISSUES Return on Equity The Return on Equity(ROE) is extremely important to

potential investors.

ROE is found by dividing net profit by owner’s equity.

STRATEGIC RESEARCH AND DEVELOPMENT (R & D) ISSUES

1. R & D Intensity, Technological Competence, and Technology Transfer -The Company must make available the resources necessary for effective research and development. A Company’s R & D intensity is a principal means of gaining market share in global competition. The amount spent on R & D often varies by industry.

2. R & D Mix - Basic R & D is conducted by scientists in well-equipped laboratories where the focus is on the theoretical

problem areas. Product R & D- concentrates on marketing and is concerned with product or product packaging improvements

3. Engineering R & D - concerned with engineering, concentrating on quality control, and the development of design specifications and improved production equipment


STRATEGIC RESEARCH AND DEVELOPMENT (R & D) ISSUESImpact of Technological of Discontinuity on Strategy


In the corporate planning process, it is generally assumed that incremental progress in technology will occur. But pass developments in a given technology cannot be extrapolated into the future because every technology has its limits. The key to competitiveness is to determine when to shift resources to a technology that has more potential.


1. Experience Curve - unit production costs decline by some fixed percentage each time the total accumulated volume of production units doubles

2. Flexible Manufacturing for Mass Customization – The use of Computer-Assisted Design and Computer-Assisted Manufacturing (CAD/CAM) and robot technology means that learning time is shorter and products can be manufactured in small, customized batches in a process call mass customization – the low cost production of individually customized goods and services.




BUSINESS PROCESS AND OPERATIONAirAsia has fostered a dependency on Internet technology for its operational and strategic management, and provides an online ticket booking services to traveler online. The following shows the home page of AirAsia.com as the company key channel of marketing and sales.



BUSINESS PROCESS AND OPERATION

STRATEGIC HUMAN RESOURCE (HRM) ISSUES

1. Increasing Use of Teams2. Union Relations and temporary/Part-Time

Workers3. Quality of Work Life and Human Diversity4. Impact on Performance5. Supply Chain Management


STRATEGIC HUMAN RESOURCE (HRM) ISSUES1. Increasing Use of Teams


Teams

Autonomous (self-managed)- a group of people working together without a supervisor to plan, coordinate and evaluate their work

Cross-functional work teams- various disciplines are involved in a project from the beginning

Concurrent engineering- specialists work side-by-side and compare notes constantly to design cost-effective products with features customers want

STRATEGIC HUMAN RESOURCE (HRM) ISSUES1. Increasing Use of Teams


Virtual Teams - groups of geographically or organizationally dispersed coworkers that are assembled using a combination of telecommunications and information technologies to accomplish organizational tasks.


2. Union Relations and temporary/Part-Time Workers - If the corporation is unionized, a good human resource manager should be able to work closely with the union. To save jobs, Unions are increasingly willing to support new strategic initiatives and employee involvement. To increase flexibility, avoid layoffs, and reduce labor costs, corporations are using more temporary (also known as contingent) workers.

3. Quality of Work Life and Human Diversity -Human Resource departments have found that to reduce employee dissatisfaction and unionization efforts (or, conversely, to improve employee satisfaction and existing union relations), they must consider the quality of work life in the design of jobs. To Improve the corporation’s quality of work life by(1) Introducing participative problem solving(2) Restructuring Work, (3) Introducing innovative reward systems, and (4) improving the work environmentHuman Diversity refers to the mix in the workplace of people from different races, cultures, and backgrounds.



4. Impact on Performance – A current trend in corporate information systems/ technology is the increasing use of the internet for marketing, intranets for internal communication, and extranets for logistics and distribution.

INTRANET – is an information network within an organization that also has access to the external worldwide Internet.

EXTRANET – is an information network within an organization that is available to key suppliers and customers.

5. Supply Chain Management - is the forming of networks for sourcing raw materials, manufacturing products or creating services, storing and distributing the goods, and delivering them to customers and consumers.




Evaluate people and partners in AirAsia The AirAsia Team have highly competitive and attractive

compensation packages.

In order to provide customer excellent service, AirAsia arrange a series of training course to their in-house flight attendant. The training courses include awareness on safety standards, aviation terminology, in flight service procedures, product knowledge and so on.

AirAsia chose many kinds of field partners as their complementors. Their partnership can divide into two main kinds: direct partners and indirect partners.

Direct partners have strong relationship with the airline, for example, hotels, travel agencies and so on. And indirect partner included Facebook, Twitter Koolred and Youtube.

AirAsia is company which rely on Internet a lot so with those communities, AirAsia can build strong connection with their customers

THE STRATEGIC AUDIT : A CHECKLIST FOR ORGANIZATIONAL ANALYSIS

STRENGTHS AND WEAKNESSES (SWOT)

–When all the factors related with internal analysis ascertained (management, marketing, financial and operation/production), the organisation is then able to see its position more clearly. In addition, the company’s strengths and weakness can also be identified.

www.themegallery.com Company Logo

AirAsia SWOT Analysis

Strengths• Low cost operations• Fewer management level, effective, focused and aggressive management• Simple proven business model that consistently delivers that lowest fares• Penetrate and stimulate to potential markets• Multi-skilled staffs means efficient and incentive workforce• Single type fleet minimize maintenance fee and easy for pilot dispatchWeaknesses• Service resource is limited by lower costs• Limited human resources could not handle irregular situation• Government interference and regulation on airport deals and passenger compensation• Non-central location of secondary airports• Brand is vital for market position and developing it is always a challenge• Heavy reliance on outsourcing• New entrants to provide the price-sensitive services

THE STRATEGIC AUDIT : A CHECKLIST FOR ORGANIZATIONAL ANALYSIS

SYNTHESIS OF INTERNAL FACTORS

INTERNAL FACTOR ANALYSIS SUMMARY (IFAS)

LOGO

Click to edit company slogan .

INTERNAL STRATEGIC FACTORS

Strength WeaknessLow cost carrier Service resource is limited by

lower costs

First mover advantage (first low cost airline in Asia)

Limited human resources

More seats per aircraft Regulation on airport

Single type fleet minimizemaintenance fee

Complaints from customers (flight delays)

Reduced staff numbers

Brand name

RESOURCES, CAPABILITIES, COMPETENCIES

Resources Constructive and supportive managementHighly skilled employeesCapabilities to reduce cost

Capabilities Quick turnaround timeLow-cost short haulHigh rate aircraft utilization

Competencies The strategic decision in using one type of aircraftThe synergy between AA management and its employeesThe capabilities themselves

BUSINESS MODEL

VALUE-CHAIN ANALYSIS: KFC

VALUE-CHAIN ANALYSIS: AIR ASIA

internal environmental analysis

Business

resources knowledge

resourcebased viewdetermine

contents internal scanning

resourcebased view barney

series of value

specific capabilities

internal analysisidentifies

linked set of value