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Internal Environment Analysis K. Rangarajan INDIAN INSTITUTE OF FOREIGN TRADE BUSINESS STRATEGY.

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Presentation on theme: "Internal Environment Analysis K. Rangarajan INDIAN INSTITUTE OF FOREIGN TRADE BUSINESS STRATEGY."— Presentation transcript:

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2 Internal Environment Analysis K. Rangarajan INDIAN INSTITUTE OF FOREIGN TRADE BUSINESS STRATEGY

3 External Environment What the Firm Might Do Internal Environment What the Firm Can Do SustainableCompetitiveAdvantage

4 SWOT Analysis Strengths Weaknesses Opportunities Threats

5 The purpose of SWOT Analysis It is an easy-to-use tool for developing an overview of a company’s strategic situation –It forms a basis for matching your company’s strategy to its situation

6 Strengths A STRENGTH is something a company is good at doing or a characteristic that gives it an important capability. Possible Strengths: –Name recognition –Proprietary technology –Cost advantages –Skilled employees –Loyal Customers

7 Weaknesses A WEAKNESS is something a company lacks or does poorly (in comparison to others) or a condition that places it at a disadvantage Possible Weaknesses: –Poor market image –Obsolete facilities –Internal operating problems –Poor marketing skills

8 Strengths and Weakness form a basis for INTERNAL analysis By examining strengths, you can discover untapped potential or identify distinct competencies that helped you succeed in the past. By examining weaknesses, you can identify gaps in performance, vulnerabilities, and erroneous assumptions about existing strategies.

9 How do we assemble bundles of Resources, Capabilities and Core Competencies to create VALUE for customers? Will environmental changes make our core competencies obsolete? And... Are substitutes available for our core competencies? Are our core competencies easily imitated? Key Questions for Managers in Internal Analysis Key Questions for Managers in Internal Analysis

10 Core Competencies A Competence is a bundle of skills and technologies rather than a Single discrete skill A Core Competence represents the sum of learning across individual skill sets and individual organisational units. Example: Federal Express Logistics – Meta Competencies Package tracking – Core competencies Bar Coding – Constituent skill ( Learning: Core competence is very unlikely to reside in its entirety in a single individual or a small team)

11 Core Competencies … (cont) Three Tests of a skill: 1. Customer value ( Honda’s know-how in engines) 2. Competitor Differentiation ( Sony’s Miniaturisation) 3. Extendibility ( SKF’s antifriction ideas, precision engg.)

12 Core Competencies Why Core Competencies? CanonOptics, imaging, microprocessor controls Fax Machines, cameras, desk-top printers, Photocopiers, Image scanners SonyMiniaturization, Microprocessor design, ultra-thin precision casting Miniature card calculators, pocket TVs, digital watches, video tape recorders etc 3MSubstrates, coatings, adhesives Magnetic tapes, photographic film, coated abrasives, post-it notes, sticker products HondaDesign & Mfg. of engines and power trains Cars, motorcycles, generators, lawn mowers

13 Deployment of Canon’s Core Competencies ProductPrecision MechanicsFine OpticsMicroelectronicsElectronic Imaging Basic cameraXX Compact fashion cameraXX Electronic cameraXX EOS autofocus cameraXXX Video still cameraXXXX Laser beam printerXXXX Color video printerXXX Bubble jet printerXXX Basic faxXXX Laser faxXXX CalculatorX Plain paper copierXXXX Battery PPCXXXX Color copierXXXX Laser copierXXXX Color laser copierXXXX Still video systemXXXX Laser imagerXXXX Cell analyzerXXXX Mask alignersXXX Stepper alignersXXX Excimer laser alignersXXXX

14 HOW TO DO AN INTERNAL ANALYSIS Value Chain Analysis Customers demand value from the goods and services they obtain Customer Value Product is unique and different Product is low priced Quick response to specific or distinctive customer needs Value Chain Systematic way of examining organization's functional activities How well these activities create customer value Organization's strengths and weaknesses in these areas

15 Processing ingredients Syrup manufacture Bottling/Can Filling Wholesale distribution Retailing Programming Disk Loading Marketing Distribution Human Resource Management Customer Service SOFT DRINKS SOFTWARE ACCOUNTANCY Value Chain Composition Differs by Industry & by Company

16 Activities, Costs, and Margins of Suppliers Internally Performed Activities, Costs and Margins Activities, Costs, Margins of Forward Channels Upstream CompanyDownstream Value Chains Value Chain Value Chains END USER THE VALUE CHAIN SYSTEM Adapted from Michael Porter, Competitive Advantage, 1985.

17 Inbound logistics OperationOutbound logistics Marketing and sales Service Procurement Technology development Human resource management Firm infrastructure The value chain Support Activities Primary Activities

18 Cereal Processing Value Chain: Structure Consumers Supermar- kets, Food Retail Bars & Restau- rants Beer Brewe- ries Flour Mills Trad.Breweries (Tela) Malting Traditional Dry Food Retail Milling Service Roasting Anima l Feed Cereal Farming Cleaning & Grading Storage Collec- tion Spices, Oilseeds, Pulses Pasta Cookies Seeds, Agro- Chemicals Threshing & Harvesting Services Transport Services Equipment & Spare Parts Financial & Business Services Packaging Materials Bakeries & Pastry

19 Building Construction Value Chain: Structure Private/ Public Construction Transport Services, Energy & Water Equipment & Spare Parts Financial & Business Services Packaging Materials General Contractors Special Contractors Consultants Retail Trade Concrete Pipes Hollow Blocks Concrete Tiles Metal Hardware ( Production/ Import /Wholesale) Sanitary Ware Electricals Paints&Lacquer Marble Production Metalworks & Furniture Cement Industry Sand, Earth & Gravel Mining (Limestone, Gravel stones, Marble)

20 Metalworks & Furniture Value Chain: Structure Transport Services, Energy & Water Equipment & Spare Parts Financial & Business Services, Designers Bamboo & Rattan Households &Institutions Contractors ForestryLoggingSawmills Steel Structure Buildings Fences & Grills Doors & Windows Carpentry, Parquet Room Ceilings Furni- ture Retail Furni- ture Ma- king Chip- board Wood Trade Upholstry Paints Fittings Metal Import &Trade Raw Steel Import Iron Hardware Import Steel Wire Steel Mills Reinforcement bars Nails, nuts & bolts Fencing Iron Sheet Profiles Tubes Roofing Galvanis ing

21 Vertically integrated: manufacture own production machinery Substantial annual investment in assets Invented own production machinery Constant innovation in own production machinery Cycle of goodness in Japan; Japanese management worldwide Employee participation and involvement in subsidiaries Multi-plant, multinationals with joint ventures and subsidiaries at appropriate location Decentralized local autonomy but strong central direction Little dependence on suppliers Heavily automated for cost saving. Production of coils in Japan for subsidiaries worldwode. High quality of produciton Tight stock control systems Coils (semi- finished zips) held in stocks Concentration on key accounts Wide range of sizes and colours with fast deliverlies High quality at competitive prices YKK Value chain

22 Levi Strauss & Co.  World’s largest producer of branded clothing  Second largest maker of Jeans  Levis,Dockers and Slates – Labels  Sales: $0.6 billion; $ 4.5 billion  Market share: 1998 – 14%; 2008 – 16%

23 Value Chain of Levi Strauss Demand Forecasting Market Research Design Research Produc- -tion Planning Raw Material Logistics Produc- tion Factory Ware- housing Shipping by Truck Fleet & Common Carrier Distrib. Warehouses Hub & Spoke Ship to Retail Stores Truck Fleet Retail Outlets Sales & Promo- -tions THE CUSTOMER Lead-time Uncertainty Cycle-time Uncertainty and Variation Demand Uncertainty and Variation Schedule Uncertainty and Variation Demand Uncertainty and Variation Schedule Variation Micro Demand Uncertainty Customer Satisfaction Level? Likelihood of Repeat Purchase? 54% of customers generate 90% of sales 76% of women customers not fully satisfied with the purchase R. M. Inventory ~ 15 days WIP Inventory ~ 15 days F.G. Inventory ~ 15 days F.G. Inventory ~ 100 days F.G. Inventory ~ 60 days INVENTORY Average 8 Month Lead-Time Heavy Eqp. Cutting (60 ply) Sewing Handling & Shipping Real Estate Investment Vehicles Investment Real Estate Investment Vehicles Investment Working Capital Investment 20,000 SKU’s 500 to 1,000 SKU’s per store, based on local patterns FIXED ASSETS INVENTORY VARIETY

24 Value Chain of Levi Strauss Levi’s Personal Pair Value Chain PP Kiosk in Retail Store Raw Material Logistics Cut the order (1 ply) at Mountain City EDI link to Mfg. Via CCTC Sew, Inspect and Pack the Pair at Crystal City Fed. Exp. Directly to the Customer

25 Core Competencies--Cautions and Reminders Never take for granted that core competencies will continue to provide a source of competitive advantage All core competencies have the potential to become Core Rigidities Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats

26 WHY DO AN INTERNAL ANALYSIS? Identify organization’s strengths and weaknesses Make good strategic decisions Provide basis for developing strategic alternatives

27 Outcomes By studying the external environment Organizations identify what they might choose to do By studying the internal environment Organizations identify what they can do


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