1. Internal Analysis Chapter Six
Copyright © 2007 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
Chapter 6 - Internal Analysis

2. Financial Performance – Sales and Profitability
Sales and Market Share
Profitability
Measuring Performance: Shareholder Value Analysis
Chapter 6 - Internal Analysis

3. Shareholder Value Analysis
Cost of equity—weighted average of cost of capital and cost of debt
e.g. Capital $1 billion (12%); Debt $3 billion (4%) then the cost of capital is 6%
Each business aims at ROA to exceed cost of equity so shareholder can improve stock investment
Chapter 6 - Internal Analysis

4. Shareholder Value Risks
ROA estimate requires knowing the cash flow of any investment and the assets employed—could encourage short term results
Reducing assets employed by outsourcing could result in loss of control of business
Reducing investment could affect offering
Increasing debt to reduce cost of equity could be risky
Chapter 6 - Internal Analysis

5. Performance Measures Reflecting Long-Term Profitability
Customer Satisfaction/
Brand Loyalty
Long
Term
Profits
Current
Performance
Product/Service Quality
Brand/Firm Associations
Relative Cost
New Product Activity
Manager/Employee Capability and Performance
Chapter 6 - Internal Analysis
Figure 6.1

6. Relative Cost vs. Relative Performance - Strategic Implications
More Expensive
Less Expensive
Inferior
Superior
Change
Design
Manufacturing/Systems
Ignore
Value Analysis
Raise prices
Promote
Cost Reduction
Our Component is
Value Analysis
De-emphasize
Upgrade
Value Analysis
Emphasize/promote
Leave it alone
Chapter 6 - Internal Analysis
Figure 6.2

7. Strengths and Weaknesses
Strategies leverage strengths and neutralize weaknesses
Point of advantage vs. points of parity vs. liability
Chapter 6 - Internal Analysis

8. Threats & Opportunities
Key output of external analysis
Evaluate as to
Immediacy
Impact
Chapter 6 - Internal Analysis

9. Structuring Strategic Decisions
Organizational
Strengths and
Weaknesses
Competitor Strengths
and Weaknesses
Strategy Decisions
Strategic Investment
Value Proposition
Assets and Competencies
Functional Strategies and Programs
Market Needs,
Attractiveness, and
Key Success Factors
Chapter 6 - Internal Analysis
Figure 6.3

10. Key Learnings
Sales and profitability analysis provide an evaluation of past strategies and an indication of the current market viability of a product line.
Shareholder value holds that the flow of profits emanating from an investment should exceed the cost of capital (which is the weighted average of the cost of equity and cost of debt). Routes to achieving shareholder value – such as downsizing, reducing assets employed, and outsourcing – can be risky when they undercut assets and competencies.
Performance assessment should go beyond financials to include such dimensions as customer satisfaction/brand loyalty, product/service quality, brand/firms associations, relative cost, new product activity, and manager/employee capability and performance.
Assets and competences can represent a point of advantage, a point of parity, or a liability. Threats and opportunities that are both imminent and important should trigger strategic imperatives, programs with high priority.
Chapter 6 - Internal Analysis

12. Ancillary Slides
Chapter 6 - Internal Analysis

13. “We have met the enemy and he is us.”
- Pogo
Chapter 6 - Internal Analysis

14. “Self-conceit may lead to self-destruction.”
Aesop,
“The Frog and the Ox”
Chapter 6 - Internal Analysis

15. “The fish is the last to know if it swims in water.”
Chinese proverb
Chapter 6 - Internal Analysis

16. “The successful man is the one who finds out what is the matter with his business before his competitors do.”
- Roy L. Smith
Chapter 6 - Internal Analysis

17. Six Rules for Success
1. Face reality as it is, not as it was or as you wish it were.
2. Be candid with everyone.
3. Don’t manage, lead.
4. Change before you have to.
5. If you don’t have a competitive advantage, don’t compete.
6. Control your own destiny, or someone else will.
- Jack Welch
former Chairman, General Electric
Chapter 6 - Internal Analysis

18. “It’s not companies that fail, it’s their leaders who fail.”
- Warren Bennis
Chapter 6 - Internal Analysis