STRATEGIC MANAGEMENT
AND BUSINESS POLICY
THIRD EDITION
Chapter 4
Organisational appraisal
AZHAR KAZMI
Learning objectives
EExplain
l i the
th manner in
i which
hi h strategic
t t i and d competitive
titi
advantage is developed
Describe and exemplify six factors of organisational
capability
Explain the process of conducting organisational
appraisal
Describe the major methods and techniques used for
organisational
g appraisal
pp
Prepare Strategic Advantages Profile (SAP) for an
organisation
2
Framework for the development of
strategic advantage by an organisation
STRATEGIC
ADVANTAGE
ORGANISATIONAL
CAPABILITY
COMPETENCIES
SYNERGISTIC
EFFECTS
STRENGTHS AND
WEAKNESSES
ORGANISATIONAL ORGANISATIONAL
RESOURCES BEHAVIOUR
3
Organisational
g capability
p y
factors
Fi
Finance capability
bili
Marketing capability
Operations capability
Personnel capability
Information capability
General management capability
4
Fi
Finance capability
bilit
It
It relates
l t to t the
th availability,
il bilit usages and
d managementt off funds
f d andd allll
allied aspects that have a bearing on an organization's capacity and
ability to implement its strategies.
Typical strengths that support financial capability
Access to financial resources
High level of credit
credit‐worthiness
worthiness
Harmonious relationship with financial institutions
Low cost of capital as compared to competitors
High level of shareholders confidence
Effective management control system
5
Marketing capability
It
It relates
l t t pricing,
to i i promotion
ti and
d distribution
di t ib ti off products
d t or
services, and all the allied aspects that have a bearing on an
organization’s capacity and ability to implement its strategies.
Typical strengths that support financial capability
Wide variety of products
Better qqualityy of p
products
Low prices as compared to those of similar products in market
High quality customer service
Effective distribution system
Effective sales promotion
High profile advertising
Favorable company and product image
6
Operations capability
It
It relates
l t tot the
th production
d ti off products
d t or services,
i use off material
t i l
resources and all allied aspects that have a bearing on an organization's
capacity and ability to implement its strategies.
Typical strengths that support operations capability
High level of capacity utilization
Favorable plant location
High degree of vertical integration
Reliable sources of supply
Existence of good inventory control system
Availability of high caliber R & D personnel
7
Personnel capability
It
It relates
l t to t the
th existence
it and
d use off human
h resources and d skills,
kill and
d
all allied aspects that have a bearing on an organization's capacity and
ability to implement its strategies.
Typical strengths that support personnel capability
Efficient and effective personnel systems
Organization perceived as a fair and model employer
Excellent training opportunities and facilities
Pleasant working environment
Highly satisfied and motivated workforce
High level of organizational loyalty
Low level of absenteeism
8
Information capability
It
It relates
l t tot the
th design
d i andd managementt off the
th flow
fl off information
i f ti
from outside into, and within an organization for the purpose of
decision‐making and all allied aspects that have a bearing on an
g
organization's capacity
p y and abilityy to implement
p its strategies.
g
Typical strengths that support Information
management capability
Ease and convenience of access to information sources
Widespread used of computerized information system
Positive
P iti attitude
ttit d to
t sharing
h i & disseminating
di i ti information
i f ti
Presence of foolproof information security system
Top
p mgtg understandingg of IT & its application
pp within the
organization
9
General management
capability
It
It relates
l t tot the
th integration,
i t ti co‐ordination
di ti andd direction
di ti off the
th functional
f ti l
capabilities towards common goals and all allied aspects that have a
bearing on an organization's capacity and ability to implement its
g
strategies.
Typical strengths that support General mgt capability
Effective system for corporate planning
Control, reward and incentive system for the employees
Favorable corporate image
Development
D l t oriented
i t d organizational
i ti l culture
lt
Commonly being perceived as a good organization to work
for
10
Methods and techniques for organisational
appraisal: Internal analysis
VRIO framework
VRIO f k
Value chain analysis
Quantitative analysis
Financial analysis (Ratio Analysis)
Non‐financial analysis (Employee turnover, absenteeism, market
ranking, service call rate, no. of patents registered per period, etc.)
Qualitative analysis
11
How organisational capabilities contribute to
strengths and weaknesses
Are the Are the Are the capabilities
p Are the capabilities
p Are the capabilities
p strengths
g
capabilities capabilities costly to imitate? organised for usage? or weaknesses?
valuable? rare?
No - - No Weakness
Yes No - Yes Strength
Yes Yes No Yes Strength and distinctive
Competence
Yes Yes Yes Yes Strength and sustainable
distinctive competence
Adapted from JJ.B.
B Barney Gaining and Sustaining Competitive Advantage,
Advantage (Reading,
(Reading MA: Addison
Addison–
Wesley Publishing Company, 1997) Tables 5.2 and 5.3, p. 163.
12
Porter’s g
generic value
chain
Fi infrastructure
Firm i f
Human Resource Management
Suupport activitties
Technology development
Profit
Procurement margin
Inbound Operations Outbound Marketing Service
logistics logistics and Sales
Primary activities
13
Methods and techniques for organisational
appraisal: Comparative analysis
Historical analysis
Hi i l l i
Industry norms
Benchmarking
14
Methods and techniques for organisational
appraisal: Comprehensive analysis
Key factor rating
K f i
Business intelligence systems
Balanced scorecard
15
The balanced scorecard
model How do we look to shareholders?
Financial Perspective
Objectives Targets
How do customers see us ? What must we excel at ?
Customer Perspective Internal Process Perspective
Vision & Strategy
Objectives Targets Objectives Targets
Learning / Innovation Perspective
Objectives Targets
How can we sustain our ability to change and improve ?
Based on R.S. Kaplan & D.P. Norton: The Strategy-focused orientation: How Balanced Scorecard
Companies Thrive in the New Business Environment Boston: Harvard Business School Publishing, 2000
and R.S. Kaplan & D. P. Norton: The Balanced Scorecard: Translating Strategies into Action Boston:
Harvard Business School Press,
Press 1996.
1996
16
Strategic advantage profile (SAP)
-------------------------------------------------------------------------------
Capability factor Nature of impact Competitive strength
or weaknesses
-------------------------------------------------------------------------------
Finance capability
Marketing capability
O
Operations
i capability
bili
Personnel capability
Information capability
General management
capability
17
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