A View from the Top

Chapter 5 Analyzing an Organization’s Strategic Resource Base Team III M Isabel Castaneda Cal Wallace Patrick McGregor

Introduction

  Assessing strategic resources and capabilities is important when determining a companies strategy.

Analyzing a company’s internal strategic environment has two principal components:   Cataloging and valuing current resources and core competencies for creating competitive advantages.

Identifying internal pressures for change and forces for resistance.

Strategic Resources

  A company’s strategic resource base is composed of physical financial, human resource, and organizational assets.

To evaluate the relative worth of a company’s strategic resources four questions must be asked.

Physical Assets

  A company’s physical assets can affect its competitiveness.

i.e. Airline companies, the average age of the fleet affects customer perceptions, routine flexibility, and operating and maintenance costs.

Analyzing a Company’s Financial Resource Base   For the corporate level, evaluations of the financial position involves thorough analysis of the company’s financial statements.

Financial ratio analysis can provide an overview of an organization’s current and past profitability, liquidity, leverage, and activity.

Profitability Ratios

  Measure how well a company is allocating its resources.

Ratios     Gross Profit Margin Net Profit Margin Return on Assets Return on Equity

Liquidity Ratios

  Measure cash flow generation and ability of an organization to meet its current obligations.

Ratios    Current Ratio Quick Ratio Inventory to Net Working Capital

Leverage

  Can indicate potential improvements in the financing of operations.

Ratios    Debt-to-assets ratio Debt-to-equity ratio Long-term debt-to-equity ratio

Activity Ratios

  Measure productivity and efficiency Ratios  Inventory Turnover   Fixed Asset Turnover Average Collection

DuPont Formula

  Used to analyze an organization’s return on assets directly links operating variables to financial performance.

Accounting-based measures have generally been found inadequate indicators of a business unit’s economic value.

Shareholder Value Analysis

  Focuses on cash flow generation to determine economic value.

It is helpful to answer the following questions:    Does the current strategic plan create shareholder value.

How does the business unit’s performance compare with others in the corporation.

Would an alternative strategy increase shareholder value more than the current.

Economic Value Added

  Economic value added and market value added have supplemented accounting based performance measures.

Advantages:    Help align employee and owner interest through employee compensation.

Can be the basis for a single competitive performance measure called MVA.

Indicates if returns lag the cost of capital

Analyzing a Company’s Financial Resource Base   Cost analysis deals with identification of strategic cost driver.

Cost benchmarking is useful in assessing a firm’s cost relative to those competing firms, or for comparing a company’s performance against best-in class competitors.

Human Capital: A Company’s Most Valuable Strategic Resource     Firms are run by and for people.

More focus on attracting, developing, and retaining.

Continuous employee development is critical Ex- Fed Ex has an 11 week training and “Leadership Institute”

Organizational Strategic Resources

     Knowledge Intellectual Capital Base Reputation with customers, partners, and suppliers and financial community Specific competencies, processes, and skill sets Corporate Culture

Organizational Strategic Resources Continuation

   Intellectual Capital- hard to measure Patents- protect and preserve competitive advantage Knowledge- better knowledge » better performance and enhanced learning

The Importance of Brands

   Brands provide guarantee of reliability and quality Customers must trust the brands Ex- Ranking 100 Best Global Brands by dollar value.

The Importance of Brands Continuation

  Ranking 100 Best Global Brands by dollar value Identifiable Qualities:    Do not fear public flops Face your weaknesses Protect your culture

Core Competencies

   Great capabilities that enable a company to build a competitive advantage. Focus on creating a value, and change as customer’s requirements change Hamel and Prahalad three tests for identifying core competencies

Internal Change Forces and the Capacity for Change

  1.

Internal Change Forces Four basic forms of resistance Structural, Organizational rigidities 2.

3.

4.

Closed mind-sets reflecting support for obsolete business beliefs and strategies Entrenched cultures reflecting values, behaviors, and skills that are not conductive to change. Counterproductive change momentum that isn’t in tune with current strategic requirements

The Company Life Cycle



Growth

 Requires      Organizational Learning Delegation of Authority Leadership challenges Responding to external and internal change. Working together as a cohesive unit 

Founding

 Establishment of:    Vision and Purpose Direction Allocation of Capital and Resources

Mckinsey 7-S Model



Frameworks

    Strategy Structure Systems Skills   Staff Style All link to Shared Values 

Particulars of the Model

    Not hierarchical Change in one force will occur a change in another Fixing problems in one area without attention to others is counterproductive. Align each factor accordingly for a desired direction of a particular goal.

Stakeholder Analysis

 What roles do they play?       Internal or External Rights and Interest Returns Competition Laws and Regulations Demands of the Stakeholders

SWOT

 SWOT- the sizing up of a company’s strengths, weaknesses, external opportunities, and threats .   Strengths and Weaknesses are internal Opportunities and Threats are external  FIGURE 5-5 on page 69

Work Cited

   Kluyer, C (2006). Strategy: A View from the Top . Upper Saddle River, New Jersey: Pearson Education. Building Brands. Retrieved June 7, 2009, from Building Brands: Mckinseys 7-S Model Web site: http://www.buildingbrands.com/didyouknow/14_7s_ mckinsey_model Oxford Analytical, (2009, May, 27). Emerging Economies Must Maintain Social Programs. Forbes Retrieved June 7, 2009, from http://www.forbes.com/2009/05/26/health education-politics-business-oxford_print.html

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