Chapter 2(c): Organizational Analysis.

Concept:
Organizational analysis is also known as corporate appraisal, appraisal of
internal factors, audit of organizational competence and resources, is the
systematic evaluation of the organizations strengths and weaknesses.

In a more formal way, organizational analysis may be defined as:

“Organizational analysis is the process through strategists and managers

analyse the various factors of their organization to evaluate their relative
strengths and weaknesses so as to meet the opportunities and threats of
environment”.

Managers take various organizational factors such production/operation,

marketing, finance, human resources, management practices etc to identify its
strengths and weaknesses vis-à-vis its competitors and to match
environmental requirement.

Role of Organizational analysis:

(1) Organizational analysis can be considered as the beginning process. As
organization tries to relate it self to its environment by emphasizing its
strength and overcoming its weakness.
Thus, the organizational strength may decide the business which it
should undertake. For e.g.: If the organization is quite strong in
marketing, it may concentrate on marketing activities rather than going
for manufacturing and marketing both. There are several such
companies which are following this practice.
Examples:
(a) Being Indian sewing machines limited selling various sewing and
knitting machines under its brand name but produced by others.
(b) Voltas limited whose major revenues are from the marketing of the
products from other companies.
Similarly marketing activities have been undertaken by various
companies.

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Process of Organizational Analysis:

The process of organizational analysis goes through certain sequence of

activities. For this purpose, the relevant information is collected both from
internal as well as external sources process of organizational analysis will
process through a sequence of activities as shown in figure:

IDENTIFICTION OF KEY FACTORS

FOR ANALYSIS

ASSESSING IMPORTANCE OF KEY

FACTORS ON HISTORICAL AS WELL
AS FUTURE REQUIREMENT

ASSESSING STRENGTH AND

WEAKNESSES OF KEY FACTORS IN
THE LIGHT OF COMPETITORS AND
LIKELY FUTURE SCENARIO

PREPARING ORGANISATIONAL
CAPACITY PROFILE

RELATING ORANISATIONAL
CAPABILITY OF STRATEGY

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(1) IDENTIFICATION OF KEY FACTORS:
Organizational analysis process starts with the identification of
key factors that can be evaluated for determining strength and weaknesses.
The analysis should cover all aspects of the oranisation.What factors should be
taken for consideration is a question. The answer will vary among
organization structure and management pattern, personnel, finance and
accounting, marketing, manufacturing, research and development etc.

(2)IDENTIFICATION OF IMPORTANCE OF FACTORS:

All the factors identified for the purpose of analysis may not have
equal strategic importance some are more important, some are less important
their relative importance can be determined by finding out the contributions of
each factors in the achievement of certain key results. Another method through
which the relative importance of factors can be measured is to relate them with
critical success factors (CSF) CSFs, are those factors which are crucial for
organizational success .The various factors can be measured with the
requirements of CSFs.

(3)ASSESSING STRENGTH & WEAKNESES ON KEY FACTORS:

Identification of key strategic factors may lead to the
assessment of organizational strength and weaknesses in respect of these
factors, organizational strength on any factors can be defined as the
contribution made by the factors towards the achievement of the organizational
objectives. An organizational weakness on factors can be defined as the
negative contribution of the factor in achieving the organizational objectives.

(4)PREPARING ORGANISATIONAL CAPABILITY PROFILE:

On the basis of assessment of organizational
strength and weaknesses organizational capability profile is prepared which
shows the various strong area of the organisation.This profile can show the
strength or weaknesses in terms of degree, either in quantity like 1 to 5 for
various factors or definition takes very strong or average.

(5)RELATING ORGANISATIONAL CAPABILITY TO STRATEGY:

Organizational analysis is meaningless unless it provide a way
to relating strengths to its strategy. In relating organizational strength to
strategy, the managers can process in two ways:

FIRST: they undertake activities which are consistent

with their strategic strength.

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 SECOND: managers can undertake activities which
convert their weakness into strength. Thus; much strategic action can be taken
to increase organizational strengths. The result is that over the long run, the
strategy of the organizational fits its environment taking into accounts the
strategic strengths.

Approach to Organizational Analysis.

There are two approaches

(a) Functional Approach:

Functional approach of organizational analysis takes into account various
functional areas and evaluates these for identifying strength and weaknesses.

In functional approach of organizational analysis following factors are

evaluated to identify strength and weaknesses.

(1) Production/ operation

(2) Marketing
(3) Finance
(4) Human Resources
(5) General Management

(1) Production/ Operation:

Production/Operations process are the mediating raw material into finished
products. There are other sub functions in production.

(a) Allocation and use of resources:

The degree of an organization’s success or failure depends on the degree of
effective allocation and use of resources. Resources do not mean only money,
building and plant but also the scarce resources of management talent,
capability and technical skills.

(b) Rationalization of resources:

Another important aspect of using resources is their rationalization. This
problem is more important in the context of multi-unit organization.

For e.g.: A multi-unit organization may have many plants and offices with
duplication of various efforts. The extent to which the duplication is avoided,
the company becomes strong as cost of duplication is a burden on the
organization.

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 (c) Locational Pattern:
Though locational pattern is affected by a large number of factors, it affects the
operational efficiency of the organization.

For e.g.: Opening of plants in backward areas may offer various advantages
because of incentives from the government, but opening of administrative
offices may not offer the similar advantages.

(d) Production capacity and its use:

The use of production capacity affects the profitability of the organization. High use of
production capacity is strength but a low use of this is a weakness because the
organizations cost of production in this case may be very high.

(e) Cost structure:

The cost structure of the product affects the organizations profitability. If the
cost of product is high, it is a weakness. Moreover, the extent to which cost
cannot be controlled is also weakness of the organization.

(f) Cost volume profit relationship:

While cost structure gives the general idea of high or low cost. Cost volume
profit relationship suggests the profitability of the organization at various levels
of production.

(g) Operation procedure:

Efficient and effective operation procedures like production design, scheduling,
output and quality control affects the internal efficiency of the organization.

(h) Raw materials availability:

The extent to which the raw materials are critical and scarce and are supplied
from available limited sources. The organization functioning is adversely
affected.

(i) Inventory control system:

An efficient inventory control system which pinpoints on the various aspects of
materials provides strength to the organization.

(j) Research and development:

Research and development is an important area where management should
concentrate. In order to take R & D activities and must evaluate as how these
are contributing to the organizational product development.

(k) Patent rights:

Organizations holding certain patent rights under which they can use some
well established brand names have certain advantages because they have

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certain advantages because they have not to incure any extra expenditure for
promoting the brand.

(2) Marketing:
Marketing factors are of prime important for a business organization as it
relates itself to its environment through marketing functions. Prominent
marketing factors taken for evaluation are as follows.

(a) Competitive competence:

Business organizations have to operate in a competitive field. The organizations
competitive competence can be appraised on the basis of trends in market
shares.

(b) Product mix:

Product mix decides the various sources of revenue to the organization. if the
revenue is coming from a single products or from very limited number of
products for a diversified company. This may be its weakness.

(c) Product life cycle:

Normally every product and brand has to pass through a life cycle.i.e. The
introduction stage, growth stage, maturity stage, and declining stage. Products
at declining stage are the weak point for the organization and adequate
precaution must be taken.

(d) Marketing research:

Marketing research offer the information for taking various marketing decision
in the light of the environment demand. The efficient and effective marketing
research system is a strength for the organization because it will enable to
relate the organization with the environment through suitable strategies.

(e) Channel of distribution:

An effective channel of distribution is a strength of the organization because it
not only distributes the product at the points where they are needed but also
provide feedback regarding the changes in the market forces.

(f) Sales Forces:

An effective and different sales force closed with key customer is a strength for
the organization because it may withstand an threat posed by the environment.

(g) Pricing:
Pricing is a factor which affects both sales as well as revenue to the
organization, particularly in price.

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 (h) Promotional effort:
Effective promotional effort are a strength for the organization and their
absence of weakness. are a strength for the organization and their absence of
weakness.

(3) Finance:
Finance area deals primarily with raising, administrating and distributing
finance resources to various activities so that a proper balance is maintained
and the organization achieve its objective. The strength and weakness in the
area of finance and accounting can be ascertained in the following ways:

(a) Capital Cost:

A proper balancing of various sources of financing ensure that the overall cost
of capital for the organization is low. It is the strength.

(b) Capital structure:

An effective capital structure is strength which provides for greater flexibility
for raising fund and appropriating various sources of fund so as to take
advantages of trading on equity.

(c) Financial Planning:

It determines what type of assets will be required to run the firm. Thus, it
determines what type of assets will be required to run the business and how
much capital will be required for this, time when the capital is required and
from where the necessary capital will be available. If the organization plans all
these things well in advance, it stands to benefit and thus, it is its strength.

(d) Tax Benefit:

If the organization is planning its investment pattern properly, it takes the
advantages of tax benefits.

(e) Relationship with shareholder and financiers:

The role of shareholder and financiers is quite important in formulation and
implementing these policies because such actions can be taken only after their
approval.

(f) Accounting procedures:

Efficient accounting procedure and systems for costing, budgeting, profit
planning and auditing not only determines that there is no misappropriation of
funds but also provides feedback for further course of action.

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 (4) Human Resource:
In organizational analysis often human resources are not given adequate
importance because of the preparation that these resources do not contribute
to organizational sources.

In analyzing human resources following factors are taken into consideration.

(a) Quality of personnel:

The quality of personnel includes their knowledge, skills, attitude and
motivation to work. If all other characteristic are favorable, these are strengths.

(b) Personnel turnover and absenteeism:

Personnel turnover, particularly managerial and technical level is a big problem
for organization in today’s context.

(c) Industrial Relations:

Industrial relations is the basic element for the success of the organization
particularly in the age of frequent industrial relations problems. Better
industrial relations is strength for the organization.

(5) General Management:

Various factors discussed above are no doubt important but they cannot work
well without the support of suitable leadership and various management
practices. Following factors are relevant in this category.

(a) Leadership:
Leadership is the process of winning enthusiastic support of personnel in an
organization. It is done of the major determinants of organizational success.
Most of the organizations which have achieved high success are characterized
by good leadership.

(b) Top management constitution and philosophy:

Top management contributes the life blood for the total organization. Its
constitution and philosophy are strong determinant of organizational success.

(c) Organizational image and prestige:

Organizational image and prestige affect the organizational working. If various
facilities are also affected by image and prestige providing constraints.

(d) Organizational Climate:

Organizational climate is the internal set of attributes specific to an
organization that may be included from the way the organization deals with its
members. Thus, organization member’s relationship is built upon the basis of
how the former treats the later. Organizational element can be measured by

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taking into account how its member react to various actions how willingly they
co-operate with it in achieving its objective and now satisfied they are with the
organization. A sound organizational climate based on neutral trust and
confidence and human consideration is strength for the organization.

(e) Management Practices:

The extent to which the organization follows various management practices
affects its success.

(i) VALUE CHAIN APPROACH:

Every organization perform a chain activities .These activities are interrelated
and each activity creates a value important to the whole chain. Based on this,
porter has proposed the value chain as a tool for identifying ways to create
more customers’ value.Accordingly,every organization is a collection of activity
that are performed to design,produce,market,deliver,and support its product.
The value chain identifies nine strategically relevant activities that create value
and reduces cost in a business. These nine value creating activities consist of
five primary activities and four support activities as depicted in figure.

(a) PRIMARY ACTIVITIES:

Primary activities are those that are involved in creation of product or
service. Porter has classified these primary activities into five groups:
Inbound logistics operations, outbound logistics, marketing and sales, and
services management and control of these activities results in the to
efficiency thereby saving cost and adding value.

(1) INBOUND LOGISTICS:

Logistic involve physical movement of anything from one place to
another. Inbound logistics involve such activities as receiving, storing
and disseminating various inputs with a purpose to transform them into
outputs. Activities related to inbound logistics are transportation,
material handling, warehousing, inventory management etc.

(2) OPERATION:
Operation includes all those activities through which inputs are
transformed into outputs which an organization sells. The activities in
operations include manufacturing, assembling, testing, packaging etc.

(b) OUTBOUND LOGISTICS:

Outbound logistics are related to finished outputs which are in saleable
from. Various activities related to outbound logistics are collecting, storing,
preparing delivery schedules, physical distribution etc.

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 (c) MARKETING AND SALES:
Marketing and sales involves inducting buying buyers to buy product and
converting their intention to buy into actual sales. Various activities
involved in this category are advertising and sales promotion channel
selection, creating sales force, fixing price etc.

(d) SERVICE:
Activities related to service aim at creating value to customers and may
include various facilities related to product such as installation, after-sales
services, supply of parts, training to customers, and so on.(These primary
activities are core to any organization for creating value thoughts they may
differ from industry to industry in term of their importance. For e.g. In a
service industry like banking these activities may differ in their relative
importance as compared to a manufacturing industry .The way these
activities are performed decides the cost saving to the organization and
value creation to its costomers.For eg:Japanese companies have
developed the concept of just in time system. So far as inbound and
outbound logistics are concerned. The basic theme of this system is to have
no inventory .Raw material just-in-time: finished products are produced and
delivered just-in-time. This system saves lots of costs.

(b) SUPPORT ACTIVITIES

Support activities are those activities that provide support to effective
performances of primary activities in value chain. These activities are
firm infrastructure, human resources management, technology
development and procurement

(1)FIRM INFRASTRUCTURE:
Firm infrastructure involve such activities as general management,
accounting, finance, legal, secretary, strategic planning.

(2)HUMAN RESOURCES MANAGEMENT:

Most of the organizations have emphasizes on their human resources
management which include human resources planning, recruitment and
selections development and deployment of human resources and
retaining of human resources in the organization.

(3)Technology development:
Technology development is not related merely to production process but
covers the ways of creating and improving various activities in the entire
value chain. Every activity that an organization performs involve a
technology

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(4)PROCUREMENT:
Procurement involve obtaining purchased inputs, whether raw
material service, machinery etc.

Core competence
During the 1980’s c.k. prahalad and Gary Hameln started working on the
features of enduring organizational strengths and coined the concept of core
competence. According to them, core competence is an enduring strength
which has three characteristics as follows:

1) It is a source of competitive advantages in that it makes a significant

contribution to perceived customer benefits.
2) It has a potential breadth of applications to a wide variety of markets.
3) It is difficult for competitors to imitate

Core competence is generally defined in terms of special technical or

product expertise. For example Honda motors of japan have core
competence in auto engines. Sony Corporation of Japan has core
competence in miniaturization and can make any product tiny: DuPont of
USA has core competence in chemical processing and so on.

There are several such examples. Since technology of by these companies

cannot be imitated by their competitors they enjoy long lasting advantages.

Apart from generating competitors to imitate core competence of another. It

has the potential of being applicable in a variety of markets. Many
companies have demonstrated this. For example Honda motors having core
competence in auto engines, has produced car, motorcycles, scootors,
generators, etc of the world class. Similarity, Sony Corporation having core
competence in miniaturization has produced miniature card calculators
pocket TVs, digital watches, tape recorder and walkmans.

Distinctive competence
Core competence, defined in technological term is a tool of creating
competitive advantages for specific period because new competitors may
come with still superior technology; there are other ways of creating
competitive advantage.

This brings us to the concept of distinctive competence or distinctive

capability. Whereas competence tends to refer the area of special, technical
and production expertise, distinctive competence tends to describe

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 excellence in broader business process. Thus, it is inclusive of core
competence. Thompson and Strickland have defined distinctive competence
as follows:

“Distinctive competence is the unique capability that helps an

organizational in capitalization upon a particular opportunity that may
provide competitive to a firm in the market place”.

Thus, distinctive competence is the unique features of an organizational

which cannot be shared by its competitors. Such features may be in the
form of lowering down the cost of production, developing products for
special needs special means of marketing the products, developing means
for special source of funds etc. such features may form the distinctive
competence so long as the competitors are not able to duplicate these into
their efforts.

For example Reliance Industries has built its distinctive competence in

terms of conceiving, implementing and managing large scale projects and
mobilizing. Requisite resource for that. While speaking at a seminar, its vice
chairman and managing director Mukesh Ambani has echoed. “We do not
believe in core competence, we believe in building competence around
people and processes to create value”.

Competitive advantage
Competitive advantage, also known as strategic advantage on the essentially
a position of superiority on the part of an organization in relation to its
competitors. This superiority exists because the organizational developed
some competence which meet the environmental requirements in a better
way as compared to its competitors. A more formal definition of competitive
advantages is as follow.

“Competitive advantage exists when there is a match between the distinctive

competence of a firm and the factors critical for success within its industry
that permits the firm to outperform competitors.

It concludes then, that competitive advantages are externally focused while

organizational competence is informally focused. Therefore, an

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 organization’s competence does not automatically lead to competitive
advantage. The phenomenon can be explained by two situations.

1) The core competence of the organization may not be of any important to

the industry in which the organizations diversifying into none core
components area, failing therein and divesting such business. For
example L&T having core competence in engineering and cement
diversified in shopping (non-core competence area), sustained losses
and divested it. Metal box, having core competence in packaging
materials diversified into bearing and to divest it and soon.

2) Even if one competence has relevance in the industry segment other

competitors may have some strength and the particular organization
may not have any competitive advantage. What becomes, then
important for the organization is to have relatively greater strength in
that important factor than its competitors. For example two competitors
may enjoy low manufacturing costs, but one with the manufacturing
costs has a competitive advantage.

Benchmarking

Benchmarking is another method of comparative analysis of

organizational strength and weaknesses. A benchmark is a reference
point for the purpose of measurement.”Benchmarking is a process of
identifying, understanding, and adapting outstanding practices from
within the same organization or from other businesses to help improve
perform. In fact, the basic theme of benchmarking is ‘see what others do
and try to improve upon that’. From this point of view, there are two
issues in benchmarking: what to benchmark and whom to bench mark.
These issues can be solved by going through types of benchmarking.
There are different types of benchmarking. Since
benchmarking is an evolutionary process in an organization, its
application varies over the period of time resulting in different types of
benchmarking.
There are a number of different types of benchmarking, as summarized
below:

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Type Description Most Appropriate for
the Following
Purposes
Strategic Where businesses need to improve- Re-aligning business
Benchmarking overall performance by examining thestrategies that have
long-term strategies and generalbecome inappropriate
approaches that have enabled high-
performers to succeed. It involves
considering high level aspects such as
core competencies, developing new
products and services and improving
capabilities for dealing with changes in
the external environment. Changes
resulting from this type of
benchmarking may be difficult to
implement and take a long time to
materialize
Performance Businesses consider their position in_ Assessing relative
or Competitive relation to performance characteristicslevel of performance in
Benchmarking of key products and services.key areas or activities
Benchmarking partners are drawnin comparison with
from the same sector. This type ofothers in the same
analysis is often undertaken throughsector and finding ways
trade associations or third parties toof closing gaps in
protect confidentiality. performance
Process Focuses on improving specific critical- Achieving
Benchmarking processes and operations.improvements in key
Benchmarking partners are soughtprocesses to obtain
from best practice organizations thatquick benefits
perform similar work or deliver similar
services. Process benchmarking
invariably involves producing process
maps to facilitate comparison and
analysis. This type of benchmarking
often results in short term benefits.

Product benchmarking:
The Product Benchmarking offering is designed to allow software vendors to
measure the performance and

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Scalability of their product on a given platform stack(s). Our team will develop
an effective methodology to validate
Your product and provide analysis of collected results. The benchmark report
that we produce is often used as a
Sales tool to provide potential customers the information they need when
selecting a vendor. The report also
Provides valuable capacity planning information and tuning guidelines

Global benchmarking:

Global benchmarking is the process of identifying best practices in

organizations anywhere in the world to seek information that can help an
organization to measure and compare its performance against those best
practices in order to improve its operations. A benchmark is a reference point
for taking measures against. Best practices are the techniques that have
worked reliably in different situations to achieve their desired purpose in the
most efficient and effective way. The best practices are demonstrated to
repeatedly work in different situations and can be replicated in different
situations with more or less the same results. The process of benchmarking is
aimed at finding the best practices within and outside the industry to which an
organization belongs

BALANCED SCORECARD
Balanced scorecard is the most comprehensive method of analyzing
organization strengths and weaknesses. Developed by Kaplan and Norton in
1992, balanced scorecard is a concept that measures an organization’s
activities in terms of its vision and strategies to give managers a comprehensive
view of the performance of the organization. Balanced scorecard integrates
financial, customer, internal business process, and learning and growth
perspectives with vision and strategy.

A brief discussion of the above perspectives is presented below:

1. FINANCIAL PERSPECTIVE: Kaplan and Norton do not disregard the

traditional need for financial data but they view that emphasis on current
financials leads to the imbalanced situation with regard to other
perspectives. There is need to include additional finance-related data such
as risk management and cost benefits data in this category.

2. CUSTOMER PERSPECTIVE: it deals with how customer can be satisfied on

continuous basis .poor performance from this perspective is, thus, a leading

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indicator of future decliner, even though the current picture may look to be
good.

3. BUSINESS PROCESS PERSPECTIVE: it refers to internal business process

through which products services are created to satisfy customers. These
processes should be carefully designed by those who know these. Two types
of processes are key to success: mission-oriented processes and support
processes. Specific measures and benchmarks are then set to monitor their
effectiveness.

4. LEARNING AND GROWTH PERSPECTIVE: it includes employee training

and organizational culture and assesses how the organization is improving
its ability to innovate, improve, and learn in order to support success with
critical operation and processes perspective.

Each of these perspectives has objectives, measures, targets, and initiatives.

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