Internal appraisal of the firm

HYDERALI CHEVIDIKKUNNAN
ROLL NO 100604

internal appraisal

 Three parts of internal appraisal

1.

Assessment of strength & weakness

2.

Appraisal of the status/health

3.

Identify & asses competitive advantages &

corecompetence

internal appraisal

Purpose, role and importance

1.

Stands in capabilities and strength & weakness

2.

Opportunity to be tapped in line with its

capability

3.

Match the Objective in line with its capability

4.

Asses the capability gap

5.

Select the specific lines in which it can grow

internal appraisal

 It is the starting point for developing the

competitive advantages & core competencies

internal appraisal

1.Assessing strength &

weakness
S-W appraisal : (Tata IBM limited)

Strengths

-excellent workstations
-high brand equity
-IBM itself largest buyers of software
Weaknesses
-late entry into the market
-limit marketing reach
-omission of IBM name in the company
name
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internal appraisal

 S-W appraisal :AT&T

Strength

-manufacturing facility
-strong financial muscle
-top-class research facilities
Weaknesses
-slow in decision-making
-minor player in home market
-slow in recognizing Asian boom
-top management only have North Americans
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internal appraisal

Aspects to be covered & techniques

commonly used in S-W analysis
1.aspects relating to the market

growth
-market growth
-market share
-PLC stage of the product
-customer perception about the product
-synergy in the product-mix
-prices, margins, marketing spends
-overall capability in marketing
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internal appraisal

Techniques for analyzing strength & weakness

in
marketing
Marketing audit
Market share analysis
Analysis of price-volume relationship
Marketing cost analysis

Product line profit analysis

Sales force productivity analysis
Consumer satisfaction index

Dealer & consumer panels

Brand monitoring surveys
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internal appraisal

Aspects relating to finance

Return on investment
Liquidity
Leverage
Gearing
Cash flow
Quality of the financial management
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internal appraisal

Techniques (financial)
Financial Ratios (liquidity, profitability etc)
Cash flow analysis
Payback & IRR
Break-even analysis
Earning ratios (eg;earning to sale )
Earning per share
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internal appraisal

Aspects relating to the manufacturing

Process, facilities & skills
Quality management
Operating efficiency
Industrial engineering capability

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internal appraisal

Techniques (manufacturing)

Capacity utilization analysis

Inventory analysis

Cost of production analysis

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internal appraisal

Aspects relating to R & D

Commitment, status
expertise, experience of the personals
Patent generation
schedules

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internal appraisal

Techniques (R & D)
Analysis of patent
New product commercialization record
Comparison of R & D investment against

successful new product launch

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internal appraisal

Aspects relating to HRD

Commitment
Financial resources
Personnel knowledge,expertise & experience

Techniques
HRD audit
Personnel turnover ananlysis
Employee morale survey
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internal appraisal

Corporate factors and overall

resources
Company size
Corporate image
Corporate performance record
Innovation record
Adequacy of organization for current & future

strategies
Use of information technology extent of use and

degree of sophistication
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internal appraisal

APPRAISAL OF THE
STATUS/HEALTH OF THE
BUSINESS OF THE FIRM
Healthy portfolio
Business with good growth & profit potential
Kind of industries (growth,mature,emerging

decline)
Rate of growth
Helps to formulate strategy choice

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internal appraisal

Competitive advantages (CA)and

core competence(cc)
Competitive advantages

superiority of firm in function/factor/actvity

Marketing ,production,finanace,new product

launch ,brand management,resourse ,capability

,technology
Big firm =strength of size
Small firm = flexibility
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internal appraisal

Example
flexible manufacturing

system(FMS)
low cost in personnel

stereo

in any
the world
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internal appraisal

service within 48 hours

part of

NATURE & SIGNIFICANCE OF

CA
Competitive advantage back-up for strategy
For strategy to work the firm must have the relevant

CA
CA is distinct from strength
-strength ie superior to competitor
-result in cost advantage or a
differentiation advantage
-strength cant form back-up for
strategy
-CA needs SW analysis
-strength can discerned by internal appraisal
butCA need both internal & external
appraisal
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internal appraisal

Sources of CA
In marketing

-market share
-customer satisfaction level
-customer service level
-price leadership
-Advertising effectiveness
-marketing cost
-market research capability
-product-wise position in
-profitability
-stage of product in the life cycle
-brand power

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internal appraisal

Cont
In finance

-Assets
-Liquidity
-Leverage
-Cash flow
-Quality of financial management
-knowledge & dynamism in tax planning

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internal appraisal

Cont
In manufacturing/operation

-capacity of production
-location advantages
-raw material cost, quality & delivery
-cost of production
-Break-even position
-productivity
-inventory management
-flexibility
-Automation
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internal appraisal

Cont
In R&D

-Nature ,depth & quality of R&D

-Resource allocation to R&D
-Quality , expertise and experience of
personnel
-speed of R & D
-Record of patent generated
-Comparison of R & D investment Vs new
product launched

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internal appraisal

Cont.
In Human Resources

-Quality ,knowledge ,expertise & experience of

personnel
-Morale and motivation of personnel
-personnel turnover

-Labour cost
-industrial relations
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internal appraisal

Cont.
In corporate factors and overall resources

-company size
-corporate image
-The CEO
-Board of Directors
-corporate performance record
-innovation record
-Use of IT

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internal appraisal

Cont
Any CA finally manifests as either a cost

advantage or a differentiation advantage

CA appraisal
Identifying the CA factors of the firm
-Hindustan Lever in distribution
-ModiXeroxs Service within 24
hours
-Reliance Textiless distribution &
promotion

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internal appraisal

 Drawing up the CA profile (CAP) of the firm

CAP of Bajaj Auto Limited

CA factor
factor
Marketing

Companys position in the

product line,capacity,product
upgradation,large

sales
turnover,consumer
loyality,brandimage,strong
distribution,high market share
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internal appraisal

Cont
Companys position in the factor
strong position in profit
surplus working capital
Manufacturing strong in engg
strong quality assurance
Technology
strong in-house
&
High budget
R&D
CA factor
Finance

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internal appraisal

cont....
Corporate &
overall resource
factor

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internal appraisal

Third largest twowheeler

created entry barrier
global player of India

HOW DO COMPANIES
ACQUIRE CA
Building CA is task of corporate strategy

-Strategy uses and creates CA

Internal appraisal and industry-competition

analysis help identify CA

Benchmarking an effective tool in CA building

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internal appraisal

Cont.
-Types of benchmarking
-internal
-functional
-competitive
-generic
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internal appraisal

Cont.
-Benchmarking of Taurus car project
-Benchmarking of Indian firms
-Example of coromondel Fertilisers
Value chain approach will be of use in identifying
and building CA
-CA stem from customer
value created by the firm
-Analyzing competitors value chain
gives useful clues

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internal appraisal

Value Chain Model

from Michael E. Porters Competitive
Advantage
SUPPORT
ACTIVITIES

Firm Infrastructure (General Management)

Human Resource Management
Technology Development
Procurement
Inbound
Logistics

Ops.

Outbound
Logistics

Sales &
Marketing

Service and
Support

PRIMARY ACTIVITIES
4-34

STRATEGIC COST
MANAGEMENT - BA122B
Spring 2009

Cont.
Corporate clout confers CA on SBUs & SBU

contribute to CA at corporate level

Core skills of the corporation serve as anchor for
CA building
Firms build CA using different strategic routes
-innovation
-integration
-R&D
-mergers & acquisition
-strategic alliances with other firms
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internal appraisal

Cont.
Videocon acquire CA through integration

IDM acquire CA through R&D

Nestle CA through brand power
CA trough alliances

-kotak Mahindras alliance with Bank of

Madhura
-Tatas alliance with AT&T in switching
system

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internal appraisal

Cont
Creating entry barriers will also confer CA

-Maruti Udyog & Bajaj Auto

Building CA a conscious and long term process

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internal appraisal

THE CONCEPT OF CORE

COMPETENCE
fundamental , durable , unique ,higher order CA
An enduring competency cannot be imitated

A competency lies at the root of the product

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internal appraisal

Examples of core competence

=

miniaturization

optical media

engine

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internal appraisal

imaging

 Attributes of core competence

- the firm the access to a variety of

product
-contributes significantly to the customer
benefits in the end product
-exclusive to the firm
largely it is technological competence

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internal appraisal

Distinction b/w CA & core

competencies
The touchstone of core competency provides lasting

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superiority
CA does not sure success
CA accrues from the functional strength, but core
competency core strength like excellence in
technology/processes
CA helps in limited way ,but cc in far-reaching &
multifaceted manner
CA = strength to a product/business,but cc helps to
play in variety of businesses/products
CA can be imitated easily
cc is fundamental and unique

internal appraisal

 The cc competency concept does not restrict no

of businesses a firm can be

For
-by using sticky tape=60000 product

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internal appraisal

One cc lead to many product lead to many end

product/businesses

FIRM

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internal appraisal

CORE COMPETENCE

END
PRODUCT/BUSINESSES

Semiconductor digital tech

Telecom(mobile,fax);computer
s(
Laptop,main frame)

Optics,imaging,microproces
sor control

Fax machine ,cameras,laser

printer,image scanner

Miniaturisation,microproces
ssor design

Calculator,TV,digital watches

Substrates,coatings
adhesives

Magnetic tape,photographic
film
Post-it notes

Design & manufacturing of

engines

Cars,motorcycles ,generators

competing for the futures author

prahlad
We have to look at the organization as a
portfolio of competencies , of underlying strength
,and not just as a portfolio of business units ..We
must also identify those core competencies which
make us successful in existing business. We
must also identify those core competencies that
would allow us to create new products; and we
must ask ourselves what we can leverage as we
move into the future, and what we can do that
other companies might find difficult
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internal appraisal

 How companies acquire cc=invest in technology

& R&D
In-house manufacture of core products ,facilitates

acquiring cc
cc of Honda

-design & manufacturing of engines

-unmatched performance

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internal appraisal

Cont.
Focus ,another requirement in building cc
Building cc,a concious & long term process
For Indian firms,this task will become the prime

challenge

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internal appraisal

referece
Strategic planning formulation of strategy

V S RAMASWAMY
S NAMAKUMARI
www.wikipedia.org

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internal appraisal

THANK YOU

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internal appraisal