Organizational Appraisal

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Framework for the Development of strategic
Advantage by an organization
Strategic advantage

Organizational capability

competencies

Synergistic effects

Strengths and weakness

Organizational resources +Organizational behavior

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 Organizational resources
• Organization can be best understood in
the context of the resource based view of
strategy
• A firm is a bundle of tangible and
intangible resources
• Resources of an organization can lead to
strategic advantage

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 Resources
• Types of Resources
– Tangible resources
• Financial resources
• Physical resources
• Technological resources
• Organizational resources
– Intangible resources
• Human resources
• Innovation resources
• Reputation resources

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 TABLE 3.1
Financial Resources
Organizational Resources
Physical Resources
Technological Resources
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Tangible Resources
• The firm’s borrowing capacity
• The firm’s ability to generate internal
funds
• The firm’s formal reporting structure
and its formal planning, controlling, and
coordinating systems
• Sophistication and location of a firm’s
plant and equipment
• Access to raw materials
• Stock of technology, such as patents,
trademarks, copyrights, and trade
secrets
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 TABLE 3.2 Intangible Resources

Human Resources • Knowledge

Innovation Resources
Reputation Resources
• Trust
• Managerial capabilities
• Organizational routines
• Ideas
• Scientific capabilities
• Capacity to innovate
• Reputation with customers
• Brand name
• Perceptions of product quality,
durability, and reliability
• Reputation with suppliers
• For efficient, effective, supportive, and
mutually beneficial interactions and
relationships

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 Determining the Competitive
Power of a Company Resource
• To qualify as competitively valuable or to be the basis
for sustainable competitive advantage, a
“resource” must pass 4 tests:

1. Is the resource hard to copy?

2. Is the resource durable – does it have staying

power?

3. Is the resource really competitively superior?

4. Can the resource be trumped by

the different capabilities of rivals?

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 competence
• A Competence is something an
organization is good at doing
• It is always the product of experience,
representing an accumulation of learning
and build up of proficiency in performing
an internal activity

A Competence is an activity that a company has

learned to perform well

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 Core Competence
• A core Competence is a proficiently performed
internal activity that is central to a company’s
strategy and competitiveness
• A core competence is a competitively important
activity that a company performs better that other
internal activities
• A core competence is knowledge based ,residing
in people and in a company’s intellectual capital
and not in its assets on the balance sheets

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Examples: Core Competencies
• Expertise in integrating multiple technologies
to create families of new products
• Know-how in creating operating systems
for cost efficient supply chain management
• Speeding new/next-generation products to market
• Better after-sale service capability
• Skills in manufacturing a high quality product
• Capability to fill customer orders accurately and swiftly

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 Distinctive Competence

• A distinctive competence is a competitively

valuable activity that a company performs better
than its rivals:-it thus represents a competitively
superior resource strengths
• .A distinctive competence thus signifies even
greater proficiency than a core competence

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 Examples: Distinctive
Competencies
Toyota Starbucks
Low-cost, high-quality Innovative coffee drinks and
manufacturing of motor store ambience
vehicles

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 Strategic Advantage V/s
Competitive advantage
• Strategic
advantage is Competitive
measurable in advantage is a special
absolute terms case strategic
using parameters advantage

• Profitability could Competitive

be used to advantage is relative
measure strategic rather than absolute it
advantage. the can be measured with
higher the better respect to rivals
strategic
advantage
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 Organizational Capability Factors

• Financial Capability
• Marketing Capability
• Operations Capability
• Personnel Capability
• Information Management Capabilitty
• General Management Capability

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 Methods and Techniques used for
organizational Appraisal
• Methods and techniques used for organizational
appraisal can be identical to those used for the
performance evaluation of an organization
• There is difference between evaluation and
appraisal

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 Methods and techniques used for organizational
appraisal can be classified in three parts
• Internal Analysis

a. Value chain Analysis

b. Quantitative Analysis
I. Financial analysis
II .Non financial quantitative analysis

• Comparative Analysis

a) a. Historical analysis
b) b. Industry norms
c) Benchmarking

• Comprehensive analysis

a) Balanced Scorecard
b) Key factor rating

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 Internal Analysis :-Value Chain Analysis

• A method for assessing the strengths and weaknesses

of an organization
• Porter is credited with the introduction of the framework
called value chain
• A value chain is a set of interlinked value creating
activities performed by an organization
• These activities may begin with procurement of basic
raw materials ,go through its processing in various
stages and continue right up to the end products finally
marketed to the ultimate customer

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 Value Chain Activities

• The value chain contains two types of

activities
– Primary activities (where most of
the value for customers is created)
– Support activities that facilitate
performance of the primary activities

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Fig. 4.3: A Representative Company Value Chain

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 Example: Value Chain Activities
for a Bakery Goods Maker
Primary Activities Support Activities
• Supply chain
management
• Quality control
• Recipe development and • Human resource
testing management
• Mixing and baking
• Administration
• Packaging
• Sales and marketing
• Distribution

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 Example: Value Chain Activities
for a Department Store Retailer

Primary Activities Support

• Merchandise selection Activities
and purchasing
• Store layout and product
• Site selection
display • Hiring and training
• Advertising • Store maintenance
• Customer service
• Administrative
activities

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 Example: Value Chain
Activities for a Hotel Chain
Primary Activities Support Activities
• Site selection and • Accounting
construction
• Reservations • Hiring and training
• Operation of hotel • Advertising
properties
• Building a brand and
• Managing lineup
reputation
of hotel locations
• General
administration
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 Quantitative Analysis
• Relying on numbers is a popular technique for
assessing the performance of an organization
• Financial figures are used for performance
evaluation and assessment of strengths and
weakness
• Financial figures are note sole basis for analysis

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 Financial Quantitative Analysis
• Ratio Analysis assesses the liquidity ,profitability, leverage and
activity aspects of any organization
• Financial Ratio Analysis can serve the purpose if at used with care
• Precautions need to be taken to include realizing the limitations of
ratio analysis, taking sufficiently long term data to explore trends
• EVA :- Economic Value added analysis:- is used to determine the
wealth of a company.
• EVA is a representation of the simple idea that an organization
needs to earn more from a business than the cost of the capital
invested in it
• ABC (Activity based Cost) helps in identifying the factors that
Determine the cost and the areas where the cost are actually incurred

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Non Financial Quantitative Analysis
• Non financial quantitative measures
are :-
Employee turnover ,absenteeism, market ranking,
total cycle time of production ,inventory units
used per period, service call rate, number of
patents registered per period and so on

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Qualitative Analysis

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 Comparative Analysis

• Historical Analysis
• Industry Norms
• Benchmarking

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 Historical Analysis
• Historical Analysis is a good measure of how well or badly
an organization has progressed with respect to its own
performance
• Areas which have shown consistently good performance
are an indicator of strengths in those areas and the
reverse is also true
• Continuous improvement which is an important objective
can be measured adequately through historical analysis

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 Limitations of historical Analysis

• Focus should not only be on areas of bad

performance as it only shows where an
organization is lacking
• Historical Analysis is only meant to show up
improvements with regards to one’s own
performance

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 Industry Norms

• Industry to which a business belongs is the most

oblivious choice for comparison
• Limitations:-
1. Comparisons based on industry norms aim at averages
and so could lead to erroneous conclusions regarding
one’s capability
2. Industry norms are aggregated figures of several
different types of firms in the industry
3. Industry norms are difficult to gather and obtain as the
competitors guard the information which may be use to
other firms
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 Benchmarking
• A Bench marking is a reference point for the purpose of
measuring .
• The process of benchmarking is aimed at finding the best
practices within and outside the industry to which an
organization belongs
• The purpose of benchmarking is to find the best performers in
one an area so that one could match one’s own performance
with them or even surpass them
• According APQC
• “the practice of being humble enough to admit that some one
else is better at something and being

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 Performance Benchmarking

• Performance benchmarking is to compare one’s own

performance with that of some other organization for the
purpose of determining how good one’s own
organization is

Process benchmarking
• Is to compare the methods and practices for performing
processes

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Strategic benchmarking
• Is to compare the long term significant decisions and
actions undertaken by other organization to achieve their
objectives
Internal benchmarking
Is a comparison between units or departments of the same
organization
Competitive benchmarking
• Is a direct comparison of one’s own performance against
the best competitors
Functional Benchmarking
Is a comparison of processes or functions against non
competitive organization within the same sector or
technological area
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 Generic benchmarking
• Is a comparison of one’s own processes
against the best practices anywhere in any
type of organization

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 Balanced Score Card
• Proposed by Robert S Kalpan and David P Norton
• Attempts to do away with the bias in performance measures
towards financial indices to build a holistic system of measurement
• Is considered as “a set of measures that gives top managers a fast
but comprehensive view of business
• It includes financial measures that tell the results of action already
taken, it compliments the financial measures on customer
satisfaction, internal processes and the organization’s innovation
and improvement activities
• Balanced scorecard identifies four key performance measures as
follows
• Customer prespective,internal business prespective,innovation and
learning perspective

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 Key Factors Rating
• A compherhensive method which can be
used in association with financial analysis

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For financial Capability Factors
1. Questions related to sources of funds
2. Questions related to usage of funds
3. Questions related to management of
funds

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 For marketing Capability Factors
• Questions related to products or service
• Questions related to price
• Questions related to promotion
• Questions related to integrative and
systemic factors

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 For operations capability factors
• Questions related to the production
system
• Questions related to operations and
control
• Questions related to the R&D system

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For personnel capability factors
• Questions related to the personnel system
• Questions related to organization and
employee characteristics
• Questions related to industrial relations

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 For information management
capability factors
• Questions related to acquisition and retention of
information
• Questions related to the processing and
synthesis of information
• Questions related to retrieval and usage of
information
• Questions related to transmission and
dissemination
• Questions related to integrative ,systematic and
supportive factors

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For general management capability
• Questions related to the general
management system
• Questions related to general management
• Questions related to external relationships
• Questions related to organizational climate

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