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
ƒIt
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.

ƒTypical strengths that support financial capability

ƒ Access to financial resources
ƒ High level of credit
credit‐worthiness
worthiness
ƒ Harmonious relationship with financial institutions
ƒ Low cost of capital as compared to competitors
ƒ High level of shareholders confidence
ƒ Effective management control system

5
 Marketing capability
ƒIt
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.

ƒTypical strengths that support financial capability

ƒ Wide variety of products
ƒ Better qqualityy of p
products
ƒ Low prices as compared to those of similar products in market
ƒ High quality customer service
ƒ Effective distribution system
ƒ Effective sales promotion
ƒ High profile advertising
ƒ Favorable company and product image

6
 Operations capability
ƒIt
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.

ƒTypical strengths that support operations capability

ƒ High level of capacity utilization
ƒ Favorable plant location
ƒ High degree of vertical integration
ƒ Reliable sources of supply
ƒ Existence of good inventory control system
ƒ Availability of high caliber R & D personnel

7
 Personnel capability
ƒIt
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.

ƒTypical strengths that support personnel capability

ƒ Efficient and effective personnel systems
ƒ Organization perceived as a fair and model employer
ƒ Excellent training opportunities and facilities
ƒ Pleasant working environment
ƒ Highly satisfied and motivated workforce
ƒ High level of organizational loyalty
ƒ Low level of absenteeism

8
 Information capability
ƒIt
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

ƒ Typical strengths that support Information

management capability
ƒ Ease and convenience of access to information sources
ƒ Widespread used of computerized information system
ƒ Positive
P iti attitude
ttit d to
t sharing
h i & disseminating
di i ti information
i f ti
ƒ Presence of foolproof information security system
ƒ Top
p mgtg understandingg of IT & its application
pp within the
organization
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 General management
capability
ƒIt
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.

ƒTypical strengths that support General mgt capability

ƒ Effective system for corporate planning
ƒ Control, reward and incentive system for the employees
ƒ Favorable corporate image
ƒ Development
D l t oriented
i t d organizational
i ti l culture
lt
ƒ Commonly being perceived as a good organization to work
for

10
Methods and techniques for organisational
appraisal: Internal analysis
ƒVRIO framework
VRIO f k
ƒValue chain analysis
ƒQuantitative analysis
ƒ Financial analysis  (Ratio Analysis)
ƒ Non‐financial analysis (Employee turnover, absenteeism, market 
ranking, service call rate, no. of patents registered per period, etc.)

ƒQualitative analysis

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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.

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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

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Methods and techniques for organisational
appraisal: Comparative analysis
ƒHistorical analysis
Hi i l l i
ƒIndustry norms
ƒBenchmarking

14
Methods and techniques for organisational
appraisal: Comprehensive analysis
ƒKey factor rating
K f i
ƒBusiness intelligence systems
ƒBalanced 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

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 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

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