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How do we analyze a

Business?

The systems approach to business


• The systems approach assumes that all
organizations are made up of
interdependent parts which can only be
understood by reference to the whole
• Interdependence is the process of
people working together and realizing
that their success depends on the
cooperation of others

• In the systems approach businesses are


viewed as a series of inputs from the
environment , internal processes and
eventual outputs.
• Michael Porter illustrated that each firm is
a collection of activities that are
performed to design, produce, market,
deliver and support its product
• So we come up with the following
model:
Lecture Notes 3

1
Global Global Environment
Ecological
Environment Environmental
Technological
Legal Competitors
Labour
Unions
Strategy

Production Consumers

Marketing

Financial
Inputs Output
Goods
Suppliers /Services
Human Resources

Micro Environment

Political
Market Environment Socio-cultural

Economic
Global Macro Environment
Environment Global Environment

Analysis Method
• First: Focus on the enterprise in the context
of its external macro environment
• Second: Focus on the immediate business
partners, industry or business sector (market
environment)
• Third: Focus on the organization itself, the
value chain and the internal business
processes
• Fourth: Examine the more distant links on it
supply chain
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Business Process
• A business process is a series of
activities that accomplishes a business
objective: which is adding value to input
resources

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Supply chain
• An enterprise’s supply chain
encompasses all of the enterprises
involved in providing a product or
service to an end customer

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What is a value chain?


• The value chain is a set of business
processes through which resources flow, with
the assumption that value is added to the
resources within each business process
• The value chain consists of value activities and
margin (difference between value and cost)
• Value activities are the physical and
technological activities performed by an
organization
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Primary value activities


Porter presented to two types of value
activities, these are primary and support value
activities
• Primary value activities consists of the events
that create customer value and provides
organization distinctiveness in the market place
• They are the critical activities in running the
business
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3
Primary value activities
Porter’s primary value activities include:
• Inbound logistics- activities associated
with receiving, storing, and disseminating
inputs to the products or services
• Operations- activities associated with
transforming inputs into the final products
or services
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Primary value activities


• Outbound logistics- activities associated with
collecting, storing, and physically distributing
the products or services
• Marketing and sales- activities associated with
providing a means by which customers can buy
products and the means for inducing them to
buy
• Service- activities associated with providing
service to enhance or maintain value of the
products or services
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Core competency
• So the manager must make sure that the
firm performs these primary activities well
so as to enable the business to achieve
an advantage over its competitors
(competitive advantage)
• Activities that are done well form the core
competency of that business
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4
Support value activities
Porter’s support value activities include:
• Procurement- the function of purchasing
inputs to a firm’s value chain
• Technology development- the know-how,
procedures, or technology embedded in
processes that are intended to improve
the product, services, and / or process
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Support value activities


• Human Resource Management- activities
that are involved in recruiting, hiring,
training, developing, and compensating
all types of personnel
• Firm infrastructure- activities that support
the entire value chain (e.g. general
management, planning, finance etc )
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• A business can survive only if it adds value to


resources within its processes
• An organization seeks to create value by
providing goods and services customers want.
• Example an airline company creates value by
safely transporting the cargo and passengers in
a timely manner.
• A grocery store creates value by providing food
in a clean and convenient location for
customers to purchase e.g. Woolworths

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5
Business Analysis
So if you want to
analyze the business
you’ll have to look at:

• The internal
environment
ORGANIZATION
Inputs Goods
• The external
Industry environment

• The market
environment

Environment
• Entire supply chain

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Therefore, to really understand and be able to


analyze a business:

1. You must look outside the organization at the


industry, the suppliers, customers and all other
parties (supply chain) that affect organizational
performance so that you can be able to streamline
inter-enterprise activities and gain efficiencies
in operation
2. You must look at the internal operations and
functions
3. You must look at theLecture
external
Notes 3
environment

References
• [1] David Needle, “Business in context: An
introduction to business and its
environment ,” Chapman and Hall, 2nd
Edition.
• [2] Cronje, et al, “Introduction to business
management,” Oxford University Press,
5th Edition.

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