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INTERNAL ANALYSIS Concerned with assessment of a firms resource capability to identify strengths and weaknesses of the firm.

. A good strategy takes into account the organizations strengths and weaknesses to exploit opportunities and deal with threats in the external environment. This assessment can further help the firm identify the opportunities and threats in the external environment. Certain opportunities and threats in the external environment are not obvious until internal analyses are done. It is unlikely for strategy to be realistic if the organizations strengths and weaknesses are ignored. A. Functional Approach 1. Disaggregate the organization along functional lines e.g. Marketing, Production, finance, and HRM. 2. Identify characteristics of each functional area e.g. in marketing, the characteristics of the firms distribution channels could be important. 3. Evaluate the functional characteristics to identify inherent strengths and weaknesses. Evaluation is primarily done through comparisons: a. Against past performance is it better or worse?

b. Comparison with the firms other resources and operations or activities. identify core competences. c. Benchmarking against the competitors. What are the firms functional strengths against the competitors? - identify distinctive competences. i.e. what the firm has or does exceptionally well than competitors. Distinctive competences are usually the basis of competitive strategy. Core competences and distinctive go towards garnering of a firms competitive advantage. d. Comparison with Key success factors in the industry - determine whether some of the functional characteristics are among the key success factors. e. Comparison with drivers of change in the industry to determine whether the functional characteristics positively match the drivers. A positive match suggests an opportunity relating to the driver of change. The characteristic, on the other hand, will be a strength which can be used to exploit the opportunity. f. Comparison with industry standards.

g. Comparison with industry dominant economic features to determine whether the characteristics match the positive features. A positive feature is an opportunity which can be exploited while negative feature is a threat. 4. Differentiating key issues (strategic issues) from elephant issues. Key issues are those that make or break. They are the ones around which: objectives are set strategy is formulated

B. Value chain Approach A fundamental assumption in the value chain approach is that the basic purpose of business is to create and deliver value to customers. It views the chain as comprising of various activities that are linked. These activities are internal to the firm and not outsourced. Each activity contributes to value but also cost. Some activities contribute more towards cost than value thus eating into the margins. Thus such activities should be considered for Business Process Reengineering. Value chain is popular with BPR in that it seeks to maximise shareholder value and customer value simultaneously. It has the following steps: 1. Disaggregate the organization into its separate value creation activities. Primary activities - activities directly related to the processing of the product to the customer and include inbound logistics, outbound logistics, Operations (eg quality assurance), Marketing and sales, Service ie after sales service. Support activities e.g HR, Technology Development.

2. Determine the cost and value of each activity, i.e. the margin the profit a firm makes in performing a value creation activity. 3. Evaluate the margin of each activity to determine whether the activity represents a strength or weakness. Evaluation involves comparison against: Past performance, Comparison with the firms other resources and operations or activities, Competitors i.e. benchmarking, Key success factors in the industry, Drivers of change in the industry, Industry standards. 4. Identify key issues as opposed to mere elephant issues. Key issues require strategic attention. Contributions of Internal analysis to strategy development: Advantages of Internal Analysis 1. 2. 3. 4. It is a source of information for strategic planning. Builds organizations strengths. Reverse its weaknesses. Maximize its response to opportunities.

5. 6. 7.

Overcome organizations threats. It helps in identifying core competencies of the firm. It helps in setting of objectives for strategic planning.

8. It helps in knowing past, present and future so that by using past and current data, future plans can be chalked out.

STRATEGIC LEVELS Strategy company changing identifies can be defined as a road map that defines the direction in which a will take in order to achieve its objectives and realize its vision in an ever environemnet by applying its resources and competences. Mintzberg 5Ps: Plan, Ploy, Pattern, Position, Perspective.

Strategy is at 3 levels: 1. Corporate: Highest level of strategic decision-making. Overall purpose and scope of organisation.

Covers objective of the firm, acquisition and allocation of resources and coordination of strategies of various SBUs for optimal performance. Top management. Unstructured decisions made at this level. Focuses on effectiveness.

Two issues have to be resolved here: What business will the company be in? How will the company allocate resources across the business? 2. 3. Business: How to succeed in the market place. Choice must strengthen the companys competitive position. Focus on the SBU. Focuses on effectiveness. Functional or Operational: How to realize the Business and Corporate strategy. Focuses on organizational processes. Focuses on efficiency.

SUSTAINABLE COMPETITIVE ADVANTAGE

Competitive advantage is defined as the strategic advantage one business entity has over its rival entities within its competitive industry. Sustainable competitive advantage is a long-term competitive advantage that is not easily duplicable or surpass able by the competitors. One must consider current competition as well as future entrants. How to develop it

1. 2. 3. 4. 5.

Build on core competences Cost leadership Differentiation Focus Establish Brand Loyalty. Customers will often remain with a brand they have loyalty towards, even though the company does not offer the cheapest or most effective product. Focus on building strong relationships with your customers and delivering a great customer experience and service. 6. Establish Barriers to entry e.g. Patents, exclusive technology. There has been a lot of debate recently about the true value of a patent. While patents are not a cure all, they are an important weapon in an entrepreneurs competitive advantage arsenal. 7. Establish relationships that involve vertical integration. 8. Exclusive ownership of resources. 9. Garnering Govt support so that registration of businesses is limited, taxes high basically ploys that lock out organisations. 10. Continually Innovate. Customers like updates and upgrades. Keeping your product fresh and compatible with the market place (particularly if software), is essential. 11. Hire Connected Team Members. If your market includes large companies and government departments, connections to key individuals within these organizations can dramatically accelerate your ability to meet and secure contracts. Try to have at least one member on your team who is connected. 12. Use Long Term Contracts and Incentives. This step has to be executed carefully, as it can backfire. If you can establish a long term contract with your customer, then clearly they are less likely to switch to a competitor. If you only offer long terms contracts, however, and your competitors are offering short terms contracts, then you are likely to lose business. VISION, MISSION AND VALUES 1. Vision: An expression of managements aspirations for the organisation.

It gives a view of: The business the organisation is in

Where the business is headed The kind of organisation they are trying to create

It should incorporate a standard of performance which should represent the very best attainable by the organisation. Characteristics of a good vision: 1. Clear and concise 2. Inspirational 3. Built around customers 4. Widely shared 5. Linked with daily behavior Vision Levels: a. Entrepreneur level All organisations in a particular field are tied to the entrepreneur of the business/technology/ product. b. Management and Operational Levels Collective sense of the direction of the organisation by members. Visions may be created at various levels: 1. CEO and communicated downwards. 2. Involving all members of an organisation. 3. Management consulting with the members before creating the actual vision. 2. Mission: A statement of the fundamental unique purpose that sets an organisation apart from other organisations and identifies the scope of its operations. While a vision focuses on the future the mission focuses on the present. Characteristics of a good mission: 1. Staying power 2. Communicates what has to be done to achieve the vision. 3. Gives a sense of identity. Components of a Mission statement a. Organizations business Commercial rationale and target market. b. Relationship between the organisation and stakeholders. (PR)

c. Broad goals of the organisation and expected performance. (Motivation of staff) d. A statement of basic organizational policies and aspirations. (Climate) e. Sets out what, where and how of an organisation. Sharing the mission and vision This is necessary so as to: 1. Attract customers. 2. Align members of the organisation and increase their motivation to cooperate. 3. Address concerns of shareholders who are monitoring the companys financial performance. How? 1. Display 2. Pamphlets 3. Opening remarks 4. Recognizing and rewarding behavior that gives prominence to vision and mission. 5. Training members on how to live the vision and mission. 3. Values: A statement of what is regarded as important in an organisation. They are the beliefs held widely and deemed crucial for the success of an organisation. These beliefs and convictions substantially drive behavior of people in an organisation. Values transform a group of strangers into a coherent and committed team. WHY STRATEGIC PLANNING IS IMPORTANT: All organisations are environment dependent and environment serving. Thus strategic management is important to them if they seek to survive and prosper.

Strategic Objectives: These are outcomes that will result in greater competitiveness and stronger long term market position. They are derived from external analysis. They are linked to the strengths and weaknesses and should be able to fully address the opportunities and threats that a firm will face. They are usually set at the higher level. They place a lot of focus on effectiveness. They are medium to long term in nature. They should assume a top down approach. They:

1. Convert mission into performance targets. 2. Create yardsticks against which performance can be compared against. 3. Push a firm to be inventive, intentional and focused. Financial objectives: Outcomes that relate to improving a firms financial performance. Operational/ Tactical Objectives: Outcomes that relate to improving a firms operational efficiency. They are derived from strategic objectives. It is a Shortterm goal whose attainment moves an organization towards achieving its strategic or long-term goals. They are concerned with getting the products to the customers while maximizing the shareholder wealth and maximizing the customer value. They are usually short term in nature. Set by Line managers. Guide day to day behavior. Characteristics of Good Strategic Objectives: Specific Measurable

Achievable Realistic Not abstract but capable of being developed into strategies and action. Time bound Acceptable by those charged with realizing them. Flexible Motivating

Consistent with other objectives In harmony with the vision and mission of the organisation Should be reflective of the external and internal analysis of the organisation

Strategic objectives address: Profitability, Productivity, Competitive position, Employee development, Employee relations, Technology, Public and Social Responsibility, Quality of products or service, Customer care or service. INDUSTRIAL ANALYSIS An industry is a group of firms whose products have the same attributes and may compete for customers. Organisations depend on their external environments. An industrial analysis is carried out so that: To match strategy to the industry conditions To identify opportunities and threats that may be existent. To gauge the attractiveness of the industry. Making entry or exit decisions.

Through this analysis, one can be able to identify:

1. The degree of competition. According to Porter, there are 5 forces in play: a. Threat of new entrants b. Threat of substitutes c. Rivalry between firms. d. Bargaining power of suppliers. e. Bargaining power of customers. Collective force of all five determines the industrys attractiveness. 2. Dominant Economic Features: These include: Market size and growth rate, extent of rivalry (global etc), number of competitors and their relative size, number of buyers and their relative size, Ease of entry and exit, industrial profitability. 3. Drivers of change in the industry: Is the industry environment changing? Could include: product innovation, technological changes, marketing innovations, government policy 4. Key success factors: Things that affect the ability of a company to succeed in the market place. Sound strategy incorporates efforts to be competent in all KSFs and to excel in at least one. WHY FIRMS ARE ASSUMING A MARKET ORIENTED APPROACH 1. They maintain true customer focus. 2. Everyone defines their jobs in terms of satisfying the customer. 3. They conduct regular customer satisfaction surveys. 4. Effective feedback. 5. Encourage feedback. 6. Complaints are taken seriously.

COMPETITOR ANALYSIS Competitors Those firms that sell the same product whether branded or not. e.g. the village farmer supplying fresh milk Vs Brookside. It may also refer to those selling substitutes e.g. soy milk, powdered milk. An analysis helps a firm identify opportunities and threats. One must assess: 1. Who the major competitors are. 2. Competitors systems and processes. 3. Competitors marketing strategy 4Ps.

4. Competitors non generic strategies e.g. intergration, alliances. Porters Generic Strategies model

COST LEADERSHIP BROAD FOCUS NARROW FOCUS Cost leadership Focus Broad

DIFFERENTIATION Differentiation Focus Differentiation Focus Broad Narrow

Cost leadership Narrow Focus

Generic strategies apply across all firms. One must assess at which point the competition falls in the quadrant or if they are stuck in the middle.

5. Competitors current competitive positions. 6. Competitors future goals. 7. Competitors assumptions. 8. Competitors strengths and weaknesses.

Sources of competitor info: Financial reports, Websites, journals, Sales people, customers, distributors, Compes employees, survey research, industrial espionage.

CUSTOMER ANALYSIS A customer is defined as a person who buys a firms products. It could also include those with the POTENTIAL TO BUY AS WELL AS EMPLOYEES. Thus customers may be: a. Internal or external Employees Vs Non employees. b. Consumer or Industrial buyers Households Vs Business purposes. It is VIMP so as to develop strategies to attract and retain customers. Customers issues or questions may be addressed at two levels: 1. Phase one: Provides an understanding of WHO the customer is as well as their BUYING BEHAVIOR. It answers the following questions:

i.

Who are our customers? Develop customer profiles base on geography, demographics, psychological factors

ii. Why do they buy our products? Can refer to theories of motivation e.g. Maslows hierarchy jj. How do they buy our products? The buying process comprises of the following stages: 1.Need or problem recognition. 2.Search for information. 3.Evaluation of alternatives. 4.Purchase decision aggressive marketing may be needed to ensure actual purchase. 5.Purchase act. 6.Post purchase evaluation Expected Vs Actual Perfomance kk. When do they buy our products? Can do profiles based on behavioral factors e.g. buying occcassions ll. Where do they buy our products? An understanding of the distribution channels.

2. Phase 2: Questions that are important for continued relationship with the customer. How can the behavior of our customers be explained? Some of these behavioural factors are: Loyalty status, attitude towards services, usage rate, benefits

STRATEGY IMPLEMENTATION VS FORMULATION

A strategy may be good, but of its implementation is poor, the strategic objective for which it was intended may not be achieved. The four possible strategy implementation outcomes are:

Good

SUCCESS

ROULETTE (GAMBLE)

Poor

TROUBLE Good

FAILURE Poor

IMPLEMENTATION

STRATEGY FORMULATION

For strategy to be successfully implemented it requires two things: a. Operationalising Thus the organization must develop operational plans and tactics through which an otherwise abstract strategy will be implemented. Daily activities must relate to the strategy. Specifies what will be done immediately or within short periods by a functional unit in order to implement a given strategy. b. Institutionalisation Matching strategy to the institutions of the organization. Institutions include: structure, leadership, culture, support systems, processes and policies. Problems in strategy implementation: 1. Poor strategy. 2. Poor implementation 3. Failure to couple strategy development and implementation persons involved in implementation should be involved in its development. 4. Lack of management support. 5. Lack of resources.

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