Organisational appraisal

Learning objectives
Explain the manner in which strategic and competitive
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 appraisal
Prepare Strategic Advantages Profile (SAP) for an
organisation

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 Framework for the development of
strategic advantage by an organisation
STRATEGIC
ADVANTAGE

ORGANISATIONAL
CAPABILITY

COMPETENCIES

SYNERGISTIC
EFFECTS

STRENGTHSAND
WEAKNESSES

ORGANISATIONAL ORGANISATIONAL
RESOURCES BEHAVIOUR

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Organisational capability
factors
Finance capability
Marketing capability
Operations capability
Personnel capability
Information capability
General management capability

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 Finance capability
It relates to the availability, usages and management of funds and all
allied aspects that have a bearing on an organization's capacity and
ability to implement its strategies.

Typical strengths that support financial capability

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

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 Marketing capability

 It relates to pricing, promotion and distribution of products or

services, and all the allied aspects that have a bearing on an
organization’s capacity and ability to implement its strategies.

Typical strengths that support financial capability

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

6
 Operations capability

It relates to the production of products or services, use of material

resources and all allied aspects that have a bearing on an organization's
capacity and ability to implement its strategies.

Typical strengths that support operations capability

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

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 Personnel capability
It relates to the existence and use of human resources and skills, and
all allied aspects that have a bearing on an organization's capacity and
ability to implement its strategies.

Typical strengths that support personnel capability

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

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 Information capability

It relates to the design and management of the flow of information

from outside into, and within an organization for the purpose of
decision‐making and all allied aspects that have a bearing on an
organization's capacity and ability to implement its strategies.

 Typical strengths that support Information

management capability
 Ease and convenience of access to information sources
 Widespread used of computerized information system
 Positive attitude to sharing & disseminating information
 Presence of foolproof information security system
 Top mgt understanding of IT & its application within the
organization
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 General management
capability
It relates to the integration, co‐ordination and direction of the functional
capabilities towards common goals and all allied aspects that have a
bearing on an organization's capacity and ability to implement its
strategies.

Typical strengths that support General mgt capability

 Effective system for corporate planning
 Control, reward and incentive system for the employees
 Favorable corporate image
 Development oriented organizational culture
 Commonly being perceived as a good organization to work
for

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Methods and techniques for organisational
appraisal: Internal analysis
VRIO framework
Value chain analysis
Quantitative analysis
 Financial analysis (Ratio Analysis)
 Non‐financial analysis (Employee turnover, absenteeism, market
ranking, service call rate, no. of patents registered per period, etc.)

Qualitative analysis

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How organisational capabilities contribute to
strengths and weaknesses

Are the Are the Are the capabilities Are the capabilities Are the capabilities strengths
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 J.B. Barney Gaining and Sustaining Competitive Advantage, (Reading, MA: Addison–
Wesley Publishing Company, 1997) Tables 5.2 and 5.3, p. 163.

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Porter’s generic value
chain
Firm infrastructure

Human Resource Management

Support activities

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
Historical analysis
Industry norms
Benchmarking

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Methods and techniques for organisational
appraisal: Comprehensive analysis

Key factor rating

Business intelligence systems
Balanced scorecard

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 Key factor rating:-

It is a very comprehensive method taking a holistic

view of the organizational performance. It takes in to
account key factors in several areas & then evaluates
performance
 Business Intelligence System

• Business intelligence is comprised of information

that contains patterns, relationships, and trends about
customers, suppliers, business partners, and
employees.
• Business intelligence systems process, store, and
provide useful information to users who need it, when
they need it.
 Business Intelligence System

• A business intelligence (BI) system is an

information system that employs business
intelligence tools to produce and deliver
information.
• Business intelligence tools are computer
programs that implement a particular BI
technique. The techniques are categorized three
ways:
BALANCED SCORECARD- KAPLAN
& NORTON

4 performance measures
Customer perspective
Internal business perspective
Innovation & learning perspective
Financial perspective
Balanced Scorecard
 Balanced Scorecard – A model integrating financial
and non financial measures. (Kaplan & Norton 1996)

 Causal link between outcomes and performance

drivers of such outcomes

 Translates the vision and strategy of a business unit

into objectives and measures in 4 distinct areas
 Financial
 Customer
 Internal Business process
 Learning and growth
The Balanced Scorecard

Purpose of Balanced Scorecard:

A method of implementing a business strategy by

translating it into a set of performance measures
derived from strategic goals that allocate rewards
to executives and managers based on their success
at meeting or exceeding the performance
measures.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)

Reasons for the Need of a Balanced Scorecard

1. Focus on traditional financial accounting measures
such as ROA, ROE, EPS gives misleading signals to
executives with regards to quality and innovation. It is
important to look at the means used to achieve
outcomes such as ROA, not just focus on the outcomes
themselves.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)
Reasons for the Need of a Balanced Scorecard
2. Executive performance needs to be judged on success
at meeting a mix of both financial and non-financial
measures to effectively operate a business.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)

Reasons for the Need of a Balanced Scorecard

3. Some non-financial measures are drivers of financial
outcome measures which give managers more control
to take corrective actions quickly.
(Example: controls in jet cockpit for pilot)
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)

Reasons for the Need of a Balanced Scorecard

4. Too many measures, such as hundreds of possible cost
accounting index measures, can confuse and distract an
executive from focusing on important strategic
priorities. The balanced scorecard disciplines an
executive to focus on several important measures that
drive the strategy.
Casual link between the measures

Financial Perspective
How do we look to
our Shareholders?

Customer Internal Business

Perspective Perspective
How do our customers What we must excel
look at us? at?

Learning and Growth

Perspective
How can we continue to
improve?
BSC: Causal Relationships

Strategy

Customer Financial

Internal Process

Learning
Linking BSC and Strategy

Learning & Growth

Drivers  Outcomes

Strategic Internal Process

Initiatives Drivers  Outcomes
Financial
Goals

Customer Perspective
Drivers  Outcomes
Balanced Scorecard: An Experience of ICICI Bank
(source: icici website)

Key challenges

Rapid growth in employee base – fresh and lateral recruits

Building knowledge and skill base
Ensuring adequate focus on multiple perspectives
Growth, profitability, service levels, building talent
Ensuring consistent implementation of strategy across the
organisation
Aligning organisational, business-level and individual goals
Incentivising achievement of the goals set
We were seeking a strategic framework that would enable this…..
 Earlier performance management framework

Primarily focused on financial aspect

Other perspectives covered qualitatively
“Input” rather than “output” based: focus on “work done”
rather than “goals achieved”

Did not meet the need for additional perspectives

Retail strategy required service focus
Wholesale banking required focus on transaction capabilities
and quality of credit origination
 Balanced scorecard at ICICI Bank - Stage I

Re-defined and expanded financial perspective

Growth, market share, profitability and credit costs

Introduced customer perspective: concept of service levels as an

area of performance evaluation
Customer satisfaction scores

Introduced process perspective: focus on building a process

orientation in the organisation

Learning perspective: focus on re-skilling for existing employees

and speed-to-job for new recruits
 Balanced scorecard at ICICI Bank - Stage II

Further development and detailing of customer service and

process perspectives

Specific measures of performance introduced

Branch service quality scores
Turn around time (TAT) benchmarks
Good order index for client bankers
5S achievement

Focused measures served as enablers for meeting financial goals

 Balanced scorecard at ICICI Bank - Stage III

Learning and development perspective

So far focused primarily on business skills
Commenced activity on building leadership pool

Reducing the number of scorecard templates

Already reduced from 750 to 230 in two years
Planned reduction to about 150

New challenges
Scorecards for operations in new geographies outside India
 Lessons from ICICI Bank
experience

Performance measures should be output rather than input

based
People should be assessed on goals not on transactions
Removes ambiguity from performance management
Scorecard need not be balanced for individuals but for
business unit as a whole
All perspectives may not apply to all people
Need for scorecard templates
Ensures consistency
Number of templates should be rationalised based on
number of different job descriptions
Lessons from ICICI Bank
experience…

Banks, like other business organisations, are operating in an

increasingly complex environment
In this competitive paradigm, optimally directing all resources
towards organisational goals in a focused manner is the key to
access
Having a strategy is not good enough
The strategy must be
Articulated
Understood
Executed
The balanced scorecard is a tool that helps communicate strategy
and goals across the organisation
Lessons from ICICI Bank
experience…

The balanced scorecard at ICICI Bank has helped achieve:

Rapid business growth
Strategic consistency despite growing scale and diversity
Systematic and objective performance evaluation

The balanced scorecard can help to build a platform for sustained

future growth and value creation
 Strategic advantage profile (SAP)
-------------------------------------------------------------------------------
Capability factor Nature of impact Competitive strength
or weaknesses
-------------------------------------------------------------------------------
Finance capability

Marketing capability

Operations capability

Personnel capability

Information capability

General management
capability

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