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Internal Environment Analysis

INDIAN INSTITUTE OF FOREIGN TRADE. Internal Environment Analysis. BUSINESS STRATEGY. K. Rangarajan. External Environment. What the Firm Might Do. Sustainable Competitive Advantage. Internal Environment. What the Firm Can Do. SWOT Analysis. Strengths Weaknesses Opportunities

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Internal Environment Analysis

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  1. INDIAN INSTITUTE OF FOREIGN TRADE Internal Environment Analysis BUSINESS STRATEGY K. Rangarajan

  2. External Environment What the Firm Might Do Sustainable Competitive Advantage Internal Environment What the Firm Can Do

  3. SWOT Analysis Strengths Weaknesses Opportunities Threats

  4. The purpose of SWOT Analysis It is an easy-to-use tool for developing an overview of a company’s strategic situation • It forms a basis for matching your company’s strategy to its situation

  5. Strengths A STRENGTH is something a company is good at doing or a characteristic that gives it an important capability. Possible Strengths: • Name recognition • Proprietary technology • Cost advantages • Skilled employees • Loyal Customers

  6. Weaknesses A WEAKNESS is something a company lacks or does poorly (in comparison to others) or a condition that places it at a disadvantage Possible Weaknesses: • Poor market image • Obsolete facilities • Internal operating problems • Poor marketing skills

  7. Strengths and Weakness form a basis for INTERNAL analysis By examining strengths, you can discover untapped potential or identify distinct competencies that helped you succeed in the past. By examining weaknesses, you can identify gaps in performance, vulnerabilities, and erroneous assumptions about existing strategies.

  8. Key Questions for Managers in Internal Analysis How do we assemble bundles of Resources, Capabilities and Core Competencies to create VALUE for customers? And... Will environmental changes make our core competencies obsolete? Are substitutes available for our core competencies? Are our core competencies easily imitated?

  9. Core Competencies A Competence is a bundle of skills and technologies rather than a Single discrete skill A Core Competence represents the sum of learning across individual skill sets and individual organisational units. Example: Federal Express Logistics – Meta Competencies Package tracking – Core competencies Bar Coding – Constituent skill ( Learning: Core competence is very unlikely to reside in its entirety in a single individual or a small team)

  10. Core Competencies … (cont) Three Tests of a skill: 1. Customer value ( Honda’s know-how in engines) 2. Competitor Differentiation ( Sony’s Miniaturisation) 3. Extendibility ( SKF’s antifriction ideas, precision engg.)

  11. Core Competencies Why Core Competencies?

  12. Deployment of Canon’s Core Competencies

  13. HOW TO DO AN INTERNAL ANALYSIS Value Chain Analysis Customers demand value from the goods and services they obtain Customer Value Product is unique and different Product is low priced Quick response to specific or distinctive customer needs Value Chain Systematic way of examining organization's functional activities • How well these activities create customer value • Organization's strengths and weaknesses in these areas

  14. SOFT DRINKS Processing ingredients Syrup manufacture Bottling/Can Filling Wholesale distribution Retailing SOFTWARE Programming Disk Loading Marketing Distribution ACCOUNTANCY Human Resource Management Customer Service Value Chain Composition Differs by Industry & by Company

  15. THE VALUE CHAIN SYSTEM Upstream Company Downstream Value Chains Value Chain Value Chains Activities, Costs, and Margins of Suppliers Internally Performed Activities, Costs and Margins Activities, Costs, Margins of Forward Channels END USER Adapted from Michael Porter, Competitive Advantage, 1985.

  16. The value chain Support Activities Firm infrastructure Human resource management Technology development Procurement Inbound logistics Operation Outbound logistics Service • Marketing and sales Primary Activities

  17. Value Chain Activities: Textile Industry Fibre/Yarn Fabric Clothing • > 70% fibre from cotton • % of raw cotton in total fibre is declining • 90% cotton yarn prod. Is in lower counts • Share of cotton fibre consumption has come down • Blended yarn segment is growing fast • 80% yarn from mills sector • Apparel: Rs.700bl – 950 bl. • Highly decentralised 30,000 units +3 million people knitting segment is growing fast. • Tech. Text. Prodn is cap. Intensive. Domestic mkt growing. Weak connected activities • Home Text: organised sector for domestic mkt. Unorganised sector in exports. Exports around Rs70 billion. Fabric export is high than clothing • 60% share of fabric prodn. with powerloom sector • Share of 100% NC is growing • Ratio is – • 1997 – 58:14:28 • 2001 – 50:16:34 • Mill’s share is low Spinning Dyeing/Finishing Weaving Dying /Finishing • 12596 process houses • Majority are hand processing units (83%). • Primitive tech. • More in fabric to clothing stage

  18. Some Aspects in the Textile Value Chain

  19. Multi-plant, multinationals with joint ventures and subsidiaries at appropriate location Decentralized local autonomy but strong central direction • Cycle of goodness in Japan; • Japanese management worldwide • Employee participation and involvement in subsidiaries • Substantial annual investment in assets • Invented own production machinery • Constant innovation in own production machinery YKK Value chain Vertically integrated: manufacture own production machinery Tight stock control systems Coils (semi-finished zips) held in stocks Concentration on key accounts Wide range of sizes and colours with fast deliverlies High quality at competitive prices Heavily automated for cost saving. Production of coils in Japan for subsidiaries worldwode. High quality of produciton Little dependence on suppliers

  20. The value chain of MMTC (Precious Metals) * One of the Biggest Trading Coy. with offices in various parts of India & outside * Centralised authority, with Ltd. autonomy Support Activities Strong national workforce: Opportunities for Trg. & Dev. Substantial investment in assets; R & D, design facilities Centralised procurement of common facilities • Inbound logistics • Import of Gold, Silver & other precious metals • Purchase of Jewellary locally • Operation • Manufacturing of Jewellary • Processing of off-the-shelf supplies • Cutting & polishing of stones • Quality testing of metals • Marketing and sales • Concentration on govt. supplies & exports • Wide range of jewellary & other items • High quality products to International Stds • Service • Exhibitions • Quality testing • Outbound logistics • Decentralised storage points • Supply routing of raw materials • Packaging

  21. Levi Strauss & Co. • World’s largest producer of branded clothing • Second largest maker of Jeans • Levis,Dockers and Slates – Labels • Sales: 1998 - $0.6 billion; 2008 - $ 4.5 billion • Market share: 1998 – 14%; 2008 – 16%

  22. Demand Forecasting Produc- -tion Planning Raw Material Logistics Produc-tion Factory Ware-housing Shipping by Truck Fleet & Common Carrier Distrib. Warehouses ------------ Hub & Spoke Ship to Retail Stores -----------Truck Fleet Retail Outlets Sales & Promo- -tions THE CUSTOMER Market Research Design Research Lead-time Uncertainty Cycle-time Uncertainty and Variation Demand Uncertainty and Variation Schedule Uncertainty and Variation Demand Uncertainty and Variation Schedule Variation Micro Demand Uncertainty Customer Satisfaction Level? Likelihood of Repeat Purchase? 54% of customers generate 90% of sales 76% of women customers not fully satisfied with the purchase F.G. Inventory ~ 15 days F.G. Inventory ~ 100 days R. M. Inventory ~ 15 days WIP Inventory ~ 15 days F.G. Inventory ~ 60 days INVENTORY Average 8 Month Lead-Time Working Capital Investment Heavy Eqp. Cutting (60 ply) Sewing Handling & Shipping Real Estate Investment Vehicles Investment Real Estate Investment Vehicles Investment FIXED ASSETS 500 to 1,000 SKU’s per store, based on local patterns 20,000 SKU’s INVENTORY VARIETY Value Chain of Levi Strauss

  23. Value Chain of Levi StraussLevi’s Personal Pair Value Chain PP Kiosk in Retail Store EDI link to Mfg. Via CCTC Cut the order (1 ply) at Mountain City Sew, Inspect and Pack the Pair at Crystal City Fed. Exp. Directly to the Customer Raw Material Logistics

  24. Never take for granted that core competencies will continue to provide a source of competitive advantage All core competencies have the potential to become Core Rigidities Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats Core Competencies--Cautions and Reminders

  25. WHY DO AN INTERNAL ANALYSIS? • Identify organization’s strengths and weaknesses • Make good strategic decisions • Provide basis for developing strategic alternatives

  26. By studying the external environment Organizations identify what they might choose to do By studying the internal environment Organizations identify what they can do Outcomes

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