Organisational Appraisal

Compiled by Dr. P . G . K . Murthy

sources :

1.Crafting and Executing Strategy by Thompson ,

Strickland , Gamble and Jain
2.Exploring Corporate Strategy : Text and Cases by
Gerry Johnson , Kevan Scholes ,Whittington
3.Strategic Management by Ireland , Hoskisson , Hitt
4. Strategic Management and Policy by Azhar Kazmi

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 Liberalisation and
Globalisation
 Indian Industry exposed to sudden spurt
in competition due to
 - reduction in Custom Tariffs
 - removal of restrictions on imports
 -new ventures by MNCs
 - expansion and diversification by
existing players

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 Necessity is the mother of
invention To survive and grow in
competition , Indian Industry
realised to focus on
 Quality and Standardisation
Quality and Standardisation
 Reduce costs
 Become customer friendly
 International business
practices
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 Sources of Competitive Advantage
 A low cost advantage may stem from such
disparate sources as a low cost physical
distribution system , a highly efficient
assembly process , or superior sales force
distribution .
 Differentiation can stem from similarly diverse
factors including the procurement of high
quality raw materials , a responsible order
entry system , or superior design system .

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Framework for the Development of Strategic
Advantage by An Organization

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 Dynamics of Internal Environment
 Organisational Resources : According to to
Barney (1991) , a firm is a bundle of resources
– tangible and intangible- that include all assets
, capabilities , organisational processes ,
information , knowledge .
 Barney says that resources of an organization
can ultimately lead to strategic advantage .
Strategic advantage would flow from the
efficiency of with which resources would be
utilized .

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 Dynamics of Internal Environment
 Organizational Behaviour is the
manifestation of the various forces and
influences operating in the internal
environment of an organization that create
the ability for , or place constraints on , the
usage resources . Organizational
behaviour is unique in the sense that it
leads to the development of a special
identity and character of an organization .

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 Dynamics of Internal Environment
 Strengths and Weaknesses : Strength is an
inherent capability which an organization can
use to gain strategic advantage . A weakness is
an inherent limitation or constraint which creates
a strategic disadvantage for an organization .
 Synergic Effects : Synergy is an idea that the
whole is greater than or less than the sum of its
parts . For example , two strong points in a
particular functional area add up to some thing
more than double the strength .

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 Single – Industry Firm

Firm
Supplier Channel Buyer
Value
Value Chain Value Chain Value Chain
Chain

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 Diversified Firm

Business Unit
Value Chain

Supplier Business Unit

Value Chains Value Chain Channel Buyer Value Chains
Value Chains

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 What is meant by Core
Competence ?
 Core Competence may be defined
as inherent superior strength of
an organisation in a product or
service line arising out of
Technology , Governance Process
( ability to work across business
and functional unit boundaries )
and Collective Learning :

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 Core competency

 Core competences are activities that

critically underpin an organisation’s
competitive advantage . They create and
sustain ability to meet the critical
success factors of particular customer
groups better than other providers in
ways that are difficult to imitate .

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 Criteria for Core Competency

 1. The competence must relate to an

activity or process that fundamentally
underpins the value in the product or
service features .
 2.The competence leads to levels of
performance from an activity or process
that are significantly better than
competitors .
 3.The competence must be robust .

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Core Competencies for Consumer
Goods

 1. Brand 2. Innovation
 Success : 1.Good Service 2.Reliable delivery:
 1.Solving buyers’ problems – 1. Good
personal relaions with buyers : Accepting
returned goods :3.Fast turnaround of orders .
 Using sub contractors for transport
 24 hour dispatch

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 Methods and Techniques for
Organizational Appraisal
 A. Internal Analysis :
 1. VRIO framework
 2. Value chain Analysis
 3. Quantitative analysis
 a) Financial Analysis
 b) Non-financial Analysis
 4. Qualitative Analysis

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 Methods and Techniques for
Organizational Appraisal
 B. Comparative Analysis
 1. Historical analysis
 2. Industry norms
 3. Benchmaking
 C. Comprehensive Analysis
 1. Key factor rating
 2. Business intelligence systems
 3. Balance scorecard
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 VRIO framework
 VRIOstands for valuable , rare , inimitable and
organized for usage .
 Valuable : Organizational capabilities
possessed by the firm that help it to generate
revenues by capitalizing on opportunities
and/or to reduce costs by neutralizing threats .
 Rare : Organizational capabilities possessed by
the firm exclusively or just by a few other firms
in the industry . Capability derived out of an
exclusive location could be an example .

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 VRIO framework
 Inimitable : Organizational capabilities
possessed by the firm that are impossible , very
difficult to duplicate or substituted by the
competitors .

 Organized for usage : The organizational

capabilities possessed by the firm that could
be used through appropriate organizational
structure , business processes , control
systems and reward systems .

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 Value
 Value is measured by total revenue a
reflection of the price a firm’s product
commands and the units it can sell .
 Value activities classified into Primary and
Supportive .

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 Primary Activities
 Inbound Logistics : Activities associated with
receiving , storing , and disseminating inputs
to the product such as material handling ,
warehousing , inventory control , vehicle
scheduling , and returns to suppliers .
 Operations : Activities associated with
transforming inputs into the final product firm ,
such as machining , packaging , assembly ,
equipment , maintenance , testing , printing ,
and facility operations .
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 Primary Activities
 Outbound Logistics : Activities associated with
collecting , storing and physically distributing the
product to buyers , such as finished goods
warehousing , material handling , delivery vehicle
operations , order processing , and scheduling .
 Marketing and Sales : Activities associated with
providing a means by which buyers can purchase the
product and inducing them to do so , such as
advertising , channel selection , channel relations and
pricing .
 Service : Activities associated with providing service
to enhance or maintain the value of the product
adjustment .

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 Supportive Activities
 Procurement
 Technology Development
 Human Resource Management
 Firm Infrastracture

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 Activity Types
 Within category of primary and support activities
, there are three activity types that play a
different role in competitive advantage :
 1.Direct : Activities directly involved in creating
value for the buyer , such as assembly , parts
machining , sales force operation , advertising ,
product design , recruiting , etc.
 Indirect : Activities that make it possible to
perform direct activities on a continuing basis
such as maintenance , vendor record keeping ,
etc.
 Quality Assurance : Activities that ensure the
quality of other activities such as monitoring ,
inspecting , testing , reviewing , checking ,
adjusting , and reworking .
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 Linkages among value activities arise from a
number of generic causes :
 The same function can be performed in different
ways : High quality inputs or high quality assurance :
 The cost or performance of direct activities is
improved by greater efforts in indirect activities Better
scheduling (an indirect activity ) reduces sales force
travel time or delivery vehicle time .
 Activities performed inside a firm reduce the need to
demonstrate explain or service a product in the field .
 Quality assurance function can be performed in
multiple ways .

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 Vertical Linkages
 Linkages exist not only within a firm’s
value chain but between a firm’s chain and
the value chains of suppliers and
channels .
 The linkages between suppliers’ value
chain and a firm’s value chain provide
opportunities for the firm to enhance its
competitive advantage .
 Channel linkages are similar to supplier
linkages .
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Competitive Scope and Value Chains
 Competitive scope can have a powerful effect on
competitive advantage , because it shapes the
configuration and economies of the value chain .
 Segment scope : The product varieties produced and
buyers served
 Vertical scope : The extent to which activities are
performed in-house instead of by independent firms .
 Geographic scope : The range of regions , countries or
groups of countries in which a firm competes with a
coordinated strategy .
 Industry scope : The range of related industries in which
the firm competes with a coordinated strategy .

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 Coalition and Scope
 A firm can pursue the a broader scope
internally or enter into coalitions with
independent firms to achieve some or all
of the same benefits .Coalitions are long
term agreements among firms that go
beyond normal transactions but fall short
of mergers .
 Examples : technology licenses , supply
agreements , marketing agreements , and
joint ventures .

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The Value Chain and Organisational Structure
 The value chain provides a systematic
way to divide a firm into its discrete
activities and thus can be read to examine
how the activities in a firm are and could
be grouped .

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What is meant by Competitive
Strategy ?
 A Strategythat gives advantage
to compete successfully with
competitors could be under
stood as Competitive Strategy .

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 Various functional areas in a
Company
 Corporate Planning
 Purchases
 Stores and Inventory Control
 Production
 Finance
 Accounting and MIS
 Marketing
 Advertisement and Sales Promotion
 Personnel and Administration
 HR and Training
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 Various kinds of industries
 Commodity Process Industries
 Agro Commodities
 Mineral and Metal Based industries
 Chemical
 Capital Goods Sector
 Hi -Tech Industries
 Service Industries
 Hospitality , Finance , Marketing ,
Consultancy , Education etc.
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 Inter-Related Aspects which
make Core Competence
 Production Technologies
 Human Processes
 Systems
 Customer Synergies

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 Cost Efficiency

 Cost efficiency is a measure of the

level of resources needed to create a
given level of value . Sources are :
 1. Economies of scale
 2.Supply costs
 3.Product or process design
 4.Experience

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 Effectiveness
 Effectiveness is the ability to meet customer
requirements on product features at a given
cost . It will be achieved only if managers are
able to do the following :
 Clear about which product feaures are valued
by customers .
 Drivers of uniquness within the organisaion
 Price that customers ready to pay for
uniqueness
 Product’s featurs are communicated .
 Competitive advantage is more of product
service rather than product per se .
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 Critical Success Factors and
Core Competencies that change
over time
 Market Access :1. Global network . 2.
Overseas plants .
 Quality / Reliability : 1. Production
processes 2. Supplier management
 Product features (at low volume ) : 1.
Life style niche marketing .
 2. ‘ Agile ‘ Production

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 Historical Comparison
 Historical comparison looks at the performance of an
organisation in relation to previous years in order to
identify any significant changes .
 Industry norms compare the performance of organisations
in the same industry or sector against a set of agreed
performance indicators
 Benchmarking Health Care
 In January 2001 , Sunday Times -Hospital Guide (in
association with Dr. Foster ) published the first guide to
hospitals in Britain :
 Mortality Index :
 Doctors per 100 beds
 Nurses per 10 beds
 Waiting time for in-patient treatment
 Waiting time for out-patient treatment
 Patients trust in doctors
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 Sources of Robustness
 A. Rarity : 1.Unique Resources .2. Preferred
access . 3. Situation dependent :4. Sunk costs .
 B. Complexity : 1.Internal linkage :2. External
linkages .3. Linked technologies .
 C. Causal ambiguity : Competitors are unclear
about bases of success .
 Culture : Culturally embedded comptences :
Dificult to identify .
 Knowledge creation and integration

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 Knowledge creation and
integration
 Socialisation : Honda set up ‘ brain storming
campus ‘ .to solve problems in developing projects .
 Externalisation : In Canon’s case the origin of using
a disposable drum came from Hiroshi Tanaka – a
team leader of task force .
 Combination : EPOS –Electronic Point of Sale –
produced a unique classification of stores and
shoppers and were capable of pinpointing who
shopped where and how
 Internalisation : GE documented all customer
enquiries and complaints ( more than 14, 000 per
day ) and then programmed into 1.5 million potential
problems and their solutions .
 Spiral of knowledge creation :
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 Reliance Industries Ltd
 Started trading inPFY
 Manufacturing PFY
 Refineriery
 Oil exploration
 A Back ward integration - Core
Competence in Petrleun Technology and
Processes .

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 Using Core Competence as
competitive strategy companies
opted for
 Expansions - Horizontal
 Expansion - vertical - backward or forward
.integration .
 Merger and Amalgamation with a company
engaged in same or similar line -
 Getting controlling stake in a company
having similar product line and
technological strengths

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Philips / Sony / BPL/Videocon
 Radios
 Tape Recorders
 Televisions and VCRs
 Washing machines
 Pencil Bastteries
 Mobile phones
 Core competence Electronics and
Targetting family segment business
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 Bajaj / Hero/TVS
 Scooters
 Motor bikes
 Mopeds

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General Motors , Ford , Toyoto,
Suzuki
 Cars
 Vans
 Trucks

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 Ashok Leyland , TELCO,
Mahindra & Mahindra
 Trucks
 Vans
 Medium and Heavy Motor
Vehicles .

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 Bayers , Du pont ,
 Industrial Chemicals

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 Indian MNCs abroad
 Swaraj Paul Capro group in steel
industry group in UK
 Mittals in different countries
 Tatas take over of Corus , Jaguar , Tetley .
 AV Birla Group , Piramals have huge
presence in Europe , Asia and Africa .

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 Why companies diversify in to industries
where they lack core competence
 1. To spread risk over different industrial
segments . rather than concentrate on only
one industry .
 2. When a company has huge reserves and
surpluses , promoters’ decide to expand
their industrial empire and they diversify in
to new areas for the following reasons :
 a) Current industrial segment has reached
saturation and has huge capacities .
 b) Find new sun rising industries where the
growth Develped
potentials are excellent . 47
by Dr. P G K Murthy
 When promoters are very big
industrial houses . The industrial
houses diversify in to new areas
 Promoters place themselves more as
entrepreneurs leaving all managerial
functions to top class Professionals in the
world . The best examples in the world are
 1. GE
 2. 3 M
 3. Lever
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 When promoters are very big
industrial houses . The industrial
houses diversify in to new areas
 In India , it is Government of India where
industries spread over highly capital
intensive Oil and Petroleum to TVs ,
 Many State Governments role of Promoter
very effectively .
 Tata Group
 Birlas
 Hindustan LeverDevelped by Dr. P G K Murthy 49
Industrialists also realised core
competency does not ensure
success always :Examples are
 Binny group which was wedded to only
textiles .
 Kirloskars by concentrating in
Engineering and Electrical industries

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 To conclude Like any other strategy , Core
Competence as Competitive Strategy also to
be used with caution : Care competence as
strategy could fail in areas :
1. If over all demand is shrinking due
slackness in demand like in case of jute and
cotton and handloom
2. If the overall performance in given
industrial segment is below industrial average
for various reasons
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