Techniques for

organizational

appraisal

STRATEGIC MANAGEMENT

Shikha Sota

Value Chain

Analysis

Shikha Sota

Framework that companies can use to identify

and evaluate the ways in which their resources

and capabilities can add value is value chain

analysis

Michael E. Porter introduced this framework in

the year 1985

Enables companies to understand which parts

of their operations or activities create value by

segmenting the value chain into primary and

secondary activities

Shikha Sota

Introduction

Shikha Sota

Diagram

Primary activities, shown vertically, represent

traditional line activities such as inbound logistics,

operations, outbound logistics, marketing and sales,

and service.

Support activities, shown horizontally, are

represented by a company’s staff activities and

include its financial infrastructure, human resource

management practices, technological

development, and procurement activities.

Value Chain

Shikha Sota

Primary activities, shown vertically, represent

traditional line activities such as inbound logistics,

operations, outbound logistics, marketing and sales,

and service.

Support activities, shown horizontally, are

represented by a company’s staff activities and

include its financial infrastructure, human resource

management practices, technological

development, and procurement activities.

Value Chain

Shikha Sota

Inbound Logistics

Examine all activities related to

Receipt

Control

Warehousing

Inventory

Distribution of raw materials or component parts

into the production process.

Primary activities

Shikha Sota

Value Chain

Operations

Activities to be examined are all those necessary to

convert the inputs (raw materials or components)

available as a result of inbound logistics into finished

products.

Examples include machining, assembly, equipment

maintenance, and packaging.

Primary activities

Shikha Sota

Value Chain

Outbound Logistics

Company’s activities involved with

Collection

Storage

Physical distribution of products to customers.

Examples include warehousing or storage of finished

products, material handling, and order processing.

Primary activities

Shikha Sota

Value Chain

Marketing and Sales

Several marketing and sales activities must be

completed to both induce customers to purchase

products and ensure that products are available.

Developing advertising and promotion campaigns

Selecting and developing distribution channels

Selecting, training, developing, and supporting a

sales force.

Primary activities

Shikha Sota

Value Chain

Service

These are the activities that a company offers to

enhance or maintain a product’s value, including

installation, product use training, adjustment, repair,

and warranty services.

Primary activities

Shikha Sota

Value Chain

Procurement

Activities completed to purchase the inputs needed

to produce a company’s products,

Including items consumed or used in the

manufacturing process (such as raw materials or

component parts), supplies, and fixed assets

(machinery, equipment and facilities).

Support activities

Shikha Sota

Value Chain

Technological Development

All activities that are completed to either improve a

company’s products or its production processes.

This includes basic research, process and

equipment design, product design, and servicing

procedures.

Support activities

Shikha Sota

Value Chain

Human Resource Management

These activities are related to the recruiting, hiring,

training, developing, and compensating (including

performance assessment and reward systems) of a

company’s employees.

Support activities

Shikha Sota

Value Chain

Company Infrastructure

These activities support the activities performed in the company’s value chain, including general management practices, planning, finance, accounting, legal, and government relations.

By performing its infrastructure related activities, a company identifies external opportunities and threats, and internal strengths and weaknesses related to company resources and capabilities, and supports or nurtures its core competencies.

Support activities

Shikha Sota

Value Chain

Quantitative

analysis

Quantitative analysis

Financial analysis

Non financial analysis

Financial Analysis

Ratio analysis

EVA (Economic Value Added)

ABC (Activity Based Costing)

Non-Financial AnalysisEverything can not be expressed in monetary

terms

Goodwill, employee morale, service call rate,

inventory units used per period, absenteeism

Comparative

analysis

Comparative analysis

Historical analysis

Industry norms Benchmarking

Historical analysis

Comparison with one’s own performance over a

period of time.

Graphical representation of company’s

performance

Comparison can be done to see improvements

& pitfalls

Industry Norms

Comparison with competitors

More specifically, comparison with strategic

groups

Strategic groups are conceptually defined

cluster of competitors that share the same

strategies.

Benchmarking

Benchmark is the reference point for taking

measures against.

Purpose is to find the best performers in an area

so that one could match one’s own

performance with them and even surpass them.

Benchmarking

Performance Benchmarking

Process Benchmarking

Strategic Benchmarking

Benchmarking

Internal Benchmarking

Competitive Benchmarking

Functional Benchmarking

Generic Benchmarking

Comprehensive

Analysis

Key Factor Rating

Organizational Capability Profile (OCP)

Financial Capability Profile

(a) Sources of funds

(b) Usage of funds

(c) Management of funds

Marketing Capability Profile

(a) Product related

(b) Price related

(c) Promotion related

(d) Integrative & Systematic

Key Factor Rating

Operations Capability Factor

(a) Production system

(b) Operation & Control system

(c) R&D system

Personnel Capability Factor

(a) Personnel system

(b) Organization & employee characteristics

(c) Industrial Relations

General Management Capability

(a) General Management Systems

(b) External Relations

(c) Organization climate

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

Financial PerspectiveHow do we look to our Shareholders?

Customer Perspective

How do our customers look at us?

Learning and Growth Perspective

How can we continue to improve?

Internal Business Perspective

What we must excel at?

Balanced Scorecard

Financial Perspective - This consists of costs or

measurement involved, in terms of rate of return on

capital (ROI) employed and operating income of the

organization.

Customer Perspective - Measures the level of customer

satisfaction, customer retention and market share held

by the organization.

Business Process Perspective - This consists of measures

such as cost and quality related to the business

processes.

Learning and Growth Perspective - Consists of measures

such as employee satisfaction, employee retention and

knowledge management.

Balanced Scorecard