INDIAN INSTITUTE OF FOREIGN TRADE BUSINESS STRATEGY Internal Environment Analysis K. Rangarajan
External Environment What the Firm Might Do Sustainable Competitive Advantage Internal Environment What the Firm Can Do
SWOT Analysis Strengths Weaknesses Opportunities Threats
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
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
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
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.
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?
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)
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. )
Core Competencies Why Core Competencies? Canon Optics, imaging, microprocessor controls Fax Machines, cameras, desk-top printers, Photocopiers, Image scanners Sony Miniaturization, Microprocessor design, ultra-thin precision casting Miniature card calculators, pocket TVs, digital watches, video tape recorders etc 3 M Substrates, coatings, adhesives Magnetic tapes, photographic film, coated abrasives, post-it notes, sticker products Honda Design & Mfg. of engines and power trains Cars, motorcycles, generators, lawn mowers
Deployment of Canon’s Core Competencies Product Precision Mechanics Fine Optics Basic camera X X Compact fashion camera X X Electronic camera X X EOS autofocus camera X X X Video still camera X X Laser beam printer X X Color video printer X X X Bubble jet printer X X X Basic fax X X X Laser fax X X X Calculator Microelectronics Electronic Imaging X Plain paper copier X X Battery PPC X X Color copier X X Laser copier X X Color laser copier X X Still video system X X Laser imager X X Cell analyzer X X Mask aligners X X X Stepper aligners X X X Excimer laser aligners X X
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
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
THE VALUE CHAIN SYSTEM Upstream Value Chains Activities, Costs, and Margins of Suppliers Company Value Chain Downstream Value Chains Internally Performed Activities, Costs and Margins Activities, Costs, Margins of Forward Channels END USER Adapted from Michael Porter, Competitive Advantage, 1985.
The value chain Support Activities Firm infrastructure Human resource management Technology development Procurement Inbound logistics Operation Outbound logistics Marketing and sales Primary Activities Service
Value Chain Activities: Textile Industry Fibre/Yarn Fabric • > 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 ng S i inn p • 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 W • Apparel: Rs. 700 bl – 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 Rs 70 billion. Fabric export is high than clothing g n ishi /Fin g in eav Clothing Dying /Finishing • 12596 process houses • Majority are hand processing units (83%). • Primitive tech. • More in fabric to clothing stage eing Dy
Some Aspects in the Textile Value Chain Description Link in the VC Strategy for Capturing Value 1. Better design, sourcing, production, logistics and inventory management Inbound Logistics Operations Outbound Logistics 1. Reduce delay in the key steps of SCM 2. Shorten the Cycle time 3. Reduce unplanned shipments 2. Ability to reach low cost supplier given changes in tariffs, labor rates and exchange rates Inbound logistics Marketing & Sales 1. Reach low-cost supplier to reduce COGS 3. Increase revenue from current customer Marketing and Sales After Sales Service 1. Ensure timely availability of high-fashion trendy or highly seasonal goods 4. Reduce process costs Operations 1. Establish Business Processes for sourcing and logistics functions.
YKK Value chain 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 Vertically integrated: manufacture own production machinery Little dependence on suppliers Heavily automated for cost saving. Production of coils in Japan for subsidiaries worldwode. High quality of produciton Tight stock control systems Coils (semifinished zips) held in stocks Concentration on key accounts Wide range of sizes and colours with fast deliverlies High quality at competitive prices
The value chain of MMTC (Precious Metals) Support Activities * One of the Biggest Trading Coy. with offices in various parts of India & outside * Centralised authority, with Ltd. autonomy Strong national workforce: Opportunities for Trg. & Dev. Substantial investment in assets; R & D, design facilities Centralised procurement of common facilities Inbound logistics Operation Outbound • Manufacturing logistics Marketing and sales • Concentrati • Import of of Jewellary • Decentralised on on govt. Gold, Silver • Processing of storage points supplies & & other off-the-shelf exports precious • Supply supplies metals routing of raw • Wide range of jewellary materials • Purchase of • Cutting & & other items polishing of Jewellary • Packaging • High quality stones locally products to • Quality testing International of metals Stds Service • Exhibitions • Quality testing
Levi Strauss & Co. ØWorld’s largest producer of branded clothing ØSecond largest maker of Jeans ØLevis, Dockers and Slates – Labels ØSales: 1998 - $0. 6 billion; 2008 - $ 4. 5 billion ØMarket share: 1998 – 14%; 2008 – 16%
Value Chain of Levi Strauss Demand Forecasting Market Research Produc-tion Planning Raw Material Logistics Production Factory Warehousing Shipping by Truck Fleet & Common Carrier Distrib. Warehouses ------Hub & Spoke Ship to Retail Stores -----Truck Fleet Retail Outlets Sales & Promo-tions THE CUSTOMER Design Research Lead-time Cycle-time Uncertainty and Variation INVENTORY R. M. Inventory ~ 15 days WIP Inventory ~ 15 days Demand Schedule Uncertainty and Variation F. G. Inventory ~ 15 days Demand Uncertainty and Variation F. G. Inventory ~ 100 days Micro Demand Uncertainty Customer Satisfaction Level? F. G. Inventory ~ 60 days Schedule Variation 54% of customers generate 90% of sales Average 8 Month Lead-Time FIXED ASSETS INVENTORY VARIETY Heavy Eqp. Cutting (60 ply) Sewing Handling & Shipping Real Estate Investment Vehicles Investment 20, 000 SKU’s Real Estate Investment Vehicles Investment Working Capital Investment 500 to 1, 000 SKU’s per store, based on local patterns Likelihood of Repeat Purchase? 76% of women customers not fully satisfied with the purchase
Value Chain of Levi Strauss Levi’s Personal Pair Value Chain PP Kiosk in Retail Store Cut the order (1 ply) at Mountain City EDI link to Mfg. Via CCTC Raw Material Logistics Sew, Inspect and Pack the Pair at Crystal City Fed. Exp. Directly to the Customer
Core Competencies--Cautions and Reminders 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 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
WHY DO AN INTERNAL ANALYSIS? • Identify organization’s strengths and weaknesses • Make good strategic decisions • Provide basis for developing strategic alternatives
Outcomes By studying the external environment Organizations identify what they might choose to do By studying the internal environment Organizations identify what they can do
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