ORGANIZATIONAL ANALYSIS
OF STRENGTHS AND WEAKNESSES
• HAS OUR ORGANIZATION BEEN FINANCIALLY COMPETITIVE?
• SCRUTINIZE FINANCIAL STATEMENTS
• WERE OUR STRATEGIC MARKETING OBJECTIVES ACHIEVED?
• STRATEGIC CORPORATE OBJECTIVES
• ARE OUR PRICES AND COSTS COMPETITIVE?
• VALUE CHAIN ANALYSIS
• WHAT ARE OUR DISTINCTIVE COMPETENCIES & RESOURCES?
• PERSONNEL, STRUCTURE, PHYSICAL RESOURCES, DEPARTMENTS
• HOW STRONG IS OUR COMPETITIVE POSITION?
• COMPETITIVE ASSESSMENT WITH KEY SUCCESS FACTORS
• HOW WELL ARE OUR PRESENT STRATEGIES WORKING?
• COMPETITIVE, CORPORATE, FUNCTIONAL
IN SUMMARY, WHAT ARE THE TOP STRENGTHS AND THE
GREATEST WEAKNESSES THIS ORGANIZATION POSSESSES?
ORGANIZATIONAL AUDITS
FINANCIAL & MARKET PERFORMANCE (Strengths/Weaknesses)
FINANCIAL INDICATORS
–
RATIOS, FINANCIAL COMPARISONS, TRENDS
STRATEGIC MARKET INDICATORS
–
MARKET SHARE, PENETRATION, TRENDS
INTERNAL ORGANIZATION (Distinctive Competencies/Weaknesses)
PERSONNEL -- Top Management, Professional Expertise
STRUCTURE -- Authority, Accountability, Communication, Decision-Making
CORPORATE CULTURE -- Norms, Historic ways of doing things
PHYSICAL RESOURCES -- Equipment, Buildings, Locations
COMPETENCE OF KEY DEPARTMENTS -- Mktg, R&D, Operations, IS
OBJECTIVES & STRATEGIES (Successes/Failures)
CLARITY AND FOCUS OF MISSION/VISION
PRECISION AND LOGIC OF STRATEGIC CORPORATE OBJECTIVES
“FIT” & SUCCESS OF COMPETITIVE (Business-level) STRATEGIES
“FIT” & SUCCESS WITH CORPORATE (Investment-level) STRATEGIES
SUCCESS WITH IMPLEMENTING DEPARTMENTAL STRATEGIES
SUMMARY OF ORGANIZATIONAL CONDITION
Summarize the distinctive competencies and strengths and the glaring
organizational weaknesses and failures you’ve detected at this firm.
OBVIOUS INDICATORS OF STRATEGIC AND
FINANCIAL PERFORMANCE
MARKET SHARE AND RANKING
PROFIT MARGINS INCREASING?
COMPARISONS WITH RIVALS?
TRENDS IN NET PROFITS (NP) & RETURN ON TOTAL ASSETS
(ROA) COMPARISONS WITH RIVALS? …WITH THE INDUSTRY?
CREDIT RATING
SALES GROWING?
FASTER OR SLOWER THAN THE INDUSTRY?
REPUTATION WITH CUSTOMERS?
IMAGE?
IS THIS COMPANY A LEADER IN ANYTHING?
INNOVATION, TECHNOLOGY, QUALITY, CUSTOMER SERVICE, ETC?
FINANCIAL STATEMENT ANALYSIS
SCRUTINIZE THESE STATEMENTS…
BALANCE SHEET
INCOME STATEMENT
CASH FLOW (POSITION) STATEMENT
IF A SERIES OF ANNUAL STATEMENTS IS AVAILABLE, SELECTIVELY COMPARE
RESULTS TO SEE ORGANIZATIONAL TRENDS. (GRAPH RESULTS?)
NOTE THE PERCENTAGE CHANGES THAT OCCUR IN INDIVIDUAL CATEGORIES
FROM YEAR TO YEAR.
CREATE COMMON SIZE BALANCE SHEETS AND INCOME STATEMENTS TO MORE
EASILY SEE CATEGORICAL SHIFTS AND CHANGES. (MAKE TOTAL ASSETS =
100% AND NET SALES = 100%)
IF INFLATION HAS BEEN SIGNIFICANT, MAKE APPROPRIATE ADJUSTMENTS TO
UNMASK THE TRUE OR “REAL” CHANGES & TRENDS IN THE ORGANIZATION.
ASSESSING ORGANIZATIONAL PERFORMANCE
ORGANIZATIONAL TRENDS
HISTORIC PERFORMANCE COMPARISONS OVER TIME
ARE THESE TRENDS LIKELY TO CONTINUE INTO THE FUTURE?
ARE ADJUSTMENTS NEEDED FOR INFLATION?
COMPARISONS WITH SIMILAR FIRMS
A--INDUSTRIAL AVERAGES (SIC Codes)
CAN WE DETERMINE THE CORRECT CODE FOR OUR INDUSTRY?
B--COMPARISONS WITH KEY COMPETITORS
WHO ARE OUR TOP THREE COMPETITORS?
CAN WE GET GOOD DATA ON THEIR RECENT PERFORMANCE?
ORGANIZATIONAL OBJECTIVES
STRATEGIC OBJECTIVES (Stockholder’s Reports & Meetings)
WERE ANY OBJECTIVES SET?
ARE THE OBJECTIVES PRECISE ENOUGH TO BE EVALUATED?
HAVE WE MET OR EXCEEDED OUR OBJECTIVES?
RATIO ANALYSIS - 1
LIQUIDITY RATIOS
ABILITY TO MEET SHORT-TERM FINANCIAL OBLIGATIONS
CURRENT RATIO
How much of our current assets are available to cover short-term obligations?
(Current Assets/Current Liabilities)
CA/CL
QUICK (Acid-Test) RATIO
Ability to pay short-term obligations without liquidating inventories
(Current Assets - Inventories)/Current Liabilities
(CA-Invent)/CL
CASH RATIO
How much of the current obligations can be paid with cash?
(Cash + Cash Equivalents)/Current Liabilities
(Cash + Equiv)/CL
RATIO ANALYSIS - 2
LEVERAGE RATIOS
AMOUNT OF BORROWING AND INDEBTEDNESS
DEBT TO ASSETS RATIO
How much of the company assets are basically financed by all forms of borrowing and indebtedness?
Total Liabilities/Total Assets
TL/TA
DEBT TO EQUITY RATIO
Measures the funds provided by all forms of borrowing vs the funds provided by owners
Total Liabilities/Total Equity
TL/TE
CURRENT LIABILITIES TO EQUITY RATIO
Measures the extent of short-term financing provided by owners
Current Liabilities/Total Equity
CL/TE
RATIO ANALYSIS - 3
ACTIVITY RATIOS
EFFECTIVE MANAGEMENT OF CORPORATE RESOURCES
INVENTORY TURNOVER
The number of times that finished goods inventory was sold or cleared out in a year
Cost of Goods Sold/Avg Finished Goods Inventory
COGS/FGI
AVERAGE COLLECTION PERIOD
Indicates the average amount of time (in days) it takes to collect on a credit sale
(Accounts Receivable x 365)/Annual Sales (net)
(ARx365)/Tot Sales
NET WORKING CAPITAL TURNOVER
Measures how effectively working capital is used to generate sales
Net Sales/(Current Assets – Current Liabilities)
Tot Sales/(CA-CL)
ASSET TURNOVER
Measures utilization of total assets. How many sales are generated by each dollar of assets?
Net Sales/Total Assets
Tot Sales/TA
RATIO ANALYSIS - 4
PROFITABILITY RATIOS
DEGREE OF SUCCESS IN ACHIEVING DESIRED PROFIT LEVELS
NET PROFIT MARGIN
(NP)
How much after-tax profit is generated by each dollar of sales?
NP/Tot Sales
Net Profit (after taxes)/Net Sales
RETURN ON ASSETS
(ROA)
A measure of management efficiency. The rate of return on total assets.
Net Profit (after taxes)/Total Assets
RETURN ON EQUITY
NP/TA
(ROE)
Measures the rate of return on the total book value of equity in the company
Net Profit (after taxes)/Total Equity
NP/TE
RATIO ANALYSIS - 5
OTHER RATIOS
EARNINGS PER SHARE
(EPS)
Shows after tax earnings generated for each share of common stock
(Net Profit – Preferred Dividends)/Avg # Shares
(NP-Pref Div)/# Shares
PRICE/EARNINGS RATIO
How much the investor is willing to pay for each dollar of earnings?
Share Market Price/Earnings Per Share
Stock Price/EPS
DIVIDEND PAYOUT RATIO
The percentage of profit that is paid out in dividends
Dividends (per share)/Earnings Per Share
Div (per share)/EPS
DIVIDEND YIELD
The dividend rate of return to common stockholders at the current market price
Dividends (per share)/Share Market Price
Dividend/Stock Price
ALTMAN’S Z (Bankruptcy Ratio)
Altman, Journal of Business Strategy. Fall, 1983.
Z = 1.2(A) + 1.4(B) + 3.3(C) + .6(D) + 1.0(E)
ORIGINAL Z = FOR PUBLIC MANUFACTURERS
A = WORKING CAPITAL/TOTAL ASSETS
B = RETAINED EARNINGS/TOTAL ASSETS
C = (EARNINGS BEFORE INTEREST + TAXES)/TOTAL ASSETS
D = MARKET VALUE OF EQUITY/TOTAL LIABILITIES
E = SALES REVENUES/TOTAL ASSETS
-----------------------------------------------------IF Z > 3.0
THE FIRM IS FINANCIALLY STRONG
IF Z < 1.8
THE FIRM IS IN SERIOUS TROUBLE
ALTMAN’S Z (Bankruptcy Ratio)
FOR PRIVATE FIRMS (MODELS A and B)
Z = .717(A) + .847(B) + 3.107(C) + .42(D) + .998(E)
MODEL A = PRIVATE MFRS…..MODEL B = PRIVATE - GENERAL MANAGEMENT
A = WORKING CAPITAL/TOTAL ASSETS
B = RETAINED EARNINGS/TOTAL ASSETS
C = (EARNINGS BEFORE INTEREST + TAXES)/TOTAL ASSETS
D = MARKET VALUE OF EQUITY/TOTAL LIABILITIES
E = SALES REVENUES/TOTAL ASSETS
-----------------------------------------------------MODEL A VALUES
MODEL B VALUES
IF Z > 2.90
THE FIRM IS FINANCIALLY STRONG
IF Z > 2.60
IF Z < 1.23
THE FIRM IS IN SERIOUS TROUBLE
IF Z < 1.10
INDEX OF SUSTAINABLE GROWTH
Bangs, Managing by the Numbers, Upstart Publ, 1992, pp 106-107
How much sales growth can be sustained by internally-generated funds?
G* =
_P (1 – D) (1 + L)___
T – P (1 – D) (1 + L)
P = (NET PROFIT BEFORE TAXES / NET SALES) x 100
D = TARGET DIVIDENDS / PROFIT AFTER TAXES
L = TOTAL LIABILITIES / NET WORTH
T = (TOTAL ASSETS / NET SALES) x 100
-------------------------------------------------------------
IF PLANNED GROWTH RATE > G*
EXTERNAL CAPITAL WILL BE NEEDED TO FUND GROWTH
CONSUMER PRICE INDEX (for all items)
US Bureau of Labor Statistics, Monthly Labor Review
YEAR = CPI (1967=100)____
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
100.0
104.2
109.8
116.3
121.3
125.3
133.1
147.7
161.2
170.5
181.5
195.4
217.4
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
246.8
272.4
289.1
298.4
311.1
322.2
328.4
340.4
354.3
371.3
391.4
408.0
420.3
YEAR = CPI (1982/84 = 100)
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
96.2
99.6
103.9
107.6
109.6
113.6
118.3
124.0
130.7
136.2
140.3
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
144.5
148.2
152.4
156.9
160.5
163.0
166.6
172.2
177.1
179.9
184.0
188.9
195.3
CONSUMER PRICE INDEX (for all items)
US Bureau of Labor Statistics, Monthly Labor Review
YEAR
CPI (1967=100)
CPI (1982/84 = 100)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
551.1
565.8
585.0
603.9
621.1
644.95
642.658
653.198
673.818
687.782
696.11
703.393
708.524
184.0
188.9
195.3
201.6
207.342
215.303
214.537
218.056
224.939
229.601
233.049
234.812
236.525
ILLUSTRATED INFLATION ADJUSTMENT
OREGON CONFERENCE TITHES
”THE LORD HAS GREATLY BLESSED…TITHES HAVE GROWN 18.2%
DURING THE PAST TWO YEARS.”
1979
1980
1981
$35 Million
$38 Million
$41.4 Million
CPI INDICES
1979
1980
1981
217.4
246.8
272.4
TITHES CONVERTED TO CONSTANT 1979 DOLLARS
1979
1980
1981
$35 Million
$33.47 Million
$33.04 Million
WHEN ADJUSTED FOR INFLATION, TITHES HAVE DECLINED BY 5.6%
DURING THE PAST TWO YEARS.
ASSESSING THE ORGANIZATION—A REMINDER
ORGANIZATIONAL TRENDS
HISTORIC PERFORMANCE COMPARISONS OVER TIME
ARE THESE TRENDS LIKELY TO CONTINUE INTO THE FUTURE?
ARE ADJUSTMENTS NEEDED FOR INFLATION?
COMPARISONS WITH SIMILAR FIRMS
A--INDUSTRIAL AVERAGES (SIC Codes)
CAN WE DETERMINE THE CORRECT CODE FOR OUR INDUSTRY?
B--COMPARISONS WITH KEY COMPETITORS
WHO ARE OUR TOP THREE COMPETITORS?
CAN WE GET GOOD DATA ON THEIR RECENT PERFORMANCE?
ORGANIZATIONAL OBJECTIVES
STRATEGIC OBJECTIVES (Stockholder’s Reports & Meetings)
WERE ANY OBJECTIVES SET?
ARE THE OBJECTIVES PRECISE ENOUGH TO BE EVALUATED?
HAVE WE MET OR EXCEEDED OUR OBJECTIVES?
HOW WELL IS THE PRESENT STRATEGY WORKING?
WHAT IS THE CURRENT STRATEGY?
COST-LEADERSHIP
DIFFERENTIATION
FOCUS
HOW MANY STAGES IN THE CHAIN DO WE OPERATE IN?
AMOUNT OF VERTICAL INTEGRATION
SIZE & DIVERSITY OF GEOGRAPHIC MARKETS COVERED?
FUNCTIONAL STRATEGIES?
MARKETING
OPERATIONS & PRODUCTION
FINANCE
HUMAN RESOURCES
EVIDENCE OF SUCCESS?
RECENT STRATEGIC MOVES?
USING ORGANIZATIONAL RESOURCES TO GAIN
COMPETITIVE ADVANTAGE
RESOURCES = What are our organizational assets?
CAPABILITY = We are able to function/perform adequately
COMPETENCY = Something we do exceedingly well
A CORE COMPETENCY = We do it well, all across the organization
A DISTINCTIVE COMPETENCY = We do it better than our competitors
Distinctive competencies may erode over time to become the minimum
to compete in the industry, because competitors will try to copy or
imitate successful firms.
EVALUATING COMPETENCIES
BARNEY 2003
VRIO ANALYSIS FRAMEWORK
VALUE
DOES IT PROVIDE OBVIOUS CUSTOMER VALUE AND COMPETITIVE
ADVANTAGE?
RARENESS
DO OUR COMPETITORS WISH THEY HAD THIS RESOURCE, BUT THEY
DON’T?
IMITABILITY
IS IT EXTREMELY DIFFICULT TO COPY OR IMITATE?
ORGANIZATION
IS OUR FIRM ABLE TO TAKE FULL ADVANTAGE OF (EXPLOIT) THIS
RESOURCE?
IF THE ANSWER IS “YES” ON ALL OF THE ABOVE, WE HAVE FOUND A DISTINCTIVE
COMPETENCE FOR OUR FIRM (A Clear Organizational Strength)
HOW WE ACQUIRE DISTINCTIVE COMPETENCIES
VERDIN & WILLIAMSON 94
WE INHERITED IT—IT’S ALWAYS BEEN A COMPANY ASSET
SOMETHING WE OBTAINED FROM THE FOUNDER…OWNERSHIP OF A
UNIQUE LOCATION, PATENT, PRODUCT OR PROCESS.
WE ACQUIRED IT FROM SOMEONE ELSE
SOMEONE ELSE DEVELOPED IT, BUT WE BOUGHT IT
WE SHARE IT WITH SOMEONE ELSE
DEVELOPED BY SOMEONE ELSE…A JOINT VENTURE OR ALLIANCE
ALLOWS US ACCESS
WE BUILT IT OURSELVES
WE PAINSTAKINGLY DEVELOPED THIS RESOURCE “FROM SCRATCH.”
THE DISTINCTIVENESS OF THIS COMPETENCY HAS EVOLVED OVER TIME.
SUSTAINABILITY OF A COMPETITIVE ADVANTAGE
JUST BECAUSE YOU HAVE A DISTINCTIVE COMPETENCE OR COMPETITIVE
ADVANTAGE DOESN’T MEAN YOU WILL BE ABLE TO KEEP IT.
HOW QUICKLY WILL YOUR ADVANTAGE ERODE?
HOW EASILY CAN COMPETITORS COPY YOUR ADVANTAGES?
IS THE KEY TO YOUR ADVANTAGE TRANSPARENT?
IS IT BASED ON EXPLICIT OR TACIT KNOWLEDGE?
IS IT TRANSFERRABLE? …REPLICABLE?
“OTHERS UNDERSTAND WHAT WE DO, BUT THEY CAN’T DO IT.”
M Dell
A CONTINUUM OF SUSTAINABILITY
SLOW CYCLE – strongly shielded (patents, brand names)
STANDARD CYCLE – production processes are a bit complicated
FAST CYCLE – easily duplicated and idea-driven
Can’t sustain advantages unless you’re always first from the lab to the market
WHERE DOES YOUR FIRM MAKE ITS MONEY?
WHAT IS YOUR BUSINESS MODEL?
WHERE DOES MOST OF YOUR PROFIT COME FROM?
FROM THE PRODUCT?
FROM UPGRADES?
FROM SERVICES?
FROM ADVERTISING?
A FEW EXAMPLES OF BUSINESS MODELS
BLOCKBUSTER
JUST A FEW KEY PRODUCTS THAT WE A HOLD A PATENT ON (NEAR-MONOPOLY)
PROFIT PYRAMID
COMPANY OFFERS A COMPLETE LINE OF PRODUCTS.
HIGHER PRICED (Luxury) MODELS ARE WHERE MOST OF THE PROFIT IS MADE
MULTI-COMPONENT SYSTEM
SELL COMPUTERS VIRTUALLY AT COST, MAKE MONEY ON PRINTERS & INK
ADVERTISING MEDIA
PRODUCT IS BASICALLY FREE TO THE PUBLIC (TV, RADIO, INTERNET)
ADVERTISERS PAY FOR EXPOSURE OF THEIR ADS THROUGH THIS “FREE” VENUE
A REMINDER OF WHAT TO CONSIDER
FINANCIAL & MARKET PERFORMANCE (Strengths/Weaknesses)
FINANCIAL INDICATORS
–
RATIOS, FINANCIAL COMPARISONS, TRENDS
STRATEGIC MARKET INDICATORS
–
MARKET SHARE, PENETRATION, TRENDS
INTERNAL ORGANIZATION (Distinctive Competencies/Weaknesses)
PERSONNEL -- Top Management, Professional Expertise
STRUCTURE -- Authority, Accountability, Communication, Decision-Making
CORPORATE CULTURE -- Norms, Historic ways of doing things
PHYSICAL RESOURCES -- Equipment, Buildings, Locations
COMPETENCE OF KEY DEPARTMENTS -- Mktg, R&D, Operations, IS
OBJECTIVES & STRATEGIES (Successes/Failures)
CLARITY AND FOCUS OF MISSION/VISION
PRECISION AND LOGIC OF STRATEGIC CORPORATE OBJECTIVES
“FIT” & SUCCESS OF COMPETITIVE (Business-level) STRATEGIES
“FIT” & SUCCESS WITH CORPORATE (Investment-level) STRATEGIES
SUCCESS WITH IMPLEMENTING DEPARTMENTAL STRATEGIES
SUMMARY OF ORGANIZATIONAL CONDITION
Summarize the distinctive competencies and strengths and the glaring
organizational weaknesses and failures you’ve detected at this firm.
ORGANIZATIONAL ANALYSIS
OF STRENGTHS AND WEAKNESSES
• HAS OUR ORGANIZATION BEEN FINANCIALLY COMPETITIVE?
• SCRUTINIZE FINANCIAL STATEMENTS
• WERE OUR STRATEGIC MARKETING OBJECTIVES ACHIEVED?
• STRATEGIC CORPORATE OBJECTIVES
• ARE OUR PRICES AND COSTS COMPETITIVE?
• VALUE CHAIN ANALYSIS
• WHAT ARE OUR DISTINCTIVE COMPETENCIES & RESOURCES?
• PERSONNEL, STRUCTURE, PHYSICAL RESOURCES, DEPARTMENTS
• HOW STRONG IS OUR COMPETITIVE POSITION?
• COMPETITIVE ASSESSMENT WITH KEY SUCCESS FACTORS
• HOW WELL ARE OUR PRESENT STRATEGIES WORKING?
• COMPETITIVE, CORPORATE, FUNCTIONAL
IN SUMMARY, WHAT ARE THE TOP STRENGTHS AND THE
GREATEST WEAKNESSES THIS ORGANIZATION POSSESSES?