subject: ORGANISATIONAL APPRAISAL [print this page] ORGANISATIONAL APPRAISAL ORGANISATIONAL APPRAISAL
Shanmukha Rao. Padala **Dr. N. V.S. Suryanarayana
INTRODUCTION:
The process of observe an organizational internal environment to identify the strengths and weaknesses that may influence the organization's ability to achieve goals. A firm can exploit its opportunities successfully, depending on its corporate strengths. It can be said that the corporate capabilities of the firm become the focal point for its performance and survival. They play a crucial role, both in identifying the strategy and its success. Corporate capabilities go beyond sales, profit and net worth. It is concerned with the state of mind and outlook of the firm. Corporate strategy ultimately means a matching game between environmental opportunities and organizational strengths to gain competitive advantage. Assessment of organization's strengths and weaknesses is also known as Corporate Appraisal. The internal environment of an organization includes forces that operate inside the organization with specific implications for managing organizational performance. Internal environmental factors, unlike external environmental factors come from within. These factors, collectively defined both trouble sports that need strengthening and the core competencies that the firm can build. An organization can better analyze how much activity might and value or contribute significantly to shape an effective strategy by systematically examining its internal environment.
MEANING OF STRENGTHS & WEAKNESSES:
Organizational analysis requires data and information about the internal environment. SWOT analysis refines this information by applying a general framework for understanding and managing the environment under which a company operates. SWOT analysis consists of evaluating a company's internal strengths and weaknesses and its external opportunities and threats. SWOT analysis underscores the basic point that strategy must produce a good fit between a firm's internal capabilities. Organization strengths and weaknesses are a matter of interpretation. Though, no definition may ever be complete, we would define strengths and weaknesses as follows:
Corporate Strengths: A strength is a strong point for the company i.e., something a company is good at doing or characteristic that gives it an important capability. Strength can be a skill, a competence, a valuable organizational resource or competitive capability or achievement that gives that company an advantage. It refers to competitive advantages and other distinct competencies which a company can exert in the market place. The management and performance of organization can also be analyzed with the help of 7-s' Framework, developed by McKinsey and co., a leading consulting firm of USA. According to this framework, strategy is only one element that determines the performance. The first three elements: strategy, structure and systems are consider the hard' elements and the next four shared values, skills, staff and style are considered as the soft' elements. With the help of this framework a competitive competitor analysis can provide deep insight on the strengths and weakness of the competitors.
Corporate Weakness: It refers to constraints or obstacles which check movement in certain desired direction, and may also inhibit organization in gaining a distinctive competitive advantage. A weakness is something the company does not have or does poorly or a condition that outs it at a disadvantageous positions. A weakness may or may not make an organization competitively vulnerable on how much it matters in the competition battle.
THE CRITERIA FOR DETERMINING STRENGTHS AND WEAKNESSES:
A major problem which must be resolved prior to any analysis of corporate capabilities is the criteria that would determine whether an element under examination is a strength or a weakness. Four types of criteria have been suggested to classify an element into strength or weakness. These are: i. Historical; ii. Normative; iii. Competitive parity; and iv. Critical Factors for Success.
1. THE HISTORICAL CRITERION
Here, the analyst compares the characteristics under examination with past performances. An improvement over the past performance may be seen as strength, and a decline a weakness. Before, arriving at such conclusion, it is always advisable to check the reliability of the past' in future. In a large number of situations past' may not be valid for future and this would certainly invalidate our assessment or judgment.
2. THE NORMATIVE CRITERION
Here, the basis of judgment is what ought to be' the level of performance to classify a particular element into a strength or a weakness. Thus, based on theory, expert opinion, industry practices or personal opinions, one can develop norms' for evaluation.
3. THE COMPETITIVE PARITY CRITERION
As its basis for judgment, this criterion utilizes the action successful direct competitors or potential competitors. It is based on the premise that a firm must, at the minimum, meet the actions of the competitors. Thus, if the industry practice of providing 60 days credit to the trade is not followed, it may be considered a weakness.
4. THE CRITICAL FACTORS FOR SUCCESS CRITERION
Each business, in some sense, is unique. It requires a set of minimum performance standards and hence capabilities. This criterion helps to examine the strengths and weakness in the context of meeting the minimum requirements for success.
One criterion is seldom sufficient for a complete evaluation of a firm. Some elements like financial strengths' may be evaluated better on historical' and competition' criteria; and marketing' may be best evaluated on the basis of competition' and critical factors for success criterion.
MEASURING STRENGHS AND WEAKNESSES:
Strengths and weaknesses may exist in varying degrees. Some may view an organisation as very strong which others may consider it not that strong. The same may apply to its weaknesses. This would call for measurement of strengths and weaknesses. There are three measures 1. Attribute Measures, 2. Effectiveness Measures and 3. Efficiency Measures.
1. Attribute Measures
This statement is developed to identify or list a characteristic or quality which an organisation possesses or is expected to possess in the near future. Thus, leaving the analysis only at the attribute statement' level may be incomplete and inadequate. In many situations it may however, be the only alternative to express one's strengths or weaknesses.
2. Effectiveness Measures
In this approach, a characteristic is represented by a statement that identifies a capability of an organisation that will help in the accomplishment of a particular task or objective.
3. The Efficiency Measures
As the word efficiency' suggests, it measures the productivity of an organisation in converting inputs into desired outputs. Apparently efficiency measure is implementable only in quantifiable situation.
The use of three types of the measurements is a function of the degree of specificity possible for a given element or characteristic. Attribute measurement is simply a listing of the capabilities of an organisation; an effectiveness measure relates to the abilities of an organisation to achieve objectives; and an efficiency measure is concerned with the optimum conversion of firm's resources into desired output. The type of measurement a firm would employ will be a function of - the characteristic which is being measured and the level within the organisation which is to utilize the measurement.
ANALYSIS OF STRENGTHS AND WEAKNESSES:
A comprehensive and objective analysis of strengths and weaknesses may be facilitated by the use of a format or a framework. In this section we will study a few of such formats or frameworks.
The Check List
Some writers have suggested the use or organisational checklists to evaluate organisational capabilities and weaknesses. One such checklist contains 446 checkpoints. Pearce and Robinson suggest the following checklist.
Marketing
Firm's products/services; breadth of product line.
Ability to gather needed information about markets.
Market share of submarket shares.
Product/service mix and expansion potential; life cycle of key7 products; profit/sales balance in produce/service.
Channels of distribution.
Effective sales organisation; knowledge of customer needs.
Concentration of sales in a few products or to a few customers.
Product/service image reputation, and quality.
Imaginative, efficient, and effective sales promotion and adverting.
Pricing strategy.
Producers for digesting market feedback and developing new products/service or markets.
After sales service and follow-up.
Goodwill/ brand loyalty.
Finance and Accounting
Ability to raise short-term capital.
Ability to raise long-term capital; debt, equity.
Corporate-level resources (multibusiness firm).
Cost of Capital relative to industry and competitors.
Tax considerations.
Relations with owners, investors, and stockholders.
Leverage position: Capacity to utilise alternative financial strategies such as lease or sale and leaseback.
Cost of entry and barriers to entry.
Presence of financial planning and budgeting practices.
Working capital.
Effective cost control; ability to reduce cost.
Financial size.
Efficient and effective accounting system for cost, budget and profit planning.
Production/Operations/Technical
Raw materials cost and availability.
Inventory control systems.
Location of facilities.
Layout and utilisation of facilities.
Technical efficiency of facilities and utilisation of capacity.
Effective use of subcontracting.
Degree of vertical integrations: value added and profit margin.
Efficiency and cost/benefits of equipment.
Effective operation control procedures: design, scheduling, purchasing, quality control and efficiency.
Costs and technological competencies relative to industry and competitors.
Research and development/technology/innovation.
Patent, Trademarks, and similar legal protection.
Personnel
Management personnel.
Employees skill and morale.
Labour relations/costs compared to industry and competition.
Efficient and effective personnel policies.
Effective use of incentives to motivate performance.
Ability to level peaks and valleys of employment.
Employee turnover and absenteeism.
Specialised skills.
Experience.
Organisation/General Management
Organisational structure.
Firm's image and prestige.
Firm's record for achieving objectives.
Organisation communication system.
Overall organisational control system effectiveness and utilisation.
Organisational climate.
Use of systematic procedures and techniques in decision making.
Top management skill, capabilities and interest.
The Conceptual Approach:
Bates and Eldredge have suggested what has been described as conceptual approach to analyse strengths and weaknesses. According to them, the format for analysis can be divided into three dimensions : Management, Operations, and Finance. These three dimensions would be common for a majority of the organisations. 'Management''dimension covers top management functions and broader issues encompassing the total organisation. Some of these could be strategic planning processes and systems, organisation climate and culture, managerial succession, top management values etc. Operations' dimension includes resource conversion and distribution functions like production, material management design, marketing, etc. Finances' include issues like capital structure, working capital, credit policies etc.
Analysis of Management Dimension:
At the corporate level, i.e. at the level of corporate strategy, the strategist must begin the assessment of organisational strengths and weaknesses with an analysis of firm's management. To a large extent, the quality of top management determines and affects corporate strengths and weakness, not only the current but the potential' strengths as well. As an illustration, Bates and Eldredge have suggested the following dimensions to evaluate the strategic planning system of a firm.
Critical Factors: Identification of the present and future conditions having a bearing on the achievement of objectives.
Resources: Identification and provision for resources required to meet present and future conditions for achieving objectives.
Objectives: Clearly spelt out results and details of the means to be used to measure accomplishment.
Appraisal: Comparing actual with expected performance that results in timely /corrective action.
Deployment of Resources: Establishing and delegating areas of responsibility and authority for critical factors. For its strategic planning system, a firm's strengths and weaknesses can be evaluated on the above dimensions.
Analysis of Financial' Dimension
A firm's performance is largely determined through its financial performance like sales revenue, profits net worth, divided pay out, etc. A number of dimensions within finance viz., capital structure, capital budgeting, dividend policy, debt policy, interest cost, credit policies, management of working capital etc., need to be examined to assess a firm's strengths and weaknesses.
Analysis of the Operations' Dimensions
The resource conversion process requires operational arrangements. The efficiency of the conversion' process reflects strengths or weaknesses. Besides conversion, the organisation also needs to transform the products and services through the process of marketing and distribution into liquid or cash resources which are then recycled. Organisational audit, therefore, must include the assessment of corporate strengths and weaknesses in each functional area. In the area of marketing, this may mean assessment of factors like familiarity with the industry breadth of the products/services offered, quality of the marketing research, customer pre and after sales service, consumer, loyalty, etc.
Strengths and Weaknesses Profile:
After the corporate audit on three dimensions: management, finance, and operation have been done. Bates and Eldredge suggest consolidation of all these dimensions to develop a profile. This is shown below:
Strengths and Weaknesses Profile
Dimension
Basis of Comparison
Ranking
Existing
Strengths of weaknesses
Management
Financial
Operations
The purpose is to ensure that the strategist is aware of a basis of comparison and its appropriateness to the factor under assessment. Ranking indicates degree of importance of the factor under assessment to the orgnisation's success. All critical factors should have a ranking in one in their respective dimensions. A brief description of what exists.
Strengths or weaknesses are coded as follows: 0- neutral; +=strength, and the more pluses, the greater the strength; -weakness and the more minuses, the greater the weakness. The profile gives a quick view of the total situation as well as the criteria which an analyst has used to arrive at conclusions. By ranking, it also helps in focusing attention on more important rather than less important factor.
The Grid Approach:
The earlier framework of Bates and Eldredge suggested a diagnosis around three dimensions: Management, Finance, Operations. Almost a similar approach has been suggested by Ansoff. This is shown below:
GRID for Organization Audit
Facilities Equipment
Personnel Skills
Organisational capabilities
Management capabilities
General Management & Finance
R&D
Operations
Marketing
Warehousing Retail outlets Sales Offices Transportation equipment Training facilities for sales staff Data processing equipment
Door-to-Door selling Retail selling holesale selling Direct industry selling Dept. of Defense selling Cross-industry selling Applications engineering Advertising Sales promotion Servicing Contract administration Sales analysis Data analysis Forecasting Computer modelling Product Planning Background of people Corporate culture
Direct sales
Distributor chain Retail chain Consumer service organisation Industrial service organisation Dept. of Defense product support Inventory distribution & Control Ability to make quick response to customer requirements Ability to adapt to socio-political upheavals in the market place Loyal set of customers Cordial relations with media and channels Flexibility in all phases of corporate life Consumer financing Discount policy Team work Product quality
Industrial marketing Consumer merchandising Dept. of Defense marketing State and municipality marketing Well-informed and respective management Large customer base Decentralized control Favourable public image Future orientation Ethical standards
The rows' contain various functions and the columns' capabilities. With the help of comprehensive checklist, you can identify the relevant characteristics for a firm vis--vis various functions.
The 7 'S' Framework:
The 7 S' framework can be used both all the corporate level as well as at the functional level. One such matrix for the corporate level is shown below:
The 7 S' Framework Functions
Dimension
Marketing
Finance
Human Resources
Production
1. Strategy
2. Structure
3. Systems
4. Shared Values
5. Skills
6. Style
7. Staff
a) The level at which the exercise of corporate audits (strengths and weaknesses) is being performed.
b) The characteristics' which are being examined i.e. approach to planning, management culture, marketing management, distribution system etc.
c) The use' which management wants to make of the strengths and weaknesses analysis. If the idea is to reformulate a corporate strategy, management may employ two or three frameworks to have different viewpoints for the total organisation. If the use is gap analysis' in some specific functional area, it may confine to only one framework, using the various measures' to come to sound decisions.
The framework suggests that there is a multiplicity of factors that influence an organisation's ability to change and its proper mode of change. Because of the interconnectedness of the variables it would be difficult to make significant progress in one area without making progress in the others as well. Organisational change may be understood to be a complex relationship between strategy, structure, systems, style, skills, staff and superordinate goals.
Strategy and Super ordinate Goals- The concept of strategy includes purposes, mission, objectives, goals and major action plans and policies. Super ordinate goals may be considered to be the equivalent of the term organisational purposes. Super ordinate goals refer to a set of values and aspirations that goes beyond the conventional formal statement of corporate objectives. Superordinate goals are the fundamental ideas around which a business is built. They are its main values.
Structure- The design of organisation structure is a critical task of the top management of an organisation.Organisational structure refers to the relatively more durable organisational arrangements and Relationships. It prescribes the formal relationships among various positions and activities.
Systems- refers to all the rules, regulations and procedures, both formal and informal that complement the organisation structure. This includes production planning and control systems, cost accounting procedures, capital budgeting systems, recruitment, training and development systems, planning and budgeting systems, etc.,
Style- The style of an organisation becomes evident through the patterns of actions taken by member of the top management over a period of time. The aspects of business most emphasised by members of the top management tend to be given more attention by people down in the organisation.
Staff- is the process of acquiring human resources for the organisation and assuring that they have the potential to contribute to the achievement of the organisation's goals.
Skills- is one of the most crucial attributes or capabilities of an organisation. The term skills include those characteristics which most people use to describe a company. These are developed over a period of time and are a result of the interaction of a number of factors: performing certain tasks successfully over a period of time, the kind of people in the organisation, the top management style, the organisation structure, the management systems, the external environmental influences etc., Hence, when organisations make a strategic shift it becomes necessary to consciously build new skills.
MATCHING STRENGTHS AND WEAKNESSES:
The purpose is to arrive at a match' between corporate strengths and environmental opportunities for competitive advantage. The purpose is to improve corporate performance. A simple but powerful question to keep us on the right track, lest the exercise becomes unwieldy and an end in itself is to ask: so what'?
SUMMARY:
The analysis of corporate capabilities and weaknesses becomes a pre-requisite for successful formulation and reformulation of corporate strategies. This analysis can be done at various levels: functional, divisional and corporate. The classification of an item or characteristic in terms of strength and weakness can be done on the basis of some criteria like historical criterion, normative criterion, competitive parity criterion and the critical factor of success criterion. In order to measure the degree of strength or weakness, we can use three measures: attribute measures, effectiveness measures and efficiency measures. A format like a 'checklist', a grid or a matrix helps in making a comprehensive analysis. It also helps in consolidating the analysis on corporate audit. While performing the audit, it is important to remember than in the ultimate analysis, it is the entrepreneurial viewpoint of strengths and weaknesses which can make or break a company. In this view, the concept of synergy holds the key to enhance the pay offs from the existing corporate capabilities. A strong mind, even with limited capabilities, may build a giant organization and a weak mind may cripple a sound organization by magnifying the minor weaknesses. The frame of mind, thus may appeal to be a more important intangible strength than all the tangible assets.
