Strategic Analysis Strategic analysis The basic frame work
Strategic Analysis
Strategic analysis • The basic frame work: Strategy as a link between the firm and its environment The firm • Goals and values • Resources and capabilities • Structure and system Strategy Micro and Macro environmental changes Strategic fit Fundamental of strategy as the link between the firm and its external environment is the notion of strategic fit. For a strategy to be successful it must be consistent with the firm external environment and with its internal firm goals, resources and capabilities and the structure
Strategic analysis Analysis of firm Goals, values and performance , analyzing capabilities and resources Analysis of macro , industry and competitive environment
Creating value Successful strategy is creating value 1. Continuously creating customer value 2. Firm value 3. Shareholder value
Value Creation
The Basic Value Chain M gin ar gin Service Marketing & Sales Procurement Human Resource Mgmt. Firm Infrastructure Support Activities M Technological Development ar Outbound Logistics Operations Inbound Logistics Primary Activities
Value Chains are part of a Total Value System Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain
Diagnosing the firm current strategy Strategy formulation Assess the current situation Identify the current strategy of the firm and assess how well that strategy is doing in terms of financial performance Identify the inadequacies of firm value drivers and reason for deviations. Internally driven or external driven Strategic or operational level actions
Performance diagnosis Diagnosis is primarily starts from accounting based financial performance indicator of Return on capital employed or ROCE. Any disaggregation of ROCE in to fundamental of value drivers. Du point analysis reflects the value drivers and its impact on ROCE. COGS/Sales Return on sales Depreciation/Sales SGA/Sales ROCE Fixed asset turn over Sales on capital employed Inventory turn over Debtors turn over
Income statement for Ashanti plc for the year ending 31 March 2011 2010 2011 £m £m 2, 240 2, 681 -1, 745 -2, 272 495 409 -252 -362 Operating profit 243 47 Interest payable -18 -32 Profit before taxation 225 15 Tax -60 -4 Profit for the year 165 11 Revenue (Note 2) Cost of sales (Note 3) Gross profit Operating expenses Notes: 2. All sales and purchases are made on credit 3. The cost of sales figure can be analyzed as follows: 2010 (£m) 2011 (£m) Opening inventories 241 300 Purchases 1, 804 2, 378 2, 045 2, 678 -300 -406 1, 745 2, 272 Closing inventories Cost of sales
Balance sheet of Ashanti plc. , as at 31 2010 (£m) 2011 (£m) March 2011 Non-current assets Property, plant and equipment (at cost less depreciation) Land buildings 381 427 Fixtures and fittings 129 160 510 587 Inventories at cost 300 406 Trade receivables 240 273 4 - 544 679 1, 054 1, 266 £ 0. 50 ordinary shares (Note 1) 300 Retained earnings 263 234 563 534 200 300 261 354 30 2 - 76 291 432 1, 054 1, 266 Current assets Cash at bank Total assets Equity Non-current liabilities Borrowings - 9% loan notes (secured) Current liabilities Trade payables Tax due Short-term borrowings (all bank overdraft) Total equity and liabilities Notes: 1. The market value of the shares of the business at the end of the year was £ 2. 50 for 2010, and £ 1. 50 for 2011. 4. A dividend of £ 40 m had been paid to the shareholders in respect to each of the years. 5. The business employed 13, 995 at 31 March 2010 and 18, 623 at 31 March 2011. 6. The business expanded its capacity during 2010 by setting up a new warehouse and distribution centre in the south of Wales
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