Description
Identity & character of an organization
leadership, Mgt. Philosophy, values, culture, Qly of work environment, Organization climate, organization politics etc.Distinctive competence - Any advantage a company has
over its competitor - it can do something which they
cannot or can do better - opportunity for an organization
to capitalize - low cost, Superior Quality, R&D skills
Organisational Capability
Analysis
Dr. M. Thenmozhi
Professor
Department of Management Studies
Indian Institute of Technology Madras
Chennai 600 036
E-mail: [email protected]
ORGANIZATIONAL APPRAISAL
•Internal Environment - strength & weakness in different
functional areas
Organization capability
- Capacity & ability to use distinctive
competencies to excel in a particular field
- Abilty to use its ‘S’ & ‘W’ to exploit ‘O’ &
face ‘T’ in its external environment
Organization resources
- Physical & human
cost, availability - strength / weakness
ORGANIZATIONAL APPRAISAL
Organization behaviour
Identity & character of an organization
leadership, Mgt. Philosophy, values, culture, Qly
of work environment, Organization climate, organization
politics etc.
Resource Behaviour
Distinctive competence - Any advantage a company has
over its competitor - it can do something which they
cannot or can do better - opportunity for an organization
to capitalize - low cost, Superior Quality, R&D skills
etc.
METHODS & TECHNIQUES USED
FOR ORGANIZATIONAL
APPRAISAL
Comprehensive, long term
Financial Analysis - Ratio Analysis, EVA, ABC
Key factor rating - Rating of different factors through
different questions
Value chain analysis
VRIO framework
METHODS & TECHNIQUES USED FOR
ORGANIZATIONAL APPRAISAL …
BCG, GE Matrix , PIMS, McKinsey 7S
Balanced Scorecard
Competitive Advantage Profile
Strategic Advantage profile
Internal Factor Analysis Summary
SWOT ANALYSIS
• Identify & classify firm’s resources-S&W
• Combine firm’s strength into specific capabilities –
Corporate capability- may be distinctive competence
• Strategy that best exploits the firms resources
• Identify resource gaps & Invest in upgrading
ORGANIZATIONAL APPRAISAL
Organizational Capability Profile (OCP) - Weakness(-5),
Normal(0), Strength(5)
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
ORGANIZATIONAL APPRAISAL
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
EXAMPLES OF ORGANIZATIONAL
CAPABILITY PROFILE
Financial Capability
Bajaj - Cash Management
LIC - Centralized payment, decentralized collection
Reliance - high investor confidence
Escorts - Amicable relation with Fis
Marketing Capability
Hindustan Lever - Distribution Channel
IDBI/ICICI Bank - Wide variety of products
Tata - Company / Product Image
EXAMPLES OF ORGANIZATIONAL
CAPABILITY PROFILE
Operations Capability
Lakshmi machine works - absorb imported technology
Balmer & Lawrie - R&D - New specialty chemicals
Personnel Capability
Apollo tyres - Industrial relations problem
EXAMPLES OF ORGANIZATIONAL
CAPABILITY PROFILE
General management capability
Malayalam Manaroma - largest selling newspaper
Unchallenged leadership - Unified, stable
Best edited & most professionally produced
VRIO FRAMEWORK
Resource- asset, competency, skill,knowledge
e.g. patents, brand name,
• Value : Does it provide competitive advantage?
• Rarity: Do other competitors possess it?
• Imitability: Is it costly for others to imitate?
• Organisation : Is the firm organised to exploit the
resource?
VRIO FRAMEWORK . . .
• A resource is an asset, skill, competency or
knowledge controlled by the corporation.
• A resource is a strength if it provides competitive
advantage
• e.g. patents, brand name, economies of scale, idea-
driven, standardised mass production
VRIO - STEPS
• Identify firms resources- S&W
• Combine firms strength into specific capabilities
• Appraise- profit potential, sustainable competitive
advantage, ability to convert it to a profitable
proposition
• Select strategy - firm’s resources& capability
relative to external opportunity
• Identify resource gaps and invest in upgrading
weaknesses
BALANCED SCORECARD- KAPLAN &
NORTON
4 performance measures
• Customer perspective
• Internal business perspective
• Innovation & learning perspective
• Financial perspective
Balanced Scorecard
Balanced Scorecard
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
The Balanced Scorecard
Purpose of Balanced Scorecard:
A method of implementing a business strategy by
translating it into a set of performance measures
derived from strategic goals that allocate rewards to
executives and managers based on their success at
meeting or exceeding the performance measures.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)
Reasons for the Need of a Balanced
Scorecard
1. Focus on traditional financial accounting
measures such as ROA, ROE, EPS gives
misleading signals to executives with regards to
quality and innovation. It is important to look at
the means used to achieve outcomes such as
ROA, not just focus on the outcomes
themselves.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)
Reasons for the Need of a Balanced
Scorecard
2. Executive performance needs to be judged on
success at meeting a mix of both financial and
non-financial measures to effectively operate a
business.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)
Reasons for the Need of a Balanced
Scorecard
3. Some non-financial measures are drivers of
financial outcome measures which give
managers more control to take corrective actions
quickly.
(Example: controls in jet cockpit for pilot)
Reasons for the Need of a Balanced
Scorecard
4. Too many measures, such as hundreds of
possible cost accounting index measures, can
confuse and distract an executive from focusing
on important strategic priorities. The balanced
scorecard disciplines an executive to focus on
several important measures that drive the
strategy.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)
Financial
Perspective
How 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?
Casual link between the measures
Casual link between the measures
BSC: Causal Relationships
BSC: Causal Relationships
Internal Process
Customer
Strategy
Financial
Learning
Linking BSC and Strategy
Linking BSC and Strategy
Strategic Strategic
Initiatives Initiatives
Learning & Growth Learning & Growth
Drivers Drivers Outcomes Outcomes
Internal Process Internal Process
Drivers Drivers Outcomes Outcomes
Customer Perspective Customer Perspective
Drivers Drivers Outcomes Outcomes
Financial Financial
Goals Goals
Balanced Scorecard: An
Experience of ICICI Bank
(source: icici website)
Key challenges
• Rapid growth in employee base – fresh and lateral
recruits
– Building knowledge and skill base
– Ensuring adequate focus on multiple perspectives
•Growth, profitability, service levels, building talent
• Ensuring consistent implementation of strategy across
the organisation
– Aligning organisational, business-level and individual
goals
– Incentivising achievement of the goals set
We were seeking a strategic framework
that would enable this…..
Earlier performance
management framework
• Primarily focused on financial aspect
– Other perspectives covered qualitatively
– “Input” rather than “output” based: focus on “work
done”rather than “goals achieved”
• Did not meet the need for additional perspectives
– Retail strategy required service focus
– Wholesale banking required focus on transaction
capabilities and quality of credit origination
Balanced scorecard at ICICI
Bank - Stage I
• Re-defined and expanded financial perspective
– Growth, market share, profitability and credit costs
• Introduced customer perspective: concept of service
levels as an area of performance evaluation
– Customer satisfaction scores
• Introduced process perspective: focus on building a
process orientation in the organisation
• Learning perspective: focus on re-skilling for existing
employees and speed-to-job for new recruits
Balanced scorecard at ICICI
Bank - Stage II
• Further development and detailing of customer service
and process perspectives
• Specific measures of performance introduced
– Branch service quality scores
– Turn around time (TAT) benchmarks
– Good order index for client bankers
– 5S achievement
• Focused measures served as enablers for meeting
financial goals
Balanced scorecard at ICICI
Bank - Stage III
• Learning and development perspective
– So far focused primarily on business skills
– Commenced activity on building leadership pool
• Reducing the number of scorecard templates
– Already reduced from 750 to 230 in two years
– Planned reduction to about 150
• New challenges
– Scorecards for operations in new geographies
outside India
Lessons from ICICI Bank
experience
• Performance measures should be output rather than
input based
– People should be assessed on goals not on
transactions
– Removes ambiguity from performance
management
• Scorecard need not be balanced for individuals but
for business unit as a whole
– All perspectives may not apply to all people
• Need for scorecard templates
– Ensures consistency
– Number of templates should be rationalised based
on number of different job descriptions
Lessons from ICICI Bank
experience…
• Banks, like other business organisations, are operating
in an increasingly complex environment
• In this competitive paradigm, optimally directing all
resources towards organisational goals in a focused
manner is the key to access
– Having a strategy is not good enough
– The strategy must be
•Articulated
•Understood
•Executed
• The balanced scorecard is a tool that helps
communicate strategy and goals across the
organisation
Lessons from ICICI Bank
experience…
• The balanced scorecard at ICICI Bank has helped
achieve:
– Rapid business growth
– Strategic consistency despite growing scale and
diversity
– Systematic and objective performance evaluation
• The balanced scorecard can help to build a platform for
sustained future growth and value creation
FINANCIAL ANALYSIS
• Ratio Analysis
• Economic value added – NOPAT-WACC
• Activity Based Costing
– activity in Value chain
_ specific activities
COMPETITIVE ADVANTAGE
PROFILE: A Case of Berger Paints
Marketing Factors
Market leader - 35% share in organized sector
Closest competitor - less than half of AP’s market
share
>20 yrs - leader
Widest product range - product shades, pack sizes
40 different decorative paints - 150 shades, 8 different
sizes in packing, no. of brands - all segments
Brands - quite powerful
COMPETITIVE ADVANTAGE PROFILE
Marketing Factors
high quality MR & MIS , 90% accuracy in forecasting,
100 fastest moving Stock Keeping Units,
monitored daily
Countrywide distribution - 13000 dealers (comp-
Identity & character of an organization
leadership, Mgt. Philosophy, values, culture, Qly of work environment, Organization climate, organization politics etc.Distinctive competence - Any advantage a company has
over its competitor - it can do something which they
cannot or can do better - opportunity for an organization
to capitalize - low cost, Superior Quality, R&D skills
Organisational Capability
Analysis
Dr. M. Thenmozhi
Professor
Department of Management Studies
Indian Institute of Technology Madras
Chennai 600 036
E-mail: [email protected]
ORGANIZATIONAL APPRAISAL
•Internal Environment - strength & weakness in different
functional areas
Organization capability
- Capacity & ability to use distinctive
competencies to excel in a particular field
- Abilty to use its ‘S’ & ‘W’ to exploit ‘O’ &
face ‘T’ in its external environment
Organization resources
- Physical & human
cost, availability - strength / weakness
ORGANIZATIONAL APPRAISAL
Organization behaviour
Identity & character of an organization
leadership, Mgt. Philosophy, values, culture, Qly
of work environment, Organization climate, organization
politics etc.
Resource Behaviour
Distinctive competence - Any advantage a company has
over its competitor - it can do something which they
cannot or can do better - opportunity for an organization
to capitalize - low cost, Superior Quality, R&D skills
etc.
METHODS & TECHNIQUES USED
FOR ORGANIZATIONAL
APPRAISAL
Comprehensive, long term
Financial Analysis - Ratio Analysis, EVA, ABC
Key factor rating - Rating of different factors through
different questions
Value chain analysis
VRIO framework
METHODS & TECHNIQUES USED FOR
ORGANIZATIONAL APPRAISAL …
BCG, GE Matrix , PIMS, McKinsey 7S
Balanced Scorecard
Competitive Advantage Profile
Strategic Advantage profile
Internal Factor Analysis Summary
SWOT ANALYSIS
• Identify & classify firm’s resources-S&W
• Combine firm’s strength into specific capabilities –
Corporate capability- may be distinctive competence
• Strategy that best exploits the firms resources
• Identify resource gaps & Invest in upgrading
ORGANIZATIONAL APPRAISAL
Organizational Capability Profile (OCP) - Weakness(-5),
Normal(0), Strength(5)
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
ORGANIZATIONAL APPRAISAL
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
EXAMPLES OF ORGANIZATIONAL
CAPABILITY PROFILE
Financial Capability
Bajaj - Cash Management
LIC - Centralized payment, decentralized collection
Reliance - high investor confidence
Escorts - Amicable relation with Fis
Marketing Capability
Hindustan Lever - Distribution Channel
IDBI/ICICI Bank - Wide variety of products
Tata - Company / Product Image
EXAMPLES OF ORGANIZATIONAL
CAPABILITY PROFILE
Operations Capability
Lakshmi machine works - absorb imported technology
Balmer & Lawrie - R&D - New specialty chemicals
Personnel Capability
Apollo tyres - Industrial relations problem
EXAMPLES OF ORGANIZATIONAL
CAPABILITY PROFILE
General management capability
Malayalam Manaroma - largest selling newspaper
Unchallenged leadership - Unified, stable
Best edited & most professionally produced
VRIO FRAMEWORK
Resource- asset, competency, skill,knowledge
e.g. patents, brand name,
• Value : Does it provide competitive advantage?
• Rarity: Do other competitors possess it?
• Imitability: Is it costly for others to imitate?
• Organisation : Is the firm organised to exploit the
resource?
VRIO FRAMEWORK . . .
• A resource is an asset, skill, competency or
knowledge controlled by the corporation.
• A resource is a strength if it provides competitive
advantage
• e.g. patents, brand name, economies of scale, idea-
driven, standardised mass production
VRIO - STEPS
• Identify firms resources- S&W
• Combine firms strength into specific capabilities
• Appraise- profit potential, sustainable competitive
advantage, ability to convert it to a profitable
proposition
• Select strategy - firm’s resources& capability
relative to external opportunity
• Identify resource gaps and invest in upgrading
weaknesses
BALANCED SCORECARD- KAPLAN &
NORTON
4 performance measures
• Customer perspective
• Internal business perspective
• Innovation & learning perspective
• Financial perspective
Balanced Scorecard
Balanced Scorecard
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
The Balanced Scorecard
Purpose of Balanced Scorecard:
A method of implementing a business strategy by
translating it into a set of performance measures
derived from strategic goals that allocate rewards to
executives and managers based on their success at
meeting or exceeding the performance measures.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)
Reasons for the Need of a Balanced
Scorecard
1. Focus on traditional financial accounting
measures such as ROA, ROE, EPS gives
misleading signals to executives with regards to
quality and innovation. It is important to look at
the means used to achieve outcomes such as
ROA, not just focus on the outcomes
themselves.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)
Reasons for the Need of a Balanced
Scorecard
2. Executive performance needs to be judged on
success at meeting a mix of both financial and
non-financial measures to effectively operate a
business.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)
Reasons for the Need of a Balanced
Scorecard
3. Some non-financial measures are drivers of
financial outcome measures which give
managers more control to take corrective actions
quickly.
(Example: controls in jet cockpit for pilot)
Reasons for the Need of a Balanced
Scorecard
4. Too many measures, such as hundreds of
possible cost accounting index measures, can
confuse and distract an executive from focusing
on important strategic priorities. The balanced
scorecard disciplines an executive to focus on
several important measures that drive the
strategy.
The Balanced Scorecard
(Source: Kaplan & Norton, 1996)
Financial
Perspective
How 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?
Casual link between the measures
Casual link between the measures
BSC: Causal Relationships
BSC: Causal Relationships
Internal Process
Customer
Strategy
Financial
Learning
Linking BSC and Strategy
Linking BSC and Strategy
Strategic Strategic
Initiatives Initiatives
Learning & Growth Learning & Growth
Drivers Drivers Outcomes Outcomes
Internal Process Internal Process
Drivers Drivers Outcomes Outcomes
Customer Perspective Customer Perspective
Drivers Drivers Outcomes Outcomes
Financial Financial
Goals Goals
Balanced Scorecard: An
Experience of ICICI Bank
(source: icici website)
Key challenges
• Rapid growth in employee base – fresh and lateral
recruits
– Building knowledge and skill base
– Ensuring adequate focus on multiple perspectives
•Growth, profitability, service levels, building talent
• Ensuring consistent implementation of strategy across
the organisation
– Aligning organisational, business-level and individual
goals
– Incentivising achievement of the goals set
We were seeking a strategic framework
that would enable this…..
Earlier performance
management framework
• Primarily focused on financial aspect
– Other perspectives covered qualitatively
– “Input” rather than “output” based: focus on “work
done”rather than “goals achieved”
• Did not meet the need for additional perspectives
– Retail strategy required service focus
– Wholesale banking required focus on transaction
capabilities and quality of credit origination
Balanced scorecard at ICICI
Bank - Stage I
• Re-defined and expanded financial perspective
– Growth, market share, profitability and credit costs
• Introduced customer perspective: concept of service
levels as an area of performance evaluation
– Customer satisfaction scores
• Introduced process perspective: focus on building a
process orientation in the organisation
• Learning perspective: focus on re-skilling for existing
employees and speed-to-job for new recruits
Balanced scorecard at ICICI
Bank - Stage II
• Further development and detailing of customer service
and process perspectives
• Specific measures of performance introduced
– Branch service quality scores
– Turn around time (TAT) benchmarks
– Good order index for client bankers
– 5S achievement
• Focused measures served as enablers for meeting
financial goals
Balanced scorecard at ICICI
Bank - Stage III
• Learning and development perspective
– So far focused primarily on business skills
– Commenced activity on building leadership pool
• Reducing the number of scorecard templates
– Already reduced from 750 to 230 in two years
– Planned reduction to about 150
• New challenges
– Scorecards for operations in new geographies
outside India
Lessons from ICICI Bank
experience
• Performance measures should be output rather than
input based
– People should be assessed on goals not on
transactions
– Removes ambiguity from performance
management
• Scorecard need not be balanced for individuals but
for business unit as a whole
– All perspectives may not apply to all people
• Need for scorecard templates
– Ensures consistency
– Number of templates should be rationalised based
on number of different job descriptions
Lessons from ICICI Bank
experience…
• Banks, like other business organisations, are operating
in an increasingly complex environment
• In this competitive paradigm, optimally directing all
resources towards organisational goals in a focused
manner is the key to access
– Having a strategy is not good enough
– The strategy must be
•Articulated
•Understood
•Executed
• The balanced scorecard is a tool that helps
communicate strategy and goals across the
organisation
Lessons from ICICI Bank
experience…
• The balanced scorecard at ICICI Bank has helped
achieve:
– Rapid business growth
– Strategic consistency despite growing scale and
diversity
– Systematic and objective performance evaluation
• The balanced scorecard can help to build a platform for
sustained future growth and value creation
FINANCIAL ANALYSIS
• Ratio Analysis
• Economic value added – NOPAT-WACC
• Activity Based Costing
– activity in Value chain
_ specific activities
COMPETITIVE ADVANTAGE
PROFILE: A Case of Berger Paints
Marketing Factors
Market leader - 35% share in organized sector
Closest competitor - less than half of AP’s market
share
>20 yrs - leader
Widest product range - product shades, pack sizes
40 different decorative paints - 150 shades, 8 different
sizes in packing, no. of brands - all segments
Brands - quite powerful
COMPETITIVE ADVANTAGE PROFILE
Marketing Factors
high quality MR & MIS , 90% accuracy in forecasting,
100 fastest moving Stock Keeping Units,
monitored daily
Countrywide distribution - 13000 dealers (comp-