1.        Resources and Limiting Factors

1.1       Resources

1.1.1    Resources audit identify human, financial and material resources and how they are deployed.
1.1.2    The 9Ms model categories the resources/factors as follows:

1.1.3    Resources are of no value unless they are organized into systems, and so a resource audit should go on to consider how well or how badly resources have been utilized, and whether the organization’s systems are effective and efficient.

1.2       Limiting factors

1.2.1    A limiting factor or key factor is a factor which at any time or over a period may limit the activity of an entity, often one where there is shortage or difficulty of supply.
1.2.2    Examples might include:
(a)        a shortage of production capacity
(b)        a limited number of key personnel, such as salespeople with technical knowledge
(c)        a restricted distribution network
(d)        too few managers with knowledge about finance, or overseas markets
(e)        inadequate research design resources to develop new products or services
(f)        a poor system of strategic intelligence
(g)        lack of money
(h)        a lack of adequately trained staff
1.2.3    Once the limiting factor has been identified, the planners should do two things:
(a)        in the short term, make best use of the resources available,
(b)        try to reduce the limitation in the long term.

2.      SWOT Analysis (TOWS Matrix)

2.1       Introduction

2.1.1    The SWOT analysis combines the results of the environmental analysis and the internal appraisal into one framework for assessing the firms’ current and future strategic fit, or lack of it, with the environment. It is an analysis of the organization’s strengths and weaknesses, and the opportunities and threats offered by the environment.

2.2       Using SWOT analysis

2.2.1    Effective SWOT analysis does not simply require a categorization of information, it also requires some evaluation of the relative importance of the various factors under consideration.
(a)        These features are only of relevance if they are perceived to exist by the consumers. Listing corporate features that internal personnel regard as strengths/weaknesses is of little relevance if they are not perceived as such by the organization’s consumers.
(b)       In the same vein, threats and opportunities are conditions presented by the external environment and they should be independent of the firm.
2.2.2    The SWOT can now be used guiding strategy formulation.
(a)        Match strengths with market opportunities
Strengths that do not match any available opportunity are of limited use while opportunities which do not have any matching strengths are of little immediate value.
(b)       Conversion
This requires the development of strategies that will convert weaknesses into strengths in order to take advantage of some particular opportunity, or converting threats into opportunities which can then be matched by existing strengths.

2.3       Weirich’s TOWS matrix

2.3.1    Weirich, one of the earliest writers on corporate appraisal, originally spoke in terms of a TOWS matrix in order to emphasis the importance of threats and opportunities. This is therefore an inherently positioning approach to strategy. A further important element of Weirich’s discussion was his categorization of strategic options;
(a)        SO strategies employ strengths to seize opportunities.
(b)       ST strategies employ strengths to counter or avoid threats.
(c)        WO strategies address weaknesses so as to able to exploit opportunities.
(d)       WT strategies are defensive, aiming to avoid threats and the impact of weaknesses.
2.3.2    One useful impact of this analysis is that the four groups of strategies tend to relate well to different time horizons. SO strategies may be expected to produce good short-term results, while WO strategies are likely to take much longer to show results. ST and WT strategies are more probably relevant to the medium term.
2.3.3    This consideration of time horizon may be linked to the overall resource picture: SO strategies can be profitable in the short term, generating the cash needed for investment in WO strategies, improving current areas of weaknesses so that further opportunities may be seized. ST and WT strategies are likely to be more or less resource-neutral, but care must be taken to achieve an overall balance.

3.       Value Chain

3.1       Definition of value chain

3.1.1    The value chain describes those activities of the organization that add value to purchased inputs. Primary activities are involved in the production of goods and services. Support activities provide necessary assistance. Linkages are the relationships between activities.

3.2       The components of value chain

3.2.1    Porter grouped the various activities of an organization into a value chain. Here is a diagram.

3.2.2    The margin is the excess the customer is prepared to pay over the cost to the firm of obtaining resource inputs providing value activities. It represents the value created by the value activities themselves and by the management of the linkages between them.

3.3       Primary activities

3.3.1    Primary activities are directly related to production, sales, marketing, delivery and service.

3.4       Support activities

3.4.1    In addition to the primary value chain activities, there are also secondary activities or support activities. Porter identified these as:

3.4.2    Support activities are often seen as necessary ‘overheads’ to support the primary value chain, but value can also be created by support activities. For example:
(a)        Procurement can add value by identifying a cheaper source of materials or equipment
(b)        Technology development can add value to operations with the introduction of a new IT system
(c)        Human resources management can add value by improving the skills of employees through training.
(d)        Corporate infrastructure can help to create value by providing a better management information system that helps management to make better decisions.

3.5       Methods of adding value

3.5.1    There are different ways of adding value. There is an important link between value and CSFs for products and services.
(a)        One way of adding value is to alter a product design, and include features that might meet the needs of a particular type of customer better than products that are currently in the market. A product might be designed with added features. Market segmentation is successful when a group of customers value particular product characteristics, and are willing to pay more for a product that provides them.
(b)        Value can be added by making it easier for the customer to buy a product, for example by providing a website where customers can make purchases. Bookstores can add value to the books they sell by providing sales outlets at places where customers often want to buy books, such as airport terminals.
(c)        Value can be added by promoting a brand name. Successful branding might give customers a sense of buying products or services with a better quality.
(d)        Value can be added by delivering a service or product more quickly. For example, a private hospital might add value by offering treatment to patients more quickly than other hospitals in the region.
(e)        Value can also come from providing a reliable service, so that customers know that they will receive the service on time, at the promised time, to a good standard of performance.

3.6       Value creation and strategic management

3.6.1    By adding value more successfully, a firm will improve its profitability, by reducing costs or improving sales. Some of the extra benefit might be passed on to the customer, in the form of a better-quality product or service or a lower selling price. If so, the business entity shares the benefits of added value with the customers, and gains additional competitive advantage.
3.6.2    Added value does not have to be given immediately to customers (in the form of lower prices) or shareholders (in the form of higher dividends). The benefits can be re-invested to create more competitive advantage in the future.
3.6.3    There is a link between:
(a)        corporate strategy, which should aim to add value for the customer
(b)        financial strategy, which should aim to add value for the shareholders and
(c)        investment strategy, which should aim to ensure that the entity will continue to add more value in the future.

4.       Value Network

4.1       Difference between a value chain and value network

4.1.1    A value network, also called a value system, is the sum of the value chains in all the firms in a supply chain.
4.1.2    A value network can be defined as ‘any web of relationships that generates tangible and intangible value through complex, dynamic exchanges between two or more individuals, groups or organisations’.

4.2       Elements in a value network

4.2.1    For many business entities, the value network is more complex than a chain of suppliers, from raw materials to end product. Other entities are also included in the value network. These can be categorised as:
(a)        Intermediaries. These are entities that provide outsourced services (such as outsourced book-keeping or outsourced logistics management) and support services (such as public relations advisers).
(b)        Complementors. These are entities that provide additional and complementary products or services.

4.2.2    The elements in a value network are shown in the diagram below.

4.3       The strategic significance of value networks

4.3.1    The concept of the value network or value system has an important implication for each firm in the supply chain/value network. Value can be created (and lost) in any part of the value network. To achieve competitive advantage, it is often necessary to work with other entities in the value network in order to create extra value.
4.3.2    The concept of a value network is particularly important for value systems that do not consist of a simple chain of suppliers from raw materials through to finished products. It is very useful, for example, in many service industries where securing and retaining customers or suppliers depends on the activities of other entities.
4.3.3    An entity should try to improve the efficiency and effectiveness of its own activities in creating value within its own value chain.
4.3.4    However, it should also consider the entire value network, and think about how value might be added across the network, not just within its own internal value chain. A value network must operate with the efficiency and effectiveness of a self contained individual entity. To do this, it is necessary to manage relationships with other entities in the network.

5.       Critical Success Factors for Products and Services

5.1       Definition of a critical success factor

5.1.1    Critical success factors (CSFs) are factors that are essential to the strategic success of a business entity. They have been defined as: ‘those components of strategy in which the organisation must excel to out-perform competition’ (Johnson and Scholes).
5.1.2    When management are analysing a market and customers in the market, they should try to understand which factors are essential to succeed in business in the market, and which factors are not so important. Strategic success is achieved by identifying the CSFs and setting targets for performance linked to those critical factors.

5.2       Marketing and CSFs for products and services

5.2.1    The previous example considers the CSFs for a new business venture (a new office for an accounting firm). Strategic planners might want to identify the CSFs for a particular product or service.
5.2.2    These are the features that the product must have if it is to be a success with customers.
5.2.3    The CSFs of a product or service must be related to customer needs. They are the features of a product or service that will have the main influence on the decisions by customers to buy it.

5.3       CSFs and key performance indicators (KPIs)

5.3.1    An organization can measure how well it is achieving the critical success factors through the use of KPIs. CSFs represent what an organization needs to do in order to be successful. KPIs are the measures that use to assess whether or not the CSFs are being achieved.
5.3.2    KPIs are quantifiable measurements that management can use to monitor and control progress towards achieving its CSFs.
5.3.3   In practice, the term KPI tends to be overused and is used to describe any kind of measurement. However, in order to be useful they should clearly identify the information needs required to demonstrate how well the organization is doing in achieving its overall strategy. They should:
(a)        Reflect the performance and progress of the organization
(b)        Be measurable
(c)        Be comparable – i.e. can be compared to a standard such as budgeted figures, or prior year data
(d)        Be usable – i.e. provide data that can be acted upon.