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Management Audit and Environmental Analysis

Geoff Leese October 2005 Revised

September 2006, July 2007, August 2008,

August 2009

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SWOT analysis

Strengths Weaknesses Opportunities Threats

Internal (Management audit)

External (Environmental Scanning)

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Management audit The 7-S model Value chain analysis Network analysis

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McKinsey’s 7-S Framework

Strategy Structure Systems Shared Values Staff Skills Style

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an approach to organising

aid to building a cohesive strategy all equally important 7 interdependent variables change one, impacts others use this to evaluate strategy

developments soft is harder to measure good for capturing importance of the

links

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Value chain analysis (Porter)

Views the organisation as a chain of value-creating activities.

Must create sufficient value to exceed their cost thus generating profit (or at least not generating loss!)

Primary and support value chain activities

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Primary value chain activities

Inbound logistics Operations

Outbound logistics

Sales and marketing

Service

Any or all of these can be important in a given scenario – sometimes defining them is not so simple!

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Support value chain activities

Procurement Technology development Human Resource Management Infrastucture management

Legal, financial, QA, estates and buildings etc

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Value chain analysis

Identify the activities and process flows

Identify linkages between activities Identify ways to optimise the value

chain Outsourcing? Involving the customer?

– On-line booking– Self-assembly furniture

Involving suppliers?

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Organisational network analysis

Social network analysis applied to organisations

Maps “nodes” (people, groups, functions) and the interactions between them (relationships or flows)

Measures “centrality” of nodes (their importance) using mathematical criteria

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Some ONA criteria

Degrees (number of direct connections)

Betweenness (nodes that connect other nodes )

Closeness (short paths to many nodes)

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An ONA diagram

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Environmental scanning(1)

Macro environment PEST,SLEPT,STEP

Micro-environment Competitors, suppliers, distributors,

customers Methods

Ad-hoc (usually in response to crisis!) Regular scheduled Continuous

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Macroenvironmental scanning

PEST (STEP, SLEPT) analysis Political (includes legal!) Economic Social (includes “Green”) Technological

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Political factors

Taxation Employment/Health and Safety

law Regulation/deregulation Trade restrictions and tariffs

(or lack of them!) Political stability

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Economic factors

Connected to political ones Economic cycle Growth or recession? Interest rates Inflation rates Exchange rates

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Social factors

Demography Age distribution Geographical distribution Cultural norms “How we live”

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Technology factors

Rate of technological change Automation Technology incentives Emerging technologies Levels of R&D activity

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Microenvironmental scanning

Competitor analysis Competitor array Competitor profiling

Consumer analysis (market research)

Product innovations

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Competitor array example

Should we include ourselves?

Key Industry Success Factors Weighting Competitor

1 rating Competitor 1 weighted

Competitor 2 rating

Competitor 2 weighted

1 - Extensive distribution .4 6 2.4 3 1.2

2 –Customer focus .3 4 1.2 5 1.5

3 - Economies of scale .2 3 .6 3 .6

4 - Product innovation .1 7 .7 4 .4

Totals 1.0 20 4.9 18 3.7

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The SWOT matrix

Opportunities Threats

Strengths S-O strategies S-T strategies

Weaknesses W-O strategies

W-T strategies

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SWOT Strategies Strength-Opportunity

Make use of strengths to grasp opportunities that fit them

Strength-Threat Identify ways to use strengths to minimise

external threats Weakness-Opportunity

Overcome weaknesses to pursue opportunities

Weakness-Threat Prevent weaknesses from encouraging

threats

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Summary

SWOT analysis Assess and analyse strengths and

weaknesses– Seven S – Value chain– Organisational network analysis

Assess and analyse opportunities and threats

– PEST analysis– Competitor analysis– Market research

Devise strategies based on all four

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Further reading

Bennett Chapter 5 Johnson and Scholes chapters 3

and 4 For ONA –

http://www.orgnet.com/sna.html General strategic management

stuff http://www.geocities.com/WallStre

et/District/6592/