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Henan agricultural university zheng,Ch 4 -1,Chapter 4 The Internal Assessment,Henan agricultural university zheng,Ch 4 -2,Chapter Outline,The Nature of an Internal Audit,The Resource-Based View (RBV),The Internal Factor Evaluation (IFE) Matrix,The Learning Curve,Henan agricultural university zheng,Ch 4 -3,The nature of internal audit,Internal Analysis Resources, capabilities/competencies,core competencies analysis Activities - Value Chain Operation & Products Logistics Marketing R&D Finance Culture & Structure Comparative analysis,Henan agricultural university zheng,Ch 4 -4,Nature of an Internal Audit,- Strengths - Weaknesses,Functional Areas of Business,Henan agricultural university zheng,Ch 4 -5,The Resource-Based View (RBV) Resources and competences,A resource is an asset employed in the activities of the firm. A competence is an attribute or collection of attributes possessed by all or most of the firms in an industry. Without such attributes a firm cannot survive. Competences develop from resources and embody skills, technology etc.,Henan agricultural university zheng,Ch 4 -6,Human Resources,Henan agricultural university zheng,Ch 4 -7,Core competence,Core competencies are the collective learning of the organization, especially how to co-ordinate diverse production skills and integrate multiple streams of technologies. Three tests to identify core competence Add greater customer value Equip a business with ability to enter and successfully compete in several markets Be difficult for competitors to imitate By Prahalad and Hamel (1990),Henan agricultural university zheng,Ch 4 -8,Linkages with suppliers Linkages with distributors Upstream linkages Downstream linkages,Value chain,Henan agricultural university zheng,Ch 4 -9,Value chain,In competitive terms, value is the amount buyers are willing to pay for what a firm provides them The value chain displays total value, and consists of value activities and margin Value activities are the physically and technologically distinct activities a firm performs Margin is the difference between total value and the collective cost of performing the value activities,Henan agricultural university zheng,Ch 4 -10,Value chain,Value activities Primary activities : the activities involved in the physical creation of the product and its sale and transfer to the buyer as well as after-sale assistance Support activities support the primary activities,Henan agricultural university zheng,Ch 4 -11,Value chain - Primary activities,Inbound logistics activities associated with receiving, storing, and disseminating inputs to the product, such as material handling, warehousing, inventory control, vehicle scheduling,Henan agricultural university zheng,Ch 4 -12,Value chain - Primary activities,Operations- activities associated with transforming inputs into the final product form, such as machining, assembly, testing, facility operations,Henan agricultural university zheng,Ch 4 -13,Value chain - Primary activities,Outbound logistics- activities associated with collecting, storing, and physically distributing the product to buyers, such as finished goods warehousing, material handling, delivery vehicle operation, order processing,Henan agricultural university zheng,Ch 4 -14,Value chain - Primary activities,Marketing and sales activities associated with providing a means by which buyers can purchase the product and inducing them to do so, such as advertising, promotion, sales force, quoting, channel selection, channel relations, and pricing,Henan agricultural university zheng,Ch 4 -15,Value chain - Primary activities,Service- activities associated with proving service to enhance or maintain the value of the product, such as installation, repair, training, parts supply, and product adjustment,Henan agricultural university zheng,Ch 4 -16,Value chain - Support activities,Support activities Procurement- the function of purchasing inputs used in the firms value chain. Improved purchasing practices can strongly affect the cost and quality of purchased inputs, as well as of other activities associated with receiving and using the inputs,Henan agricultural university zheng,Ch 4 -17,Value chain - Support activities,Technology development- consists of a range of activities that can be broadly grouped into efforts to improve the product and process. Technology development is important to CA in all industry,Henan agricultural university zheng,Ch 4 -18,Value chain - Support activities,Human resource management- the activities involved in the recruiting, hiring, training, development and compensation of all types of personnel. Determining the skills and motivation of employees and the cost of hiring and training,Henan agricultural university zheng,Ch 4 -19,Value chain - Support activities,Firm infrastructure- consisting of a number of activities including general management, planning, finance, accounting, legal, government affairs, and quality management. Infrastructure unlike other support activities, usually supports the entire chain and not individual activities, it can be a powerful source of CA,Henan agricultural university zheng,Ch 4 -20,Linkages within the value chain,The value chain is not a collection of independent activities but a system of interdependent activities. Value chain activities are related by linkages within the value chain,Linkages can lead to CA,Henan agricultural university zheng,Ch 4 -21,Examine the value chain,Managers need to identify the activities that are critical to buyer satisfaction and market success, especially the activities that differentiate the firm Three essential considerations The companys basic mission needs to influence managers choice of the activities The nature of value chains and the relative importance of the activities vary by industry The relative importance of value activities can vary by a companys position in a broader value system,Henan agricultural university zheng,Ch 4 -22,Background of “learning”,Past experience indicates that individuals learn by experience (i.e., get better and better at the job by carrying out the tasks more and more).,Background of “learning”,“Basic idea”: As people repeat a task again and again, the time it takes to do the task gradually decreases due to “learning” Rate of learning is greatest at first when “ignorance” is greatest; rate of learning decreases as ignorance decreases,Henan agricultural university zheng,Ch 4 -24,Learning curve assumptions,The time required to complete a specified task or unit of a product or item will be less each time the task is performed; The unit time will reduce at a decreasing rate; The decrease in time will follow a certain pattern, such as negative exponential distribution shape( 指数分布形态),Underlying Power Law,y = axb,y is the labor hours required to build unit #x,a always represents the theoretical labor hours required to build the first unit produced (a positive number),x always represents the number (count) of an item in the production sequence (unit #1, #2, #3, etc.),b is called the natural slopeit represents the rate of learning always a negative number except for (rare) “forgetting”,The “power law” formula is the basis of this model,Notation for the U Model,A helpful notation for the U model is:,Hn = H1nb,Hours to build unit #n,Note: the notation T1 is commonly used for what is here designated H1. In the paper, T is reserved for “total hours.”,Natural vs. Percentage Slope,Learning curve calculations generally (but not always) require a value for b b is typically a negative number between 0 and 1 b is a mathematically appropriate but non-intuitive number for describing slope For convenience, analysts universally use (in conversations as opposed to calculations) another expression called “percentage slope,” where slope is a number between 0 and 100 (except that if “forgetting” occurs, percentage slope can exceed 100) We use S as a symbol for percentage slope,Henan agricultural university zheng,Ch 4 -28,Learning Curve,The learning curve theory is based on a doubling of productivity. More specifically, when output or production doubles, the reduction in time per unit affected by the learning curve rate. For example, an 80% learning rate means the second unit takes 80% of the time of the first unit, the fourth unit takes 80% of the second unit, the eighth unit takes 80% of the fourth unit, and so on.,Henan agricultural university zheng,Ch 4 -29,LEARNING CURVE,Output(cumulative quantity),Total Hours/Cost (per unit of output),A,Henan agricultural university zheng,Ch 4 -30,Understanding S,In industry, S typically ranges from 70% to 100% Its counterintuitive, but 100% does not mean furiously rapid learningit means no learning at all The highest rate of learning achieved in most industrial situations is about 70%,Henan agricultural university zheng,Ch 4 -31,ECONOMIES OF SCALE VS LEARNING,Output,Cost ($ per unit of output),Economies of Scale reversible.,The cost per unit depends on size of the individual firm,It does not necessarily depend on size of the individual firm,Henan agricultural university zheng,Ch 4 -32,Dynamic Changes in Costs-The Learning Curve,The learning curve measures the impact of workers experience on the costs of production. It describes the relationship between a firms cumulative output and amount of inputs needed to produce a unit of output.,Henan agricultural university zheng,Ch 4 -33,The learning curve implies: 1) The labor requirement falls per unit. 2) Costs will be high at first and then will fall with learning.,Dynamic Changes in Costs-The Learning Curve,Henan agricultural university zheng,Ch 4 -34,Learning Curve assumptions,The learning curve may vary one product to another and from one organization to another. The rate of learning depends on factors such as the quality of management and the potential of the process and products,Henan agricultural university zheng,Ch 4 -35,Critically Important in Industrial Cost Analysis,The learning effect can lead to very large reductions in cost as production progresses Finding ways to make learning faster can result in a huge competitive advantage Starting production ahead of your competitors Finding better processes and being faster to implement them,The same “S” and the same cost of the first unit Starting production ahead of your competitors,rcompetitors bbusiness,Cost per unit,Quantity(accumulative),Qr,Qb,Cr,Cb,Q,Cr,Cb,Finding better processes and being faster to implement them Personnel learning & Supervisory learning,rcompetitors bbusiness,Cost per unit,Quantity(accumulative),Henan agricultural university zheng,Ch 4 -38,Learning curve is Not Useful when,production is sporadic (零星) Small lot job shops (小批量加工车间) work is fully automated and there is no way to improve the production rate rules & regulations limit the production rate production quantities are very small each item produced is significantly different from the preceding item (custom products),Henan agricultural university zheng,Ch 4 -39,IFE Matrix,IFE Matrix can be developed in five steps: List key internal factors as identified in the internal-audit process. A total from ten to twenty internal factors, list strengths first and then weakness Assign a weight ranges from 0.0 (not important ) to 1.0 (all-important) to each factor. The sum of all weights must equal 1.0 Assign a 1-to-4 rating to each factor to indicate whether that factor represents a major weakness (rating =1), a minor weakness (rating=2), a minor strength (rating =3), a major strength (rating =4),Henan agricultural university zheng,Ch 4 -40,IFE Matrix,4. Multiply each factors weight by its rating to determine a weighted score for each variable 5.Sum the weighted scores for each variable to determine the total weighted score for the organiz
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