1. UNIT 2
INTERNAL
ANALYSIS
RESOURCE AUDIT
&
VALUE CHAIN ANALYSIS

2. What is RESOURCE AUDIT?
• Resource audit is an internal strategic analysis technique used
to understand the current state of an organisation's resources
and competencies. It helps to identify what the organisation
currently has that we can build on and what are the areas that
it needs to improve upon. Broadly these resources are
categorised into two groups - tangible or hard and intangible or
soft. The tangible resources comprise physical, financial and
human assets, whereas the intangible competencies include
the intellectual capital and brand equity.
• As the name suggests, the resource audit technique can be
used as a check list in taking stock of the hard and soft aspects
of the organisation's resources. These range from the buildings
and financial assets to intellectual capital and brand equity. An
important tip is note down both the positive aspects (i.e.,
strengths) and negative aspects (i.e., weaknesses) under each
of the categories.

3. Given below is the list of the resources under the
relevant categories:
• Physical
• Buildings, Land
• Stock, Equipment
• Materials
• Financial
• Cash flow
• Credit
• Human
• Staff, roles and responsibilities
• Expertise and experience
• Know-how
• Trade marks and copyrights
• Intellectual property
• Reputation
• Brand awareness and brand equity
• Goodwill in the market and among customers

4. 1. Audit of Physical Resources
The audit of the physical resources includes
listing of physical resources like machines,
building, equipment etc, their age, condition
of work, life span, capabilities, location etc.
2. Audit of Human Resources
Human resource audit includes assessing,
verifying and listing out the number of
employers, their skill inventory, age inventory,
qualification-wise inventory, knowledge wise
inventory and capability-wise inventory.

5. 3. Audit of Financial Resource
• Financial resource audit includes analysis and
listing out sources and uses of financial
resources, capital structure, working
capital, accounts receivables, control of
debtors and creditors, relationship among
shareholders, bankers, debenture holders etc.
4. Audit of Intangibles
• The resource audit exercise should not forget the
intangibles. Intangibles have value like goodwill.
Goodwill plays vital role in service-oriented
organizations, retail organizations etc. Good will
is represented by the brand image, customer
loyalty, congenial contacts and relations, public
image about the firm, quality and reliable service
etc.

6. General Guidelines on Resource Audit
• 1. The Resource audit should take into
considerations all resources necessary
for the implementation of the strategy.
• 2. The audit should not restrict to the
legally recognized assets.
• 3. The Resource audit should also
consider the resources/assets outside
the organization. These assets include
networks, contacts with the customers,
dealers, suppliers etc.
• 4. The Resource audit should also point
out the organization’s distinctive
capabilities in addition to the resources
necessary for strategy implementation.

8. •9 M’S
• The checklist
categorises an
organisation’s
resources into
nine categories;
each of which,
starts with the
letter ‘M’:

9. 1. Materials: Who are the organisation’s suppliers?
Does the organisation have good working
relationships with them? Are they reliable and
responsive? Do they provide quality inputs? How
much do they cost? Do they have spare
capacity? Where are they located?
2. Machinery: What kind of plant, equipment and other
tangible assets are used by the organisation to
turn raw materials into finished products? What is
the age, condition and utilisation rate of these asset?
Are they technologically up to date? What is the
likely replacement cost? What is the quality of
finished products?
3. Make-up: What is the culture and structure of the
organisation? What intangible assets does the
organisation possess, e.g. patents, trade marks,

10. 4.Management: What are the skills, experience level and vision
of senior management? What is the management structure and
prospects for career progression? Are management loyal to the
organisation, and are there programs in place to
align management incentives with the long-term interests of the
organisation?
5. Management information: Does management have the
ability to generate and share relevant and timely information
within the organisation? Does management have the ability to
easily collect and analyse information from within the
organisation to support strategic decision making?
6. Markets: What customer segments and regions does the
organisation serve? What products are sold in each market?
What is the market position of the organisation? What is the
position and life cycle of its products?

11. 7.Men and women: How many staff does the organisation
employ? How does the organisation attract, select and
recruit new candidates? What skills do they have, and what
training programs are in place to support their
development? How are staff compensated, and what are
wage costs as a proportion of total costs? What is the level
of staff morale and labour turnover?
8. Methods: How are activities carried out? Are they capital
intensive or labour intensive? Which activities are
performed in-house, and which activities are outsourced?
How does the organisation handle its supply chain process,
e.g. push method, pull method?
9. Money: What is the organisation’s cash position? What is
the credit period? What is the turnover period? What kind
of short-term and long-term financing does the organisation
have access to? What is the organisation’s debt-to-asset
ratio? What are its investment plans, and how will they be
funded?

12. Value Chain Analysis
• Definition: Value chain analysis is a
process of dividing various activities of the
business in primary and support activities
and analyzing them, keeping in mind, their
contribution towards value creation to the
final product. And to do so, inputs
consumed by the activity and outputs
generated are studied, so as to decrease
costs and increase differentiation.

13. VALUE CHAIN ANALYSIS
• Value chain analysis is used as a tool for
identifying activities, within and around the
firm and relating these activities to an
assessment of competitive strength.

14. VALUE CHAIN ANALYSIS

15. • As shown in the figure, Michael Porter
classified the entire value chain into nine
activities which are interrelated to one
another. While primary activities include
the activities that are performed to satisfy
external demand, secondary activities are
those which are performed to satisfy
internal requirements.

16. Classification of Value Chain
Analysis

17. Primary Activities: The functions which are directly concerned with
the conversion of input into output and distribution activities are
called primary activities.
It includes:
• Inbound Logistics: It includes a range of activities like receiving,
storing, distributing, etc. which make available goods and
services for operational processes. Some of those activities are
material handling, transportation, stock control, etc.
• Operations: The activity of transforming input raw material to
final product ready for sale, is termed as operation. Machining,
assembling, packaging are the activities covered under
operations.
• Outbound Logistics: As the name suggests, the activities that
help in collecting, storage and delivering the product to the
customer is outbound logistics.
• Marketing and Sales: All the activities like advertising,
promotion, sales, marketing research, public relations, etc.
performed to make the customer aware of the product or service
and create demand for it, comes under marketing.
• Service: Service means service provided to the customer so as
to improve or maintain the value of the product. It includes
financing service, after-sales service and so on.

18. Support Activities: Those activities which assist primary
activities in accomplishment, are support activities.
These are:
• Procurement: This activity serves the organization, by
supplying all the necessary inputs like material,
machinery or other consumable items, that required by
the organization for performing primary activities.
• Technology Development: At present, technology
development requires heavy investment, which takes
years for research and development. However, its
benefits can be enjoyed for several years and by a
multitude of users in the organization.
• Human Resource Management: It is the most common
plus important activity which excel all primary activities of
the organization. It encompasses overseeing the
selection, retention, promotion, transfer, appraisal and
dismissal of staff.
• Infrastructure: This is the management system, which
provides, its services to the whole organization and
includes planning, finance, information management,
quality control, legal, government affairs, etc

19. CONCLUSION
In the fast paced world, the main focus of
the organization is customer satisfaction,
and
value chain analysis is the technique that
helps to attain that level.
Under this, each business activity is
considered as essential, which contributes
value and is constantly analyzed, to
increase value as regards the cost incurred.