06 Strategic Analysis

8/8/2019 06 Strategic Analysis

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Strategic Analysis

21/10/2010


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Strategic Analysis

THE ENVIRONMENT

STRATEGIC

CAPABILITIES

ORGANISATIONAL

CULTURE /

ROUTINESStrategic Analysis

STAKEHOLDER

EXPECTATIONS

globalisation strategic position

market trends strategic orientation


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External Environment Analysis

4 components of External Environment Scanning

Monitoring

Forecasting

Assessing


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External Business Environment

The external business environment of the firm canprovide both opportunities and threats to firms

Opportunities refer to events or processes in theexternal business environment, which may help thecompany to achieve competitive success

Threats refer to events or processes in the externalbusiness environment, which may prevent thecompany from achieving competitive success


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Internal Business Environment

The internal business environment of the firm canprovide both strengths and weaknesses to firms

Strengths refer to resources and capabilities that

exceed those of competitors and provide a source ofcompetitive advantage

Weaknesses refer to organisational capabilities thatare redundant or insufficient to provide support tobusiness development and growth


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Analysis of theBusiness


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Analysis of the Strategic PositionB C G Grow th Share Po r tf o li o M a t ri x

STAR

GROWTHGROWTH

PHASEPHASE

QUESTION

MARKS

LAUNCH PHASELAUNCH PHASE

CASH COWS

MATURITYMATURITY

PHASEPHASE

DOGS

DECLINEDECLINE

PHASEPHASE

High

Low

Market

Growth

%

Cash Neutral Cash User

Cash Generator Cash Neutral

Market Share %

High Low


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Limitations of PortfolioAnalysis Too simplistic

Questionable link between

market share and

profitability.

Growth rate is only one

aspect of industry

attractiveness

Product lines or business

units are considered only in

relation to one competitor:

the market leader

Market share is only one

aspect of overall competitive

position

Illusion of scientific rigor :

subjective judgments

It is not clear what makes an

industry attractive or where

a product is in its life cycle

Defining market and product

segments is difficult


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Product Life CycleModel The Product Life Cycle model suggests that every basic product

evolves through a cycle of roughly four stages introduction,growth, maturity and decline which correspond to the rate ofgrowth of industry sales.


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Stages of industry maturity

Comp

etitivepositio

n

Strong

Fast grow

Start up

Weak

Favourable

Tenable

Dominant

Embryonic Growth Mature Ageing

Start upDifferentiate

Fast grow

Fast growCatch up

Attain cost leadership

Differentiate

Fast grow


Renew

Defend position

Start up

Differentiate

Focus

Fast grow

Start up

Grow with

industry, Focus

Find niche

Catch up

Grow with ind.

Harvest, Catch up

Find,Hold niche,

Hang in,turnaround

Focus,Grow with ind.

Differentiate, focus

Catch up

Grow with industry

Turnaround

Retrench

Withdraw

Divest

Harvest

Turnaround

Find niche

Retrench

Harvest, hang in

Find, hold niche

Renew, turnaround

Differentiate, focus

Grow with industry

Attain cost leadershipRenew, focus

Differentiate

Grow with industry

Defend position


Renew

Fast grow

Withdraw

Divest

Retrench

Fast grow

Start up

Find,hold nicheHang in

Grow with ind.

Harvest

Defend position

Focus

Renew

Grow with ind.

Life Cycle / Portfolio Matrix(Strategic Orientation)


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Directional Policy Matrix /General Electric Matrix /McKinsey Matrix


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IndustryAttractiveness isDetermined by: Market growth rate

Market size

Demand variability (cycles)

Industry profitability Industry rivalry

Global opportunities

Macro-environmental factors (PESTEL)

Market concentration

Seasonality
http://www.quickmba.com/strategy/pest/http://www.quickmba.com/strategy/pest/


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Strength of the Business Unit andCompetitive Position isDetermined by: Market share

Growth in market share

Brand equity

Distribution channel access Production capacity

Profit margins relative to competitors

Reputation

Quality Geographic strengths

Customer knowledge

Market knowledge company


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Ansoff Positioning Matrix(1957)


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Blue Ocean Strategy : How to create uncontested Market Space

and make the competition irrelevant, by W. Chan Kim and Renee

Maugorned, Harvard Business Review 2005.


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Analysing the Nature of Competition

Macro-environment:

Political

Economic

Social/Legal

Technological

Power of suppliers

Power of customers

Threat of entry

Threat of substitution

Stage in industry life-cycle

Nature of

competition:

How

concentrated?

How fierce?

How global?

Industry structure


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Competitor Intelligence Competitor intelligence is the systematic

collection of information about rivals in orderto assist the development of firm strategies. It

is aimed at both learning about thecompetitors strengths and weaknesses andtheir likely future strategies and initiatives aswell as assessing the strengths andweaknesses of the firms own resources andcapabilities relative to other firms.


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Porter's Generic Strategies

AdvantageTarget Scope

Low Cost Product Uniqueness

Broad(Industry Wide) Cost LeadershipStrategy DifferentiationStrategy

Narrow(Market Segment)

FocusStrategy(low cost)

FocusStrategy

(differentiation)


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Generic Strategies

Porters Original Framework

Porter: viable strategies consist of:

Differentiation offering something unique,commanding a price premium

Cost leadership being the lowest-costproducer in the industry

Focus concentrating on a narrow

customer segmentIf not clearly in one of these categories, a

firm risks being stuck in the middle


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Problems with Porters Generic

Strategy Framework

Cost leadership rarely observed: many firms may vie for lowest costs industry boundaries fuzzy and permeable

Not comparing like with like: cost leadership set at level offirm differentiation may vary betweenproducts

Most successful strategies mix cost anddifferentiation advantage stuck in the middle an outdated concept


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Thompson & Stricklands

Generic Strategies

COMPETITIVE ADVANTAGE

COMPETITI V

ESCOPE

Lower

CostDifferentiation

Broad

Target

Narrow

Target

CostLeadership

Differentiation

Cost

FocusDifferentiation

Focus

Broad

Best

Cost

Narrow

Best Cost


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Five Business-Level Strategies


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Types of Business-Level Strategies

1. Cost Leadership (CL) Competitive advantage: The low-cost leader and operates

with margins greater than competitors

Competitive scope: Broad

Examples: Greyhound Bus, Big Lots Inc., Wal-Mart Integrated set of actions designed to produce or deliver goods

or services with features that are acceptable to customers atthe lowest cost, relative to competitors

No-frill, standardized goods

Continuously reduce costs ofvalue chain activities

Inbound/outbound logistics account for significant cost Low-cost position is a valuable defense against rivals Powerful customers can demand reduced prices


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Types of Business-Level Strategies (Contd)

1. Cost Leadership (CL) (Contd) Cost leaders are in a position to

Absorb supplier price increases and relationship demands

Force suppliers to hold down their prices

Continuously improving levels of efficiency and cost

reduction Can be difficult to replicate and

serve as significant entry barriers to potential competitors

Cost leaders hold an attractive position in terms of

product substitutes, with the flexibility to lower

prices to retain customers


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2. Differentiation Competitive advantage: Differentiation

Competitive scope: Broad

Examples: Apples iPod Integrated set of actions designed by a firm to produce or

deliver goods or services at an acceptable cost that customers

perceive as being different in ways that are important to them

Target customers perceive product value

Customizedproducts differentiating on as many

features as possible


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There are two Focus strategies (# 3 and 4) In general, the firms core competencies used to serve

the need of aparticular industrysegmentor niche to

the exclusion of others.

May lack resources to compete in the broader

market

May be able to more effectively serve a narrow

market segment than larger industry-wide

competitors Firms may direct resources to certain value chain

activities to build competitive advantage

Large firms may overlook small niches


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Focus strategy examples Buyer groups

Youths/ senior citizens

Product line segments Professional painter groups

Geographic markets West vs. East coast


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3. Focused Cost Leadership Competitive advantage: Low-cost

Competitive scope: Narrow industry segment I.e., IKEA: Good design (furniture) at low prices

NOTE: Also has some differentiated features (I.e.,furniture design) with its low-cost products

4. Focused Differentiation Competitive advantage: Differentiation

Competitive scope: Narrow industry segment I.e., IKEA: Good design (furniture) at low prices

NOTE: Also has some differentiated features (I.e.,

Furniture design) with its low-cost products

I.e., Casket furniture (products that can also be converted into

caskets)


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Risk of using Focus strategies

A competitor may be able to focus on a more

narrowly defined competitive segment and

"outfocus the focuser A company competing on an industry-wide basis

may decide that the market segment served by the

focus strategy firm is attractive and worthy of

competitive pursuit Customer needs within a narrow competitive

segment may become more similar to those of

industry-wide customers as a whole


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5. Integrated CL/Differentiation Efficiently produce products with differentiated

attributes Efficiency: Sources of low cost

Differentiation: Source of unique value

Can adapt to new technology and rapid changes in

external environment

Simultaneously concentrate on TWO sources of

competitive advantage: cost and differentiation consequently

must be competent in many of the primary and

support activities

Three sources of flexibility useful for this strategy

C S C


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Price

Strategies

destined for

ultimate failure

7

6

8Low

High

Perceived

use

value

Low High

No frills1

Focuseddifferentiation5

Differentiation

4

Hybrid3

Low

price2

C. Bowman - The Strategy Clock


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The Strategy Clock

Low Price Strategies

1. No frills probably segment specific

2. Low price needs low costs to offset

low margins, risk of price war3. Hybrid low cost base, reinvestment in

low price, differentiation


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The Strategy Clock

Differentiation Strategies

4.(a) Differentiation without price premium

adds value to user increased marketshare

4.(b) Differentiation with price premium:

added value must justify premium

price

5. Focused differentiation adds value to particular segment price premium


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The Strategy Clock

Strategies Destined to Fail

6. Increased price/standard value viable:

in monopoly situation

if customers lack information on where tofind superior value

7. Increased price/low value viable only in

monopoly situation

8. Low value/standard price decline inmarket share

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06 Strategic Analysis