51110 - Lecture 3 2002

8/8/2019 51110 - Lecture 3 2002

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BUSINESS STRATEGYBUSINESS STRATEGY

MKT3002 / 51110MKT3002 / 51110

LECTURE THREE:

Topic 3: Strategic analysis

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Module 3Module 3

Strategic analysisStrategic analysis ² ² Analysing the environmentAnalysing the environment Learning outcomes

² Describe the components of the external

environment within which an organisation

operates

² Carry out a full PEST analysis

² Appropriately conduct a Porter·s ¶5 forces·

analysis to assess industry attractiveness

² Explain the significance of segmentation in

strategic planning

² Undertake a competitor analysis; and

² Undertake a directional policy matrix to

consider the portfolio of a business

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Key words and conceptsKey words and concepts Environmental uncertainty

PEST analysis

Environmental drivers of change Porter¶s diamond

Scenario planning

Five forces analysis

Life-cycle model

Exit barriers

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Key words and conceptsKey words and concepts Strategic group analysis

Market segmentation analysis

Perceived value Market attractiveness

Directional policy matrix

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IntroductionIntroduction

The external analysis may be viewed as a process

which:

± Identifies trends and future events, opportunities andthreats and strategic uncertainties;

± Analyses the impacts of these on organisations; and

± Ultimately suggests ways or strategies to cope with

such impacts.

Aaker 1999

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Steps in theSteps in the

environmental analysisenvironmental analysis

Assess the nature of the environment

Audit environmental influences

Identify key competitive forces

Identify competitive position

Identify key opportunities

and threats

Strategic

position

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Differences between externalDifferences between external& internal environments& internal environments

External environment: ± The management has no control over most of

its components.

± React to the changes in the environment.

Internal environment:

± The management has varying degree of influence of its components.

± Seeks to change the environmental influenceitself.

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Understanding the nature of Understanding the nature of

the environmentthe environment

Environmental uncertainty increases the

more that environmental conditions aredynamic or the more they are complex.

Environmental conditions:

± Simple / static conditions ± Dynamic conditions

± Complex situations

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Auditing environmentalAuditing environmental

influencesinfluences

The importance of environmental forces differ

from organisation to organisation.

Three auditing technique:

± PEST analysis

± Porter¶s diamond

± Scenario Planning

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PEST analysisPEST analysis It involves identifying factors that influence theorganisation. These factors include:

± Political / legal

(eg.Ta

xation policy, foreign trade regulations,government stability)

± Economic

(eg. unemployment, disposable income)

± Sociocultural

(eg. Lifestyle change, levels of education)

± Technological

(eg. Government spending on research, speed of technology transfer)

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Porter·s diamondPorter·s diamond

Porter·s Diamond: suggests that there are inherent reasons

why some nations are more competitive than others and why some

industries within nations are more competitive than others.

Firm strategy,

structure and rivalry

Factor conditions

Demandconditions

Related and

supporting industries

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Environmental drivers of changeEnvironmental drivers of change

Global marketconvergence

Global

competition

Govt

influence Cost

advantages

Trade policies

Technical

standards

Host

government

policies

Scale economies

Sourcing

efficiencies

Country-specific

costs

High product

development costs

Similar customer needs

Global customers

Transferable marketing

Interdependence

Competitors global

High exports / imports

Global strategies

Drivers of

globalisation

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Scenario planningScenario planning ¶build·s plausible views of different

possible futures for an organisation based

on grouping of key environmental

influences and drivers of change about

which there is a high level of uncertainty·.

Limited number of logically consistent.

Examine strategic options against thescenarios.

Implications of scenarios.

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External factor evaluationExternal factor evaluation

matrix (EFE)matrix (EFE)

¶The EFE matrix allows strategies to

summarise and evaluate economic, social,

cultural, demographic, environmental,

political, governmental, legal,

technological, and competitive

information·.

David 2001, p. 113

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matrix (EFE) (Cont)matrix (EFE) (Cont)

Steps in developing the EFE matrix: ± Identify a list of KEY external factors (critical success

factors).

± Assign a weight to each factor, ranging from 0 (notimportant) to 1.0 (very important).

± Assign a 1-4 rating to each critical success factor to indicatehow effectively the firm¶s current strategies respond to thefactor. (1 = response is poor, 4 = response is extremelygood)

± Multiply each factor¶s weight by its rating to determine aweighted score.

± Sum the weighted scores.

± Average total weighted score is 2.5.

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matrix (EFE) (Cont)matrix (EFE) (Cont)

Key external factors

Opportunities

1. Global markets are

practically untapped

by quality wool.

2. Increased demand

caused by a raised in

wool products.

Threats

1. Legislation against the

wool industry.

2. Increased competition.

Weight

0.35

0.2

0.3

0.15

Rating

4

2

1

2

Weighted

Score

1.4

0.4

0.3

0.3

Developing the EFE matrix - Example

Total 1.00 2.4

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Competitive profile matrixCompetitive profile matrix

(CPM)(CPM)

¶The CPM identifies a firm·s major competitors and

their particular strengths and weaknesses in

relation to a sample firm·s strategic position·.

David 2001, p. 115

Key success factors (KSFs)

± Technology related

± Distribution related

± Marketing related

± Skills related

± Organisational capability

± Other types of KSFs

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Competitive profile matrixCompetitive profile matrix

(CPM) (Cont)(CPM) (Cont)

Developing the CPM - Example

Key success factors

Advertising

Product quality

Customer loyalty

Financial position

Global expansion

Market share

Weight

0.1

0.3

0.2

0.2

0.1

0.1

Rating

3

4

3

3

2

3

Score

0.3

1.2

0.6

0.6

0.2

0.3

Total 1.00 3.2 2.1 3.1

CompanyA

Rating

3

2

2

2

2

2

Score

0.3

0.6

0.4

0.4

0.2

0.2

Company B

Rating

4

3

2

4

1

2

Score

0.4

1.2

0.4

0.8

0.1

0.2

Company C

Rating: 1=major weakness, 4=major strength

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The competitive environment:The competitive environment:

Five forces analysisFive forces analysis

¶Five forces analysis is a means of identifying

the forces which affect the level of competition in an industry·.

Johnson & Scholes 1999, p.115.

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Porter¶s Five forces industry analysisPorter¶s Five forces industry analysis

Potential entrants

Buyer Supplier

Substitutes

Competitive

rivalry

Threat of substitutes

Bargaining power

Bargaining power

Threat of entrants

Adapted from M. E. Porter, Competitive Strategy

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Competitive rivalryCompetitive rivalry

Development Growth Shakeout Maturity Decline

Few: trial of early adopters

Users/buyers

Competitive

conditions

Few:competitors

Growing adopters:trial of product/service

Entry of competitors

Attempt to achieve trial

Fight for share

Undifferentiatedproducts/services

Growing selectivityof purchase

May be many

Likely price cutting of

Volume

Shakeout of weakest

competitors

Saturation of Users

Repeat purchasereliance

Fight to maintainShare

Difficulties ingaining/taking share

Emphasis onefficiency/low cost

Drop-off In usage

Exit of some competitors

Selective distribution

The life cycle model

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Competitive rivalry (Cont)Competitive rivalry (Cont)

Other forces that affect competitive rivalry:

± Competitors balance;

± Market growth rates; ± Global customers;

± High fixed costs;

± Extra capacity;

± Differentiation;

± Acquisition of weaker companies; and

± High exit barriers.

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Identifying the organisation·sIdentifying the organisation·s

competitive positioncompetitive position

1. Strategic group analysis

2. Market segmentation

3. Perceived value (customer )

4. Boston consulting group matrix (BCG)

5. Market attractiveness & business strength

6. Competitor analysis

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1. Strategic group analysis1. Strategic group analysis

µaims to identify organisations with similar

strategic characteristics, following similar

strategies or competing on similar bases¶.David 2001, p. 127

The strategic group analysis is useful in the

following ways:

± Identify direct competitors.

± Identify the possibility for an organisation to movefrom one strategic group to another.

± Identify opportunities.

± Identify significant strategic problems.

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2. Market segmentation2. Market segmentation

µseeks to identify similarities and

differences between groups of customers or users¶.

David 2001, p. 129

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3. Analysing perceived3. Analysing perceived

value by customersvalue by customers

The development of competitive strategy needsto be based on a good understanding of

dimensions of strategy valued most bycustomers. This can be achieved through:

± Identify the relevant market segments.

± Identify the characteristics of the product/service that

customers value most.

± Rate the importance of these dimensions.

± Identify the relative strengths of competitors.

± Review organisation¶s competitive strategy.

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4. The BCG4. The BCG

?Sales

growth

Market share

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5. Market attractiveness5. Market attractiveness

and business strengthand business strength

Directional policy matrix ± It seeks to position SBUs according to:

(a) how attractive is the relevant market in which

they are operating, and

(b) the competitive strength of the SBU in that

market.

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6. Competitor analysis6. Competitor analysis

Obtain information about competitors.

Identification of appropriate criteria.

± Eg. Goals and objectives, culture, financial, target

market, and etc.

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Environmental analysisEnvironmental analysis

in practicein practice

Simplify the complexity.

Selective attention.

Prototypes.

Contribute to collective know-how.

Threats rather than opportunities.

Difficulty in building up an overall strategic view of

the environment.

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Lecture 3 reviewLecture 3 review

Strategic analysis ± Understanding the nature of the

environment ± Audit environmental influences

± Identify key competitive forces

± Identify competitive position

± Identify key opportunities and threats

± Environmental analysis in practice

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Next weekNext week lecturelecture

Module 4:

Resources, competencies, strategic

capability.

(Study book: Module 4 - Text Chapter 4)

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Next week·s tutorialNext week·s tutorial

Prepare by going over the casequestions at end of module

Read article from BRW 23/07/99

³Grooving in a new Mood´ p 84 ±7

Do a porters five forces analysis

Will environmental changes affect the way theretail music stores look like in the future?

If you were to invest money in a business,would you consider a music retailer?

Documents

51110 - Lecture 3 2002