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Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-1
Strategic ManagementStrategic Fit
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-2
S1
S2
S3
S4
S5
W1
W2
W3
W4
W5
O1
O2 (supplier position)
O3
O6 (customer)
T1
T2
T3
T7
S
W T
OInternal External
Potential Strategic Ideas
(S2, S3, S4) - Basis for core competency, T1, T2 - Big threatscore capability T3, T7 - Not major problemsS5 - doesn’t contribute (W1, W2, W3, W4) - Need toW5 - No problem be addressed
SWOT Analysis
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-3
SWOT Summary
Confront Avoid
Exploit Search
Threats
Internal Factors
Opportunities
Strengths
ExternalEnvironment
Weaknesses
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-4
SWOT Analysis
R&D, high tech Worldwide presence
Deep pockets Expansion
Infrastructure Buy U.S.
Luxury car/ truck dominance Leverage tech. and financial know-how
Infrastructure/ small cars Better segmentation
Distribution network Cloning Saturn
Joint Ventures Coopetition
Lead times Competition
Differentiated models Labour unrest
Platform madness Brand loyalty disappearance
Productivity, efficiency, costs Perception, quality, reliability, durability
Bureaucracy/ leadership Consumer social awareness
Incentive system Rising costs
Vertical integration Supplier backlash
STRENGTHS (Internal)
WEAKNESSES (Internal)
OPPORTUNITIES (External)
THREATS (External)
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-5
SWOT Analysis - Wal-Mart
Meets change proactively Low margins
STRENGTHS (Internal) WEAKNESSES (Internal)
OPPORTUNITIES (External) THREATS (External)
Leadership High cost of distributionDistribution Centres High cost of travel for executivesStandardization of stores High dependency on technologyUse of technology Non personalized purchasingCorporate culture Dependency on Sam’s leadershipParticipation of associatesFinancial strengthSupplier support and networkingInventory control and distribution
“Buy American” strategy Economic environmentBackward expansion Many discount businessesCatalog Shopping Competition from other discountersProduct packaging Cable “home shopping”Expanding store formatPotential technology for home shopping
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-6
SWOT Analysis: Pros and Cons
ProsPros• It is a powerful tool to evaluate and
prioritize the factors of the company• It provides a good framework for
reviewing strategy, position and direction
• It offers a systematic approach of introspection into both positive and negative concerns
• It enables proactive thinking, • It provides direction and serve as a
basis for the development of marketing plans
• It helps to set the organizational goals and objectives
ConsCons• It has a tendency to oversimplify
the situation by classifying the company’s environmental factors into categories in which they may not always fit.
• It does not generate a company’s strategy.
• It can be very subjective. • It often represents a view
particular to a specific point in time.
• It is a starting point for strategy development.
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-7
Tech-Check(Based on SPACE Analysis)
AcquireCapability
Grow/ProtectCapability
OutsourceCapability
MaintainCapability
Company Capability
HighLow
High
Low
TechnologyPotential
Wal-Mart
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-8
SWOT Analysis - Wal-Mart
Confront Avoid
Exploit Search
CompetitionThreats
Internal Factors
Opportunities
Strengths
ExternalFactors
Weaknesses
Bad economy
PotentialexpansionAssociatesSam
backwardexpansionstandardizedstores
distributiontechnology corporateculture
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-9
SWOT Analysis - AECL CANDU
Confront Avoid
Exploit Search
Size
Threats
Internal Factors
Opportunities
Strengths
ExternalFactors
Weaknesses
Safety concerns
PUburnCANDU
design
safetyrecord
3rd worldpoor risks
Fossil fuelpollution
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-10
Growth Vector Analysis
Market penetration
Discount City
Product variants; imitations Product line extension
Aggressive promotion Market segmentation, productdifferentiation
Vertical diversification
Market development Market extension Conglomerate diversification
Mar
ket O
ptio
ns
Existing Market
ExpandingMarket
NewMarket
Product AlternativesPresent Products Improved Products New Products
Sam Wholesale Club
Product Testing
Video Shopping Separate VAN Group “Vendor Store”
S uper Centre Hypermart USA
Existin
g
Strate
gies
New
Strategies
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-11
Growth Vector Analysis - AECL
Market penetration
CANDU 6SPEL
Product variants; imitations Product line extension
Aggressive promotion Market segmentation, productdifferentiation
Mac Store4:1 Ratio nicheRefurbishment
Vertical diversification
Market development
PU Burn - US
Market extension Conglomerate diversification
Mar
ket O
ptio
ns
Existing Market
ExpandingMarket
NewMarket
Product AlternativesPresent Products Improved Products New Products
CANDU 3large CANDU
Short-termwaste mgt
Long-termwaste mgt
PU Burn - Russia PU Burn - Int’l
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-12
Growth Vector AnalysisCore Automotive Sector
Market penetration
Current (in-house) product lines- GM 10 lines - comm. vehicles
Product variants; imitations Product line extension
- imported products tofill gaps- sport utility
- hi performance
Aggressive promotion Market segmentation, productdifferentiation
Vertical diversification
Market development Market extension Conglomerate diversification
- electric vehicles- ATV- power boats- light aircraft
Mar
ket O
ptio
ns
Existing Market
ExpandingMarket
NewMarket
Product AlternativesPresent Products Improved Products New Products
New reengineered products (Saturn)
- Developing countries(Asia, E. Europe, etc.)
- specialty products:- heavy truck, industrial
- urban commuter- electric vehicle
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-13
Growth Vector AnalysisElectronics Sector
Market penetration
GM-Hughes automotive electronicsGM-Hughes aerospace (not considered)
Product variants; imitations Product line extension
Advanced automotiveinstrumentation anddisplay systems (HUD)
Aggressive promotion Market segmentation, productdifferentiation
Specialty Stores
Vertical diversification
Market development Market extension Conglomerate diversification
Remote instrumentationand data collection
Mar
ket O
ptio
ns
Existing Market
ExpandingMarket
NewMarket
Product AlternativesPresent Products Improved Products New Products
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-14
Growth Vector AnalysisFinancial Services Sector
Market penetration
GMAC new carfinancing
Product variants; imitations Product line extension
Auto insurance atpoint of sale (GMdealership only)
Aggressive promotion Market segmentation, productdifferentiation
- fleet services(lease and Maint.)- new car leasing(separate storefront)
Vertical diversification
Market development Market extension Conglomerate diversification
- general capital equip.leasing- general insurance
Mar
ket O
ptio
ns
Existing Market
ExpandingMarket
NewMarket
Product AlternativesPresent Products Improved Products New Products
Bundled services (warrantyextension, maint. Plan, vehicle replacement
New car financing(through any
dealership)
Auto insurance (separate storefront)
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-15
Growth Vector Analysis - Newbridge
Electronic switches Multiplexers
Public T1, F1 Link
Hybrid(Private & public)
ATMLANM
arke
t Opt
ions
Existing Market
ExpandingMarket
NewMarket
Product AlternativesMarket Penetration Product Variation Product Expansion
Present Products Improved Products New Products
(private) (voice & data) (voice, data, video)Multiplexers
(telco) Network Management
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-16
Growth Vector Analysis: Pros and Cons
ProsPros• It provides a systematic evaluation of
the market, competitive conditions, and market growth
• It reviews the different product alternatives available to a company in relation to its market options
• It shows potential areas where core competencies can be mapped into generic strategies
• It helps to establish strategy according to marketing trend
• It can be used as a roadmap to formulate strategies and plans of action
ConsCons• It does not give any
indication on whether the company is doing better or worse
• It does not provide any comparison between the company and its competitors
• It assumes that the company is indeed growing and then ignores some strategic alternatives related to downsizing or withdrawal from some areas of business
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-17
Directional Policy Matrix
Diversification MarketSegmentation
MarketLeadership;Innovation
PhasedWithdrawal;Merger
Maintain Position;MarketPenetration
Expansion;ProductDifferentiation
Divestment Imitation;PhasedWithdrawal
CashGenerationC
ompa
ny C
apab
ility High
Normal
Low
Unattractive Average Attractive
Market Potential
Wal-Mart
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-18
PIMS- Based Evaluation of AECL’s CANDU Reactor
Checklist Ratings
1. Market Share Low Medium High2. Relative Market Share Low Medium High3. Product Quality Low Medium High4. Market Growth Low Medium High5. Vertical Integration Low Medium High6. New Product Activity Low Medium High7. R&D/Sales Ratio Low Medium High8. Marketing/Sales Ratio Low Medium High9. Productivity Low Medium High10. Capacity Utilization Low Medium High11. Investment/Sales Ratio Low Medium High12. Inventory Level Low Medium High
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-19
(Cash Generation)
Indu
stry
Gro
wth
Rat
e(C
ash
use)
BCG Growth Share Matrix
High
Low
Low Relative Market Share High
? ??? ?
$
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-20
McKinsey’s Industry Attractiveness - Company Strengths Analysis
S tr e
n gt h
of C
omp a
ny
Industry Attractiveness
Low High
High
Low
Divest, Withdraw
Maintain positionConcentrate on segment
Invest, Grow
Wal-Mart
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-21
SPACE
Factors determining environmental stability:
Technological changes Many 0 1 2 3 4 5 6 FewRate of inflation High 0 1 2 3 4 5 6 LowDemand variability Large 0 1 2 3 4 5 6 SmallPrice range of competing products Wide 0 1 2 3 4 5 6 NarrowBarriers to entry into market Few 0 1 2 3 4 5 6 ManyCompetitive pressure/rivalry High 0 1 2 3 4 5 6 LowPrice elasticity of demand Elastic 0 1 2 3 4 5 6 InelasticPressure from substitute products High 0 1 2 3 4 5 6 Low
Average - 6 = 2.5 - 6 = -3.5
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-22
Factors determining financial strength:
Return on investment Low 0 1 2 3 4 5 6 HighLeverage Unbalanced 0 1 2 3 4 5 6 BalancedLiquidity Unbalanced 0 1 2 3 4 5 6 SolidCapital required vs available High 0 1 2 3 4 5 6 LowCash flow Low 0 1 2 3 4 5 6 HighEase of exit from market Difficult 0 1 2 3 4 5 6 EasyRisk involved in business Much 0 1 2 3 4 5 6 LittleInventory turnover Slow 0 1 2 3 4 5 6 FastEconomies of scale and experience Low 0 1 2 3 4 5 6 High
Average = 4.2
SPACE
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-23
Factors determining industry strength:
Growth potential Low 0 1 2 3 4 5 6 HighProfit potential Low 0 1 2 3 4 5 6 HighFinancial stability Low 0 1 2 3 4 5 6 HighTechnological know-how Simple 0 1 2 3 4 5 6 ComplexResource utilization Inefficient 0 1 2 3 4 5 6 EfficientCapital intensity Low 0 1 2 3 4 5 6 HighEase of entry into market Easy 0 1 2 3 4 5 6 DifficultProductivity, capacity utilization Low 0 1 2 3 4 5 6 HighOther: Manufacturers’ bargainingpower Low 0 1 2 3 4 5 6 High
Average = 3.8
SPACE
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-24
Factors determining competitive advantage:
Market share Small 0 1 2 3 4 5 6 LargeProduct quality Inferior 0 1 2 3 4 5 6 SuperiorProduct life cycle Late 0 1 2 3 4 5 6 EarlyProduct replacement cycle Variable 0 1 2 3 4 5 6 FixedCustomer loyalty Low 0 1 2 3 4 5 6 HighCompetition capacity utilization Low 0 1 2 3 4 5 6 HighTechnological know-how Low 0 1 2 3 4 5 6 HighVertical integration Low 0 1 2 3 4 5 6 HighOther: Speed of new productintroductions Slow 0 1 2 3 4 5 6 Fast
Average - 6 = 3.8 - 6 = -2.2
SPACE
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-25
SPACE (Wal-Mart)
Defensive
FinancialStrength
Competitive(Differentiation)
Aggressive(Cost Leader)
Conservative(Focus)
IndustryStrength3.8
-3.5
EnvironmentalStability
CompetitiveAdvantage -2.2
4.2
(0.7, 1.6)
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-26
SPACE ConsequencesAggressive (Cost Leadership)
• concentric diversification• concentration• vertical integration
WIDEN COMPANY!
Competitive (Differentiation)• concentric merger• conglomerate merger• turnaround
NARROW MARKET!
Conservative (Focus)• Status Quo• Diversification for competitive skills acquisition• Diversification to use cash flow financial portfolio basis
WIDEN MARKET!
Defensive• liquidation• retrenchment• divestment
NARROW COMPANY!
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-27
SPACE: Pros and Cons
ProsPros• It summarizes a large number
of strategic issues on a few dimensions.
• It clearly shows the current strategic position of the company
• It clearly shows the direction or type of strategy the company need to go.
• It is a high accuracy representation.
ConsCons• It is based on a survey which
could appear as a lack of objectivity
• It may not be applicable to all kind of sectors.
• It can be totally misleading if factors were wrongfully weighted
• It requires intensive information and extensive inputs.
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-28
Choice of Generic Strategy
Strong
Weak
Market Position
Strategic OutlookFocused(Protected)
Growth(Competitive)
Niche(Focus)
Unique(Differentiated)
Defensive(Survival)
Cost Leader(Dominance)
Wal-Mart
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-29
Strategic Options andGeneric Strategies
FS
ISCA
ES
Focus OverallCost
Leadership
Defensive Differentiation
Gamesmanship Competitive
Conservative Aggressive
ConcentricDiversification
Concentration
VerticalIntegration
ConcentricMerger
ConglomerateMerger
Turnaround
Status Quo
ConglomerateDiversification
Diversification
Divestment
Liquidation
Retrenchment
Wal-Mart
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-30
Prod Diff
Focus
Niche
Cost Leadership
Competitive
SPACE changesalong the curve
“bowling alley”
“chasm”
Zone ofuncertainty
“tornado”
“main street”
ConservativeAggressive
“Leader”
Aggressive
“Market Follower”
1: Exit Strategy1,2: Exit and Disappear (dog)
3: Exit to other markets
12 3
Late Market Behaviour- dominant players
are aggressive- rest are competitive