Chapter [3]

Strategic AnalysisStrategic Analysis

The analysis of company’s external environment and internal situation is called Strategic Analysis.

Issues to be considered in SA –• Time Period

– Strategy evolves over a period of time.

• Balance

– (S-O, W-T) or (S-T, W-O)

• Risk

– Competition, Liberalization, Globalization, Boom,

Recessions all pose risk of varying degree.

Strategic AnalysisStrategic Analysis

Error in interpreting the environment change

Environment lead to obsolescence of strategy

Organizational capacity is unable to cope up with demand

Inconsistency with strategy begins to develop

Short term Long termTime

So

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Risk Classification

StrategicAnalysis

Situationalanalysis

Industrialanalysis

SWOTanalysis

TOWSanalysis

Portfolioanalysis

Situational AnalysisStudy of current external situation of the company.

Situationalanalysis

Product

Competitors

MarketDistribution

Opportunity

Threat

Industry & Competitive analysis

Dominant economic feature of the industry

Nature and Strength of Competition

Triggers of Changes

Strategic group mapping

Identify key success factors

Strategic moves of rivals

Analysis of industry attractiveness

[1] Dominant eco. features of the industry

a) Market size b) Scope of competition

c) Market growth d) Life cycle position of org.

e) no. of competitors f) No. of buyers

g) Type of distribution channel

h) Pace of technological changes

i) Clusterization of key industry participants

[2] Nature & Strength of competitiona) Type of competition

b) How strong is the competitive force

[3] Trigger of changes

The trends and new developments produces changes which requires strategic response from the organization.

Life cycle position and new technology are the two major sources of trigger of changes or Deriving forces.

Examples ~ Internet opportunity & threat Globalization Change in industry growth rate Product innovation Diffusion of technical know-how across more

companies Changes in cost and efficiency

[4] Strategic group mappingIdentifying the companies that are in strong/weak position.

Price

Qu

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Dis

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Product line

L H

H

[5] Key Success Factor

The strength to prosper in the market is called KSF. For e.g. – Particular strategy, product attribute,

resource ownership etc.

All firms in the industry must pay close attention to them because being distinctively better than rivals on one or more KSF gives competitive advantages.

KSF vary from industry to industry and firm to firm.

Only rarely does an industry have more then 3 or 4 KSFs at any particular time.

[6] Strategic moves of rivals -

Competitive intelligence about the rival’s strategy, their latest moves, their strength and weakness is essential to decide company’s own best strategic move.

[7] Analysis of industrial attractiveness

Industry’s growth potential Adequate Profitability Firm’s competitive position Ability to capitalize vulnerabilities of weak rivals Degree of risk and uncertainty Ability to defend against the factors that makes industry

unattractive

SWOT analysis• S - Strength

Inherent capability to gain competitive advantages

• W - Weakness

Inherent inability that creates competitive disadvantages

• O - Opportunities

Favorable condition in the environment

• T - Threat

Unfavorable condition in the environment

Significance of SWOT analysis

Logical framework

Formal SWOT analysis is better then managerial perception about company’s S, W, O, T.

Comparative account

Compare external opportunities and threats with internal strength and weakness.

Strategy identification

Guides strategists to identify a set of strategy to choose from.

Strength factors Powerful strategy supported by needed skills. Strong brand name, image and goodwill. Strong financial position. Market leadership with large customer base. Proprietary technology and patents. Superior intellectual skills. Product innovation skills User of e-com technology Superior supply-chain management. Better product quality. Wide geographical coverage.

Weakness factors• No clear strategic mission.• Obsolete facilities.• Lack of key skills.• No cost controlling measures.• Too narrow product line.• Weak brand image.• Weaker dealer network.• Poor financial health.• Under utilized plant capacity.• Behind on product quality, R&D etc.

Opportunity factors• Additional customer group.• Expansion to new geographic market.• Expanding product line to meet customer

demand.• Additional technological capacity.• Using internet to pursue new sales growth.• Falling trade barriers.• Rapid growth in market demand.• Acquisition of rival firm.• Opening to new technology.• Liquidation of rival firm.

Threat factors• Entry of new competitor.• Loss of sale to substitute product.• Competition with e-com companies.• Increasing intensity of competition.• Technological changes.• Slow market growth rate.• Adverse shift in trade barriers.• Costly new regulatory requirement.• Growing bargaining power of customers.

TOWS Matrix

SOStrategy that uses strength to capitalize new and emerging opportunities

WOStrategy to overcome weakness to exploit opportunities

STStrategy that uses strength to minimize threat

WTStrategy to overcome weakness to cope with threat

Strength Weakness

Op

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Organizational

En

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Heinz Welhrich

Portfolio analysis

Portfolio is the collection of business or products that makes up the company.

PA is a technique to analyse company portfolio so that resources can be chanalized to potential products.

PA is used in multi-product and multi-business organization.

Depending upon the result of the analysis strategy can be selected.

• Pre-requisites of Portfolio analysis –– Knowledge of SBU– Knowledge of Experience curve– Knowledge of Product life cycle

Portfolioanalysis

BCG Growth-share

Matrix

Ansoff’sProduct-market

matrix

ADLMatrix

GeneralElectricModel

Boston Consulting Group Growth-Share matrix

STAR Question mark

Cash Cow Dog

High LowMarket share

Mar

ket

gro

wth

High

Low

• Question Marks ~– High-growth low-share business, requires

heavy investment even with less cash generation.

• STAR ~– High share-high growth business, requires

heavy investment to maintain the position.

• Cash Cows ~– High share, low-growth business, requires

less investment.

• Dogs ~– Low-share, low-growth business, requires

divestment or liquidation.

• BUILD strategy ~– High-growth Low-share business, requires

heavy investment even with less cash generation.

• HOLD strategy ~– High-share High-growth business, requires

heavy investment to maintain the position.

• HARVEST strategy ~– High share, Low-growth business, requires

less investment.

• DIVEST strategy ~– Low-share, Low-growth business, requires

divestment or liquidation.

STARS n

CASH COWS n

DOGS n

QUESTION MARKS n

n BUILD

n HARVEST

n HOLD

n DIVEST

Ansoff’S Product – Market matrix

MarketPenetration

ProductDevelopment

MarketDevelopment

Diversification

Existing Product New Product

Existing Market

NewMarket

It is portfolio planning tool that suggest 4 alternative growth strategies.

ADL MatrixADL Matrix• Developed by Arther D. Little it is 2D matrix

drawn between Industry maturity and Competitive position.

• Industry maturity has 4 stages –Embryonic GrowthMature Ageing

• Organization have 5 competitive positions–Dominant StrongFavorable Tenable

Weak

Embryonic Growth Mature Aging

Dominant Build barriers, Act offensively

Invest, cost leadership, defend position

Invest, cost leadership, Defend position

Renew focus, Defend position, Withdraw

Strong Differentiate, Fast grow

Differentiate, Low cost, Acquisition

Low cost, focus, Differentiate

Find Niche,Hold niche, Harvest

Favorable Differentiate, Focus

Focus, Differentiate, Defend

Find niche Hold niche, Harvest,

Harvest, Turn around

Tenable Grow with industry, Focus

Find nicheHold niche, Harvest

Turn around, Retrench

Divest, Retrench

Weak Find niche, Hold niche, fast grow

Turn around, Retrench

Divest, Withdraw

Withdraw

General Electric ModelGeneral Electric Model

Invest Invest Protect

Invest Protect Harvest

Protect Harvest Divest

Business Position

High Medium Low

Mar

ket

Att

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iven

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High

Medium

Low

Business Position

• Size• Customer Loyalty• Distribution• Technology skills• Patents• Marketing• Flexibility• Management

Market Attractiveness

• Size• Customer

satisfaction• Competition• Growth rate• Price level• Profitability• Govt. regulations• Economic trends

Strategic group

• A group of those rival firms which are similar in one of the following ways –– Comparable product line.– Same price/quality range.– Focusing on the same distribution channel.– Similar product attributes.– Selling to similar type of customers.– Depend on same technology.

• An industry may contain one or more strategic groups.