Chapter [3] Strategic Analysis The analysis of company’s external environment and internal...
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Transcript of Chapter [3] Strategic Analysis The analysis of company’s external environment and internal...
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
urc
es
Inte
rna
lE
xte
rna
l
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
alit
y
Dis
trib
uti
on
ch
ann
el
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
po
rtu
nit
yT
hre
at
Organizational
En
viro
nm
enta
l
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
ract
iven
ess
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.