STRATEGIC MANAGEMENT

CRITICAL SUCCESS FACTORS

&

SWOT ANALYSIS

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IDENTIFYING THE INDUSTRY’S

CRITICAL SUCCESS FACTORS

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What are Critical Success Factors (CSFs)?

CSFs highlight the things all firms in the industry must pay close attention to in order to be successful.

CSFs vary from one industry to another Some common ones include

speed of delivery quality product or service offering, innovativeness wider distribution network a good corporate or brand image price competitiveness, speedy response to customer

needs.

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Identifying CSFs

A top priority strategic consideration. Management needs to know the industry well enough

to conclude what is more important to competitive success and what is less important.

CSFs serve as cornerstones on which business strategy is built – frequently, a firm can gain competitive advantage by concentrating on being distinctively better than rivals in one or more of the industry’s key success factors.

CSFs differ from one industry to another, and changes from time to time within the same industry as driving forces and competitive conditions change.

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Some Industry-Based Examples of CSFs

In the brewery industry for example, CSFs include:

1) Capacity: Availability of capacity to cater for rising demand

2) Efficient Utilization of brewing capacity - to keep manufacturing costs low.

3) A strong network of wholesale distributors - to gain access into many retail outlets, achieving national coverage.

4) Creative advertising – to induce beer drinkers to buy a particular brand and thereby pull beer sales through established channels of distribution, including hotels, pubs or drinking bars.

5) Expertise in brewing and marketing beer products

6) Innovation – being innovative, building powerful brands

7) Financial Performance – consistent growth in profitability, earnings per share, dividend cover, etc.

8) Investment in research and development (R&D) and modern state of the art technology

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CSFs In the Automobile & Life Assurance Industries

In the automobile industry, a firm must:o Build strong dealer networko Develop manufacturing cost control systemso Have the capacity to meet EPA standardso Develop a strong R&D capacity for introducing new models

In the life assurance industry, a firm must:o Have high calibre agency personnelo Be innovative in policy development and marketing strategyo Have effective control of clerical personnelo Have a substantial financial back-up to respond to claims

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CSFs in the Household Appliance Industry

In the household appliance industry, a firm must: o Achieve low costs, typically by building large manufacturing

facilities for making multiple versions of one type of appliance, such as washing machines.

o Have a strong presence in the mass merchandiser distribution channel.

o Offer a full range of applianceso Provide just-in-time delivery system to keep store inventory and

ordering costs downo Have excellent R&D facilities to provide consumer expectations

of reliability and durability.

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CSFs in the Clothing Industry

In the clothing industry CSFs include:1) Fashion design – to create buyer appeal2) Manufacturing efficiency – to keep selling prices

competitive.3) Specialized distribution – to reach the life style

buyer through the appropriate retail outlets4) Advertising in life-style magazines – to appeal to

the right target user.

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CSF Identification - The 3Cs Model Approach

Customers: What are customers’ real needs? What are the segments in the market? Which customer groups do we target?

Competition: How can the firm beat or survive the competition? What resources do they have? What customers are they targeting? How successful are they? How does the firm compare on price, quality and speed of delivery? Does the competitor have a wider distribution network?

Corporation ( Resources): What requisite resources does our company possess? How do these resources compare with our competitors? How does our costs compare with that of our rivals? Do we have the requisite skills, technologies, and organizational culture?

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Illustrative CSFs and Related Consequences

Company: A Bank offering lending products to customers comprising small-scale businesses.

Competitors: Intense competitive rivalry from other lending banks

Customer Requirements (CSFs): Understanding customer needs Understanding customer’s business Cost (charges/rate) Consistent/Reliable service Continuity of primary contact Speed of response Speed of supply (making funding available) Quality of primary contact Competitive terms of business (security fees, etc.)

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Illustration

CSF Action RequiredPrime Contact quality & continuity Appointment of relationship managers

with high personal credibility.

Training of Relationships Managers in

business/commercial awareness, and

needs identification skills.

Price Competitiveness Strong cost control and efficiency measures.

Effective lending risk assessment and

margin management

Service responsiveness, Reliable systems

Accuracy & Quality Staff development and Motivation

Highly developed customer awareness

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Competitor Profiling

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KEY SUCCESS FACTORS

WEIGHT RATING WEIGHTED SCORE

Market share 0.30 +4 +1.20

Price competitiveness 0.20 +3 +0.60

Facilities location 0.20 +5 +1.00

Raw materials costs 0.10 -3 -0.30

Caliber of personnel 0.20 +1 -0.20

SWOT ANALYSIS

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Introduction to SWOT Analysis

One of the useful ways of getting a clearer picture of the key issues and trends persisting, or anticipated from the external and internal environmental analysis is to develop a SWOT analysis.

SWOT is an acronym for a firm’s internal Strengths and Weaknesses, set against the business Opportunities and Threats identified in its external environment.

The analysis is a widely used technique through which managers create a quick overview of a firm’s strategic position in its competitive environment.

It is based on the assumption that an effective strategy derives from a sound “fit” between a firm’s internal resources (strengths & weaknesses) and its external environmental situation (opportunities & Threats).

A good fit maximizes a firm’s strengths and opportunities and minimizes its weaknesses and threats.

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The Importance of SWOT Analysis

SWOT highlights the attractiveness or otherwise of a firm’s competitive position in the market.

It drives the formulation of corporate and business-level strategy.

SWOT analysis helps a company to develop competitive advantage at the marketplace: By recognizing its current competitive situation a firm is able to match its competences with the critical success factors of the industry.

Accurately applied, this simple technique provides a framework for the design of a successful strategy.

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What are Opportunities?

An opportunity is a major favourable situation in a firm’s environment. Opportunities are prevailing or emerging factors, trends and events in

the external environment that opens important avenues for business development, stability and growth. Examples of recent events creating opportunity for business in Ghana, include Ghana @ 50, CAN 2008, UNCTAD XII.

Opportunities include the following:a) Identification of previously overlooked market segmentb) Changes in competitive or regulatory circumstancesc) Technological changesd) Improved buyer relationshipe) Improved seller relationship

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Other Sources of Opportunities

Opportunity to:

1) Enter new markets or segments

2) Expand product line to meet broader range of customer needs.

3) Diversify into related product/market

4) Vertically integrate – merger, acquisition, take-over

5) Exploit fast growing markets

6) Exploit complacency among rival firms

7) Take advantage of falling trade barriers in attractive foreign markets.

Opportunities must be attractive in terms of the competitive advantage they offer.

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Attractive Opportunities

Opportunities are attractive when:

a) No competitor has identified it.

b) Company has huge resources and capabilities to exploit.

c) Market has high growth rate potential, but not attractive to big competitors

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What are Threats?

Threats are challenges posed by an unfavourable event, trend or environmental development, that can endanger a company’s competitive position or impose constraints on its efforts to be successful.

Threats can stem from:

a) Changing buyer needs and tastes

b) Increasing demand of substitute products

c) Entrance of new competitors

d) Slow market growth

e) Vulnerability to business cycle in time of recession

f) Increased bargaining power of key buyers or suppliers.

g) Lacking the appropriate resources to exploit business opportunities

h) Technological changes

i) New or revised regulations

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Other Sources of Threats

Emergence of cheaper technologies The launching of new or better products by rival firms The entry of low-cost foreign competitors into a firm’s market

stronghold Rising inflation and interest rates Potential of a hostile take-over Unfavourable demographic shifts Rising crude oil prices on the world market Energy crisis

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What are Strengths?

A strength is a resource advantage relative to competitors and the needs of the markets a firm serves or expects to serve.

It is a distinctive competence when it gives the firm a competitive advantage at the marketplace.

Strengths arise from the resources and competences available to the firm, and include things that a company is capable of doing better than its competitors. For example:

1) A better product or service

2) A more powerful brand image

3) A superior technology

4) A better quality customer service

5) A wider distribution coverage

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Other Sources of Strengths

Stronger financial position in terms of gearing ratio (i.e. more equity than loan capital)

Superior leadership and management team An acknowledged market leader A more positive corporate image

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What are Weaknesses?

A weakness is a limitation or deficiency in one or more resources or competencies relative to competitors that impedes a firm’s effective performance.

Thus, weaknesses include:

a) Important resources that a company lacks.

b) Things that a company does poorly in comparison with the competition.

c) Internal conditions that put a company at a competitive disadvantage.

A weakness can be strategically important or not, depending on how much it matters, as a critical success factor.

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Sources of Weaknesses

No vision, mission – no clear strategic direction A weak financial position Lack of managerial depth and talent Lacking some key skills or competence Higher rate of staff turnover – e.g. above industry av. Plagued with internal operating problems Unable to finance needed changes in strategy. Too narrow a product line A weaker distribution network

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Guidelines for Developing SWOT Analysis

Keep it brief: pages of analysis are usually not required. Relate strengths and weaknesses to critical success factors State strengths and weaknesses in competitive terms – i.e.

compare yourself with your competitors Be specific – avoid blandness Distinguish between where the company is now and where it

wishes to be - realistic strategic gaps should be indicated Be realistic about your own strengths/weaknesses, and those of

your competitors.

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Post SWOT Analysis Questions

Has the company a distinctive competence on which to build an attractive strategy around?

If not, is there potential for turning some of its strengths into distinctive competences?

Is the company competitively vulnerable due to its weaknesses?, or is it disqualified from exploiting important opportunities?

Which weaknesses does strategy need to correct? Which opportunities does the company have the skills and resources to

exploit with a real chance of success? What threats should management be mostly worried about, and what

strategic moves does management need to consider in formulating a good defence?

The figure, next slide illustrates how SWOT analysis builds on the results of the RBV of the firm to aid strategic analysis

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Cell 3 Supports a Turnaround . Strategy

Cell 1

Supports aggressive New Market Development

Strategy

Cell 4Supports a Divestment

Strategy

NumerousEnvironment Opportunities

CriticalInternal

Weakness-es

SubstantialInternal

Strengths

Cell 2Supports a Diversification

Strategy

Major Environmental Threats

Key Opportunities & Threats Compared with Internal Resources & Competencies

Cell 1 is the most favourable situation: The firm faces several environmental opportunities and has numerous strengths that encourage exploitation of those opportunities. The situation suggests an aggressive growth-oriented strategy, such new market development

Cell 2 represents a firm whose RBV has identified several key strengths, but faces an unfavourable environment. The situation suggests a diversification strategy, involving the redeployment of those strong resources and competencies to exploit long-term growth opportunities in other product markets

Cell 3 represents a firm that faces impressive market opportunity but is constrained by weak internal resources. The focus of strategy for such a firm is to eliminate the internal weaknesses so as to more effectively exploit the opportunities to its advantage.

Cell 4 is the least favourable situation – the firm faces major environmental threats from a weak resource position. The situation suggests a divestment strategy

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