Analytical Methods

1. Strength/Weakness/Opportunity/Threat (SWOT) Analysis

2. Critical Success Factors (CSF)3. Matrix Analysis4. Value Chain Analysis5. Five Force Analysis

SWOT Analysis

StrengthsWeaknessesOpportunitiesThreats

MissionAn organization’s fundamental purpose

Good Strategies

SWOT Analysis

To formulate strategies that support the mission

Those that support the mission and:

• exploit opportunities and strengths• neutralize threats• avoid weaknesses

Internal Analysis(the firm itself)

Strengths

Weaknesses Threats

External Analysis(market, competition, environment)

Opportunities

basis for basis for strategic strategic optionsoptions

• A process of disti l lation

• Interpretation:

different people = different conclusions

• Crit ical question : So what ?

• Fact based - no wishful thinking

• Necessary assumptions --> contingency plans

What makes a good strategic analysis?

SWOT ANALYSIS

SWOT Analysis is an effective way of identifying your Strengths and Weaknesses, and of examining the Opportunities and Threats you face.

You can also apply SWOT analysis to your competitors.

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BCG Matrix Strategy tool to help allocate resources Examines relative market share and

industry growth rate Defines Four Business Groups

Cash Cow, Star, Question Mark and Dead Dog. This method is based on the product life

cycle theory It can be used to determine what priorities

should be given to the product portfolio of a business unit

Boston Consulting GroupGrowth-Share Matrix

High Relative Market Share

Low Relative Market Share

High Market Growth

Rate

Stars Wild Cats (Question Marks)

Low Market Growth

Rate

Cash Cows Dead Dogs

Product/service – currently profitable

Long-term

Product/service – currently highly profitable

Short-term

Not profitable at present but expected to be profitable in the

future.

Little contribution to profit currently or in the future

BCG Matrix• To ensure long-term value creation, a a

company should have a portfolio of products company should have a portfolio of products that contains both high growth products in that contains both high growth products in need of cash inputs and low growth products need of cash inputs and low growth products that generate a lot of cashthat generate a lot of cash.

• The basic idea behind it is that the the bigger the bigger the market share a product has market share a product has oror the faster the the faster the product’s market share grows product’s market share grows the better it is the better it is for the company.for the company.

72.

QUESTIONMARKSTAR

CASHCOW

DEADDOG

Relative position – market share

high low

Bu

sin

ess

grow

th high

low

BCG-BCG-MATRIXMATRIX

selecta few

remainder

divestedinvest

liquidate

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BCG-BCG-MATRIXMATRIXStar (= high growth, high market

share) Use large amount of cash Leaders in the business so they

should generate large amount of business.

Attempt should be made to hold share, result will be cash cow if market share kept

Question marks – (high growth, low market share)

Worst cash characteristics, because of high demands and low returns due to low market share.

Either invest heavily or sell or investment nothing and generate whatever cash it can. Increase market share or deliver cash

Dogs – (low growth, low market share)

Avoid and minimise the number in the Company

Deliver cash, otherwise liquidate.

Cash cow – (slow growth, high market share)

Profit and cash generation is high But, slow growth, so investment

should be low. Keeps profit high. Foundation of

the Company

Porter's Generic Competitive Strategies

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above-average profitability in the long run

sustainable competitive advantage

2 types competitive advantage:low cost low cost

differentiationdifferentiation

company’s scopeof activities

Generic strategies for achieving above average performance :

Cost leadershipCost leadershipDifferentiationDifferentiationFocus / nicheFocus / niche

Cost Focus Differentiation Focus.

A firm's relative position within its industry determines whether a firm's profitability is

above the industry average or not .

1. Cost leadership

3. Cost focus

4. Differentiation focus

2. Differentiation

PORTER’S GENERIC COMPETITIVE STRATEGY

BROAD TARGET

NARROW TARGET

LOWER COST Differentiation

COMPETITIVE ADVANTAGE

COMPETITIVE

SCOPE

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Competitive Strategies Cost Leadership

Gain competitive advantage by producing goods inexpensively

In cost leadership, a firm sets out to become the low cost producer in its industry.

A low cost producer must find and exploit all sources of cost advantage..

Competitive Strategies Differentiation

Provide unique product to a target market Organization seeks attributes that many

buyers in the industry perceive as important, and uniquely positions itself to meet those needs.

Eg. quality of products or services

Competitive Strategies Focus

An organization concentrates on a specific regional market, product line, or group of buyers and tailors its strategy to serving them.

cost focus = a firm seeks a cost advantage in its target segment

differentiation focus = seeks differentiation in its target segment.

buyers with unusual needs

Additional Notes

Ansoff's Product/Market Matrix

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Market PenetrationWe market our existing products to our existing customers. This means increasing our revenue by, for example, promoting the product, repositioning the brand, and so on. However, the product is not altered and we do not seek any new customers.

Market Development We market our existing product range in a new market. This means that the product remains the same, but it is marketed to a new audience. Exporting the product, or marketing it in a new region, are examples of market development.

Ansoff's Product/Market Matrix

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Product Development This is a new product to be marketed to our existing customers. Here we develop and innovate new product offerings to replace existing ones. Such products are then marketed to our existing customers. This often happens with the auto markets where existing models are updated or replaced and then marketed to existing customers.

Diversification This is where we market completely new products to new customers. There are two types of diversification, namely related and unrelated diversification. Related diversification means that we remain in a market or industry with which we are familiar. For example, a soup manufacturer diversifies into cake manufacture (i.e. the food industry). Unrelated diversification is where we have no previous industry nor market experience. For example a soup manufacturer invests in the rail business.

Ansoff's Product/Market Matrix (cont.)

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Five Force Analysis Model developed by Porter and Millar (1985) Depict the competitive world in which any

organization exist

Five Forces Model of Competition

Substitute Products(of firms in

other industries)

Suppliers of Key Inputs

Buyers

PotentialNew

Entrants

RivalryAmong

CompetingSellers

Porter’s Five Competitive Forces

Competitive position is due to Five factors:1. Threat of new entrants

Extent to which new competitors can enter market

1. Competitive rivalry Competitive rivalry between established firms in industry

1. Threat of substitute products Extent to which alternative products/services from other

industries may appeal to your customers

1. Power of buyers Extent to which buyers influence market rivals

1. Power of suppliers Extent to which suppliers influence market rivals

PORTER’S COMPETITIVE FORCESBuyer Increase switching costs by making it more expensive

for buyers to go to other supplier, reduce bargaining power of buyers, categorized buyer groups

Supplier Reduce the power of suppliers, reduce human labor by using robotic technology, identify new materials/ products.

New entrants

Defend market position or penetrate the barriers others has created around attractive industry. Create entry barriers; first mover; own data base

Substitutes Determine price performance, switching cost to decrease buyers from using alternative product whenever it is available. Enrich product with IS services; speed up life cycle

Rivalry Collaborative efforts to lower cost/ strategic alliances

PORTER’S 5 FORCES