Strategy as analysis - company industry analysis tools

STRATEGIC PROCESSES, TOOLS and LESSONS

Frameworks that Amplify Individual and Team Strategic Thinking

by

Asking the right questions

Analyzing available information

Acting to make an impact

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Strategic Processes, Tools and Lessons

Strategic Processes and Tools

• I have developed a set of “tools” aimed at helping individuals and teams enhance their strategic thinking skills.– The tools provide leverage that will help

develop, focus and magnify the talents of the teams and individuals.

– The tools provide mental discipline – so, they may feel a bit awkward at first, but will become more natural with use.

– The tools are grounded in the real world of strategic thinking – we will show that they have both philosophical and practical power.

• Creative people and teams amplify their creativity with skillful use of mental tools. 3

The Strategic Thinking Process

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The Strategic Thinking Process

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1. By what choices and circumstances did we get here?

2. What are those in our industry facing?

3. Who are we playing against?

4. What do internal resources and capabilities do we have that allows us to capitalize on opportunities and sustain success during threats … and what internal resource and capability limitations do we have that might keep us from capitalizing on opportunities and sustaining success during threats ?

5. What are the external opportunities and threats that we will face?

6. How so our strengths and limitations align with our opportunities and threats?

7. What strategic action alternatives do we have, and how can we package those alternatives into a coherent strategy?

8. How do we best implement our chosen strategy?

9. What results do we expect that allow us to determine whether or strategy was successful or not?

The Strategic Thinking Process(and tools for leveraging your thinking)

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Strategic Thinking Leverage Tools

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The Organization:• History• Environment• Competitive position• Strengths and

limitations• Opportunities and

threats

The Options:• Intersection of

strengths and limitations with opportunities and threats

• Comparison and contrast of strategic action options

The Operation:• Implementation• Expected Results

Strategic Thinking Leverage Tools

THE ORGANIZATION

History Historic 4C Analysis

Environment STEP-FAR Analysis

Competitive PositionFive-Forces AnalysisStrategic Customer Analysis

Strengths and Limitations Strength-Limitation Cluster Analysis

Opportunities and threats Opportunity-Threat Assessment Matrix

SL/OT Intersection SL-OT Analysis

Strategy Alternatives Strategy Evaluation Matrix

Strategy Implementation Strategy Implementation Matrix

Strategic Results Key Results Dashboard8

Strategic Leverage ToolsTHE ORGANIZATION



Competitive Position

Five-Forces AnalysisStrategic Customer Analysis

Strengths and Limitations

Strength-Limitation Cluster Analysis

Opportunities and Threats

Opportunity-Threat Assessment Matrix


Strategy alternatives Strategy Evaluation Matrix

Strategy Implementation

Strategy Implementation Matrix

Strategic Results Key Results Dashboard

• Strategic premises underlying Historic 4C Analysis:

• Every organization is pursuing a strategy

• embedded in the past• enacted in the present

• The past brings with it both assets and liabilities

• Thoughtful strategic analysis and action helps organizations avoid being

• captured by the past• consumed by the present

• The aim is to accurately read and respond to the past

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Strategic Leverage Tools4C Analysis

• The HISTORIC 4C ANALYSIS provides a framework for better mapping the connections that have led a company to its present conditions by identifying the historic choices, internal cultural elements and the major events which acted as catalysts for the organization responding as it has.

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Condition 1

Choice 1

Cultural Element 1

Catalyst 1

Strategic Leverage Tools4C Analysis

• The underlying philosophy is that– Every organization carries with it

a history that is both an asset (potential building blocks) and a liability (potential stumbling blocks) for the future

– The history of an organization is embodied in the conditions it faces, the choices it made, the process through which those choices occurred, and the original catalysts for those choices

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Condition 1

Choice 1

Cultural Element 1

Catalyst 1

Strategic Leverage Tools4C Analysis: Basic Elements

• Conditions refer to visible consequences or results of the organization’s choices and can be qualitative or quantitative, strategic or operational, etc.

• Choices refer to the formal and informal decisions made by the organization in response to events that acted as catalysts for making the decisions

• Cultural element refers to any person, group, practice or other condition through which the catalytic event was filtered or understood.

• Catalyst is any internal or external event that led to a major issue the organization had to face.

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Condition 1

Choice 1

CulturalElement 1

Catalyst 1

Condition 1

Condition 2

Condition 3

Condition 4

Choice 1

Choice 2Cultural Element 2

Cultural Element 1

Cultural Element 3

Cultural Element 5

Cultural Element 4

Cultural Element 6

Catalyst 1

Catalyst 2

Catalyst 3

Catalyst 4

Catalyst 5

Catalyst 6

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Choice 3

Choice 4

Choice 5

Choice 6

Choice 7

Choice 8

Strategic Leverage Tools4C Analysis: Using The Historic 4C Analysis

• The diagram comes first. • Each element is given a

short but meaningful title. The 4C element shapes and sizes may be modified as needed.

• The 4C lines represent the connections - focus on major connections most significant in providing the clearest sense of the primary historic forces driving the organization.

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Strategic Leverage Tools4C Analysis: Using The Historic 4C Analysis

• The pages of discussion following the 4C diagram should focus on describing the elements and connections in concrete, organization-industry specific terms.

• The structure of the 4C discussion should reflect a conscious decision about what best describes the organization’s history. There is no one best way to structure the discussion.

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A Sample 4-C Analysis

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Strategic Leverage Tools

THE ORGANIZATION



Competitive Position

Five-Forces AnalysisStrategic Customer Analysis










• Strategic premises underlying STEP-FAR Analysis:• Every organization a part

of a network of environmental forces.

• Each force has an ongoing impact on the possibilities and problems facing a company.

• Successful firms seek to be both recognize and respond to critical environmental trends and issues in timely, progressive and creative ways 17

Environmental Analysis

• All organizations, but especially those that fail, are characterized by serious and sustained misunderstanding of the environmental and competitive realities they face.

• Honest recognition of reality and aggressive response to reality are all too rare.

• One of the most important benefits of strategic thinking is to help organizations live, and thrive, in the real world – not the world of illusion.

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Environmental Analysis

• We have developed

the STEP-FAR tool to

help teams conduct a

systematic

environmental

analysis:

• STEP-FAR ANALYSIS

to examine social,

technological,

economic and political

issues and trends

impacting a specific

industry

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POLITICAL/LEGAL

ECONOMIC

TECHNOLOGICAL

SOCIAL

RESPONSESANALYSISFACTS

POLITICAL/LEGAL

ECONOMIC

TECHNOLOGICAL

SOCIAL


Strategic Leverage ToolsSTEP/FAR Environmental Analysis

• STEP/FAR Analysis focuses attention on four key categories of environmental issues:– Social (demographic, ethical/values)– Technological (production, product)– Economic (income-related, cost-related)– Political (laws, regulations)

• Each category is examined to develop– Facts (what are the key environmental realities facing

companies like the case company)– Analysis (what do these realities mean in terms of

possible impacts on companies like the case company)– Responses (what actions might companies like the

case company take to capitalize on and/or cope with the implications of the environmental realities they face)

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• The STEP/FAR grid helps to– Organize the

information we gather about the environment

– Emphasize prescriptive analysis (vs. merely describing the environment)

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POLITICAL/LEGAL

ECONOMIC

TECHNOLOGICAL

SOCIAL


POLITICAL/LEGAL

ECONOMIC

TECHNOLOGICAL

SOCIAL



STEP FACTORS STEP Elements(examples)

FACTS ANALYSIS RESPONSES

SOCIAL•Demographic•Ethical/values

TECHNOLOGICAL•Production•Product

ECONOMIC•Income-related•Cost-related

POLITICAL/LEGAL•Laws•Regulations

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• STEP/FAR should include factors dealing with technical, social, political and general economic trends and events that influence the ability of firms in a particular industry to succeed.

• STEP/FAR should not include factors directly related to the company’s competitive situation (these are covered in the 5-Forces Analysis) nor those dealing with the company’s strengths and weaknesses (these are covered in the SL-OT Analyses).

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A Sample Step-Far Analysis

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THE ORGANIZATION













• Strategic premises underlying Five-Forces Analysis:• Every organization resides

within a competitive industry context consisting of rival firms, buyers, suppliers, potential new entrants and companies producing possible substitute goods

• Successful companies understand the competitive forces that face and seek to forge a sustainable competitive edge that allows them to thrive

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The 5-Forces Model of Competition

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Think of this model as offering windows to allow us to see into the parts and processes of competition.

Strategic Leverage Tools5-Forces Competitive Analysis

• The 5-Forces analysis is developed from the original work of Michael Porter, a managerial economist at Harvard University, and is discussed in great detail in our course text.

• The 5-Forces analysis is a mechanism that displays key findings regarding the competitive “realities” organizations face from the five primary sources of competition in any industry.

• The focus of the discussion is on the INDUSTRY, rather than the individual company.

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Lessons from 5-Forces Analysis

• The essential truth: competition places pressure on our capacity to control our prices and/or our costs and, consequently, or ability to generate profits.

• Our aim is not to compete “better.” Rather, it is not to compete at all (that is, to monopolize) in any or all of the five areas of competition:– Substitute products/services– Potential entrants– Direct competitors– Sellers– Buyers

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• Objective is to craft a strategy– To insulate firm from

competitive pressures– To initiate actions to produce a

sustainable competitive advantage, placing added pressure on rivals

– Which allows firm to define, redefine or refine the business model (how to provide customer value at competitive prices and with adequate profitability) for the industry

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• The five-forces model offers a perspective that addresses known competitive relationships and known competitive guidelines that govern those relationships.

• It is based on micro and macro economic theory and practice.

• It is a model that both describes competition and prescribes effective responses to that competition.

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• Success as a competitor is a matter of knowing

what to do IN OUR COMPETITIVE CONTEXT,

and then doing it well.

• Put another way, success is a matter of fit –

making sure that we know what strengthens and

weakens our competitive capabilities and then

acting wisely within those realities.

• Knowing what to do is not a mystery – in most

cases the factors that lead to success or failure

are readily knowable and failing to do what is

required is a matter of a lack of resources,

capabilities, knowledge and/or will.31


• Doing something well is a matter of knowing what it takes to succeed IN A PARTICULAR INDUSTRY CONTEXT and then committing the requisite resources and energies for maximum strategic impact.

• Competitive success equals– Understanding the driving forces of competition in

an industry– Deploying

• the right people• with the right quality and quantity of resources• in the right way • at the right time

– Executing with energy, intelligence and persistence– Adjusting as competitive conditions change

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• Success yesterday is no guarantee of success tomorrow because competitive conditions change as–New substitutes–New potential entrants–New direct competitors–New seller relationships–New buyer relationships

alter what needs to be known and what needs tobe done to succeed.• The environment is always dynamic – the

challenge is for firm to develop the capacity to be as dynamic.

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Strategic Leverage Tools Five Forces Competitive Analysis

Discussion of Analysis in the Paper

• The analysis consists of reaching 2-4 specific conclusions about each competitive force and writing these down in a summary form in the chart. For example one might conclude concerning potential substitutes, “Increasing use of internet selling could lead to alternative sales channels.”

• Students/teams should identify at least two competition increasing factors and two competition decreasing factors for each of the five forces.

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Strategic Leverage Tools Five Forces Competitive Analysis

Discussion of Analysis in the Paper

• The discussion accompanying the matrix should select 2-3 factors (at least one competition increasing factor and one competition decreasing factor) for each of the five forces to discuss in detail (noting both – the evidence for the factor and – the influence of the factor on the future of organizations

in this industry • The summary statements appearing in the matrix

itself should be clear and concise enough to stand on their own. Generic statements are not helpful.

• Also, the discussion in this section of the paper must reach some definitive clear conclusions about the overall level of competitive activity in the industry.

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Sample 5-Forces Analysis

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THE ORGANIZATION













• Strategic premises underlying Strategic Customer Analysis:

• There is no more important element of strategic planning for any organization (profit or not for profit) than knowing “WHO are our customers?” and “WHAT are they like?”

• Most companies sell a variety of different products to a variety of groups or segments of customers. At the STRATEGIC LEVEL we are interested in customers in the aggregate: segments of customers who share some set of traits that allow us to target them with the right products at the right price in the right place with the right promotion.

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Strategic Leverage ToolsStrategic Customer Analysis

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Factor Definition 10 9 8 7 6 5 4 3 2 1COST How important is price or cost to the

customer’s purchase decision? How sensitive are customers to raising or lowering price?

relatively cost insensitivex-------x-------x-------x-------x--

relatively cost sensitive--x-------x-------x-------x-------x

USE How important is the use of our product to the customer? How important is our specific brand to the customer?

product is essentialx-------x-------x-------x-------x--

product is peripheral--x-------x-------x-------x-------x

SERVICE How much service is required before and after the sell?

intensive service requiredx-------x-------x-------x-------x--

little service required--x-------x-------x-------x-------x

TIMING How important are timing issues to the customer such as freshness, delivery reliability, down time for maintenance

timing is criticalx-------x-------x-------x-------x--

timing is not critical--x-------x-------x-------x-------x

OPTIONS What product substitutes are available? Under what conditions will customers be aware of and/or seek these substitutes?

few options availablex-------x-------x-------x-------x--

many options available--x-------x-------x-------x-------x

MEASURES How objective/subjective are the measures of customer satisfaction we can use?

objective measuresx-------x-------x-------x-------x--

subjective measures--x-------x-------x-------x-------x

EMERGENCE How quickly are our customers’ tastes and preferences changing?

customer change is slowx-------x-------x-------x-------x--

customer change is rapid--x-------x-------x-------x-------x

REACHABILITY How easy or difficult is it to identify our customers and target them with specific information or promotion

customers easily reachedx-------x-------x-------x-------x--

difficult to reach customers--x-------x-------x-------x-------x


•There is no more important element

of strategic planning for any

organization (profit or not for profit)

than knowing “WHO are our

customers?” and “WHAT are they

like?”

• Most companies sell a variety of

different products to a variety of

groups or segments of customers.

At the STRATEGIC LEVEL we are

interested in customers in the

aggregate: segments of customers

who share some set of traits that

allow us to target them with the

right products at the right price in

the right place with the right

promotion. 39


• The table on the left shows only two of what would probably be many different customer segments.

• Each segment would have its own unique pattern of characteristics requiring different marketing approaches.

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• The discussion following the graph can be done in this format – here the team describes each factor in contrast to the two companies.

• Customer segments do not have to be by company.

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THE ORGANIZATION













• Strategic premises underlying Strength-Limitation Cluster Analysis:

• Strategic success is less dependent on the presence of one “magic” strength than it is on possessing a cluster of mutually supporting strengths.

• Competitive strength is achieved through choices which build a tightly integrated, company-wide network of internal strengths and external connections to the strengths of other partnering organizations.

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THE ORGANIZATION













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• Strategic premises underlying Strength-Limitation Cluster Analysis:

• Limitations occur in clusters – primarily through choices of omission or commission which build into a company a structure of limitation or linked “habits of ineffectiveness.”

Strategic Leverage ToolsStrength-Limitation Cluster Analysis

• S-L Cluster analysis focuses attention on those factors that affect our ability to– Draw close to customers

through providing value-added features or service to them

– Distance ourselves from our competitors (both “in fact” and as perceived by current and potential customers)

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COMPANY

COMPETITOR

Perceived ability of the company to providing the values desired by the customer

Perceived ability of another company to provide the values desired by the customer

Perceived gap between company and competitor in terms of affinity or being “close to the customer”

CUSTOMER

S1

S2

S3

S4

S5

S6

S7

L1

L2

L3

L4

L5

L6

L7

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The fundamental assertions are that– Strategic success is less

dependent on the presence of one “magic” strength than it is on possessing a cluster of mutually supporting strengths. Competitive strength is achieved through choices which build a tightly integrated, company-wide pattern of strength.

– Limitations also occur in clusters – primarily through choices of omission or commission which build into a company a structure of limitation or linked “habits of ineffectiveness.”

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S1

S2

S3

S4

S5

S6

S7

L1

L2

L3

L4

L5

L6

L7


The Strength-Limitation Cluster Analysis is based on some very critical strategic truths:

1. A strength is any organizational condition (for example location), capacity (for example, ample financing) or capability (excellent IT system, experienced personnel) that we judge provides the organization with a resource advantage that makes a positive difference to customers and distances us from competitors.

2. A limitation is any organizational condition, capacity or capability that we judge makes a negative difference to our customers and fails to distinguish us from our competitors.

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S1

S2

S3

S4

S5

S6

S7

L1

L2

L3

L4

L5

L6

L7



3. Understanding an organization’s capacity to succeed or fail means understanding the combined force of its related strengths and limitations. That is, every organization has strengths and limitations. What we strive for is to identify and create or amplify strengths whose combined impact is greater than the combined impact of our limitations.

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S1

S2

S3

S4

S5

S6

S7

L1

L2

L3

L4

L5

L6

L7



4. Organizations need to focus both on strengths and limitations – for strengths must be continually exercised and fed or they will whither. Correspondingly, limitations, if unattended, will grow and become more serious obstacles to success.

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S1

S2

S3

S4

S5

S6

S7

L1

L2

L3

L4

L5

L6

L7



5. In the long run, successful organizations spend the majority of their time building up strengths and transforming limitations into strengths. Preoccupation with limitations alone is a certain road to strategic failure.

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S1

S2

S3

S4

S5

S6

S7

L1

L2

L3

L4

L5

L6

L7



6. It is possible for the same condition to be both a strength AND a limitation.• Having long-term experienced

personnel might raise labor costs• Our present capital position may

be strong but its trend could be troublesome

• Our product’s competitive advantage can become a blind spot to change

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S1

S2

S3

S4

S5

S6

S7

L1

L2

L3

L4

L5

L6

L7



7. While this technique is powerful for revealing actual strengths and limitations, it can also be used in a other ways. If we imagine a strength (S1) we need to develop, we can ask “What two additional strengths (S2 and S3) must we develop to support that key strength. Similarly we can ask “If we are to avoid a limitation (L1) what two additional limitations must we avoid? We might also use the technique to “match” strengths and limitations. For example, how might Strength 1 help us overcome Limitation 1? Or, how might Limitations 4 and 5 operate in such a way to negate Strength 4?

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S1

S2 S

3

S4

S5 S

6

S7

L1

L2

L3

L4 L5

L6 L7



8. It is possible to creatively augment this technique by adding “importance” or “significance” measures. For instance, assume we create a scale from 1 (low importance) to 10 (high importance). We could assign each strength and limitation a number. In the example to the left, the total “Strength Index” would be 48 versus the total “Limitation Index” of 47 – indicating a relative parity between strengths and limitations – a finding that would have real impact on strategy selection and implementation. We could further supplement the diagram with a chart that plots both “Significance” and, say, “Cost of supporting (a strength) or overcoming (a limitation).” The resulting chart (example left) might help us identify the most important or promising arenas of strategic action.

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8 7

S1

S2

S3

S4

S5

S6

S7

L1

L2

L3

L4

L5

L6

L7

76

7

10

4

610

9

5

2

5

8

S1

S2

S3

S4

S5

S6

S7

L1

L2

L3

L4

L5

L6

L7

76

7

10

4

610

9

5

2

5

8

Sig

nific

ance

0

10

10Costs of supporting or overcoming

S1

S6S5S3

S2

S7

S4L1

L2

L3

L4

L5

L6

L7

Sig

nific

ance

0

10

10Costs of supporting or overcoming

S1

S6S5S3

S2

S7

S4L1

L2

L3

L4

L5

L6

L7

A Sample SL Cluster Analysis

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• Strategic premises underlying Opportunity-Threat Matrix Analysis:

• Assessment of opportunities and threats should focus on their potential IMPACT and their potential IMPORTANCE

• Assessments of impact and importance are judgments and must be supported by the strongest evidence and clearest reasoning possible.

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THE ORGANIZATION













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-1- -2-

-3- -4-

ABrief description of the factor

BBrief description of the factor

CBrief description of the factor

DBrief description of the factor

EBrief description of the factor

FBrief description of the factor

etcBrief description of the factor

Strategic Leverage ToolsThe Opportunity-Threat Assessment Matrix

Negative IMPACT Positive

Low

IM

PO

RT

AN

CE

H

igh

A

B

E

C

D

F

101099887766554433221100 101099887766554433221100

101099

8877

6655

4433

2211

001010

9988

7766

5544

3322

1100


• Opportunities and threats are external conditions that provide the organization with a chance to– Capitalize on a condition

that advances the organization’s welfare

– Cope with a condition to protect an organization’s welfare

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• Classifying something as an opportunity or a threat is a judgment not a fact. Depending on one’s perspective, different judgments can be reached: for instance, is inflation an opportunity or a threat?

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• The same external condition can be judged to be both an opportunity and a threat. For example, in a new market the lack of an industry standard for a product can be an opportunity to experiment, or can lead to customer confusion and reluctance to purchase.

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• The portrayal of four “regions” in the matrix is a visual convenience. The particular set of O-Ts that an organization determines to address depends on:– The organization’s current set

of capability strengths and limitations

– The organization’s current strategic initiatives

– The preferences of top management (including such attributes as risk tolerance, proactive vs. reactive style, etc.)

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• The discussion of O-Ts should include a clear articulation of– The nature of factor– The reason for the

estimation of impact– The reason for the

estimation of importance

• Never assume any of this is obvious or simple – make a careful, logical defense for your thinking.

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• The O-T Matrix should include input from two other tools:– The STEP-FAR Analysis– The Five-Forces Analysis

• The uniqueness of the O-T matrix is that it assesses external factors in terms of their importance to, and impact on, the future welfare of the organization

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• Strategic Lessons from the OT Matrix:– Every organization

faces a set of conditions that present opportunities to advance the organization’s well-being, or that threaten that well-being.

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• Strategic Lessons from the OT Matrix:– Becoming aware of

OT’s well in advance of encountering them provides time to carefully analyze strategic implications and to creatively plan strategic responses.

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• Strategic Lessons from the OT Matrix:– The label strategic

“opportunity” or “threat” is a value judgment, not a statement of fact. The same condition may be judged to be both an opportunity or threat. The key is the reasoning (evidence and logic) that support the judgment.

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• Strategic Lessons from the OT Matrix:– Determining the “best”

sequence in which OT’s ought to be addressed is also a value judgment – involving a wide variety of people in this discussion will improve the quality of the strategic plan we finally embrace.

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A Sample OT Analysis Matrix

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• Strategic premises

underlying SL-OT

Analysis:

• An organization’s

strategic options reflect

the interaction of its

• Strengths and

limitations

and its

• Opportunities and

threats

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THE ORGANIZATION













Learn to conduct a SLOT analysisIdentify Strengths, Limitations,

Opportunities, and Threats and build a strategy around them

An example of reasoning through the process


Who are my competitors and how able am I to compete with them?

What analysis tools do I have?

STEP-FAR ANALYSIS FIVE FORCES ANALYSIS SL Cluster AnalysisOT Matrix

Strengths Limitations

Opportunities

Strength-Opportunity strategies

Limitation-Opportunity strategies

Threats

Strength-Threat strategies

Limitation -Threat strategies

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A SLOT analysis helps you match your company’s resources and capabilities to threats and opportunities in the competitive environment.

SLOT analysis can be very subjective, but adding weighting and criteria to each factor increases the validity of the analysis. Also completing the SLOT matrix can help you pick the best strategy to implement.

SLOT analysis and SLOT Matrix


An Example: Pixar Animation Studios

Pixar Animation StudiosTo illustrate the SLOT analysis technique, we’ve used Pixar of Toy Story fame as a sample case. As you learn about SLOT analysis, you’ll see what results Pixar might have if it used the same technique.


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http://www.pixar.com/index.html

The first two elements of your analysis focus on internal capabilities. Strengths can come from many sources, including your team members, your product line, your bank account, your production process, your patents, or your market share. To jump start your list of strengths, ask questions in these categories:

Products• What relevant resources does the company have, such as

patents, proprietary software, distribution channels, production systems?

• Does the company manage its inventories efficiently?• Does the company have strong brands?• What is the market share of the company in its various product

lines?People• Does the company have a strong team of skilled employees?• Are there employees with skills unique in the industry?Performance• What does the company do well? • What do other people see as the company’s strengths? • What are the major sources of a company's revenue and profit?• Has the company demonstrated the ability to adapt and change?• Are the marketing and advertising programs effective?• Does the company use information technology effectively?

Assessing your strengths

Pixar’s strengths

Excellent use of technology

Strong brand

Talented team

Great track record


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Assessing your limitations

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Don’t let this part of the process turn into an unpleasant session of finger pointing. All companies have limitations. Focus on fundamental limitations of strategic importance, not individual mistakes or failures. Consider these questions when assessing your limitations:

Products• What are the least profitable product lines for the company?• What products or services do competitors offer that you don’t?• Is the product line lacking in any market segment?

People• Does your company provide good customer service?• Do team members lack vital skills?• How strong are the communication skills of team members

and team leaders?Performance

• What does the company do poorly or not at all? • Has the company brought new ideas and products to the market

place?• Is the company losing out to competitors on the technology front?• What objections do potential clients or customers frequently

raise?• Are production processes ineffective or outdated?

Pixar’s limitations

Product line is narrowly defined

Production time is long

Product line is focused on one medium - film


Assessing your opportunities

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This part of your analysis reviews external forces, including socioeconomic, political, environmental and demographic changes that could effect your company (remember the STEP-FAR and Five Forces techniques). Consider these questions when reviewing your opportunities:

Products• What new needs of customers could the company meet? • What niches have competitors missed?• Does the company’s product line have any holes in it?• Can poor-performing product lines be discontinued to boost profitability?• Is there an opportunity to demand better prices from suppliers? • Are there opportunities to extend brands into related areas?

Performance• What are the emerging political and social opportunities? • Is there new technology that could help the business? • Are there inexpensive acquisition opportunities?• Are there new economic trends that benefit the company?

People• Can you start incentive plans to boost employee performance?• Are there training programs that would improve employees’ skills?

Pixar’s opportunities Develop online products to build on existing technology strengths

Continue to use technology strength to develop and sell animation software

Develop games to build on strengths of characters


Assessing your threats

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Threats can be hard to define (and admit – We are threatened?), so this portion of the analysis can be the most challenging and the most illuminating, both in terms of pointing out what needs to be done, and in putting problems into perspective.

Products• Are any of the company’s products threatened by a competitor?• Are any new technologies likely to make one of the company’s products obsolete?

People• Can the company attract and retain the employees it needs? • Are there communication problems that often derail new initiatives?

Performance• What are the negative economic trends? • What are the negative political and social trends?• What obstacles does the company face? • Does the company have bad debt or cash-flow problems? • Where are competitors about to threaten the company’s position?

Pixar’s threats Digital piracy may threaten profits

One product failure could be a serious set back

Other film companies may target the animated film market


Strengths List 4-5 internal strengths here Limitations List 4-5 internal limitations here

OpportunitiesList 4-5 external opportunities here

S-O strategiesS-O strategies use a firm’s internal strengths to take advantage of external opportunities. These are the best strategies to employ, but many firms are not in a position to do so. Companies will generally pursue one or several of the other three strategies first to be able to apply SO strategies.

L-O strategiesSometimes key external opportunities exist, but a firm has internal limitations that prevent it from exploiting those opportunities fully. L-O strategies aim at overcoming limitations to take advantage of opportunities.

ThreatsList 4-5 external threats here

S-T strategiesS-T strategies use a firm’s strengths to avoid or reduce external threats. This does not mean that a strong organization should always meet threats head-on. A company has to weigh the severity and immediacy of the threat before selecting this kind of strategy.

L-T strategiesL-T strategies are defensive tactics designed to reduce limitations and avoid threats. A company faced with numerous threats and limitations may have to merge, retrench, declare bankruptcy, or close.

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Use the SLOT Matrix to pick a strategy

At this point in the analysis, you should have a list of strengths, limitations, threats and opportunities. To develop strategies based on this list, use the SLOT matrix. The matrix can help you to match up internal strengths and weaknesses with external threats and opportunities and develop a feasible plan for addressing the strongest forces.

Four strategy types from the SLOT Matrix


A SLOT Matrix for Pixar

Strengths Limitations

Opportunities S-O strategiesStrength: Cutting-edge software productsOpportunity: Robust market for animation and illustration softwareStrategy: Review current software products compared to other animation and illustration products on the market and look for opportunities to develop new products

L-O strategiesLimitation: Long product development timeOpportunity: Growing online media marketStrategy: Explore establishing an online store and electronic delivery system, similar to iTunes, to create a marketplace for online delivery of our movies, allowing us to create shorter films and get them to market sooner

Threats S-T strategiesStrength: Technical expertiseThreat: Digital piracy Strategy: Develop a partnership with a software encryption company to contribute Pixar’s technical expertise to encryption efforts

L-T strategiesLimitation: Narrow product lineThreat: Competition from other studiosStrategy: Build partnerships with other studios to create demand for more products and provide more distribution channels

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This is only one assessment of Pixar’s strengths, limitations, opportunities, and threats. A committee of actual employees and managers would have a very different analysis and as a result a very different set of strategies.


A Sample SLOT Matrix

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• Strategic premises underlying the Strategy Evaluation Matrix Analysis:

• A strategy can be seen as an interconnected set of strategic initiatives

• When examining different strategic “sets” thoughtful strategists will compare and contrast the sets on a set of common criteria weighted to reflect key outcome priorities

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THE ORGANIZATION













And Now, What?

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• The SLOT Analysis is the center-point of the case analysis. It is the point at which twelve strategic initiatives are formulated that will then, in the Strategy Evaluation Matrix, be combined to form four strategic plans.

• A Strategic Plan is a coherent, reinforcing “package” of strategic initiatives.

• In the SEM Analysis, some of the strategic plans may have shared initiatives. This simply means that some strategic initiatives are so crucial to the firm’s future success that no matter what the overall strategic plan finally selected, the initiatives must be taken. This may also reflect the essentiality of a given initiative as a supporting part of any strategic plan.

• So, while each strategic plan must be ultimately and collectively distinct, not every single element of each strategic plan need be.


SP1 SP2 SP3 SP4

And Now, What?

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SA1 SA2

SA12SA11SA10SA9SA8SA7

SA6SA5SA4SA3

Strategic Leverage ToolsThe Strategy Evaluation Matrix

• The SEM analysis takes the input from SLOT analysis and compares/contrasts alternative strategic approaches (called “packages”) on the basis of a variety of criteria.

• The result of the SEM analysis is the selection of a coherent, competitive strategy that best advances the interests of the company.

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A completed SET (the one that would appear in your write-up) would appear in the format as follows:

C Rank Strat Plan 1 Strat Plan 2 Strat Plan 3 Strat Plan 4 Criteria 7 4 28 3 21 2 14 1 7 Criteria 6 3 18 4 24 2 12 1 6 Criteria 5 1 5 2 10 3 15 4 20 Criteria 4 2 8 1 4 4 16 3 12 Criteria 3 3 9 4 12 2 6 1 3 Criteria 2 4 8 3 6 2 4 1 2 Criteria 1 2 2 4 4 1 1 3 3

Total Weighted Score 78 81 68 53 Relative Power Score 96.2 100 83.9 65.4 Absolute Power Score 69.6 72.3 60.7 47.3


• Key term: Strategic Action. A particular strategic initiative usually associated with a functional area (“increase advertising exposure in trade magazines”), but may also involve multi-function implications (“open a regional office in South Carolina to serve the southern states”). These are stated in the SLOT analysis.

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• Key term: Strategic Plan. A combination or "package" of strategic actions "united" by a focus on a particular theme. Alternative strategic plans differ from one another in two ways: (a) their unique combination of strategic actions and (b) their underlying theme.

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• Key term: Strategic Theme. The big idea(s) that explain the rationale for a particular combination of strategic actions. Themes generally refer to the direction in which they point an organization, and usually allow differentiation among alternative strategic plans along some continuum: for instance, aggressive vs. conservative, expansionary vs. shrinking, customer focused vs. product focused, cost-directed vs. value-directed, etc.

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• Key term: Strategic Theme (continued). While a strategic theme may have several sub-parts, its essence should be expressible in a single sentence that offers a vivid mental picture of the distinctive character of a particular strategic plan.

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• Key term: Key Differentiating Criteria. A set of criteria used to compare and contrast competing strategic plans for the purpose of determining a preference of one strategic plan as over another. Criteria might include such factors as cost (short-term, long-term, direct, indirect, etc.), difficulty in implementation, consistency with corporate culture, impact on particular problems, probability of success, etc.

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• Step 1: Drawing from the strategic actions developed in the SWOT matrix, create a variety of potential strategic plans. Summarize the theme for each of these strategic plans. Strategic plans may share strategic actions, but should have a unique combination of strategic actions. Each strategic plan should have strategic actions drawn from at least 3 of the "Cells" of the SWOT matrix (SO, ST, WO, WT).

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• Step 2: Select three to four of the most promising strategic plans. These are the ones you will place into the Strategy Evaluation Table and discuss in your paper. In the SET each strategy would be summarized with a short, descriptive phrase, followed by a notation indicating the strategic actions that it combines. For instance, a strategic plan might be entered as:

International Expansion (SA1,SA8,SA9,SA12)

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• Step 3: Develop a variety of key differentiating criteria on which to rank the relative desirability of the four competing strategic plans.– Criteria might include such factors

as cost (short-term, long-term, direct, indirect, etc.), difficulty in implementation, consistency with corporate culture, impact on particular problems, probability of success, etc.

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• Step 4: Select the five to seven criteria you feel best differentiate the strategic plans.– Choose criteria that you have

confidence in assessing all four strategic plans, and that offer a multi-dimensional perspective on the four plans.

– Rank and list the criteria by importance from "1" (least important) to “n” (where n = the number of criteria you have chosen).

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• At this point your SEM Table would look like this (this is for illustration purposes only--only the final version of the table would appear in your write-up):

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C Rank Strat Plan 1 Strat Plan 2 Strat Plan 3 Strat Plan 4 Criteria 7 Criteria 6 Criteria 5 Criteria 4 Criteria 3 Criteria 2 Criteria 1

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Step 5: Rank the four strategic plans on each criteria (one criteria at a time) assigning a "4" to the strategic plan that best meets the criteria, a "3" to the second best, etc. The SET would look as follows at this stage:

C Rank Strat Plan 1 Strat Plan 2

Strat Plan 3 Strat Plan 4

Criteria 7 4 3 2 1 Criteria 6 3 4 2 1 Criteria 5 1 2 3 4 Criteria 4 2 1 4 3 Criteria 3 3 4 2 1 Criteria 2 4 3 2 1 Criteria 1 2 4 1 3


• Step 6: We now calculate some weighted and comparative measures that will provide insight into the relative strength/weakness of each of the four strategy alternatives– Multiply the rank of each strategic

plan by the rank of the criteria.– Total these weighted rankings to

determine the Total Weighted Score for each strategic plan.

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• Step 6 (continued):– Then, calculate the Relative Power

Score (divide each Total Weighted Score by the highest Total Weighted Score for any of the strategic plans).

– The Relative Power Score is a measure of how close the four strategic plans are to each other in relative attractiveness.

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• Step 6 (continued):– Then, calculate the Absolute Power

Score (divide each Total Weighted Score by the highest possible Total Weighted Score, derived by multiplying the sum of the criteria weights by 4: in this example 28 x 4 = 112).

– The Absolute Power Score is a measure of how far each strategic plan is from being the "perfect" plan.

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A completed SET (the one that would appear in your write-up) would appear in the format as follows:

C Rank Strat Plan 1 Strat Plan 2 Strat Plan 3 Strat Plan 4 Criteria 7 4 28 3 21 2 14 1 7 Criteria 6 3 18 4 24 2 12 1 6 Criteria 5 1 5 2 10 3 15 4 20 Criteria 4 2 8 1 4 4 16 3 12 Criteria 3 3 9 4 12 2 6 1 3 Criteria 2 4 8 3 6 2 4 1 2 Criteria 1 2 2 4 4 1 1 3 3

Total Weighted Score 78 81 68 53 Relative Power Score 96.2 100 83.9 65.4 Absolute Power Score 69.6 72.3 60.7 47.3

• Step 7: Discuss in detail all the elements and implications of the SEM.


• The single most important factor underlying the quality of SEM analysis is your broad and deep familiarity with the organization, its direct competitors, and its industry. Superficial knowledge and insight about the business itself always results in an analysis that is vague and unconvincing.

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• SEM analysis is less concerned with selecting a particular strategic plan (which it does do) than it is concerned about developing a variety of alternatives. In this sense, it is important to discuss in detail all the strategic plans analyzed: both the one selected and the ones not chosen.

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• The actual write-up of the analysis presents only a carefully selected portion of all the ideas developed in the SEM analysis. The creation and analysis of many proposals that never find there way into the final report is at the heart of excellent analyses.

• Smart teams utilize all the parts of the table to direct their discussion. They provide the reader with sufficient detail to both understand and believe in what the group has placed in the table.

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• The SEM framework only acts as a catalyst and a guide for your own creative insight and expressive ability.– Mechanically filling out the tables,

and discussing their results in an uninspired and technical way, will achieve little rewardable excellence.

– The key is to demonstrate that the entire team has truly entered into the strategic solution process.

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Sample Strategy Evaluation Matrix

Sample Strategy Evaluation Matrix

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• Strategic premises underlying the Strategy Implementation Matrix:• Delivering (acting on) a

strategy is as important as developing a strategy.

• The purpose of strategy is to determine what we must DO in order to move toward what we want to BE

• The final test of any strategy is

• how well we execute it• with what effects.

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THE ORGANIZATION













The Strategy Implementation Matrix

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What specific acts are needed to make

the change steps materialize?

What major changes must be accomplished to

reinforce, revise or reshape the forces?

What is working for the changes needed

to obtain the desired results?

What outcomes argue for the

needed changes?

What is working against the changes needed to obtain the

desired results?

What major changes must be accomplished to

reduce, remove or reshape the forces?

What specific acts are needed to make

the change steps materialize?

AActivities

CCosts

TTiming

SSponsor

CHANGESto

reinforce, revise,reshape

orrecreate helping

forces

FORCES HELPINGP eople

O perations

S ynergies

I nformation

T echnology

I nnovations

V ision (presence)

E xperience

S urplus

KEY RESULTSQualitative

Quantitative

Short-term

Long-term

Procedural

Personnel Positional

Customers

Competition

Suppliers

Stakeholders

FORCES HINDERING

N o leadership

E ntropy

G ravity

A trophy

T ensions

I nertia

V ision (absence)

E xcess

S carcity

CHANGESto

reinforce, revise,reshape

orrecreate hindering

force

AActivities

CCosts

TTiming

SSponsor

Delete this row – the material here acts as a catalyst for thinking about strategy implementation issues.


Translating strategic intention into strategic initiative is a challenge in any organization. The IMPLEMNETATION MATRIX seeks to focus attention on seven major implementation questions:

1. What outcomes argue for the needed changes?

2. What positive forces are working for the changes needed to obtain the desired results?

3. What major changes must be accomplished to reinforce, revise or reshape these positive forces?

4. What specific acts are needed to make the positive changes materialize?

5. What negative forces are working against the changes needed to obtain the desired results?

6. What major changes must be accomplished to reduce, remove or reshape these negative forces?

7. What specific acts are needed to make the negative forces disappear

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The entries in each cell should be as concrete as possible in light of the strategy chosen in the previous section of the analysis. The remainder of the section should clarify each cell’s entry, and should show connections between the cells in a given row. In addition, connections across rows should be discussed where appropriate. Include as many rows as needed – but remember, this is a selective analysis focusing attention on major implementation issues.

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• Strategic premises

underlying the Key Results

Dashboard:

• Every strategy carries with

it the desire to either make

things better for an

organization and/or to keep

things from getting worse.

• From a results standpoint,

every strategy has

projected costs and

benefits anticipated risks

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THE ORGANIZATION













Key Results Dashboard

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• Every strategy carries

with it the desire to either

make things better for an

organization and/or to

keep things from getting

worse. From a results

standpoint, every strategy

has

– projected costs and

benefits

– anticipated risks111


• The 2-3 page discussion following the table should focus on

explaining the brief descriptions and characterizations in the

table. The table may contain more “elements” than you have

room to discuss – in this case (1) make sure your table entries

are as descriptive as possible (so they can stand alone) and (2)

focus attention on explaining the most essential elements. Your

discussion should provide clear answers to the following

questions:

– Why does THIS element matter to THIS organization in THIS

industry?

– What makes the elements problematic or promising – what

benchmarks are you using?

– How did you determine the projected condition and what

evidence makes it believable as a projection?

– What is the nature the risk (its source, impact and

importance), what evidence supports your risk estimate?

– What logic/evidence supports your characterization of the risk

as promising or problematic?

• Finally, be sure to end this section with a summary

highlighting of the OVERALL picture the table and its

discussion offers

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Strategy as analysis - company industry analysis tools

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