Strategy Performance Management

8/18/2019 Strategy Performance Management

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PERFORMANCE MANAGEMENT AND KPIs

Linking activities to Vision and Strateg

T!ere"s constant #ress$re to ac!ieve #er%or&ance targets' to reac! !ig!er #er%or&ance(eve(s' and to ens$re t!at #eo#(e"s )ork s$##orts and %$rt!ers *i$(se' %o&enta'#ro&$eve+ t!e organi,ation"s goa(s-

T!e ke .$estion asked is' /0o) )e(( is an e(oee a##(ing !is or !er c$rrent ski((s'and to )!at e1tent is !e or s!e ac!ieving t!e o$tco&es desired2/ T!e ans)er !astraditiona(( 3een %o$nd in t!e #er%or&ance eva($ation #rocess' )!ere &anagers (ook%or !ard data to te(( !o) )e(( an e(oee !as #er%or&ed !is or !er d$ties-

4!at is o%ten &issing %ro& t!is eva($ation' !o)ever' is t!e #art a3o$t &aking s$re t!att!e e(oee is doing t!e rig!t t!ing- A%ter a((' o$ &a !ave a ver !ard5)orking anddedicated tea& &e&3er' 3$t i% !e or s!e is not )orking on t!ings t!at advance t!eorgani,ation"s #$r#ose' )!at is t!e #oint2

T!is is )!ere ke #er%or&ance indicators co&e into #(a' and t!e a##( 3ot! at t!eorgani,ationa( and individ$a( (eve(s- At an organi,ationa( (eve(' a Key PerformanceIndicator *KPI+ is a quantiable &etric t!at re6ects !o) )e(( an organi,ation isac!ieving its stated goa(s and o37ectives-For e1a(e' i% o$r vision inc($des #roviding s$#erior c$sto&er service' t!en a KPI&a target t!e n$&3er o% c$sto&er s$##ort re.$ests t!at re&ain $nsatis8ed 3 t!eend o% a )eek- 9 &onitoring t!is' o$ can direct( &eas$re !o) )e(( o$r organi,ationis &eeting its (ong5ter& goa( o% #roviding o$tstanding c$sto&er service-

I% o$r KPI is ina##ro#riate or nave' !o)ever' t!e res$(ting 3e!aviors &a 3eco$nter#rod$ctive- For e1a(e' $sing t!e sa&e goa( o% #roviding s$#erior c$sto&er

service' t!e 8rst KPI t!at o%ten co&es to &ind is t!e n$&3er o% c$sto&er co(aintsreceived- Int$itive(' o$ &a %ee( t!at t!e %e)er co(aints o$ receive' t!e !ig!er t!ec$sto&er service o$"re o:ering- T!is is not necessari( tr$e;


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occ$rring are &$c! !ig!er' si( 3eca$se o$ !ave co&&itted to &anaging and&eas$ring t!e res$(ts-4!en an e(oee"s goa( is de8ned in ter&s o% an organi,ationa( KPI' it ens$res t!at)!at t!e e(oee is doing is )e(( a(igned )it! t!e goa(s o% t!e organi,ation- T!is is t!ecritica( (ink 3et)een e(oee #er%or&ance and organi,ationa( s$ccess-Let"s take an e1a(e o% !o) an individ$a( e(oee"s goa( is (inked to organi,ationa(strateg;

• Organizational Vision = To 3e kno)n %or o$r s$#erior c$sto&er service andsatis%action-

• Organizational Objective = To red$ce t!e n$&3er o% disatis8ed c$sto&ers 3>?@-

• Organizational KPI = T!e n$&3er o% c$sto&er co(aints t!at re&ain$nreso(ved at t!e end o% a )eek-

• eam !ember"s Goal = To increase t!e n$&3er o% satis%actor co(aintreso($tions 3 ?@ t!is #eriod-

•

Taken to t!e ne1t (eve(' eac! e(oee goa( s!o$(d !ave at (east one associated KPI-0o) )i(( o$ s#eci8ca(( &eas$re' on a reg$(ar 3asis' )!et!er or not t!is #erson is

&eeting !is or !er goa(2

• eam !ember KPI = T!e )eek( #ercentage di:erence in co(aints !and(edt!at res$(t in satis8ed c$sto&ers vers$s $nsatis8ed c$sto&ers-

ip#For setting strategic direction' see ;$trategy ools%ritical $uccess &actors *CSFs+ as KPIs are essentia(( a )a o% &aking CSFs&eas$ra3(e-

Bse t!e %o((o)ing .$estions to !e(# o$ )ork to)ards de8ning e:ective KPIs;

'nderstanding t(e conte)t• 4!at is t!e vision %or t!e %$t$re2• 4!at is t!e strateg2 0o) )i(( t!e strategic vision 3e acco(is!ed2• 4!at are t!e organi,ation"s o37ectives2 4!at needs to 3e done to kee# &oving in

t!e strategic direction2• 4!at are t!e Critica( S$ccess Factors2 4!ere s!o$(d t!e %oc$s 3e to ac!ieve t!e

vision2

*ening KPIs• 4!ic! &etrics )i(( indicate t!at o$ are s$ccess%$(( #$rs$ing o$r vision and

strateg2• 0o) &an &etrics s!o$(d o$ !ave2 *Eno$g!' 3$t not too &an+• 0o) o%ten s!o$(d o$ &eas$re2• 4!o is acco$nta3(e %or t!e &etric2• 0o) co(e1 s!o$(d t!e &etric 3e2• 4!at s!o$(d o$ $se as a 3enc!&ark2• 0o) do o$ ens$re t!e &etrics re6ect strategic drivers %or organi,ationa(

s$ccess2

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• 0o) co$(d t!e &etrics 3e c!eated' and !o) )i(( o$ g$ard against t!is2• 4!at negative' #erverse incentives )o$(d 3e set $# i% t!is &etric )as $sed' and

!o) )i(( o$ ens$re t!ese #erverse incentives are not created2

KPIs and +e,ards- +ecognition- and *evelopment

4!en o$ are satis8ed t!at o$ !ave &eaning%$( &etrics %or &eas$ring organi,ationa(

or e(oee #er%or&ance' o$ no) !ave to &ake s$re t!at t!e s$##orting e(e&ents o%e(oee #er%or&ance are a(igned as )e((-

$st as )!at gets &eas$red' gets done so does )!at gets re)arded

4!en o$ are esta3(is!ing o$r re)ards and recognition #ractices' &ake s$re t!at )!ao$ are re)arding ties direct( to t!e KPIs o$ set- For e1a(e' i% o$ are &eas$ring#eo#(e on !o) )e(( t!e dea( )it! c$sto&er co(aints' t!en re)arding t!e& %or(o)ering n$&3ers o% co(aints con%$ses t!e &essage o$"re tring to send-

Converse(' i% o$r organi,ation )ants to attract ne) c$sto&ers' t!en o$ &ig!t !ave KPI t!at &eas$res !o) &an ne) c$sto&ers are attracted eac! )eek- De#ending ont!e sit$ation' a )e((5a(igned #er%or&ance sste& &a re)ard e(oees 3ased on t!en$&3er o% ne) c$sto&ers t!e #ersona(( !e(# to attract-

ip .#Bse o% %or&a( #er%or&ance &eas$res is one a##roac! to &anaging #er%or&ance-0o)ever' don"t %orget t!e iortance o% ins#iration and good (eaders!i# For &ore ont!is' c(ick !ere %or t!e Mind Too(s /eaders(ip $ection-

ip 0#For &ore on #er%or&ance &anage&ent' see o$r artic(es on t!e 1alanced$corecard ' &eedbac2 ' and 3456 &eedbac2 -

Key PointsKPIs are &etrics t!at (ink organi,ationa( vision )it! individ$a( action- I% o$ t!ink o%strategic #ractice as a #ra&id' as s!o)n in Fig$re 3e(o)' )it! vision at t!e to# andactions at t!e 3otto&' in t!e &idd(e o$ 8nd t!e KPIs t!at !ave 3een derived %ro& t!estrateg' o37ectives' and critica( s$ccess %actors o% t!e organi,ation-

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9e(o) t!e KPIs are t!e activities and #ro7ects t!at are #$rs$ed 3 t!e organi,ation in anattet to ac!ieve t!e KPIs-

To ens$re t!at t!ese activities are in %act a(igned )it! t!e organi,ation"s strateg' o$need to concentrate on )!at t!e e(oees are act$a(( doing-


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T!e H LEVELS o% strateg-Cor#orate Strateg9$siness Bnit strategTea& strateg

T!ere arent a $ni.$e de8nition o% strateg-

a5 Ana(,e t!e #resent care%$((' antici#ate c!anges in o$r &arket or ind$str' and' %ro&t!is' #(an !o) o$"(( s$cceed in t!e %$t$re-

35 Evo(ve strategies organica(( *3eca$se t!e t!ink %$t$re is 7$st too diJc$(t to #redict+

Strateg deter&ines t!e direction and sco#e *a(cance' a&3ito+ o% an organi,ation overt!e (ong ter&' and it s!o$(d deter&ine !o) reso$rces s!o$(d 3e con8g$red to &eet t!eneeds o% &arkets and stake!o(ders-

Porter said; e!asi,es t!e need %or strateg to de8ne and co&&$nicate anorgani,ation"s $ni.$e #osition' t!at s!o$(d deter&ine !o) organi,ationa( reso$rces'

ski((s' and coetencies s!o$(d 3e co&3ined to create coetitive advantage-

Man s$ccess%$( and #rod$ctive organi,ations !ave a cor#orate strateg to g$ide t!e3ig #ict$re- Eac! 3$siness $nit )it!in t!e organi,ation t!en !as a 3$siness $nitstrateg' )!ic! its (eaders $se to deter&ine !o) t!e )i(( coete in t!eir individ$a(&arkets-In t$rn' eac! tea& s!o$(d !ave its o)n strateg to ens$re t!at its da5to5da activities!e(# &ove t!e organi,ation in t!e rig!t direction-At eac! (eve(' t!o$g!' a si(e de8nition o% strateg can 3e; /Deter&ining !o) )e aregoing to )in in t!e #eriod a!ead-/

%orporate $trategy

Cor#orate strateg re%ers to t!e overa(( strateg o% an organi,ation t!at is &ade $# o%&$(ti#(e 3$siness $nits' o#erating in &$(ti#(e &arkets- It deter&ines !o) t!ecor#oration as a )!o(e s$##orts and en!ances *rea(,a+ t!e va($e o% t!e 3$siness $nits)it!in it and it ans)ers t!e .$estion' /0o) do )e str$ct$re t!e overa(( 3$siness' sot!at a(( o% its #arts create &ore va($e toget!er t!an t!e )o$(d individ$a((2/

Cor#orations 9$i(d strong interna( coetences' 3 s!aring tec!no(ogies and reso$rces

3et)een 3$siness $nits' 3 raising ca#ita( cost5e:ective(' 3 deve(o#ing and n$rt$ringa strong cor#orate 3rand' and so on-

0o) t!e 3$siness $nits )it!in t!e cor#oration s!o$(d 8t toget!er' and $nderstanding!o) reso$rces s!o$(d 3e de#(oed to create t!e greatest #ossi3(e va($e-

Too(s (ike;

- Porter"s Generic $trategies

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>- 1oston !atri)

H- 7*/ !atri)

- V+IO 7nalysis

T!e organization"s design is anot!er iortant strategic %actor t!at needs to 3econsidered at t!is (eve(- 0o) o$ str$ct$re o$r 3$siness' o$r #eo#(e' and ot!erreso$rces = a(( o% t!ese a:ect coetitive advantage and can s$##ort o$r strategicgoa(s-

1usiness 'nit $trategyStrateg at t!e 3$siness $nit (eve( is concerned )it! coeting s$ccess%$(( inindivid$a( &arkets' and it addresses t!e .$estion' /0o) do )e )in in t!is &arket2/0o)ever' t!is strateg needs to 3e (inked to t!e o37ectives identi8ed in t!e cor#orate(eve( strateg-Coetitive ana(sis' inc($ding gat!ering competitive intelligence ' is a greatstarting #oint %or deve(o#ing a 3$siness $nit strateg- As #art o% t!is' it"s iortant tot!ink a3o$t o$r core competencies ' and !o) o$ can $se t!ese to &eet o$rc$sto&ers" needs in t!e 3est #ossi3(e )a- Fro& t!ere o$ can $se '$P 7nalysis to$nderstand !o) to strengt!en o$r coetitive #osition-


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eam $trategy To e1ec$te o$r cor#orate and 3$siness $nit strategies s$ccess%$((' o$ need tea&st!ro$g!o$t o$r organi,ation to )ork toget!er- Eac! o% t!ese tea&s !as a di:erentcontri3$tion to &ake' &eaning t!at eac! tea& needs to !ave its o)n tea&5(eve(strateg' !o)ever si(e- T!is tea& strateg &$st (ead direct( to t!e ac!ieve&ent o% 3$siness $nit andcor#orate strategies' &eaning t!at a(( (eve(s o% strateg s$##ort and en!ance eac!ot!er to ens$re t!at t!e organi,ation is s$ccess%$(- T!is is )!ere it"s $se%$( to de8ne t!e tea&"s #$r#ose and 3o$ndaries $sing' %ore1a(e' a team c(arter and to &anage it $sing tec!ni.$es s$c! as !anagementby Objectives and $se o% 2ey performance indicators -


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• T!e ($1$r air(ines' on t!e ot!er !and' %oc$s t!eir e:orts on &aking t!eir serviceas )onder%$( as #ossi3(e' and t!e !ig!er #rices t!e can co&&and as a res$(t&ake $# %or t!eir !ig!er costs-

• S&a((er air(ines tr to &ake t!e &ost o% t!eir detai(ed kno)(edge o% 7$st a %e)ro$tes to #rovide 3etter or c!ea#er services t!an t!eir (arger' internationa( riva(s

Generic $trategies

Can 3e a##(ied to #rod$cts or services in a(( ind$stries' and to organi,ations o% a(( si,es

Generic strategies;o /Cost Leaders!i#/ *no %ri((s+'o /Di:erentiation/ *creating $ni.$e( desira3(e #rod$cts and services+o /Foc$s/ *o:ering a s#ecia(i,ed service in a nic!e &arket+-

/Cost Foc$s/ /Di:erentiation Foc$s/-

Eac! o% t!ese coanies !as c!osen a di:erent )a o% ac!ieving coetitiveadvantage in a cro)ded &arket#(ace-


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ip#Re&e&3er t!at Cost Foc$s &eans e!asi,ing cost5&ini&i,ation ,it(in a focusedmar2et' and Di:erentiation Foc$s &eans #$rs$ing strategic di:erentiation ,it(in afocused mar2et-

(e %ost /eaders(ip $trategy

Porter"s generic strategies are )as o% gaining coetitive advantage = in ot!er )ords'

deve(o#ing t!e /edge/ t!at gets o$ t!e sa(e and takes it a)a %ro& o$r coetitors- T!ere are t)o &ain )as o% ac!ieving t!is )it!in a Cost Leaders!i# strateg;

• Increasing #ro8ts 3 red$cing costs' )!i(e c!arging ind$str5average #rices-• Increasing &arket s!are t!ro$g! c!arging (o)er #rices' )!i(e sti(( &aking a

reasona3(e #ro8t on eac! sa(e 3eca$se o$"ve red$ced costs-

ip#Re&e&3er t!at Cost Leaders!i# is a3o$t &ini&i,ing t!e cost to t!e organi,ation o%de(ivering #rod$cts and services- T!e cost or #rice #aid 3 t!e c$sto&er is a se#arateiss$e


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T!e Cost Leaders!i# strateg is e1act( t!at = it invo(ves 3eing t!e (eader in ter&s o%cost in o$r ind$str or &arket- Si( 3eing a&ongst *en &edio' entre+ t!e (o)est5cost #rod$cers is not good eno$g!' as o$ (eave o$rse(% )ide o#en * de #ar en #ar+ toattack 3 ot!er (o)5cost #rod$cers )!o &a $nderc$t *re3a7ar+ o$r #rices andt!ere%ore 3(ock o$r attets to increase &arket s!are-


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As )it! 3road &arket strategies' it is sti(( essentia( to decide )!et!er o$ )i(( #$rs$eCost Leaders!i# or Di:erentiation once o$ !ave se(ected a Foc$s strateg as o$r&ain a##roac!; Foc$s is not nor&a(( eno$g! on its o)n-

9$t )!et!er o$ $se Cost Foc$s or Di:erentiation Foc$s' t!e ke to &aking a s$ccesso% a generic Foc$s strateg is to ens$re t!at o$ are adding so&et!ing e1tra as a res$(o% serving on( t!at &arket nic!e- It"s si( not eno$g! to %oc$s on on( one &arketseg&ent 3eca$se o$r organi,ation is too s&a(( to serve a 3roader &arket *i% o$ do'

o$ risk coeting against 3etter5reso$rced 3road &arket coanies" o:erings-+

T!e /so&et!ing e1tra/ t!at o$ add can contri3$te to red$cing costs *#er!a#s t!ro$g!o$r kno)(edge o% s#ecia(ist s$##(iers+ or to increasing di:erentiation *t!o$g! o$rdee# $nderstanding o% c$sto&ers" needs+-

ip#Generic strategies a##( to not5%or5#ro8t organi,ations too-A not5%or5#ro8t can $se a Cost Leaders!i# strateg to &ini&i,e t!e cost o% gettingdonations and ac!ieving &ore %or t!eir inco&e' )!i(e one )it! #$rsing a Di:erentiationstrateg )i(( 3e co&&itted to t!e ver 3est o$tco&es' even i% t!e vo($&e o% )ork t!e

do as a res$(t is (o)er-Loca( c!arities are great e1a(es o% organi,ations $sing Foc$s strategies to getdonations and contri3$te to t!eir co&&$nities-

%(oosing t(e +ig(t Generic $trategy


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Bse &ive &orces 7nalysis to $nderstand t!e nat$re o% t!e ind$str o$ are in-

$tep 3#

Coare t!e S4OT Ana(ses o% t!e via3(e strategic o#tions )it! t!e res$(ts o% o$r FiveForces ana(sis- For eac! strategic o#tion' ask o$rse(% !o) o$ co$(d $se t!at strategto;

• Red$ce or &anage s$##(ier #o)er-• Red$ce or &anage 3$erc$sto&er #o)er-• Co&e o$t on to# o% t!e coetitive riva(r-• Red$ce or e(i&inate t!e t!reat o% s$3stit$tion-• Red$ce or e(i&inate t!e t!reat o% ne) entr-

Se(ect t!e generic strateg t!at gives o$ t!e strongest set o% o#tions-

ip#

Porter"s Generic Strategies o:er a great starting #oint %or strategic decision5&aking-Once o$"ve &ade o$r 3asic c!oice' t!o$g!' t!ere are sti(( &an strategic o#tionsavai(a3(e- 1o,man"s $trategy %loc2 !e(#s o$ t!ink at t!e ne1t (eve( o% detai(s' in t!at it s#(itPorter"s o#tions into eig!t s$35strategies-'$P 7nalysis %ore %ompetence 7nalysis to identi% t!e areas o$ s!o$(d %oc$s on to stand o$t ino$r &arket#(ace-

Key Points

T!ree 3asic strategic o#tions avai(a3(e to organi,ations %or gaining coetitiveadvantage;

• Cost Leaders!i#-

• Di:erentiation-

• Foc$s-Organi,ations t!at ac!ieve Cost Leaders!i# can 3ene8t eit!er 3 gaining &arket s!are

t!ro$g! (o)ering #rices *)!i(st &aintaining #ro8ta3i(it+ or 3 &aintaining average#rices and t!ere%ore increasing #ro8ts- A(( o% t!is is ac!ieved 3 red$cing costs to a(eve( 3e(o) t!ose o% t!e organi,ation"s coetitors-

Coanies t!at #$rs$e a Di:erentiation strateg )in &arket s!are 3 o:ering $ni.$e%eat$res t!at are va($ed 3 t!eir c$sto&ers-

Foc$s strategies invo(ve ac!ieving Cost Leaders!i# or Di:erentiation )it!in nic!e&arkets in )as t!at are not avai(a3(e to &ore 3road(5%oc$sed #(aers-

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DIFERENT OPTIONS o% PORTERS STRATEG< Rea( Li%e;

• Ask o$rse(% )!at o$r organi,ation"s generic strateg is- 0o) does t!is a:ect t!c!oices o$r &ake in o$r 7o32

• I% o$"re in an organi,ation co&&itted to ac!ieving Cost Leaders!i#' can o$red$ce costs 3 !iring (ess e1#ensive sta: and training t!e& $#' or 3 red$cing sta:t$rnover2 Can o$ red$ce training costs 3 devising in5!o$se sc!e&es %or s!aring ski((s

and kno)(edge a&ongst tea& &e&3ers2 Can o$ red$ce e1#enses 3 $singtec!no(og s$c! as video con%erencing over t!e Internet2

• I% o$r organi,ation is #$rs$ing a Di:erentiation strateg' can o$ irovec$sto&er service2 %ustomer E)perience !apping &a !e(# !ere- Can o$ !e(# to%oster a c$(t$re o% contin$o$s irove&ent and innovation in o$r tea&2

• And i% o$"re )orking %or a coan t!at !as a c!osen a Foc$s strateg' )!atkno)(edge or e1#ertise can o$ $se or deve(o# to add va($e %or o$r c$sto&ers t!atisn"t avai(a3(e to 3road &arket coetitors2

0 ? 1O$O< !7+I@

De8nition;

- 1%G matri) *or gro)t!5s!are &atri1+ is a cor#orate #(anning too(' )!ic! is $sedto #ortra 8r&s 3rand #ort%o(io or S9Bs on a .$adrant a(ong re(ative &arkets!are a1is *!ori,onta( a1is+ and s#eed o% &arket gro)t! *vertica( a1is+ a1is-

>- Gro,t(=s(are matri) is a 3$siness too(' )!ic! $ses re(ative &arket s!are and

ind$str gro)t! rate %actors to eva($ate t!e #otentia( o% 3$siness 3rand #ort%o(ioand s$ggest %$rt!er invest&ent strategies-

'nderstanding t(e tool

9CG &atri1 is a %ra&e)ork created 3 9oston Cons$(ting Gro$# to eva($ate t!estrategic #osition o% t!e 3$siness 3rand #ort%o(io and its #otentia(- It c(assi8es 3$siness#ort%o(io into %o$r categories 3ased on ind$str attractiveness *gro)t! rate o% t!atind$str+ and coetitive #osition *re(ative &arket s!are+- T!ese t)o di&ensionsrevea( (ike( #ro8ta3i(it o% t!e 3$siness #ort%o(io in ter&s o% cas! needed to s$##ort

t!at $nit and cas! generated 3 it- T!e general purpose o% t!e ana(sis is to !e(#$nderstand' )!ic! 3rands t!e 8r& s(ould invest in and )!ic! ones s(ould bedivested-

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15/36

%as( co,sA Cas! co)s are t!e &ost #ro8ta3(e 3rands and s!o$(d 3e &i(ked to#rovide as &$c! cas! as #ossi3(e- T!e cas! gained %ro& co)s s!o$(d 3e invested intostars to s$##ort t!eir %$rt!er gro)t!- According to gro)t!5s!are &atri1' cor#oratess!o$(d not invest into cas! co)s to ind$ce gro)t! 3$t on( to s$##ort t!e& so t!e can&aintain t!eir c$rrent &arket s!are- Again' t!is is not a()as t!e tr$t!- Cas! co)s are$s$a(( (arge cor#orations or S9Bs t!at are ca#a3(e o% innovating ne) #rod$cts or#rocesses' )!ic! &a 3eco&e ne) stars- I% t!ere )o$(d 3e no s$##ort %or cas! co)s't!e )o$(d not 3e ca#a3(e o% s$c! innovations-

Strategic c!oices; Prod$ct deve(o#&ent' diversi8cation' divestit$re' retrenc!&ent-

$tarsA Stars o#erate in !ig! gro)t! ind$stries and &aintain !ig! &arket s!are- Starsare 3ot! cas! generators and cas! $sers- T!e are t!e #ri&ar $nits in )!ic! t!ecoan s!o$(d invest its &one' 3eca$se stars are e1#ected to 3eco&e cas! co)sand generate #ositive cas! 6o)s-


16/36

• It does not de8ne )!at &arket is- 9$sinesses can 3e c(assi8ed as cas! co)s')!i(e t!e are act$a(( dogs' or vice versa-

• Does not inc($de ot!er e1terna( %actors t!at &a c!ange t!e sit$ation co(ete(• Market s!are and ind$str gro)t! are not t!e on( %actors o% #ro8ta3i(it- 9esides

!ig! &arket s!are does not necessari( &ean !ig! #ro8ts-• It denies t!at snergies 3et)een di:erent $nits e1ist- Dogs can 3e as iortant

as cas! co)s to 3$sinesses i% it !e(#s to ac!ieve coetitive advantage %or t!erest o% t!e coan-

'sing t(e tool

A(t!o$g! 9CG ana(sis !as (ost its iortance d$e to &an (i&itations' it can sti(( 3e a$se%$( too( i% #er%or&ed 3 %o((o)ing t!ese ste#s;

• Ste# - C!oose t!e $nit• Ste# >- De8ne t!e &arket• Ste# H- Ca(c$(ate re(ative &arket s!are• Ste# - Find o$t &arket gro)t! rate

• Ste# ?- Dra) t!e circ(es on a &atri1

$tep .A %(oose t(e unitA 9CG &atri1 can 3e $sed to ana(,e S9Bs' se#arate 3rands'#rod$cts or a 8r& as a $nit itse(%- 4!ic! $nit )i(( 3e c!osen )i(( !ave an iact on t!e)!o(e ana(sis- T!ere%ore' it is essentia( to de8ne t!e $nit %or )!ic! o$(( do t!eana(sis-

$tep 0A *ene t(e mar2etA De8ning t!e &arket is one o% t!e &ost iortant t!ingsto do in t!is ana(sis- T!is is 3eca$se incorrect( de8ned &arket &a (ead to #oorc(assi8cation- For e1a(e' i% )e )o$(d do t!e ana(sis %or t!e Dai&(ers Mercedes59en,

car 3rand in t!e #assenger ve!ic(e &arket it )o$(d end $# as a dog *it !o(ds (ess t!an>Q@ re(ative &arket s!are+' 3$t it )o$(d 3e a cas! co) in t!e ($1$r car &arket- It isiortant to c(ear( de8ne t!e &arket to 3etter $nderstand 8r&s #ort%o(io #osition-

$tep 3A %alculate relative mar2et s(areA Re(ative &arket s!are can 3e ca(c$(ated iter&s o% reven$es or &arket s!are- It is ca(c$(ated 3 dividing o$r o)n 3rands &arkes!are *reven$es+ 3 t!e &arket s!are *or reven$es+ o% o$r (argest coetitor in t!atind$str- For e1a(e' i% o$r coetitors &arket s!are in re%rigerators ind$str )as>?@ and o$r 8r&s 3rand &arket s!are )as Q@ in t!e sa&e ear' o$r re(ative&arket s!are )o$(d 3e on( Q-- Re(ative &arket s!are is given on 15a1is- Its to# (e%t

corner is set at ' &id#oint at Q-? and to# rig!t corner at Q *see t!e e1a(e 3e(o) %ort!is+-


17/36

$tep CA &ind out mar2et gro,t( rateA T!e ind$str gro)t! rate can 3e %o$nd inind$str re#orts' )!ic! are $s$a(( avai(a3(e on(ine %or %ree- It can a(so 3e ca(c$(ated 3(ooking at average reven$e gro)t! o% t!e (eading ind$str 8r&s- Market gro)t! rate is&eas$red in #ercentage ter&s- T!e &id#oint o% t!e 5a1is is $s$a(( set at Q@ gro)t!rate' 3$t t!is can var- So&e ind$stries gro) %or ears 3$t at average rate o% or >@

#er ear- T!ere%ore' )!en doing t!e ana(sis o$ s!o$(d 8nd o$t )!at gro)t! rate isseen as signi8cant *&id#oint+ to se#arate cas! co)s %ro& stars and .$estion &arks%ro& dogs-$tep DA *ra, t(e circles on a matri)A A%ter ca(c$(ating a(( t!e &eas$res' o$ s!o$(d3e a3(e to #(ot o$r 3rands on t!e &atri1- @

/H/?Q'QQQ

U@ ?@ HQ@ Q-U H@

//>Q'QQQ

>@ Q@ @ Q- ?@


18/36

T!is e1a(e )as created to s!o) !o) to dea( )it! a re(ative &arket s!are !ig!er t!anQQ@ and )it! negative &arket gro)t!-

%orporate 1F 1%G matri)

9rand

Reven$es

@ o%cor#oratereven$es

Largestriva(s &arkets!are


19/36

3 ? 7*/ !7+I@

T!e ADL &atri1 3 Art!$r D- Litt(e is a #ort%o(io &anage&ent &atri1 )!ic! !e(#s&anagers discern t!eir S9Bs strategic #osition de#ending $#on > di&ensions;

.A $1'Fs life cycle and0A %ompetitive position

Eac! o% t!ese di&ensions can 3e %$rt!er s#(it $# into t!e %o((o)ing categories to 3etterana(,e a 8r& and according( deter&ine t!e %$t$re strategic actions;

Life cycle stages can be.A Embryonic0A Growth3A Maturity


20/36

CA Ageing

Coetitive #osition can a(so 3e eit!er o% t!e %o((o)ing;

1. Dominant T!e #osition o% a coan %a((s into t!is categor i% it is a c(ear &arket (eader or !as a&ono#o( #osition- E1a( ' Inte( in &icro#rocessors-

2. StrongIn t!is case' t!e coan &ig!t not 3e a &ono#o( 3$t de8nite( !as a strong #resencand (oa( c$sto&ers-

3. FaorableCoanies )it! %avora3(e coetitive #osition $s$a(( o#erate in %rag&ented &arketsand no sing(e one contro(s a(( &arket s!are-

!. "enable0ere eac! coan caters to a nic!e seg&ent de8ned 3 a #rod$ct variet orseg&ented de&ogra#!ica((-

#. $ea% In t!is scenario' t!e coan 8nancia(s are too )eak to gain a strong !o(d in t!e&arket and is e1#ected to die o$t )it!in a s!ort s#an o% ti&e-


21/36

T!$s de#ending on )!ere a #artic$(ar 8r& (ies on t!e ADL grid' a s$ita3(e set o%strategies s!o$(d 3e ado#ted 3 it to gain greater &arket s!are and &ove to !ig!erstages o% (i%e cc(e and coetitive #ositions-

C= V+IO 7


22/36

Valuable T!e 8rst .$estion o% t!e %ra&e)ork asks i% a reso$rce adds va($e 3 ena3(ing a 8r& toe1#(oit o##ort$nities or de%end against t!reats- I% t!e ans)er is es' t!en a reso$rce isconsidered va($a3(e- Reso$rces are a(so va($a3(e i% t!e !e(# organi,ations to increaset!e #erceived c$sto&er va($e- T!is is done 3 increasing di:erentiation oranddecreasing t!e #rice o% t!e #rod$ct- T!e reso$rces t!at cannot &eet t!is condition' (eadto coetitive disadvantage- It is iortant to contin$a(( revie) t!e va($e o% t!e

reso$rces 3eca$se constant( c!anging interna( or e1terna( conditions can &ake t!e&(ess va($a3(e or $se(ess at a((-

+areReso$rces t!at can on( 3e ac.$ired 3 one or ver %e) coanies are considered rareRare and va($a3(e reso$rces grant teorar coetitive advantage- On t!e ot!er!and' t!e sit$ation )!en &ore t!an %e) coanies !ave t!e sa&e reso$rce or $ses t!eca#a3i(it in t!e si&i(ar )a' (eads to coetitive #arit- T!is is 3eca$se 8r&s can $seidentica( reso$rces to i(e&ent t!e sa&e strategies and no organi,ation can ac!ieves$#erior #er%or&ance-Even t!o$g! coetitive #arit is not t!e desired #osition' a 8r& s!o$(d not neg(ect

t!e reso$rces t!at are va($a3(e 3$t co&&on- Losing va($a3(e reso$rces and ca#a3i(itie)o$(d !$rt an organi,ation 3eca$se t!e are essentia( %or staing in t!e &arket-

%ostly to ImitateA reso$rce is cost( to i&itate i% ot!er organi,ations t!at doesnt !ave it cant i&itate'3$ or s$3stit$te it at a reasona3(e #rice- I&itation can occ$r in t)o )as; 3 direct(i&itating *d$#(icating+ t!e reso$rce or #roviding t!e coara3(e #rod$ctservice*s$3stit$ting+-A 8r& t!at !as va($a3(e' rare and cost( to i&itate reso$rces can *3$t not necessari()i((+ ac!ieve s$stained coetitive advantage- 9arne !as identi8ed t!ree reasons )!

reso$rces can 3e !ard to i&itate;• 0istorica( conditions- Reso$rces t!at )ere deve(o#ed d$e to !istorica( events orover a (ong #eriod $s$a(( are cost( to i&itate-

• Ca$sa( a&3ig$it- Coanies cant identi% t!e #artic$(ar reso$rces t!at are t!eca$se o% coetitive advantage-

• Socia( Co(e1it- T!e reso$rces and ca#a3i(ities t!at are 3ased on coansc$(t$re or inter#ersona( re(ations!i#s-

•

Organized to %apture Value T!e reso$rces itse(% do not con%er an advantage %or a coan i% its not organi,ed toca#t$re t!e va($e %ro& t!e&- A 8r& &$st organi,e its &anage&ent sste&s'

#rocesses' #o(icies' organi,ationa( str$ct$re and c$(t$re to 3e a3(e to %$(( rea(i,e t!e#otentia( o% its va($a3(e' rare and cost( to i&itate reso$rces and ca#a3i(ities- On( t!ent!e coanies can ac!ieve s$stained coetitive advantage-

'sing t(e tool

$tep .A Identify valuable- rare and costly to imitate resources T!ere are t)o t#es o% reso$rces; tangi3(e and intangi3(e- Tangi3(e assets are #!sica(t!ings (ike (and' 3$i(dings and &ac!iner- Coanies can easi( 3 t!e& in t!e &arket


23/36

so tangi3(e assets are rare( t!e so$rce o% coetitive advantage- On t!e ot!er !and'intangi3(e assets' s$c! as 3rand re#$tation' trade&arks' inte((ect$a( #ro#ert' $ni.$etraining sste& or $ni.$e )a o% #er%or&ing tasks' cant 3e ac.$ired so easi( and o:et!e 3ene8ts o% s$stained coetitive advantage- T!ere%ore' to 8nd va($a3(e' rare andcost( to i&itate reso$rces' o$ s!o$(d 8rst (ook at coans intangible assetsAFinding valuable reso$rces;

An eas )a to identi% s$c! reso$rces is to (ook at t!e va($e c!ain and S4OT

ana(ses- Va($e c!ain ana(sis identi8es t!e &ost va($a3(e activities' )!ic! are t!eso$rce o% cost or di:erentiation advantage- 9 (ooking into t!e ana(sis' o$ can easi(8nd t!e va($a3(e reso$rces or ca#a3i(ities- In addition' S4OT ana(sis recogni,es t!estrengt!s o% t!e coan t!at are $sed to e1#(oit o##ort$nities or de%end againstt!reats *)!ic! is e1act( )!at a va($a3(e reso$rce does+- I% o$ sti(( str$gg(e 8ndingva($a3(e reso$rces' o$ can identi% t!e& 3 asking t!e %o((o)ing .$estions;

• 4!ic! activities (o)er t!e cost o% #rod$ction )it!o$t decreasing #erceivedc$sto&er va($e2

• 4!ic! activities increase #rod$ct or service di:erentiation and #erceivedc$sto&er va($e2

• 0ave o$r coan )on an a)ard or 3een recogni,ed as t!e 3est in so&et!ing2*&ost innovative' 3est e(oer' !ig!est c$sto&er retention or 3est e1#orter+

• Do o$ !ave an access to scarce ra) &ateria(s or !ard to get in distri3$tionc!anne(s2

• Do o$ !ave s#ecia( re(ations!i# )it! o$r s$##(iers2 S$c! as tig!t( integratedorder and distri3$tion sste& #o)ered 3 $ni.$e so%t)are2

• Do o$ !ave e(oees )it! $ni.$e ski((s and ca#a3i(ities2• Do o$ !ave 3rand re#$tation %or .$a(it' innovation' c$sto&er service2• Do o$ do #er%or& an tasks 3etter t!an o$r coetitors do2 *9enc!&arking is

$se%$( !ere+• Does o$r coan !o(d an ot!er strengt!s coared to riva(s2•

Finding rare reso$rces;

• 0o) &an ot!er coanies o)n a reso$rce or can #er%or& ca#a3i(it in t!e sa&e)a in o$r ind$str2

• Can a reso$rce 3e easi( 3o$g!t in t!e &arket 3 riva(s2• Can coetitors o3tain t!e reso$rce or ca#a3i(it in t!e near %$t$re2•

Finding costly to imitate reso$rces;

• Do ot!er coanies can easi( d$#(icate a reso$rce2• Can coetitors easi( deve(o# a s$3stit$te reso$rce2• Do #atents #rotect it2• Is a reso$rce or ca#a3i(it socia(( co(e12• Is it !ard to identi% t!e #artic$(ar #rocesses' tasks' or ot!er %actors t!at %or& t!e

reso$rce2

$tep 0A &ind out if your company is organized to e)ploit t(ese resources

Fo((o)ing .$estions &ig!t 3e !e(#%$(;


24/36

• Does o$r coan !as an e:ective strategic &anage&ent #rocess inorgani,ation2

• Are t!ere e:ective &otivation and re)ard sste&s in #(ace2• Does o$r coans c$(t$re re)ard innovative ideas2• Is an organi,ationa( str$ct$re designed to $se a reso$rce2• Are t!ere e1ce((ent &anage&ent and contro( sste&s2

$tep 3A Protect t(e resources4!en o$ identi8ed a reso$rce or ca#a3i(it t!at !as a(( VRIO attri3$tes' o$ s!o$(d#rotect it $sing a(( #ossi3(e &eans- A%ter a((' it is t!e so$rce o% o$r s$stainedcoetitive advantage- T!e 8rst t!ing o$ s!o$(d do is to &ake t!e to# &anage&enta)are o% s$c! reso$rce and s$ggest !o) it can 3e $sed to (o)er t!e costs or todi:erentiate t!e #rod$cts and services- T!en o$ s!o$(d t!ink o% ideas !o) to &ake it&ore cost( to i&itate- I% ot!er coanies )ont 3e a3(e to i&itate a reso$rce at

reasona3(e #rices' it )i(( sta rare %or &$c! (onger-

$tep CA %onstantly revie, V+IO resources and capabilities T!e va($e o% t!e reso$rces c!anges over ti&e and t!e &$st 3e revie)ed constant( to8nd o$t i% t!e are as va($a3(e as t!e once )ere- Coetitors are a(so keen to ac!ievet!e sa&e coetitive advantages so t!e(( 3e keen to re#(icate t!e reso$rces' )!ic!&eans t!at t!e )i(( no (onger 3e rare- O%ten' ne) VRIO reso$rces or ca#a3i(ities aredeve(o#ed inside an organi,ation and 3 identi%ing t!e& o$ can #rotect o$ so$rceso% coetitive advantage &ore easi(-

VRIO e1a(eGoog(es ca#a3i(it eva($ated $sing VRIO %ra&e)ork

E1ce((ent e(oee &anage&ent

Va($a3(e2 Rare2 Cost( to I&itate2 Is a coan organi,ed to e1#(oit it2


25/36

(east' in t!e near %$t$re- First' coanies s!o$(d 3$i(d t!e !ig!( so#!isticatedso%t)are' )!ic! is 3ot! cost( and !ard to do- Second' 0R &anagers s!o$(d 3e ne)(trained to &ake data 3ased decisions and %orget t!eir o(d &anage&ent &et!ods- IsGoog(e organi,ed to ca#t$re va($e %ro& t!is ca#a3i(it2 Certain(' it !as trained 0R&anagers t!at kno) !o) to $se t!e data and &anage #eo#(e according(- It a(so !ast!e needed IT ski((s to co((ect and &anage t!e data a3o$t its e(oees-

$9O 7nalysis

Discover Ne) O##ort$nities- Manage and E(i&inate T!reats-

Tec!ni.$e %or $nderstanding o$r Strengt!s and 4eaknesses' and %or identi%ing 3ot!

t!e O##ort$nities o#en to o$ and t!e T!reats o$ %ace-

0e(#s o$ carve a s$staina3(e nic!e in o$r &arket-

1usiness $9O 7nalysis

S4OT is #o)er%$( in !e(#ing o$ to $ncover o##ort$nities t!at o$ are )e((5#(aced toe1#(oit- And 3 $nderstanding t!e )eaknesses o% o$r 3$siness' o$ can &anage ande(i&inate t!reats t!at )o$(d ot!er)ise catc! o$ $na)ares-

9 (ooking at o$rse(% and o$r coetitors' $sing t!e S4OT %ra&e)ork' o$ can startto cra%t a strateg t!at !e(#s o$ disting$is! o$rse(% %ro& o$r coetitors' so t!ato$ can coete s$ccess%$(( in o$r &arket-

:o, to 'se t(e ool


26/36

Strengt!s and )eaknesses are o%ten interna( to o$r organi,ation' )!i(e o##ort$nitiesand t!reats genera(( re(ate to e1terna( %actors- For t!is reason' S4OT is so&eti&esca((ed Interna(5E1terna( Ana(sis and t!e S4OT Matri1 is so&eti&es ca((ed an IE Matri1

,or2s(eet

Strengt!s• 4!at advantages does o$r organi,ation !ave2

• 4!at do o$ do 3etter t!an anone e(se2• 4!at $ni.$e or (o)est5cost reso$rces can o$ dra) $#on t!at ot!ers can"t2• 4!at do #eo#(e in o$r &arket see as o$r strengt!s2• 4!at %actors &ean t!at o$ /get t!e sa(e/2• 4!at is o$r organi,ation"s 'nique $elling Proposition *BSP+2

Consider o$r strengt!s %ro& 3ot! an interna( #ers#ective' and %ro& t!e #oint o% vie)o% o$r c$sto&ers and #eo#(e in o$r &arket-

A(so' i% o$"re !aving an diJc$(t identi%ing strengt!s' tr )riting do)n a (ist o% o$rorgani,ation"s c!aracteristics- So&e o% t!ese )i(( !o#e%$(( 3e strengt!s

4!en (ooking at o$r strengt!s' t!ink a3o$t t!e& in re(ation to o$r coetitors- Fore1a(e' i% a(( o% o$r coetitors #rovide !ig! .$a(it #rod$cts' t!en a !ig! .$a(it#rod$ction #rocess is not a strengt! in o$r organi,ation"s &arket' it"s a necessit-4eaknesses

• 4!at co$(d o$ irove2• 4!at s!o$(d o$ avoid2• 4!at are #eo#(e in o$r &arket (ike( to see as )eaknesses2• 4!at %actors (ose o$ sa(es2

Again' consider t!is %ro& an interna( and e1terna( 3asis; Do ot!er #eo#(e see& to#erceive )eaknesses t!at o$ don"t see2 Are o$r coetitors doing an 3etter t!ano$2It"s 3est to 3e rea(istic no)' and %ace an $n#(easant tr$t!s as soon as #ossi3(e-

O##ort$nities• 4!at good o##ort$nities can o$ s#ot2• 4!at interesting trends are o$ a)are o%2•

Bse%$( o##ort$nities can co&e %ro& s$c! t!ings as;• C!anges in tec!no(og and &arkets on 3ot! a 3road and narro) sca(e-• C!anges in govern&ent #o(ic re(ated to o$r 8e(d-• C!anges in socia( #atterns' #o#$(ation #ro8(es' (i%est(e c!anges' and so on-• Loca( events-

ip#A $se%$( a##roac! )!en (ooking at o##ort$nities is to (ook at o$r strengt!s and asko$rse(% )!et!er t!ese o#en $# an o##ort$nities- A(ternative(' (ook at o$r)eaknesses and ask o$rse(% )!et!er o$ co$(d o#en $# o##ort$nities 3 e(i&inatingt!e&-

http://www.mindtools.com/pages/article/worksheets/SWOTAnalysisDownload.htmhttp://www.mindtools.com/pages/article/newTMC_11.htmhttp://www.mindtools.com/pages/article/worksheets/SWOTAnalysisDownload.htmhttp://www.mindtools.com/pages/article/newTMC_11.htm


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T!reats• 4!at o3stac(es do o$ %ace2• 4!at are o$r coetitors doing2• Are .$a(it standards or s#eci8cations %or o$r 7o3' #rod$cts or services

c!anging2• Is c!anging tec!no(og t!reatening o$r #osition2

• Do o$ !ave 3ad de3t or cas!56o) #ro3(e&s2• Co$(d an o% o$r )eaknesses serio$s( t!reaten o$r 3$siness2

ip#4!en (ooking at o##ort$nities and t!reats' PE$ 7nalysis can !e(# to ens$re t!at odon"t over(ook e1terna( %actors' s$c! as ne) govern&ent reg$(ations' or tec!no(ogica(c!anges in o$r ind$str-

&urt(er $9O ips

I% o$"re $sing S4OT as a serio$s too(' &ake s$re o$"re rigoro$s in t!e )a o$ a##(it;

• On( acce#t #recise' veri8a3(e state&ents */Cost advantage o% BSQton inso$rcing ra) &ateria( 1/' rat!er t!an /Good va($e %or &one/+-

• R$t!(ess( #r$ne (ong (ists o% %actors' and prioritize t!e&' so t!at o$ s#endo$r ti&e t!inking a3o$t t!e &ost signi8cant %actors-

• Make s$re t!at o#tions generated are carried t!ro$g! to (ater stages in t!estrateg %or&ation #rocess-

•

A##( it at t!e rig!t (eve( = %or e1a(e' o$ &ig!t need to a##( t!e too( at a#rod$ct or #rod$ct5(ine (eve(' rat!er t!an at t!e &$c! vag$er )!o(e coan(eve(-

• Bse it in con7$nction )it! ot!er strategy tools *%or e1a(e' '$P7nalysis and %ore %ompetence 7nalysis + so t!at o$ get a core!ensive#ict$re o% t!e sit$ation o$"re dea(ing )it!-


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• 4e are a3(e to give rea(( good c$sto&er care' as t!e c$rrent s&a(( a&o$nt o%)ork &eans )e !ave #(ent o% ti&e to devote to c$sto&ers-

• O$r (ead cons$(tant !as strong re#$tation in t!e &arket-• 4e can c!ange direction .$ick( i% )e 8nd t!at o$r &arketing is not )orking-• 4e !ave (o) over!eads' so )e can o:er good va($e to c$sto&ers-

4eaknesses• O$r coan !as (itt(e &arket #resence or re#$tation-• 4e !ave a s&a(( sta:' )it! a s!a((o) ski((s 3ase in &an areas-

• 4e are v$(nera3(e to vita( sta: 3eing sick' and (eaving-• O$r cas! 6o) )i(( 3e $nre(ia3(e in t!e ear( stages-

O##ort$nities• O$r 3$siness sector is e1#anding' )it! &an %$t$re o##ort$nities %or s$ccess-• Loca( govern&ent )ants to enco$rage (oca( 3$sinesses-• O$r coetitors &a 3e s(o) to ado#t ne) tec!no(ogies-

T!reats• Deve(o#&ents in tec!no(og &a c!ange t!is &arket 3eond o$r a3i(it to ada#t• A s&a(( c!ange in t!e %oc$s o% a (arge coetitor &ig!t )i#e o$t an &arket

#osition )e ac!ieve-As a res$(t o% t!eir ana(sis' t!e cons$(tanc &a decide to s#ecia(i,e in ra#id res#onse

good va($e services to (oca( 3$sinesses and (oca( govern&ent-Marketing )o$(d 3e in se(ected (oca( #$3(ications to get t!e greatest #ossi3(e &arket#resence %or a set advertising 3$dget' and t!e cons$(tanc s!o$(d kee# $#5to5date )it!c!anges in tec!no(og )!ere #ossi3(e-

PorterFs &ive &orces

Assessing t!e 9a(ance o% Po)er in a 9$siness Sit$ation

Is $sed to $nderstanding )!ere #o)er (ies in a 3$siness sit$ation- 0e(#s o$$nderstand 3ot! t!e strengt! o% o$r c$rrent coetitive #osition' and t!e strengt! o%a #osition o$"re considering &oving into-

4it! a c(ear $nderstanding o% )!ere #o)er (ies' o$ can take %air advantage o% asit$ation o% strengt!' irove a sit$ation o% )eakness' and avoid taking )rong ste#s- T!is &akes it an iortant #art o% o$r #(anning too(kit-


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Conventiona((' t!e too( is $sed to identi% )!et!er ne) #rod$cts' services or3$sinesses !ave t!e #otentia( to 3e #ro8ta3(e- 0o)ever it can 3e ver i(($&inating)!en $sed to $nderstand t!e 3a(ance o% #o)er in ot!er sit$ations-

'nderstanding t(e ool

T!ere are 8ve iortant %orces t!at deter&ine coetitive #o)er in a 3$sinesssit$ation;

- $upplier Po,er# 0ere o$ assess !o) eas it is %or s$##(iers to drive $# #rices- T!is is driven 3 t!e n$&3er o% s$##(iers o% eac! ke in#$t' t!e $ni.$eness o%t!eir #rod$ct or service' t!eir strengt! and contro( over o$' t!e cost o% s)itc!ing%ro& one to anot!er' and so on- T!e %e)er t!e s$##(ier c!oices o$ !ave' and t!e&ore o$ need s$##(iers" !e(#' t!e &ore #o)er%$( o$r s$##(iers are-

>- 1uyer Po,er# 0ere o$ ask o$rse(% !o) eas it is %or 3$ers to drive #ricesdo)n- Again' t!is is driven 3 t!e n$&3er o% 3$ers' t!e iortance o% eac!

individ$a( 3$er to o$r 3$siness' t!e cost to t!e& o% s)itc!ing %ro& o$r#rod$cts and services to t!ose o% so&eone e(se' and so on- I% o$ dea( )it! %e)'#o)er%$( 3$ers' t!en t!e are o%ten a3(e to dictate ter&s to o$-

H- %ompetitive +ivalry# 4!at is iortant !ere is t!e n$&3er and ca#a3i(it o%o$r coetitors- I% o$ !ave &an coetitors' and t!e o:er e.$a(( attractive#rod$cts and services' t!en o$"(( &ost (ike( !ave (itt(e #o)er in t!e sit$ation'3eca$se s$##(iers and 3$ers )i(( go e(se)!ere i% t!e don"t get a good dea( %ro&o$- On t!e ot!er !and' i% no5one e(se can do )!at o$ do' t!en o$ can o%ten!ave tre&endo$s strengt!-

- (reat of $ubstitution# T!is is a:ected 3 t!e a3i(it o% o$r c$sto&ers to 8nda di:erent )a o% doing )!at o$ do = %or e1a(e' i% o$ s$##( a $ni.$eso%t)are #rod$ct t!at a$to&ates an iortant #rocess' #eo#(e &a s$3stit$te 3doing t!e #rocess &an$a(( or 3 o$tso$rcing it- I% s$3stit$tion is eas ands$3stit$tion is via3(e' t!en t!is )eakens o$r #o)er-

?- (reat of


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'sing t(e ool,or2s(eet -

9rainstor& t!e re(evant %actors %or o$r &arket or sit$ation' and t!en c!eck against t!e%actors (isted %or t!e %orce in t!e diagra& a3ove- T!en' &ark t!e ke %actors on t!e diagra&' and s$&&ari,e t!e si,e and sca(e o% t!e%orce on t!e diagra&- An eas )a o% doing t!is is to $se' %or e1a(e' a sing(e // sign%or a %orce &oderate( in o$r %avor' or /55/ %or a %orce strong( against o$ *o$ can seet!is in t!e e1a(e 3e(o)+- T!en (ook at t!e sit$ation o$ 8nd $sing t!is ana(sis and t!ink t!ro$g! !o) it a:ectso$- 9ear in &ind t!at %e) sit$ations are #er%ect !o)ever (ooking at t!ings in t!is )a!e(#s o$ t!ink t!ro$g! )!at o$ co$(d c!ange to increase o$r #o)er )it! res#ect toeac! %orce- 4!ats &ore' i% o$ 8nd o$rse(% in a str$ct$ra(( )eak #osition' t!is too(!e(#s o$ t!ink a3o$t )!at o$ can do to &ove into a stronger one-

It ana(,es t!e attractiveness and (ike(5#ro8ta3i(it o% an ind$str-EWAMPLE;

http://www.mindtools.com/pages/article/worksheets/PortersFiveForcesDownload.htmhttp://www.mindtools.com/pages/article/worksheets/PortersFiveForcesDownload.htm


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Martin o!nson is deciding )!et!er to s)itc! career and 3eco&e a %ar&er = !e"s a()as(oved t!e co$ntrside' and )ants to s)itc! to a career )!ere !e"s !is o)n 3oss- 0ecreates t!e %o((o)ing Five Forces Ana(sis as !e t!inks t!e sit$ation t!ro$g!;

&igure 0 ? Porter"s &ive &orces E)ample# 1uying a &arm

T!is )orries !i&;

• T!e t(reat of ne, entry is .$ite !ig!; i% anone (ooks as i% t!e"re &aking as$stained #ro8t' ne) coetitors can co&e into t!e ind$str easi(' red$cing#ro8ts-

• %ompetitive rivalry is e1tre&e( !ig!; i% so&eone raises #rices' t!e"(( 3e.$ick( $nderc$t- Intense coetition #$ts strong do)n)ard #ress$re on #rices-

• 1uyer Po,er is strong' again i(ing strong do)n)ard #ress$re on #rices-

• T!ere is so&e t(reat of substitutionA


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Bn(ess !e is a3(e to 8nd so&e )a o% c!anging t!is sit$ation' t!is (ooks (ike a verto$g! ind$str to s$rvive in- Ma3e !e"(( need to s#ecia(i,e in a sector o% t!e &arkett!at"s #rotected %ro& so&e o% t!ese %orces' or 8nd a re(ated 3$siness t!at"s in astronger #osition-

Key Points

Too( %or assessing t!e #otentia( %or #ro8ta3i(it in an ind$str- 4it! a (itt(e ada#tation' itis a(so $se%$( as a )a o% assessing t!e 3a(ance o% #o)er in &ore genera( sit$ations-

It )orks 3 (ooking at t!e strengt! o% 8ve iortant %orces t!at a:ect coetition;

• $upplier Po,er# T!e #o)er o% s$##(iers to drive $# t!e #rices o% o$r in#$ts-• 1uyer Po,er# T!e #o)er o% o$r c$sto&ers to drive do)n o$r #rices-• %ompetitive +ivalry# T!e strengt! o% coetition in t!e ind$str-• (e (reat of $ubstitution# T!e e1tent to )!ic! di:erent #rod$cts and

services can 3e $sed in #(ace o% o$r o)n-

• (e (reat of


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res#onsi3i(it and a$t!orit' and &aking s$re t!ese a(( s$##ort t!e o37ectives o% t!e3$siness-

Good organi,ationa( design !e(#s co&&$nications' #rod$ctivit' and innovation- Itcreates an environ&ent )!ere #eo#(e can )ork e:ective(-Man #rod$ctivit and #er%or&ance iss$es can 3e traced 3ack to #oor organi,ationdesign- A coan can !ave a great &ission' great #eo#(e' great (eaders!i#' etc- andsti(( not #er%or& )e(( 3eca$se o% #oor organi,ationa( design-

Take t!e e1a(e o% a coan )!ose sa(es de#art&ent and #rod$ction de#art&ent3ot! )ork )e(( as se#arate $nits-


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organi,ation"s #$r#ose and %or t!e #eo#(e )it!in it- And t!e section on !a2ingOrganization *esign *ecisions 3e(o) disc$sses t!is in &ore detai(-

%(aracteristic

:ierarc(icalstructure

Organicstructure

Co(e1it 0ig! = )it! (otso% !ori,onta(se#aration into%$nctions'de#art&entsand divisions

Bs$a(( (o)er = (essdi:erentiation or%$nctiona(se#aration

For&a(it 0ig! = (ots o%)e(( de8ned(ines o% contro(andres#onsi3i(it

Lo)er = no rea(!ierarc! and (ess%or&a( division o%res#onsi3i(ities

Partici#ation Lo) =e(oees(o)er do)n t!eorgani,ation!ave (itt(e

invo(ve&ent)it! decision&aking

0ig!er#artici#ation =(o)er (eve(e(oees !ave&ore in6$ence on

decision &akers

Co&&$nication

Do)n)ard =in%or&ationstarts at t!e to#and trick(esdo)n toe(oees

Latera(' $#)ard'and do)n)ardco&&$nication =in%or&ation 6o)st!ro$g! t!eorgani,ation )it!%e)er 3arriers

F$nctiona( str$ct$res and divisiona( str$ct$re are 3ot! e1a(es o% !ierarc!ica(organi,ation str$ct$res-

In a functional structure' %$nctions *acco$nting' &arketing' 0R etc+ are .$itese#arate eac! (ed 3 a senior e1ec$tive )!o re#orts to t!e CEO- T!e advantage can 3eeJcienc and econo&ies o% sca(e )!ere %$nctiona( ski((s are #ara&o$nt- T!e &aindisadvantage is t!at %$nctiona( goa(s can end $# overs!ado)ing t!e overa(( goa(s o% t!

organi,ation-


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In a divisional structure' t!e coan is organi,ed 3 oJce or c$sto&er (ocation-Eac! division is a$tono&o$s and !as a divisiona( &anager )!o re#orts to t!e coanCEO- Eac! 3$siness $nit is t#ica(( str$ct$red a(ong %$nctiona( (ines- T!e advantage!ere re(ates to (oca( res$(ts' as eac! division is %ree to concentrate on its o)n#er%or&ance- T!e disadvantage is t!at %$nctions and e:ort &a 3e d$#(icated- Fore1a(e' eac! division &a !ave a se#arate &arketing %$nction' and so risk 3eing

ineJcient in its &arketing e:orts-

More organic str$ct$res inc($de; si(e' 6at str$ct$res' &atri1 organi,ations andnet)ork str$ct$res;$imple $tructure = O%ten %o$nd in s&a(( 3$sinesses' t!e si(e organi,ation isstr$ct$re is 6at- It &a !ave on( t)o or t!ree (eve(s e(oees tend to )ork as a(arge tea& )it! everone re#orting to one #erson- T!e advantages are eJcienc and6e1i3i(it' and res#onsi3i(ities are $s$a(( c(ear- T!e &ain disadvantage is t!at t!isstr$ct$re can !o(d 3ack gro)t! )!en t!e coan gets to a si,e )!ere t!e %o$nder orCEO cannot contin$e to &ake a(( t!e decisions-

!atri) $tructure = In a &atri1 str$ct$re' #eo#(e t#ica(( !ave t)o or &ore (ines o%re#ort- For e1a(e' a &atri1 organi,ation &a co&3ine 3ot! %$nctiona( and divisiona((ines o% res#onsi3i(it- For e1a(e' in t!is str$ct$re' a &arketing &anager &a re#ort3ot! to t!e %$nctiona( &arketing director and t!e co$ntr director o% t!e division !e ors!e )orks in- T!e advantage is t!at t!e organi,ation %oc$ses on divisiona( #er%or&ance)!i(st a(so s!aring %$nctiona( s#ecia(ist ski((s and reso$rces- T!e *o%ten serio$s+do)n%a(( is its co(e1it = e:ective( )it! t)o !ierarc!ies' and )it! t!e addedco(e1it o% tensions 3et)een t!e t)o-


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$trategy = T!e organi,ation design &$st s$##ort o$r strateg- I% o$r organi,ationintends to 3e innovative t!en a !ierarc!ica( str$ct$re )i(( not )ork- I% !o)ever' o$rstrateg is 3ased on (o) cost' !ig! vo($&e de(iver t!en a rigid str$ct$re )it! tig!tcontro(s &a 3e t!e 3est design-

$ize = T!e design &$st take into acco$nt t!e si,e o% o$r organi,ation- A s&a((organi,ation co$(d 3e #ara(,ed 3 too &$c! s#ecia(i,ation- In (arger organi,ations' ont!e ot!er !and' t!ere &a 3e econo&ies o% sca(e t!at can 3e gained 3 &aintaining

%$nctiona(( s#ecia(ist de#art&ents and tea&s- A (arge organi,ation !as &ore co(e1decision &aking needs and so&e decision &aking res#onsi3i(ities are (ike( to 3edevo(ved or decentra(i,ed-

Environment = I% t!e &arket environ&ent o$ )ork in *c$sto&ers' s$##(iers'reg$(ators' etc-+ is $n#redicta3(e or vo(ati(e' t!en t!e organi,ation needs to 3e 6e1i3(eeno$g! to react to t!is-

%ontrols = 4!at (eve( o% contro( is rig!t in o$r 3$siness2 So&e activities need s#ecia(contro(s *s$c! as #atient services in !os#ita(s' &one !and(ing in 3anks and&aintenance in air trans#ort+ )!i(st ot!ers are &ore eJcient )!en t!ere is a !ig!

degree o% 6e1i3i(it-

Incentives = Incentives and re)ards &$st 3e a(igned )it! t!e 3$siness"s strateg and#$r#ose- 4!en t!ese are &isa(igned' t!ere is a danger t!at $nits )it!in t!eorgani,ation 3eco&e se(%5serving- Bsing t!e ear(ier e1a(e o% a coan t!at )antsto gro) 3 ac.$iring ne) c$sto&ers' t!e sa(e tea& is incentivi,ed on c$sto&erretention' and t!ere%ore is se(%5serving rat!er t!an a(igned )it! t!e 3$siness #$r#ose-

T!ere is &$c! &ore to organi,ation design t!an deciding on its str$ct$re- T!is (ists!o)s 7$st so&e o% t!e %acets organi,ation design t!at can 3e taken into acco$nt in

t!inking a3o$t t!is- 4it! eac! stage o% gro)t! or eac! c!ange' t!e organi,ation designneeds to 3e reassessed and rea(igned as necessar- T!e (ist can a(so !e(# o$ identi%iss$es t!at &ig!t 3e ca$sing tea& #ro3(e&s or !o(ding 3ack o$ 3$siness-

To (earn &ore a3o$t organi,ation design' )e reco&&end t!ree e1ce((ent 3ooks on t!es$37ect avai(a3(e at A&a,on-co&; *esigning *ynamic Organizations'*esigningOrganizations' and *esigning E>ective Organizations-F$rt!er artic(es at Mind Too(s on t!e s$37ect inc($de; +7%I ' *%oc$sing onres#onsi3i(ities and acco$nta3i(ities+ and t!e Greiner %urve *&ore on t!e stage o%3$siness gro)t!+-
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Strategy Performance Management

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