Strategic frameworks - Ready reckoner.pdf

7/25/2019 Strategic frameworks - Ready reckoner.pdf

1/20

Breakthrough Model

The Breakthrough model focuses attention on most substantial opportunities for creating

value for customers and shareholders.

Used for transformational review of basis of competition strategy, products,

marketing/sales

External

Internal

Industry Company

Trends in the

economic

environment in

which the markets

exist

Best practices

across this and

similar industries

Market/product

strategy and basis

for competition

Capabilities of the companys

people, processes,

technology, systems and

structure

1

2

3

4

Market/Product

Repositioning

Industry

Transformation

Enterprise

Alignment

Best Practice

Performance

Approach

When creating a Breakthrough model, the

following criteria should be considered:

Summarize all opportunities to improve

business performance from other analyses

Categorize them into four groups:

Enterprise alignment

Best practice performance

Market/product repositioning

Industry transformation

Determine approximate economic value

of each type of strategy


2/20

5 Forces Analysis

The Five Forces Analysis evaluates the attractiveness of an industry. Relevant for assessing entry into new markets, products, expansion OR for evaluating future

view of portfolio

SUPPLIERS

Bargaining power of suppliers is greater if:

The supply industry is dominated by a

few companies or is more concentrated

than the buying industry

The supply product is differentiated or

there are high switching costs

There are few substitutes

The buying industry is not an important

customer of the supply industry The supply industry poses a credible

threat of forward integration

BUYERS

Bargaining power of customers is greater if:

The customer group is concentrated or

buys in large volume

Products purchased are undifferentiated

Products purchased represent a significant

portion of the customer's cost

Customers earn low profits, creating

incentive to lower purchasing costs

The product purchased is unimportant tothe quality of the customer's product

Switching costs are low

Customer group poses a credible threat of

backward integration

POTENTIAL ENTRANTS

Entry barriers are high if there are:

Economies of scale

Product differentiation

Capital requirements

Limited access to distribution channels

Restrictive government policies Potential retaliatory reaction of incumbents

SUBSTITUTES

Threat of substitutes is high if:

There is an abundance of products or services that serve the

same function The price-performance tradeoff of substitutes is attractive

INDUSTRY COMPETITORS

Rivalry is intense if:

Competitors are numerous or roughly equal in power

or size

Industry growth is slow

There are high fixed costs or the product is perishable

The product lacks differentiation or switching costs Capacity is augmented in large increments

Exit barriers are high

Rivals are diverse in strategies, origins, and

"personalities"


3/20

Example Assess entry of a Financial Services company into Life Insurance

SUPPLIERS

Bargaining power of suppliers is greater if:

The supply industry is dominated by afew companies or is more concentrated

than the buying industry

The supply product is differentiated or

there are high switching costs

There are few substitutes

The buying industry is not an important

customer of the supply industry

The supply industry poses a credible

threat of forward integration

BUYERS

Bargaining power of customers is greater if:

The customer group is concentrated orbuys in large volume

Products purchased are undifferentiated

Products purchased represent a significant

portion of the customer's cost

Customers earn low profits, creating

incentive to lower purchasing costs

The product purchased is unimportant to

the quality of the customer's product

Switching costs are low

Customer group poses a credible threat of

backward integration

POTENTIAL ENTRANTS

Entry barriers are high if there are:

Economies of scale

Product differentiation

Capital requirements

Limited access to distribution channels

Restrictive government policies

Potential retaliatory reaction of incumbents

SUBSTITUTES

Threat of substitutes is high if:

There is an abundance of products or services that serve the

same function

The price-performance tradeoff of substitutes is attractive

INDUSTRY COMPETITORS

Rivalry is intense if:

Competitors are numerous or roughly equal in power

or size

Industry growth is slow

There are high fixed costs or the product is perishable

The product lacks differentiation or switching costs

Capacity is augmented in large increments

Exit barriers are high

Rivals are diverse in strategies, origins, and

"personalities"

POTENTIAL ENTRANTS

High Entry Barriers

Need economies of scale

Little product differentiation

Very High Capital requirements

High cost distribution channels

Buyers

Low bargaining power

Individual buyers

Low annual spend for customers

High switching costs

High impact potential

SubstitutesLow Threat

No alternative to life insurance

Suppliers

Medium bargaining power

Dominated by a few big companies

No product differentiation but High

switching costs

Competitors

Rivalry is intense

Industry dominated by big 6

High fixed costs. Op costs

No product differentiation

Very high exit barriers


4/20

5 Forces

Approach

Five Forces analysis utilizes a four step approach and is applied as a starting point for

understanding a markets attractiveness:

Step 1: Collect data

Step 2: Evaluate strength of key forces, including: Buyers

Suppliers

Substitutes

Competitors

Potential entrants

Step 3: Qualitatively assign a high, medium or low score to each key force

Step 4: Assess the overall effect of the forces on industry attractiveness and strategic

implications

This tool fails in the case of disruptive changes to business models


5/20

Product portfolio BCG growth share

matrix


6/20

Issue Trees/Maps Impact of alternatives

An Issue Tree/Issue Map typically begins with a broad question and defines the sequence ofkey issues (phrased as yes or no choices) that will support a specific answer.

Backed by relevant analysis at key decision points, this is a very strong tool for evaluating

options and presenting choices to management

Will likely movements

in prices and demand

allow Client to achieve

reasonable profitability

if it carries on as

presently?

Is client prepared

to wait for this?

Can client achieve

reasonable

profitability by

better sales andmarketing efforts?

Carry on as

presently

Improve sales andmarketing effective-

ness by selectingtarget segments and

refocusing efforts

Define and implementprofit improvement

programs Define and implement

reinvestment program

Analysis

Analysis

Analysis

Analysis

Analysis

Analysis

Action

Dress up

for sale

Develop

harveststrategy

Yes

No

Is client worth

more to others

than to its

parents?

Yes

No

Would major

investment provide

client with reasonable

profitability?

Yes

No

Can client

achieve

reasonable

profitability by

reducing its

costs?

Go to A

Yes

No

Yes

No

Yes

No

A

2

1

3

4

5

6


7/20

Example

Answers to Each

Find another basis for

competing, i.e., value not

cost

14

The modernized Client

Name

10

Can Client Name

economically develop and

lead the introduction of

this S3 technology

7

Will current state-of-the-art

technology be replaced,

putting Client Name at a

disadvantage with a modern

plant?

6

Will modernization be forced on

Client Name as a ticket to play

the game?

5

Can Client Name

economically

leapfrog competition

in production

technology?

2

Would further

integration

economically develop a

sustainable low-cost

position?

1

Over the next 12-18 months,

can Client economically

become the low-cost

producer through

optimization of the current

plant?

13

Build strength through

capacity

12

Niche/milk

11

Change the game

15

Aggressive leadership in

technology

16

Leadership exploitation

17

Build strength through

integration

18

The excellent

manufacturing company

Find the market segments

that are not cost-sensitive

Modernize all plants as quickly as

possible

Expand capacity to a point that

maximizes profit

Minimize any current

modernization; participate in

S3 development; lead

introduction

Minimize current

modernization; be aware and

flexible to convert when

appropriate

Integrate backward and forward to

an extreme

Make cost management/

productivity a way of life

9

Can Client Name change

the game (i.e., compete

on something other than

cost?)

8

Will capacity expansion be

required to economically

develop the cost leadership

position?

4

Are external factors

likely to foreclose on

this cost position?

3

Is this position

sustainable?Yes

No

NoNo

No

No

No

No

No

No

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

This study was to assist management at a diversified parent co. develop a vision for the future of its heritage business - a paperboard

subsidiary. While returns had been attractive in this subsidiary, management was questioning whether further investment was advisable.


8/20

Strategic alignment -Core Competency

Models Core Competency Analysis provides a practical and systematic process to identify a

companys core competencies and assess key competitive advantages.

Very useful for assessing unique strengths of a company and alignment of key resources

(capital, skills, technology, operations) to support these while seeking partnerships or

outsourcing opportunities for execution of other areas

Marketing

Example: McDonalds

Customer

Refill Support

Sales/

Distribution

Other

Customer Service

Critical Strategic Capabilities (SC) -The capabilities in which a company is aleader. These capabilities are the source of competitive advantage.

Critical Enabling Capabilities (EC) -The capabilities in which a

company is competitively equivalent to other market leaders.

These capabilities are often the source of a barrier to entry.

Strategic/

Financial Planning

Technology

Development

Product

Development

Mfg/Joint

Venture

Core Competence (CC) - A competence which delivers a sustainable competitive

advantage in current markets, provides access to a wide variety of markets, and makes

a significant contribution to the perceived customer benefits of the end product.

Primary Capabilities (PC) - Minimum functional and

technical requirements necessary to participate.

COMPETENCIES MODEL - FRAMEWORK

Fast, affordable,

fun, family diningexperience

Marketing and brand mgmt.

Training

Franchise mgmt.

Product innovation

BigMac recipe

High quality, low price product

sourcing

Efficient operation

Hamburger preparation

Menu selection

Essentiallyabout"catching up"

Givesuniqueadvantage

Hard tocopy

Easy tocopy

"Capabilities"

"CoreCompetencies"

StrategicRequirement


9/20

Extension to Core Competency Model - The specialized enterprise :

Seeks performance excellence in all four types of business components

Support

Component

Strategic

Component

Manage to meet the

needs of strategic

components

Example:Risk Management

Invest and expand to

gain component

advantages

Example:Product Ideation

Use multiple specialists

that have a low cost of

entry and service

Example:

Payroll

Ensure that partners

meet critical business

requirements

Example:

Call Center

External

Specialization

Non-Differentiating Differentiating

Internal

Specialization

Utility

Component

Partner

Component

By choosing to focus and invest in

the truly strategic components,

the specialized enterprise

supports the business by

leveraging industry networks ofbest-in-class specialists

THE STRATGEIC COMPONENT

THAT DRIVES AN ENTERPRISE

ALSO DRIVES ITS DECISIONS ON IT

ENABLERS


10/20

As they mature, firms will internally focus on strategic

components by leveraging more external components

Initial Business Specialized Enterprise

Support Strategic

Utility Partner

Support Strategic

Utility Partner

External

Specialization


Internal

Specialization

External

Specialization


Internal

Specialization

Firms should evaluate component performance to determine where the greatest value is achieved

The decline in transaction costs increases the number of opportunities for external specialization

Simultaneously, external specialists build scale and further expand their absolute advantage

HLL, DELL Brand

Management &

Distribution

Apple, Cisco Product

Design

Pfizer, 3M Research &

New Product Launch


11/20

Example CC specialist

Product

development

Marketing and

Sales

Underwriting and

Fulfillment

Customer

Servicing

Revenue

Enhancement

Delinquency

Management

Primary Issuing

Functions

Support

Capabilities

Organization structure

Technology Infrastructure

Gap Analysis and

Product design

Business Case

Development

Piloting andRefinement

Target SegmentIdentification

Product Rollout

Campaign

Execution

Segmentation and

Targeting

Sales Planning andForecasting

Communication

Design

Distribution and

Monitoring

Underwriting

Decision

Credit Limit

Assignment

Card Creation andDispatch

InformationVerification

Card Activation

Statement

Generation

Payment

Processing

Query Resolution

TransactionProcessing

Grievance

Redressal

Targeted Loyalty

Programs

Usage/ Revolving

Incentives

Product Cross-sell

Credit Line and

APR Mgmt

Risk Profiling

Proactive Risk

Strategies

RecoveryMechanism

Payment Follow-up

Legal RecoursePotential for Outsourcing

Maintain in-house

Key activities

Compliance


12/20


13/20

When and when not to vertically integrate?


14/20

Experience Curve Models

The Experience Curve forecasts future trends in cost/labor and determines the relative cost

position of various competitors. The tool quantifies cost savings, theoretically achieved

through experience gained in conducting a process.

Relevant for traditional/brick and mortar companies to assess near term positioning.

EXPERIENCE CURVE FOR WIDGETS - PROJECTIONS

50

40

30

20

10200 400 600 800 1000 2000 4000

Unit Volume (Thousands)

Unit Cost

($) 1974

1975

1976

19771978

1979 19801981

19821983

1984

Slope 20%


15/20

Generic competitive strategiesSelection matrix


16/20

Generic competitive strategiesWhat will be the impact on the firm?


17/20


18/20

Scenario Envisioning

Scenario Envisioning is a powerful approach for companies in industries that are experiencing rapid discontinuous change

where the futurecannot be extrapolated from the past and present. Scenario Envisioning fulfills the key needs for formulating strategy in a rapid discontinuous

change environment.

Approach

Innovative hypothesis about the future, based on extensive expert industry knowledge and research are formulated for study and review. The scenario

team converts these theories of logical futures - ones that diverge from the past and present trends - into a set of distinctly different scenarios.

Develop Future Industry Scenarios

Step 1 Define the broad future industry and market context within which the scenarios will be developed. For example, the

banking industry, the broader context may be financial services or even personal information services.

Step 2 Identify the paramount forces that will shape this industry and market context. For example, what consumer,

regulatory, social, legal and technological changes can or could exert the most powerful influence on your industry?

How do these interact on a global basis? Which of these is the most uncertain?

Step 3 Identify the boundary parameters - the full range of uncertainty - of the paramount forces. For example, if regulation

is one of the paramount forces, could the industry be intensively regulated or completely deregulated?

Step 4 Develop logical but innovative hypotheses that explain how the most powerful and uncertain forces could interact.

For example, will a major segment of the banking industry evolve into an on-line personal with building industry,

fostered by deregulation and increasing consumer technological capability?

Step 5 Create a set of scenarios that show how a few key unpredictable forces with the highest impact could interact.

Using a matrix model, the interaction of two or more unpredictable conditions results in a number of distinct

possibilities. The goal is to cover a comprehensive spectrum of market conditions.


19/20

The 7S Framework Analyzing an organization

Strategy

Critical Success

Factors (CSFs)

Capabilities/Skills

Processes/

Systems

Staff Culture/Style Structure

Key factors needed by the company to

effectively implement the strategy

A coherent statement of actions aimed at gaining

a sustainable advantage over competition

Capabilities possessed by the organization as a whole as

distinct from those of individuals; some companies

perform extraordinary feats with ordinary people

The process and

procedures

through which

things get done

from day-to-day

and the systems

that facilitate

them

The people in the

organization

considered in terms

of corporate

demographics, not

individual

personalities

The way managers

collectively behave

with respect to use

of time, attention

and symbolic actions

The organization

chart and

accompanying

baggage that

show who reports

to whom and how

tasks are divided

up and integrated


20/20

7S

Approach

STEP DATA REQUIRED SOURCE(S)

1. Document

mission/shared vision

2. Document strategy

3. Evaluate key skills andcapabilities

4. Evaluate support levers,

decision

processes/systems, staff,

culture/style and

structure

Mission Statement

Business plans

Annual strategic plans

Organization charts

Training manuals

Position descriptions

Budgeting process documentation

Performance measures

Company documents

Interviews with key

executives and staff

When To Apply

When it is necessary to evaluate the building blocks of an organization that serve to support its mission and allow it to execute its

strategies. Information for this analysis is difficult to obtain in some areas without extensively interviewing company personnel. The model

as a simple description of the status quo; it should move the analysis forward to identify areas in which the organizational building blocks

are not supporting the strategy.

Strategic frameworks - Ready reckoner.pdf

Documents

Transcript of Strategic frameworks - Ready reckoner.pdf