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Strategic Analysis
21/10/2010
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Strategic Analysis
THE ENVIRONMENT
STRATEGIC
CAPABILITIES
ORGANISATIONAL
CULTURE /
ROUTINESStrategic Analysis
STAKEHOLDER
EXPECTATIONS
globalisation strategic position
market trends strategic orientation
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External Environment Analysis
4 components of External Environment Scanning
Monitoring
Forecasting
Assessing
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External Business Environment
The external business environment of the firm canprovide both opportunities and threats to firms
Opportunities refer to events or processes in theexternal business environment, which may help thecompany to achieve competitive success
Threats refer to events or processes in the externalbusiness environment, which may prevent thecompany from achieving competitive success
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Internal Business Environment
The internal business environment of the firm canprovide both strengths and weaknesses to firms
Strengths refer to resources and capabilities that
exceed those of competitors and provide a source ofcompetitive advantage
Weaknesses refer to organisational capabilities thatare redundant or insufficient to provide support tobusiness development and growth
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Analysis of theBusiness
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Analysis of the Strategic PositionB C G Grow th Share Po r tf o li o M a t ri x
STAR
GROWTHGROWTH
PHASEPHASE
QUESTION
MARKS
LAUNCH PHASELAUNCH PHASE
CASH COWS
MATURITYMATURITY
PHASEPHASE
DOGS
DECLINEDECLINE
PHASEPHASE
High
Low
Market
Growth
%
Cash Neutral Cash User
Cash Generator Cash Neutral
Market Share %
High Low
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Limitations of PortfolioAnalysis Too simplistic
Questionable link between
market share and
profitability.
Growth rate is only one
aspect of industry
attractiveness
Product lines or business
units are considered only in
relation to one competitor:
the market leader
Market share is only one
aspect of overall competitive
position
Illusion of scientific rigor :
subjective judgments
It is not clear what makes an
industry attractive or where
a product is in its life cycle
Defining market and product
segments is difficult
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Product Life CycleModel The Product Life Cycle model suggests that every basic product
evolves through a cycle of roughly four stages introduction,growth, maturity and decline which correspond to the rate ofgrowth of industry sales.
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Stages of industry maturity
Comp
etitivepositio
n
Strong
Fast grow
Start up
Weak
Favourable
Tenable
Dominant
Embryonic Growth Mature Ageing
Start upDifferentiate
Fast grow
Fast growCatch up
Attain cost leadership
Differentiate
Fast grow
Attain cost leadership
Renew
Defend position
Start up
Differentiate
Focus
Fast grow
Start up
Grow with
industry, Focus
Find niche
Catch up
Grow with ind.
Harvest, Catch up
Find,Hold niche,
Hang in,turnaround
Focus,Grow with ind.
Differentiate, focus
Catch up
Grow with industry
Turnaround
Retrench
Withdraw
Divest
Harvest
Turnaround
Find niche
Retrench
Harvest, hang in
Find, hold niche
Renew, turnaround
Differentiate, focus
Grow with industry
Attain cost leadershipRenew, focus
Differentiate
Grow with industry
Defend position
Attain cost leadership
Renew
Fast grow
Withdraw
Divest
Retrench
Fast grow
Start up
Find,hold nicheHang in
Grow with ind.
Harvest
Defend position
Focus
Renew
Grow with ind.
Life Cycle / Portfolio Matrix(Strategic Orientation)
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Directional Policy Matrix /General Electric Matrix /McKinsey Matrix
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IndustryAttractiveness isDetermined by: Market growth rate
Market size
Demand variability (cycles)
Industry profitability Industry rivalry
Global opportunities
Macro-environmental factors (PESTEL)
Market concentration
Seasonality
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Strength of the Business Unit andCompetitive Position isDetermined by: Market share
Growth in market share
Brand equity
Distribution channel access Production capacity
Profit margins relative to competitors
Reputation
Quality Geographic strengths
Customer knowledge
Market knowledge company
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Ansoff Positioning Matrix(1957)
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Blue Ocean Strategy : How to create uncontested Market Space
and make the competition irrelevant, by W. Chan Kim and Renee
Maugorned, Harvard Business Review 2005.
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Analysing the Nature of Competition
Macro-environment:
Political
Economic
Social/Legal
Technological
Power of suppliers
Power of customers
Threat of entry
Threat of substitution
Stage in industry life-cycle
Nature of
competition:
How
concentrated?
How fierce?
How global?
Industry structure
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Competitor Intelligence Competitor intelligence is the systematic
collection of information about rivals in orderto assist the development of firm strategies. It
is aimed at both learning about thecompetitors strengths and weaknesses andtheir likely future strategies and initiatives aswell as assessing the strengths andweaknesses of the firms own resources andcapabilities relative to other firms.
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Porter's Generic Strategies
AdvantageTarget Scope
Low Cost Product Uniqueness
Broad(Industry Wide) Cost LeadershipStrategy DifferentiationStrategy
Narrow(Market Segment)
FocusStrategy(low cost)
FocusStrategy
(differentiation)
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Generic Strategies
Porters Original Framework
Porter: viable strategies consist of:
Differentiation offering something unique,commanding a price premium
Cost leadership being the lowest-costproducer in the industry
Focus concentrating on a narrow
customer segmentIf not clearly in one of these categories, a
firm risks being stuck in the middle
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Problems with Porters Generic
Strategy Framework
Cost leadership rarely observed: many firms may vie for lowest costs industry boundaries fuzzy and permeable
Not comparing like with like: cost leadership set at level offirm differentiation may vary betweenproducts
Most successful strategies mix cost anddifferentiation advantage stuck in the middle an outdated concept
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Thompson & Stricklands
Generic Strategies
COMPETITIVE ADVANTAGE
COMPETITI V
ESCOPE
Lower
CostDifferentiation
Broad
Target
Narrow
Target
CostLeadership
Differentiation
Cost
FocusDifferentiation
Focus
Broad
Best
Cost
Narrow
Best Cost
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Five Business-Level Strategies
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Types of Business-Level Strategies
1. Cost Leadership (CL) Competitive advantage: The low-cost leader and operates
with margins greater than competitors
Competitive scope: Broad
Examples: Greyhound Bus, Big Lots Inc., Wal-Mart Integrated set of actions designed to produce or deliver goods
or services with features that are acceptable to customers atthe lowest cost, relative to competitors
No-frill, standardized goods
Continuously reduce costs ofvalue chain activities
Inbound/outbound logistics account for significant cost Low-cost position is a valuable defense against rivals Powerful customers can demand reduced prices
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Types of Business-Level Strategies (Contd)
1. Cost Leadership (CL) (Contd) Cost leaders are in a position to
Absorb supplier price increases and relationship demands
Force suppliers to hold down their prices
Continuously improving levels of efficiency and cost
reduction Can be difficult to replicate and
serve as significant entry barriers to potential competitors
Cost leaders hold an attractive position in terms of
product substitutes, with the flexibility to lower
prices to retain customers
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Types of Business-Level Strategies (Contd)
2. Differentiation Competitive advantage: Differentiation
Competitive scope: Broad
Examples: Apples iPod Integrated set of actions designed by a firm to produce or
deliver goods or services at an acceptable cost that customers
perceive as being different in ways that are important to them
Target customers perceive product value
Customizedproducts differentiating on as many
features as possible
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Types of Business-Level Strategies (Contd)
There are two Focus strategies (# 3 and 4) In general, the firms core competencies used to serve
the need of aparticular industrysegmentor niche to
the exclusion of others.
May lack resources to compete in the broader
market
May be able to more effectively serve a narrow
market segment than larger industry-wide
competitors Firms may direct resources to certain value chain
activities to build competitive advantage
Large firms may overlook small niches
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Types of Business-Level Strategies (Contd)
Focus strategy examples Buyer groups
Youths/ senior citizens
Product line segments Professional painter groups
Geographic markets West vs. East coast
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Types of Business-Level Strategies (Contd)
3. Focused Cost Leadership Competitive advantage: Low-cost
Competitive scope: Narrow industry segment I.e., IKEA: Good design (furniture) at low prices
NOTE: Also has some differentiated features (I.e.,furniture design) with its low-cost products
4. Focused Differentiation Competitive advantage: Differentiation
Competitive scope: Narrow industry segment I.e., IKEA: Good design (furniture) at low prices
NOTE: Also has some differentiated features (I.e.,
Furniture design) with its low-cost products
I.e., Casket furniture (products that can also be converted into
caskets)
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Types of Business-Level Strategies (Contd)
Risk of using Focus strategies
A competitor may be able to focus on a more
narrowly defined competitive segment and
"outfocus the focuser A company competing on an industry-wide basis
may decide that the market segment served by the
focus strategy firm is attractive and worthy of
competitive pursuit Customer needs within a narrow competitive
segment may become more similar to those of
industry-wide customers as a whole
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Types of Business-Level Strategies (Contd)
5. Integrated CL/Differentiation Efficiently produce products with differentiated
attributes Efficiency: Sources of low cost
Differentiation: Source of unique value
Can adapt to new technology and rapid changes in
external environment
Simultaneously concentrate on TWO sources of
competitive advantage: cost and differentiation consequently
must be competent in many of the primary and
support activities
Three sources of flexibility useful for this strategy
C S C
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Price
Strategies
destined for
ultimate failure
7
6
8Low
High
Perceived
use
value
Low High
No frills1
Focuseddifferentiation5
Differentiation
4
Hybrid3
Low
price2
C. Bowman - The Strategy Clock
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The Strategy Clock
Low Price Strategies
1. No frills probably segment specific
2. Low price needs low costs to offset
low margins, risk of price war3. Hybrid low cost base, reinvestment in
low price, differentiation
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The Strategy Clock
Differentiation Strategies
4.(a) Differentiation without price premium
adds value to user increased marketshare
4.(b) Differentiation with price premium:
added value must justify premium
price
5. Focused differentiation adds value to particular segment price premium
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The Strategy Clock
Strategies Destined to Fail
6. Increased price/standard value viable:
in monopoly situation
if customers lack information on where tofind superior value
7. Increased price/low value viable only in
monopoly situation
8. Low value/standard price decline inmarket share
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