Strategic Analysis

Strategic Analysis Answer Three Questions Where is the organization now? Where will the organization be in a few years – if no changes are made What specific actions should management take if they don’t like the answer to #2

Decision Making Process P. 12-13 Evaluate Current Performance Examine & Evaluate the Current: - Mission - Objectives - Strategies - Policies Interview Strategic Managers: - BOD - Top Mgmt

Decision Making Process Scan External Environment - Societal - Tasks Select Strategic Factors - Opportunities - Threats Analyze Strategic Factors (SWOT) in light of Current Situation Scan Internal Environment - Structure - Culture - Resources Select Strategic Factors - Strengths Weaknesses

Decision Making Process Review and Revise as Necessary: - Mission - Objectives Generate & Evaluate Strategic Alternatives Select & Recommend Best Alternatives

Decision Making Process Evaluate Current Performance Implement Strategies: - Programs - Budgets - Procedures Evaluate And Control Go Back To Step 1

Decision Making Process Customers Revenue Admin P & L Bal Sheet S & U F HR MIS Sales Marketing Operations

External Environment Environment General General Environment Socio-cultural General Industry Environment Threat of new entrants Power of suppliers Power of buyers Product substitutes Intensity of rivalry General Demographic Economic Global Competitor Environment Political/Legal Environment Environment Technological General

External Environment A continuous process which includes Scanning: Identifying early signals of environmental changes and trends Monitoring: Detecting meaning through ongoing observations of environmental changes and trends Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management

Industry Environment Five Forces of Competition Rivalry Among Competing Firms Threat of New Entrants Threat of Substitute Products Bargaining Power of Suppliers Bargaining Power of Buyers

Threat of New Entrants Barriers to Entry Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of scale Government policy Expected retaliation

Bargaining Power of Suppliers Dominated by a few large companies Satisfactory substitute products are not available Industry firms are not a significant customer for the supplier group Suppliers’ goods are critical to buyers’ marketplace success Effectiveness of suppliers’ products has created high switching costs Suppliers are a credible threat to integrate forward into the buyers’ industry

Bargaining Power of Buyers (Customers) They purchase a large portion of an industry’s total output Sales of the product being purchased account for a significant portion of the seller’s annual revenues They could easily switch to another product The industry’s products are undifferentiated or standardized, and buyers pose a credible threat if they were to integrate backward into the seller’s industry

Threat of Substitute Products Customers face few switching costs Substitute product’s price is lower Substitute product’s quality and performance capabilities are equal to or greater than those of the competing product

Intensity of Rivalry Are numerous or equally balanced Experience slow industry growth Have high fixed costs or high storage costs Lack differentiation or low switching costs Experience high strategic stakes Have high exit barriers

Components of Internal Analysis Strategic Competitiveness Discovering Core Competencies Competitive Advantage Core Competencies Marketing Mix Capabilities Four Criteria of Sustainable Advantages Value Chain Analysis Resources Tangible Intangible Corporate Culture R & D Capital Situation Technology Valuable Rare Costly to Imitate Non-substitutable Outsource

The Basic Value Chain Margin Margin Technological Development Service Marketing & Sales Human Resource Mgmt. Support Activities Outbound Logistics Firm Infrastructure Procurement Operations Inbound Logistics Primary Activities

Quiz – Question 1 When an organization is evaluating its strategic position, which is NOT one of the strategic questions it should ask itself? Where is the organization now? How can functional and operational areas be improved? If no changes are made, where will the organization be in one year? If the evaluation is negative, what specific actions should management take? If no changes were made, where will the organization be in 10 years?

Quiz – Question 1 When an organization is evaluating its strategic position, which is NOT one of the strategic questions it should ask itself? Where is the organization now? How can functional and operational areas be improved? If no changes are made, where will the organization be in one year? If the evaluation is negative, what specific actions should management take? If no changes were made, where will the organization be in 10 years?

Quiz – Question 2 Strategic planning within a small organization May be informal and irregular Must be elaborate to allow for future growth Should be formalized and explicitly stated Should be done by the President only Is unnecessary and a waste of time

Quiz – Question 2 Strategic planning within a small organization May be informal and irregular Must be elaborate to allow for future growth Should be formalized and explicitly stated Should be done by the President only Is unnecessary and a waste of time

Quiz – Question 3 Research done by Henry Mintzberg suggests that strategy formulation Is irregular and a discontinuous process Should be followed unswervingly to ensure success of the plan Is worthless Should be reviewed after a specific interval of time to make sure it is still applicable Is merely a checklist of actions following a logical process

Quiz – Question 3 Research done by Henry Mintzberg suggests that strategy formulation Is irregular and a discontinuous process Should be followed unswervingly to ensure success of the plan Is worthless Should be reviewed after a specific interval of time to make sure it is still applicable Is merely a checklist of actions following a logical process

Quiz – Question 4 Which of the following is NOT one of the five triggering events that are the stimulus for a strategic change? Intervention by the organization’s bank Entrance of a new competitor into the industry Change in ownership of the organization New CEO Decreased profitability

Quiz – Question 4 Which of the following is NOT one of the five triggering events that are the stimulus for a strategic change? Intervention by the organization’s bank Entrance of a new competitor into the industry Change in ownership of the organization New CEO Decreased profitability

Quiz – Question 5 Which of the following is an example of a strategy? Diversify the product line to appeal to more people Increase sales by 10% over last year Pay highest salaries to keep high quality employees Develop and sell quality appliances world-wide Divide a sales region into a group of sales districts

Quiz – Question 5 Which of the following is an example of a strategy? Diversify the product line to appeal to more people Increase sales by 10% over last year Pay highest salaries to keep high quality employees Develop and sell quality appliances world-wide Divide a sales region into a group of sales districts

Analysis Tools – SWOT Chapter 5 Strengths Weaknesses Opportunities Threats

Strategy Development - TOWS TOWS Analysis Opportunity Threat Strength O/S Strategies T/S Strategies Identify strategies that focus the organization’s strengths on opportunities Identify strategies that focus strengths against threats Weakness O/W Strategies T/W Strategies Identify strategies that shore up weaknesses to allow the pursuit of opportunities Identify strategies that shore up weaknesses

SWOT Example – Bicycle Co. Strengths Innovation Quality Brand in segment Flexible manufacturing Weaknesses Cost Financial size Opportunity International growth Dirt bikes Threats Lower cost, higher quality competition Flattening demand

TOWS Example – Bicycle Co. TOWS Analysis Opportunity International Dirt bikes Threat Flat demand Lower cost, higher quality Strength Innovation Quality Brand in segment Flexible manufacturing O/S Strategies T/S Strategies Grow international Develop/enter dirt bikes Grow international Develop/enter dirt bikes Weakness Cost Financial size O/W Strategies T/W Strategies Grow international to increase economies of scale Int’l alliances Grow international Develop/enter dirt bikes