Chapter [3] Strategic Analysis

Strategic Analysis The analysis of company’s external environment and internal situation is called Strategic Analysis. Issues to be considered in SA – Time Period Strategy evolves over a period of time. Balance (S-O, W-T) or (S-T, W-O) Risk Competition, Liberalization, Globalization, Boom, Recessions all pose risk of varying degree.

Risk Classification Error in interpreting the environment change Short term Long term Time Error in interpreting the environment change Environment lead to obsolescence of strategy Organizational capacity is unable to cope up with demand Inconsistency with strategy begins to develop External Sources Internal

Analysis Strategic Situational analysis Industrial SWOT TOWS Portfolio

Situational Analysis Study of current external situation of the company. Situational analysis Product Competitors Market Distribution Opportunity Threat

Industry & Competitive analysis Dominant economic feature of the industry Nature and Strength of Competition Triggers of Changes Strategic group mapping Identify key success factors Strategic moves of rivals Analysis of industry attractiveness

[1] Dominant eco. features of the industry a) Market size b) Scope of competition c) Market growth d) Life cycle position of org. e) no. of competitors f) No. of buyers g) Type of distribution channel h) Pace of technological changes i) Clusterization of key industry participants [2] Nature & Strength of competition a) Type of competition b) How strong is the competitive force

[3] Trigger of changes The trends and new developments produces changes which requires strategic response from the organization. Life cycle position and new technology are the two major sources of trigger of changes or Deriving forces. Examples ~ Internet opportunity & threat Globalization Change in industry growth rate Product innovation Diffusion of technical know-how across more companies Changes in cost and efficiency

[4] Strategic group mapping Identifying the companies that are in strong/weak position. H Quality L H Price Distribution channel Product line

[5] Key Success Factor The strength to prosper in the market is called KSF. For e.g. – Particular strategy, product attribute, resource ownership etc. All firms in the industry must pay close attention to them because being distinctively better than rivals on one or more KSF gives competitive advantages. KSF vary from industry to industry and firm to firm. Only rarely does an industry have more then 3 or 4 KSFs at any particular time.

[6] Strategic moves of rivals - Competitive intelligence about the rival’s strategy, their latest moves, their strength and weakness is essential to decide company’s own best strategic move. [7] Analysis of industrial attractiveness Industry’s growth potential Adequate Profitability Firm’s competitive position Ability to capitalize vulnerabilities of weak rivals Degree of risk and uncertainty Ability to defend against the factors that makes industry unattractive

SWOT analysis S - Strength Inherent capability to gain competitive advantages W - Weakness Inherent inability that creates competitive disadvantages O - Opportunities Favorable condition in the environment T - Threat Unfavorable condition in the environment

Significance of SWOT analysis Logical framework Formal SWOT analysis is better then managerial perception about company’s S, W, O, T. Comparative account Compare external opportunities and threats with internal strength and weakness. Strategy identification Guides strategists to identify a set of strategy to choose from.

Strength factors Powerful strategy supported by needed skills. Strong brand name, image and goodwill. Strong financial position. Market leadership with large customer base. Proprietary technology and patents. Superior intellectual skills. Product innovation skills User of e-com technology Superior supply-chain management. Better product quality. Wide geographical coverage.

Weakness factors No clear strategic mission. Obsolete facilities. Lack of key skills. No cost controlling measures. Too narrow product line. Weak brand image. Weaker dealer network. Poor financial health. Under utilized plant capacity. Behind on product quality, R&D etc.

Opportunity factors Additional customer group. Expansion to new geographic market. Expanding product line to meet customer demand. Additional technological capacity. Using internet to pursue new sales growth. Falling trade barriers. Rapid growth in market demand. Acquisition of rival firm. Opening to new technology. Liquidation of rival firm.

Threat factors Entry of new competitor. Loss of sale to substitute product. Competition with e-com companies. Increasing intensity of competition. Technological changes. Slow market growth rate. Adverse shift in trade barriers. Costly new regulatory requirement. Growing bargaining power of customers.

TOWS Matrix SO WO ST WT Heinz Welhrich Organizational Strength Weakness SO Strategy that uses strength to capitalize new and emerging opportunities WO Strategy to overcome weakness to exploit opportunities ST Strategy that uses strength to minimize threat WT Strategy to overcome weakness to cope with threat Opportunity Environmental Threat Heinz Welhrich

Portfolio analysis Portfolio is the collection of business or products that makes up the company. PA is a technique to analyse company portfolio so that resources can be chanalized to potential products. PA is used in multi-product and multi-business organization. Depending upon the result of the analysis strategy can be selected.

Pre-requisites of Portfolio analysis – Knowledge of SBU Knowledge of Experience curve Knowledge of Product life cycle analysis Portfolio Growth-share Matrix BCG Product-market matrix Ansoff’s ADL General Electric Model

Boston Consulting Group Growth-Share matrix High STAR Question mark Cash Cow Dog Market growth Low High Low Market share

Question Marks ~ STAR ~ Cash Cows ~ Dogs ~ High-growth low-share business, requires heavy investment even with less cash generation. STAR ~ High share-high growth business, requires heavy investment to maintain the position. Cash Cows ~ High share, low-growth business, requires less investment. Dogs ~ Low-share, low-growth business, requires divestment or liquidation.

BUILD strategy ~ HOLD strategy ~ HARVEST strategy ~ DIVEST strategy ~ High-growth Low-share business, requires heavy investment even with less cash generation. HOLD strategy ~ High-share High-growth business, requires heavy investment to maintain the position. HARVEST strategy ~ High share, Low-growth business, requires less investment. DIVEST strategy ~ Low-share, Low-growth business, requires divestment or liquidation.

STARS n CASH COWS n DOGS n QUESTION MARKS n n BUILD n HARVEST n HOLD n DIVEST

Ansoff’S Product – Market matrix It is portfolio planning tool that suggest 4 alternative growth strategies. Existing Product New Product Market Penetration Product Development Diversification Existing Market New Market

ADL Matrix Developed by Arther D. Little it is 2D matrix drawn between Industry maturity and Competitive position. Industry maturity has 4 stages – Embryonic Growth Mature Ageing Organization have 5 competitive positions– Dominant Strong Favorable Tenable Weak

Growth Mature Aging Dominant Strong Tenable Weak Embryonic Favorable Build barriers, Act offensively Invest, cost leadership, defend position Invest, cost leadership, Defend position Renew focus, Defend position, Withdraw Strong Differentiate, Fast grow Differentiate, Low cost, Acquisition Low cost, focus, Differentiate Find Niche, Hold niche, Harvest Favorable Differentiate, Focus Focus, Differentiate, Defend Find niche Hold niche, Harvest, Harvest, Turn around Tenable Grow with industry, Focus Find niche Turn around, Retrench Divest, Retrench Weak Find niche, Hold niche, fast grow Divest, Withdraw Withdraw

General Electric Model Business Position High Medium Low Invest Protect Harvest Divest High Market Attractiveness Medium Low

Business Position Size Customer Loyalty Distribution Technology skills Patents Marketing Flexibility Management Market Attractiveness Size Customer satisfaction Competition Growth rate Price level Profitability Govt. regulations Economic trends

Strategic group A group of those rival firms which are similar in one of the following ways – Comparable product line. Same price/quality range. Focusing on the same distribution channel. Similar product attributes. Selling to similar type of customers. Depend on same technology. An industry may contain one or more strategic groups.