1. Strategic Position: Involves External Environmental Analysis & Internal Environmental Analysis Strategy is moving from where you are to where you want to be First need to find out where you are – establishing the Strategic Position In order to do that, we will look at techniques that help us with:  External Environmental Analysis  Internal Environmental (Resource) Analysis

2. Preview: Strategic Issue Analysis - Financial Analysis (Ratio Analysis) - Gap Analysis - PLC - BCG Matrix - GE Matrix - SWOT Analysis - TOWS Matrix

3. Basic Financial Ratios Liquidity ratios Firm’s ability to meet its short-term obligations Ratios Current ratio Quick (or acid-test) ratio

4. Leverage ratios Extent of debt financing Ratios Debt-to-total-assets Debt-to-equity Long-term debt-to-equity Times-interest earned Basic Financial Ratios

5. Activity ratios Effective use of firm’s resources Ratios Inventory-turnover Fixed assets turnover Total assets turnover Accounts receivable turnover Average collection period Basic Financial Ratios

6. Profitability ratios Effectiveness shown by returns on sales and investment Ratios Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA ) Basic Financial Ratios

7. Profitability ratios (continued) Effectiveness shown by returns on sales and investment Ratios Return on stockholders’ equity (ROE) Earnings per share Price-earnings ratio Basic Financial Ratios

8. Growth ratios Firm’s ability to maintain economic position Ratios Sales Net income Earnings per share Dividends per share Basic Financial Ratios

9. Gap Analysis The difference between where you want to be and where you are For example: the likely profit contribution from current business activities & shareholder expectations Gives an idea how to bridge the gap

11. Strategic Implications of PLC Embryonic (or introduction): sale rises slowly as customers try new product. Need to spend more (say on advertising) than earnings Growth: Product is successful and growth accelerates. Experience curve effect lowers costs. Need to keep spending on promotion

12. Strategic Implications of PLC (Contd) Shakeout: imitators come in, and weaker similar products leave Maturity: market saturation and sales stop rising. The product (if still in the market) starts paying off, and profits rise further Decline: Technical advancement brings new products. There is a decline. Need to spend minimal money and strategy of harvest

13. The BCG Matrix High Low Industry Growth Rate Relative Market Share

14. High Low Industry Growth Rate Relative Market Share The BCG Matrix Stars

15. High Low Industry Growth Rate Relative Market Share The BCG Matrix ? ? ? ? Question MarksStars

16. High Low Industry Growth Rate Relative Market Share The BCG Matrix ? ? ? ? Question Marks Cash Cows Stars

17. High Low Industry Growth Rate Relative Market Share The BCG Matrix ? ? ? ? Question Marks Cash Cows Dogs Stars

18. Reviewing the Corporate Portfolio (Continued) 4 Strategic Implications  Cash Surplus from Cash Cows Used to Support Question Marks and Stars  Question Marks Divested  Exit Industry Where SBU is a Dog  Firm with Insufficient Cash Cows, Stars, or Question Marks Should Consider Acquisitions and Divestments

19. Reviewing the Corporate Portfolio (Continued) 4 Limitations of BCG Matrix  Simplistic  Connection Between Relative Market Share and Cost Savings Not Straightforward  High Market Share in a Low-Growth Industry Does Not Necessarily Create a Cash Cow

20. Reviewing the Corporate Portfolio (Continued) 4 Limitations of BCG Matrix  Simplistic  Connection Between Relative Market Share and Cost Savings Not Straightforward  High Market Share in a Low-Growth Industry Does Not Necessarily Create a Cash Cow  Fails to Pay Attention to the Source of Value Creation from Diversification

21. The McKinsey Matrix (GE Matrix) Competitive Position Industry Attractiveness Good Medium Poor High Medium Low Winner Profit Producer Average Business Question Mark Loser

22. SWOT Analysis Strengths Weaknesses Opportunities Strengths - List the S & W within the organisation, & O & T that face the organisation - The important ones to be highlighted for consideration - These important S, W, O & T can be represented as shown in the following slide

23. SWOT Representation S trengths W eaknesses O pportunities T hreats

24. SO Strategies Generate strategies here that use strengths to take advantage of opportunities ST Strategies Generate strategies here that use strengths to avoid threats WO Strategies Generate strategies here that take advantage of opportunities by overcoming weaknesses WT Strategies Generate strategies here that minimize weaknesses and avoid threats INTERNAL FACTORS (IFAS) EXTERNAL FACTORS (EFAS) Strengths (S) List 5 – 10 internal strengths here Weaknesses (W) List 5 – 10 internal weaknesses here Opportunities (O) List 5 – 10 external opportunities here Threats (T) List 5 – 10 external threats here TOWS Matrix