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Strategic Analysis

21/10/2010

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Strategic Analysis
globalisation strategic position
THE ENVIRONMENT

ORGANISATIONAL
STRATEGIC
CAPABILITIES
Strategic Analysis CULTURE /
ROUTINES

STAKEHOLDER
EXPECTATIONS

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 can
provide both opportunities and threats to firms
 Opportunities refer to events or processes in the
external business environment, which may help the
company to achieve competitive success
 Threats refer to events or processes in the external
business environment, which may prevent the
company from achieving competitive success

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Internal Business Environment
 The internal business environment of the firm can
provide both strengths and weaknesses to firms
 Strengths refer to resources and capabilities that
exceed those of competitors and provide a source of
competitive advantage
 Weaknesses refer to organisational capabilities that
are redundant or insufficient to provide support to
business development and growth

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Analysis of the
Business

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Analysis of the Strategic Position
BCG Growth Share Portfolio Matrix

STAR QUESTION
MARKS
High GROWTH LAUNCH PHASE
PHASE
Cash Neutral Cash User
Market
Growth
CASH COWS DOGS
%

Low MATURITY DECLINE


PHASE PHASE

Cash Generator Cash Neutral


High Low
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Market Share %
Limitations of Portfolio
Analysis
 Too simplistic  Market share is only one
 Questionable link between aspect of overall competitive
market share and position
profitability.  Illusion of scientific rigor :
 Growth rate is only one subjective judgments
aspect of industry  It is not clear what makes an
attractiveness industry attractive or where
 Product lines or business a product is in its life cycle
units are considered only in  Defining market and product
relation to one competitor: segments is difficult
the market leader

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Product Life Cycle
Model
 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 of
growth of industry sales.

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Life Cycle / Portfolio Matrix
(Strategic Orientation)
Stages of industry maturity
Embryonic Growth Mature Ageing
Fast grow Fast grow Defend position Defend position
Start up Attain cost leadership Attain cost leadership Focus
Dominant Renew Renew Renew
Defend position Fast grow Grow with ind.
Competitive position

Start up Fast grow Attain cost leadership Find,hold niche


Differentiate Catch up Renew, focus Hang in
Strong Fast grow Attain cost leadership Differentiate Grow with ind.
Differentiate Grow with industry Harvest

Start up Differentiate, focus Harvest, hang in Fast grow


Differentiate Catch up Find, hold niche Start up
Focus Grow with industry Renew, turnaround
Favourable Fast grow Differentiate, focus
Grow with industry

Start up Harvest, Catch up Harvest Divest


Grow with Find,Hold niche, Turnaround Retrench
Tenable industry, Focus Hang in,turnaround Find niche
Focus,Grow with ind. Retrench

Find niche Turnaround Withdraw Withdraw


Catch up Retrench Divest
Weak
Grow with ind.
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Directional Policy Matrix /
General Electric Matrix /
McKinsey Matrix

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Industry
Attractiveness is
Determined 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 and
Competitive Position is
Determined 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
Industry structure

Nature of
competition:
Power of suppliers
Macro- • How
environment: Power of customers
concentrated?
•Political Threat of entry
• How fierce?
•Economic Threat of substitution
• How global?
•Social/Legal
•Technological

Stage in industry life-cycle


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Competitor Intelligence
 Competitor intelligence is the systematic
collection of information about rivals in order
to assist the development of firm strategies. It
is aimed at both learning about the
competitors’ strengths and weaknesses and
their likely future strategies and initiatives as
well as assessing the strengths and
weaknesses of the firm’s own resources and
capabilities relative to other firms.

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Porter's Generic Strategies

Advantage
Target Scope

Low Cost Product Uniqueness

Broad Cost Leadership Differentiation


(Industry Wide) Strategy Strategy

Focus Focus
Narrow
(Market Segment) Strategy Strategy
(low cost) (differentiation)

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Generic Strategies
Porter’s Original Framework
Porter: viable strategies consist of:
 Differentiation – offering something unique,
commanding a price premium
 Cost leadership – being the lowest-cost
producer in the industry
 Focus – concentrating on a narrow
customer segment
If not clearly in one of these categories, a
firm risks being stuck in the middle

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Problems with Porter’s 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 of firm
 differentiation may vary between products
 Most successful strategies mix cost and
differentiation advantage
 ‘stuck in the middle’ an outdated concept

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Thompson & Strickland’s
Generic Strategies
COMPETITIVE ADVANTAGE
Lower
Differentiation
Cost
COMPETITIVE SCOPE

Cost Differentiation
Broad Leadership
Target
Broad
Best
Cost
Narrow
Best Cost
Narrow
Target Cost Differentiation
Focus Focus
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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 at
the lowest cost, relative to competitors
 No-frill, standardized goods
 Continuously reduce costs of value 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 (Cont’d)

 1. Cost Leadership (CL) (Cont’d)


 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 (Cont’d)

 2. Differentiation
 Competitive advantage: Differentiation
 Competitive scope: Broad

 Examples: Apple’s 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
 Customized products – differentiating on as many
features as possible
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Types of Business-Level Strategies (Cont’d)

 There are two “Focus” strategies (# 3 and 4)


 In general, the firms’ core competencies used to serve
the need of a particular industry segment or 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 (Cont’d)

 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 (Cont’d)

 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) 34
Types of Business-Level Strategies (Cont’d)

 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 (Cont’d)

 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 36
C. Bowman - The Strategy Clock
Differentiation
High 4
Hybrid Focused
3 5 differentiation

Perceived
use Low
2 6
price
value

1 7 Strategies
‘No frills’ destined for
ultimate failure
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Low 37

Low Price High


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 war
3. 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 market
share
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 to
find superior value
7. Increased price/low value – viable only in
monopoly situation
8. Low value/standard price  decline in
market share

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