STRATEGIC MANAGEMENT

CRITICAL SUCCESS FACTORS & SWOT ANALYSIS

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IDENTIFYING THE INDUSTRYS CRITICAL SUCCESS FACTORS

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What are Critical Success Factors (CSFs)?

CSFs highlight the things all firms in the industry

must pay close attention to in order to be successful. CSFs vary from one industry to another Some common ones include

speed of delivery quality product or service offering, innovativeness wider distribution network a good corporate or brand image price competitiveness, speedy response to customer needs.

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Identifying CSFs
A top priority strategic consideration. Management needs to know the industry well enough

to conclude what is more important to competitive success and what is less important. CSFs serve as cornerstones on which business strategy is built frequently, a firm can gain competitive advantage by concentrating on being distinctively better than rivals in one or more of the industrys key success factors. CSFs differ from one industry to another, and changes from time to time within the same industry as driving forces and competitive conditions change.

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Some Industry-Based Examples of CSFs

1) 2) 3)

4)

5) 6)

7)
8)

In the brewery industry for example, CSFs include: Capacity: Availability of capacity to cater for rising demand Efficient Utilization of brewing capacity - to keep manufacturing costs low. A strong network of wholesale distributors - to gain access into many retail outlets, achieving national coverage. Creative advertising to induce beer drinkers to buy a particular brand and thereby pull beer sales through established channels of distribution, including hotels, pubs or drinking bars. Expertise in brewing and marketing beer products Innovation being innovative, building powerful brands Financial Performance consistent growth in profitability, earnings per share, dividend cover, etc. Investment in research and development (R&D) and modern state of the art technology
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CSFs In the Automobile & Life Assurance Industries

In the automobile industry, a firm must: o Build strong dealer network o Develop manufacturing cost control systems o Have the capacity to meet EPA standards o Develop a strong R&D capacity for introducing new models In the life assurance industry, a firm must: o Have high calibre agency personnel o Be innovative in policy development and marketing strategy

o Have effective control of clerical personnel

o Have a substantial financial back-up to respond to claims

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CSFs in the Household Appliance Industry

In the household appliance industry, a firm must: o Achieve low costs, typically by building large manufacturing

o o o o

facilities for making multiple versions of one type of appliance, such as washing machines. Have a strong presence in the mass merchandiser distribution channel. Offer a full range of appliances Provide just-in-time delivery system to keep store inventory and ordering costs down Have excellent R&D facilities to provide consumer expectations of reliability and durability.

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CSFs in the Clothing Industry

1) 2) 3) 4)

In the clothing industry CSFs include: Fashion design to create buyer appeal Manufacturing efficiency to keep selling prices competitive. Specialized distribution to reach the life style buyer through the appropriate retail outlets Advertising in life-style magazines to appeal to the right target user.

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CUSTOMERS

COMPETITORS

COST

COMPANY

CSF Identification - The 3Cs Model Approach

Customers: What are customers real needs? What are the

segments in the market? Which customer groups do we target? Competition: How can the firm beat or survive the competition? What resources do they have? What customers are they targeting? How successful are they? How does the firm compare on price, quality and speed of delivery? Does the competitor have a wider distribution network? Corporation ( Resources): What requisite resources does our company possess? How do these resources compare with our competitors? How does our costs compare with that of our rivals? Do we have the requisite skills, technologies, and organizational culture?

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Illustrative CSFs and Related Consequences

Company: A Bank offering lending products to customers comprising small-scale businesses. Competitors: Intense competitive rivalry from other lending banks Customer Requirements (CSFs): Understanding customer needs Understanding customers business Cost (charges/rate) Consistent/Reliable service Continuity of primary contact Speed of response Speed of supply (making funding available) Quality of primary contact Competitive terms of business (security fees, etc.)
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Illustration
CSF Prime Contact quality & continuity

Action Required
Appointment of relationship managers with high personal credibility. Training of Relationships Managers in business/commercial awareness, and needs identification skills. Strong cost control and efficiency measures. Effective lending risk assessment and margin management Reliable systems Staff development and Motivation Highly developed customer awareness

Price Competitiveness

Service responsiveness, Accuracy & Quality

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Competitor Profiling

KEY SUCCESS FACTORS Market share Price competitiveness

WEIGHT 0.30 0.20

RATING +4 +3

WEIGHTED SCORE +1.20 +0.60

Facilities location
Raw materials costs

0.20
0.10

+5
-3

+1.00
-0.30

Caliber of personnel

0.20

+1

-0.20

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SWOT ANALYSIS

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Introduction to SWOT Analysis

One of the useful ways of getting a clearer picture of the key issues and

trends persisting, or anticipated from the external and internal environmental analysis is to develop a SWOT analysis. SWOT is an acronym for a firms internal Strengths and Weaknesses, set against the business Opportunities and Threats identified in its external environment. The analysis is a widely used technique through which managers create a quick overview of a firms strategic position in its competitive environment. It is based on the assumption that an effective strategy derives from a sound fit between a firms internal resources (strengths & weaknesses) and its external environmental situation (opportunities & Threats). A good fit maximizes a firms strengths and opportunities and minimizes its weaknesses and threats.
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The Importance of SWOT Analysis

SWOT highlights the attractiveness or otherwise of a firms

competitive position in the market. It drives the formulation of corporate and business-level strategy. SWOT analysis helps a company to develop competitive advantage at the marketplace: By recognizing its current competitive situation a firm is able to match its competences with the critical success factors of the industry. Accurately applied, this simple technique provides a framework for the design of a successful strategy.

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What are Opportunities?

a) b) c) d) e)

An opportunity is a major favourable situation in a firms environment. Opportunities are prevailing or emerging factors, trends and events in the external environment that opens important avenues for business development, stability and growth. Examples of recent events creating opportunity for business in Ghana, include Ghana @ 50, CAN 2008, UNCTAD XII. Opportunities include the following: Identification of previously overlooked market segment Changes in competitive or regulatory circumstances Technological changes Improved buyer relationship Improved seller relationship

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Other Sources of Opportunities

Opportunity to: 1) Enter new markets or segments 2) Expand product line to meet broader range of customer needs. 3) Diversify into related product/market 4) Vertically integrate merger, acquisition, take-over 5) Exploit fast growing markets 6) Exploit complacency among rival firms 7) Take advantage of falling trade barriers in attractive foreign markets. Opportunities must be attractive in terms of the competitive advantage they offer.

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Attractive Opportunities

Opportunities are attractive when: a) No competitor has identified it. b) Company has huge resources and capabilities to exploit. c) Market has high growth rate potential, but not attractive to big competitors

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What are Threats?

a) b) c) d) e) f) g) h) i)

Threats are challenges posed by an unfavourable event, trend or environmental development, that can endanger a companys competitive position or impose constraints on its efforts to be successful. Threats can stem from: Changing buyer needs and tastes Increasing demand of substitute products Entrance of new competitors Slow market growth Vulnerability to business cycle in time of recession Increased bargaining power of key buyers or suppliers. Lacking the appropriate resources to exploit business opportunities Technological changes New or revised regulations
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Other Sources of Threats

Emergence of cheaper technologies The launching of new or better products by rival firms The entry of low-cost foreign competitors into a firms market

stronghold Rising inflation and interest rates Potential of a hostile take-over Unfavourable demographic shifts Rising crude oil prices on the world market Energy crisis

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What are Strengths?

1) 2) 3)

4)
5)

A strength is a resource advantage relative to competitors and the needs of the markets a firm serves or expects to serve. It is a distinctive competence when it gives the firm a competitive advantage at the marketplace. Strengths arise from the resources and competences available to the firm, and include things that a company is capable of doing better than its competitors. For example: A better product or service A more powerful brand image A superior technology A better quality customer service A wider distribution coverage
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Other Sources of Strengths

Stronger financial position in terms of gearing ratio

(i.e. more equity than loan capital) Superior leadership and management team An acknowledged market leader A more positive corporate image

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What are Weaknesses?

A weakness is a limitation or deficiency in one or more

a) b) c)

resources or competencies relative to competitors that impedes a firms effective performance. Thus, weaknesses include: Important resources that a company lacks. Things that a company does poorly in comparison with the competition. Internal conditions that put a company at a competitive disadvantage.

A weakness can be strategically important or not, depending on

how much it matters, as a critical success factor.

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Sources of Weaknesses
No vision, mission no clear strategic direction

A weak financial position

Lack of managerial depth and talent Lacking some key skills or competence

Higher rate of staff turnover e.g. above industry av.

Plagued with internal operating problems Unable to finance needed changes in strategy. Too narrow a product line A weaker distribution network

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Guidelines for Developing SWOT Analysis

Keep it brief: pages of analysis are usually not required. Relate strengths and weaknesses to critical success factors State strengths and weaknesses in competitive terms i.e.

compare yourself with your competitors Be specific avoid blandness Distinguish between where the company is now and where it wishes to be - realistic strategic gaps should be indicated Be realistic about your own strengths/weaknesses, and those of your competitors.

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Post SWOT Analysis Questions

Has the company a distinctive competence on which to build an

attractive strategy around? If not, is there potential for turning some of its strengths into distinctive competences? Is the company competitively vulnerable due to its weaknesses?, or is it disqualified from exploiting important opportunities? Which weaknesses does strategy need to correct? Which opportunities does the company have the skills and resources to exploit with a real chance of success? What threats should management be mostly worried about, and what strategic moves does management need to consider in formulating a good defence? The figure, next slide illustrates how SWOT analysis builds on the results of the RBV of the firm to aid strategic analysis

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Numerous Environment Opportunities

Cell 3
. Critical Internal Weaknesses

Supports a Turnaround Strategy

Cell 1 Supports aggressive

New Market Development Strategy

Substantial Internal Strengths Cell 4 Supports a Divestment Strategy

Cell 2 Supports a Diversification Strategy

Major Environmental Threats

Key Opportunities & Threats Compared with Internal Resources & Competencies
Cell 1 is the most favourable situation: The firm faces several

environmental opportunities and has numerous strengths that encourage exploitation of those opportunities. The situation suggests an aggressive growth-oriented strategy, such new market development Cell 2 represents a firm whose RBV has identified several key strengths, but faces an unfavourable environment. The situation suggests a diversification strategy, involving the redeployment of those strong resources and competencies to exploit long-term growth opportunities in other product markets Cell 3 represents a firm that faces impressive market opportunity but is constrained by weak internal resources. The focus of strategy for such a firm is to eliminate the internal weaknesses so as to more effectively exploit the opportunities to its advantage. Cell 4 is the least favourable situation the firm faces major environmental threats from a weak resource position. The situation suggests a divestment strategy
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