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Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
Strategic Analysis
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Strategic Analysis
Strategic Analysis
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Strategic Analysis

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  • 1. BUSINESS STRATEGY MKT3002 / 51110 <ul><li>LECTURE THREE: </li></ul><ul><li>Topic 3: Strategic analysis </li></ul>
  • 2. Module 3 Strategic analysis – Analysing the environment <ul><li>Learning outcomes </li></ul><ul><ul><li>Describe the components of the external environment within which an organisation operates </li></ul></ul><ul><ul><li>Carry out a full PEST analysis </li></ul></ul><ul><ul><li>Appropriately conduct a Porter’s ‘5 forces’ analysis to assess industry attractiveness </li></ul></ul><ul><ul><li>Explain the significance of segmentation in strategic planning </li></ul></ul><ul><ul><li>Undertake a competitor analysis; and </li></ul></ul><ul><ul><li>Undertake a directional policy matrix to consider the portfolio of a business </li></ul></ul>
  • 3. Key words and concepts <ul><li>Environmental uncertainty </li></ul><ul><li>PEST analysis </li></ul><ul><li>Environmental drivers of change </li></ul><ul><li>Porter’s diamond </li></ul><ul><li>Scenario planning </li></ul><ul><li>Five forces analysis </li></ul><ul><li>Life-cycle model </li></ul><ul><li>Exit barriers </li></ul>
  • 4. Key words and concepts <ul><li>Strategic group analysis </li></ul><ul><li>Market segmentation analysis </li></ul><ul><li>Perceived value </li></ul><ul><li>Market attractiveness </li></ul><ul><li>Directional policy matrix </li></ul>
  • 5. Introduction <ul><li>The external analysis may be viewed as a process which: </li></ul><ul><ul><li>Identifies trends and future events, opportunities and threats and strategic uncertainties; </li></ul></ul><ul><ul><li>Analyses the impacts of these on organisations; and </li></ul></ul><ul><ul><li>Ultimately suggests ways or strategies to cope with such impacts. </li></ul></ul><ul><ul><li>Aaker 1999 </li></ul></ul>
  • 6. Steps in the environmental analysis Assess the nature of the environment Audit environmental influences Identify key competitive forces Identify competitive position Identify key opportunities and threats Strategic position
  • 7. Differences between external & internal environments <ul><li>External environment: </li></ul><ul><ul><li>The management has no control over most of its components. </li></ul></ul><ul><ul><li>React to the changes in the environment. </li></ul></ul><ul><li>Internal environment: </li></ul><ul><ul><li>The management has varying degree of influence of its components. </li></ul></ul><ul><ul><li>Seeks to change the environmental influence itself. </li></ul></ul>
  • 8. Understanding the nature of the environment <ul><li>Environmental uncertainty increases the more that environmental conditions are dynamic or the more they are complex. </li></ul><ul><li>Environmental conditions: </li></ul><ul><ul><li>Simple / static conditions </li></ul></ul><ul><ul><li>Dynamic conditions </li></ul></ul><ul><ul><li>Complex situations </li></ul></ul>
  • 9. Auditing environmental influences <ul><li>The importance of environmental forces differ from organisation to organisation. </li></ul><ul><li>Three auditing technique: </li></ul><ul><ul><li>PEST analysis </li></ul></ul><ul><ul><li>Porter’s diamond </li></ul></ul><ul><ul><li>Scenario Planning </li></ul></ul>
  • 10. PEST analysis <ul><li>It involves identifying factors that influence the organisation. These factors include: </li></ul><ul><ul><li>Political / legal </li></ul></ul><ul><ul><li>(eg. Taxation policy, foreign trade regulations, government stability) </li></ul></ul><ul><ul><li>Economic </li></ul></ul><ul><ul><li>(eg. unemployment, disposable income) </li></ul></ul><ul><ul><li>Sociocultural </li></ul></ul><ul><ul><li>(eg. Lifestyle change, levels of education) </li></ul></ul><ul><ul><li>Technological </li></ul></ul><ul><ul><li>(eg. Government spending on research, speed of technology transfer) </li></ul></ul>
  • 11. Porter’s diamond <ul><li>Porter’s Diamond: suggests that there are inherent reasons why some nations are more competitive than others and why some industries within nations are more competitive than others. </li></ul>Firm strategy, structure and rivalry Factor conditions Demand conditions Related and supporting industries
  • 12. Environmental drivers of change Global market convergence Global competition Govt influence Cost advantages <ul><li>Trade policies </li></ul><ul><li>Technical standards </li></ul><ul><li>Host government policies </li></ul><ul><li>Scale economies </li></ul><ul><li>Sourcing efficiencies </li></ul><ul><li>Country-specific costs </li></ul><ul><li>High product development costs </li></ul><ul><li>Similar customer needs </li></ul><ul><li>Global customers </li></ul><ul><li>Transferable marketing </li></ul><ul><li>Interdependence </li></ul><ul><li>Competitors global </li></ul><ul><li>High exports / imports </li></ul>Global strategies Drivers of globalisation
  • 13. Scenario planning <ul><li>‘ build’s plausible views of different possible futures for an organisation based on grouping of key environmental influences and drivers of change about which there is a high level of uncertainty’. </li></ul><ul><li>Limited number of logically consistent. </li></ul><ul><li>Examine strategic options against the scenarios. </li></ul><ul><li>Implications of scenarios. </li></ul>
  • 14. External factor evaluation matrix (EFE) <ul><li>‘ The EFE matrix allows strategies to summarise and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information’. </li></ul><ul><li>David 2001, p. 113 </li></ul>
  • 15. External factor evaluation matrix (EFE) (Cont) <ul><li>Steps in developing the EFE matrix: </li></ul><ul><ul><li>Identify a list of KEY external factors (critical success factors). </li></ul></ul><ul><ul><li>Assign a weight to each factor, ranging from 0 (not important) to 1.0 (very important). </li></ul></ul><ul><ul><li>Assign a 1-4 rating to each critical success factor to indicate how effectively the firm’s current strategies respond to the factor. (1 = response is poor, 4 = response is extremely good) </li></ul></ul><ul><ul><li>Multiply each factor’s weight by its rating to determine a weighted score. </li></ul></ul><ul><ul><li>Sum the weighted scores. </li></ul></ul><ul><ul><li>Average total weighted score is 2.5. </li></ul></ul>
  • 16. External factor evaluation matrix (EFE) (Cont) <ul><li>Key external factors </li></ul><ul><li>Opportunities </li></ul><ul><li>Global markets are practically untapped by quality wool. </li></ul><ul><li>Increased demand caused by a raised in wool products. </li></ul><ul><li>Threats </li></ul><ul><li>Legislation against the wool industry. </li></ul><ul><li>Increased competition. </li></ul>Weight 0.35 0.2 0.3 0.15 Rating 4 2 1 2 Weighted Score 1.4 0.4 0.3 0.3 Developing the EFE matrix - Example Total 1.00 2.4
  • 17. Competitive profile matrix (CPM) <ul><li>‘ The CPM identifies a firm’s major competitors and their particular strengths and weaknesses in relation to a sample firm’s strategic position’. </li></ul><ul><li>David 2001, p. 115 </li></ul><ul><li>Key success factors (KSFs) </li></ul><ul><ul><li>Technology related </li></ul></ul><ul><ul><li>Distribution related </li></ul></ul><ul><ul><li>Marketing related </li></ul></ul><ul><ul><li>Skills related </li></ul></ul><ul><ul><li>Organisational capability </li></ul></ul><ul><ul><li>Other types of KSFs </li></ul></ul>
  • 18. Competitive profile matrix (CPM) (Cont) Developing the CPM - Example Key success factors Advertising Product quality Customer loyalty Financial position Global expansion Market share Weight 0.1 0.3 0.2 0.2 0.1 0.1 Rating 3 4 3 3 2 3 Score 0.3 1.2 0.6 0.6 0.2 0.3 Total 1.00 3.2 2.1 3.1 Company A Rating 3 2 2 2 2 2 Score 0.3 0.6 0.4 0.4 0.2 0.2 Company B Rating 4 3 2 4 1 2 Score 0.4 1.2 0.4 0.8 0.1 0.2 Company C Rating: 1=major weakness, 4=major strength
  • 19. The competitive environment: Five forces analysis <ul><li>‘ Five forces analysis is a means of identifying the forces which affect the level of competition in an industry’. </li></ul><ul><li>Johnson & Scholes 1999, p.115. </li></ul>
  • 20. Porter’s Five forces industry analysis Potential entrants Buyer Supplier Substitutes Competitive rivalry Threat of substitutes Bargaining power Bargaining power Threat of entrants Adapted from M. E. Porter, Competitive Strategy
  • 21. Competitive rivalry Development Growth Shakeout Maturity Decline Few: trial of early adopters Users/ buyers Competitive conditions Few: competitors Growing adopters: trial of product/service Entry of competitors Attempt to achieve trial Fight for share Undifferentiated products/services Growing selectivity of purchase May be many Likely price cutting of Volume Shakeout of weakest competitors Saturation of Users Repeat purchase reliance Fight to maintain Share Difficulties in gaining/taking share Emphasis on efficiency/low cost Drop-off In usage Exit of some competitors Selective distribution The life cycle model
  • 22. Competitive rivalry (Cont) <ul><li>Other forces that affect competitive rivalry: </li></ul><ul><ul><li>Competitors balance; </li></ul></ul><ul><ul><li>Market growth rates; </li></ul></ul><ul><ul><li>Global customers; </li></ul></ul><ul><ul><li>High fixed costs; </li></ul></ul><ul><ul><li>Extra capacity; </li></ul></ul><ul><ul><li>Differentiation; </li></ul></ul><ul><ul><li>Acquisition of weaker companies; and </li></ul></ul><ul><ul><li>High exit barriers. </li></ul></ul>
  • 23. Identifying the organisation’s competitive position <ul><li>Strategic group analysis </li></ul><ul><li>Market segmentation </li></ul><ul><li>Perceived value (customer ) </li></ul><ul><li>Boston consulting group matrix (BCG) </li></ul><ul><li>Market attractiveness & business strength </li></ul><ul><li>Competitor analysis </li></ul>
  • 24. 1. Strategic group analysis <ul><li>‘ aims to identify organisations with similar strategic characteristics, following similar strategies or competing on similar bases’ . </li></ul><ul><li>David 2001, p. 127 </li></ul><ul><li>The strategic group analysis is useful in the following ways: </li></ul><ul><ul><li>Identify direct competitors. </li></ul></ul><ul><ul><li>Identify the possibility for an organisation to move from one strategic group to another. </li></ul></ul><ul><ul><li>Identify opportunities. </li></ul></ul><ul><ul><li>Identify significant strategic problems. </li></ul></ul>
  • 25. 2. Market segmentation <ul><li>‘ seeks to identify similarities and differences between groups of customers or users’ . </li></ul><ul><li>David 2001, p. 129 </li></ul>
  • 26. 3. Analysing perceived value by customers <ul><li>The development of competitive strategy needs to be based on a good understanding of dimensions of strategy valued most by customers. This can be achieved through: </li></ul><ul><ul><li>Identify the relevant market segments. </li></ul></ul><ul><ul><li>Identify the characteristics of the product/service that customers value most. </li></ul></ul><ul><ul><li>Rate the importance of these dimensions. </li></ul></ul><ul><ul><li>Identify the relative strengths of competitors. </li></ul></ul><ul><ul><li>Review organisation’s competitive strategy. </li></ul></ul>
  • 27. 4. The BCG ? Sales growth Market share
  • 28. 5. Market attractiveness and business strength <ul><li>Directional policy matrix </li></ul><ul><ul><li>It seeks to position SBUs according to : </li></ul></ul><ul><ul><li>(a) how attractive is the relevant market in which they are operating, and </li></ul></ul><ul><ul><li>(b) the competitive strength of the S BU in that market . </li></ul></ul>
  • 29. 6. Competitor analysis <ul><li>Obtain information about competitors. </li></ul><ul><li>Identification of appropriate criteria. </li></ul><ul><ul><li>Eg. Goals and objectives, culture, financial, target market, and etc. </li></ul></ul>
  • 30. Environmental analysis in practice <ul><li>Simplify the complexity. </li></ul><ul><li>Selective attention. </li></ul><ul><li>Prototypes. </li></ul><ul><li>Contribute to collective know-how. </li></ul><ul><li>Threats rather than opportunities. </li></ul><ul><li>Difficulty in building up an overall strategic view of the environment. </li></ul>
  • 31. Lecture 3 review <ul><li>Strategic analysis </li></ul><ul><ul><li>Understanding the nature of the environment </li></ul></ul><ul><ul><li>Audit environmental influences </li></ul></ul><ul><ul><li>Identify key competitive forces </li></ul></ul><ul><ul><li>Identify competitive position </li></ul></ul><ul><ul><li>Identify key opportunities and threats </li></ul></ul><ul><ul><li>Environmental analysis in practice </li></ul></ul>
  • 32. Next week lecture <ul><ul><li>Module 4: </li></ul></ul><ul><ul><li>Resources, competencies, strategic capability. </li></ul></ul><ul><ul><li>(Study book: Module 4 - Text Chapter 4) </li></ul></ul>
  • 33. Next week’s tutorial <ul><li>Prepare by going over the case questions at end of module </li></ul><ul><li>Read article from BRW 23/07/99 “Grooving in a new Mood” p 84 –7 </li></ul><ul><ul><li>Do a porters five forces analysis </li></ul></ul><ul><ul><li>Will environmental changes affect the way the retail music stores look like in the future? </li></ul></ul><ul><ul><li>If you were to invest money in a business, would you consider a music retailer? </li></ul></ul>

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