INDUSTRY ANALYSIS


A firm operates in an industry



You need to compare your company’s operations with
others especial...


Look at the key sectors in the industry in
relation to;


Customers



Suppliers



Competitors



Industrial trend...
Customers:
Who are they in terms of characteristics
and behaviours?
 How manageable are their needs, wants
,expectations,...
Suppliers;
Do we have alternative sources of
suppliers?
 Can we rely on these suppliers to
provide our needed inputs in t...


What are their costs?



What are their terms of delivery and/or
payment?



How powerful are they?



What is their...
Competitors;

How many competitors of our size
and competence are we facing? Fewopportunity, many-threat
 What market sha...


What are their competitive behavior?
Friendly/cooperative- Opportunity, Un
friendly-Threat



What are the entry and e...
Before joining an industry, a firm
should consider;
 Industry size, structure,
profitability, long term
attractiveness, l...
Level of technology in the
industry
 Competitive position of the
firm
 Ease of entry in the industry

Michael Porter’s model






Michael E. Porter of the Harvard Business
School developed this framework which helps
mana...
ContNeed to understand the forces in the
industry, their impact/seriousness, how
and when they benefit or be against
you, ...


Suggests five competitive forces;
 Rivalry within the industry


Threat of new entrants



Threat of substitute prod...
Relevancy and Limitations



Limitations
Limited availability of the required information i.e
high level of secrecy in g...
Points to note








External environmental analysis is aimed at
identifying/anticipating opportunities and threats
...
ORGANIZATIONAL
ANALYSIS






The central challenge of using our managerial
competences to create particular/specific c...
1)Financial Performance Analysis


Basing on the financial ratios from the trend analysis, has our
financial standing imp...
Continuation


1.

2.

3.
4.

You can not fully rely on financial ratio analysis because;
The analysis is based on past r...
2)Functional Area Analysis






Key activities of the company’s function areas
have to be analyzed to identify those a...
Marketing Department


Responsible for identifying, anticipating,& satisfying the
right customer needs and expectations.
...
Customer service/care and customer
loyalty programs? Doing it wellstrength, Need to improve-weakness
 Promotion effective...
Finance and Accounting
Responsible for ensuring the
financial soundness
 Financial strengths and stability
(financial rat...
Finance & A/cing-continues








We avoid some taxes without evading taxes
(strength), dealing mainly in taxable tra...
Human Resource Dept.


Responsible for attracting and maintaining the right/competent
(and compatible) human resources / ...
Conti





Our staff are proud of working for our
organization-strength, if not-weakness
Productivity of staff/our reco...


Production and operations
Responsible for turning the product design/ideas/raw materials into the

Responsible for turn...


Inventory control systems/relationship with our
suppliers?



Quality control measures-are they customer
oriented?


...
TASK:
 Analyze the following;











Procurement and supplies dept.
Research and development
Top management’s/...
Procurement & Supplies Dept











Securing products and services at the right quality,
quantity, price, place, ...
Continuation








If we are using e-procurement, how are those ICTs
interoperated/compatible with our other procure...
3)Portfolio Analysis (PA)








A biz portfolio may be any a
brand/branch/budget/product division/income
generating ...
Portfolio Analysis Models:


The B.C.G model (Growth/Share matrix)



The G.E Multi-factoral model (competitive
strength...
The BCG(Boston Consulting Group) model

High
Industry/
market
growth rate

Stars

Cash cows

Question
marks
Dogs

Low
High...
The GE model
High

Medium
Industry/
market
attractivene
ss Low
Strong

Average

Weak
Competitive Strengths
Determinants of industry attractiveness
Market growth
and size
 Industry
profitability
 Seasonality
 Porter's five forc...
Determinants of competitive strengths

Relative
market share
 Production
capacity
 Company
Image
 Profit margins




...
4)Value Chain Analysis
1.
2.
3.

4.

What do our current and potential customers value
most?
Are our primary and supportiv...
Some questions to answer


How can we best provide that customer value at reduced cost
and make better profits?



Which...
Strategic Gap Analysis


A futuristic strategic gap in performance



Involves some proactive control/management



If ...
Cont
1.
2.
3.
4.
5.
6.

The analysis is in stages
Consider the past trend and project into the future in
relation to your...
Key Success Factors








Things your company must be good/excel at in
order to succeed in a given industry
Premisin...
Chief Executives






1.
2.
3.

Strategic level managers
Strategic planning and policy formulation as
directed by the...
Next






From the external/environmental analysis, you will
identify all the available opportunities and threats
From...
SWOT ANALYSIS
Is usually required when;
 When formulating your strategic direction
 Drawing strategic/business/marketing...
Internal assessment:
 Strengths
 Weaknesses
 External assessment:
 Opportunities
 Threats
 Which of these are of imp...


A firm needs to:
 Respond to / take advantage of those golden
opportunities
 Cope with and encounter those potentiall...
A firm should single out those SWOT
facts that are more urgent, important
and most likely to influence its
strategy/approa...
Before your SWOT matrix ,ask
yourselves internally










In what areas have our strengths improved within this p...
OPPORTUNITIES
-Growing market for
our products
-Tax holidays
-Competent-willing
suppliers

THREATS
-Better competititors
-...
Strengths

Weaknesses

Correcting
Opportunit Using strengths to
exploit opportunities weaknesses to
ies
exploit
opportunit...
Strengths

Weaknesses

Strategies
Opportunit Strategies
Expansion/diversify Acquisition of the
ies
ing
Controlled outso...
Tasks


1.

2.

Read about

Identify the strengths and weaknesses of such
a model using all the models above. Use a firm
...
Industry analysis, swot & portfolio analysis
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Industry analysis, swot & portfolio analysis

  1. 1. INDUSTRY ANALYSIS  A firm operates in an industry  You need to compare your company’s operations with others especially your best-in-class rivals  Look at the current level of competition, technologies employed, the influences/forces from other industrial stakeholders, and Key Success Factors of your chosen industry among other key issues.
  2. 2.  Look at the key sectors in the industry in relation to;  Customers  Suppliers  Competitors  Industrial trends in line with your industry’s life cycle from introduction to decline stage should be looked at in line your goals and objectives, your strategy, and your competitors stage in this cycle.
  3. 3. Customers: Who are they in terms of characteristics and behaviours?  How manageable are their needs, wants ,expectations, tastes and preferences?  Why do they buy/what they value most?  When/how do they buy?  Where do they buy?, etc  Do all these trends/factors/developments favor/benefit us (opportunities) or really scare/are against us (threats)? 
  4. 4. Suppliers; Do we have alternative sources of suppliers?  Can we rely on these suppliers to provide our needed inputs in the right quantities ,quality, at the right time and place?  If the answer is yes , those are opportunities. While no shows a threat (s) 
  5. 5.  What are their costs?  What are their terms of delivery and/or payment?  How powerful are they?  What is their rate of entry and exit?  Which supplier is the best?  Which supplier (s) will give us competitive advantages (opportunities) or not/scare us( threat)?
  6. 6. Competitors; How many competitors of our size and competence are we facing? Fewopportunity, many-threat  What market share do they hold/how strong are they? Smaller/weaker-opportunity, Big/strong- threat  Cost of the available substitutes? Find out 
  7. 7.  What are their competitive behavior? Friendly/cooperative- Opportunity, Un friendly-Threat  What are the entry and exit barriers for these competitors? Easy for new rivals to join but difficult for the current ones to leave the industry-threat, Difficult to enter but easy to exit-favorable/opportunity
  8. 8. Before joining an industry, a firm should consider;  Industry size, structure, profitability, long term attractiveness, life cycle  Competitive situation analysis 
  9. 9. Level of technology in the industry  Competitive position of the firm  Ease of entry in the industry 
  10. 10. Michael Porter’s model    Michael E. Porter of the Harvard Business School developed this framework which helps managers with the task of analyzing the competitive forces in an industry in order to identify the opportunities and threats confronting their company (ies). To him the stronger the 5 competitive forces, the more serious the threat and vise versa because you can not increase prices anyhow meaning the profits are being depressed However through strategic change you can alter the strengths of such forces
  11. 11. ContNeed to understand the forces in the industry, their impact/seriousness, how and when they benefit or be against you, and their sources.  Confirm which forces favour your business success (opportunities) or scare your business success (threats) 
  12. 12.  Suggests five competitive forces;  Rivalry within the industry  Threat of new entrants  Threat of substitute products Bargaining power of buyers  Bargaining power of suppliers 
  13. 13. Relevancy and Limitations   Limitations Limited availability of the required information i.e high level of secrecy in government bodies and some business associations  The available information may not be up-to-date, or be irrelevant or even inaccurate  The model ignores other trends like changes in demand, technology used in production, and the market growth/attractiveness
  14. 14. Points to note     External environmental analysis is aimed at identifying/anticipating opportunities and threats Opportunities/external friends are favourable factors( trends/developments/unruly forces) in the external environment Threats/external enemies are unfavourable trends/factors in the external environment You not only end at external environmental analysis because in order to competitively face such challenges, you should know your strengths and weaknesses through organizational/internal analysis
  15. 15. ORGANIZATIONAL ANALYSIS    The central challenge of using our managerial competences to create particular/specific competitive advantage (s)-In terms of financial performance, individual departmental capabilities, appropriateness of our organizational structure, goal contract, customer value adding activities, identifying/anticipating performance gaps etc You should examine the competence/incompetence of your functional areas / departments in relation to your competititors Identify those critical strengths and weaknesses in each of these departments (functional analysis)
  16. 16. 1)Financial Performance Analysis  Basing on the financial ratios from the trend analysis, has our financial standing improved or deteriorated over time? What is the financial health of our business?  Are we financially stronger compared to our rivals in the industry at this point in time? If so, can we continue maintaining this position? Key stakeholders need to be sure of this before deciding to/continuing to deal with.  You have to combine leverage, liquidity, activity, and profitability ratios in order reasonably establish your firm’s financial standing and performance
  17. 17. Continuation  1. 2. 3. 4. You can not fully rely on financial ratio analysis because; The analysis is based on past records which rarely consider the currently situation on ground Different organizations use/follow different accounting standards and procedures even when using ISs (in determining materiality) Bases on quantitive data ignoring qualitative data The source documents may not be accurate hence giving a wrong picture
  18. 18. 2)Functional Area Analysis    Key activities of the company’s function areas have to be analyzed to identify those areas where we are performing well (strengths), and where we need to improve (weaknesses) Barriers between departments should be avoided for synergy Both resource &competence- related tangible and intangible factors should be considered
  19. 19. Marketing Department  Responsible for identifying, anticipating,& satisfying the right customer needs and expectations.  Market share (strength & competitiveness in the market), and size of our loyal customer/corporate account base?  Our marketing information systems’ efficiency &effectiveness?  Level of market research and development (in relation to customers, markets, & competitors)  Product/brand positioning & corporate image? Branding and packaging (are they unique and preferred by our target customers?) 
  20. 20. Customer service/care and customer loyalty programs? Doing it wellstrength, Need to improve-weakness  Promotion effectiveness? Giving us competitive advantages-strengths, a competitive disadvantage to usweakness  Appropriateness of our pricing strategies to our customers?  Appropriateness of our distribution channels?  Etc 
  21. 21. Finance and Accounting Responsible for ensuring the financial soundness  Financial strengths and stability (financial ratios)?  Financial planning capabilities (strengths), incapability (weakness) ? 
  22. 22. Finance & A/cing-continues     We avoid some taxes without evading taxes (strength), dealing mainly in taxable transactions (weakness) We can raise additional capital when needed by appropriately balancing own vs debt sources (strength), if not (weakness) Accuracy, Completeness, and Timeliness of financial statements/reports? How good are our relationships with our stockholders?
  23. 23. Human Resource Dept.  Responsible for attracting and maintaining the right/competent (and compatible) human resources / employees and managers in the right positions, at the right time, for achieving organizational goals  Organization structure, climate, and culture give us a competitive advantage (strengths)-inappropriate to the company’s strategic direction (weakness)  We have qualified and experienced/competent staff who are compatible with our business (strengths), unqualified/inexperienced/incompatible staff who need training or to be transferred (weakness  Is the staff morale enough, sense of goal contract, and team work?  Stable workforce/is our labour turn over low?
  24. 24. Conti   Our staff are proud of working for our organization-strength, if not-weakness Productivity of staff/our record for achieving objectives compared to our rivals? Better-OPP, Poor-Weakness Is there an ‘HR Strategic Fit’ ? ,i.e are our HR policies and programs compatible with our human capital? Core competence-OPP, No fit-Weakness
  25. 25.  Production and operations Responsible for turning the product design/ideas/raw materials into the Responsible for turning the product design/ideas/raw materials into the right finished products (services) to be sold to our customers. Benchmark with WCM practices or even trend set.  Are we producing high quality products/operating at lower overall costs compared to our rivals?  How efficient and effective are our production processes, systems, and strategies?  Can we produce the required capacity to meet our customers’ demand (s)?  Strategic location and layout of facilities (the plant, offices, equipment, raw materials, information, etc)? Plant and equipment maintenance (including its age) 
  26. 26.  Inventory control systems/relationship with our suppliers?  Quality control measures-are they customer oriented?  Do we have a high (weakness) or low level (strengths) of rejects?  Flexibility in operations-do we have alternatives like generators, a pool of casual staff, compatible staff, and alternative systems of production?  Are our lead times especially during peak periods? Delays-weakness, quick service-strength
  27. 27. TASK:  Analyze the following;        Procurement and supplies dept. Research and development Top management’s/CEO’s/General Manager’s Department IT/Information systems department Other units in case of product/customerbased/market/project organizational structures. Etc.
  28. 28. Procurement & Supplies Dept       Securing products and services at the right quality, quantity, price, place, and from the right sources How high/low are our procurement costs (e.g. cost per order or overall procurement costs)? What is / is our relationship with our core suppliers improving? Are we effectively controlling our supply chain? Is our procurement documentation accurate enough for auditing purposes? How much procurement bypasses the department/is done out of contract/is there appropriate contract compliance?
  29. 29. Continuation     If we are using e-procurement, how are those ICTs interoperated/compatible with our other procurement systems? After placing in a requisition, how long does it take to receive the goods? Can the system used provide management with realtime visibility of the procurement activities? Does the system ensure Corporate governance (transparency, accountability, disclosure, and trust)?
  30. 30. 3)Portfolio Analysis (PA)     A biz portfolio may be any a brand/branch/budget/product division/income generating asset PA is usually applied to firms with multiple SBUs (more than one product/services, customer categories, markets , divisions) Helps managers to in taking decisions regarding which SBUs to allocate more or less resources to at a given strategic time A firm should always strive to not only to diversify/retrench but to also have a balanced portfolio (minimize risk and maximize return) of all portfolios
  31. 31. Portfolio Analysis Models:  The B.C.G model (Growth/Share matrix)  The G.E Multi-factoral model (competitive strengths/Attractiveness matrix)  Contribution Margin Analysis (how much profit margin does that biz portfolio contribute?)
  32. 32. The BCG(Boston Consulting Group) model High Industry/ market growth rate Stars Cash cows Question marks Dogs Low High Low Relative market share
  33. 33. The GE model High Medium Industry/ market attractivene ss Low Strong Average Weak Competitive Strengths
  34. 34. Determinants of industry attractiveness Market growth and size  Industry profitability  Seasonality  Porter's five forces  Technology & Capital requirements  Economies of scale  Emerging opportunities and weakness  etc 
  35. 35. Determinants of competitive strengths Relative market share  Production capacity  Company Image  Profit margins   Technological capabilities  R & D strengths Market and customer knowledge  Employee committment  Etc. 
  36. 36. 4)Value Chain Analysis 1. 2. 3. 4. What do our current and potential customers value most? Are our primary and supportive value chain activities creating customer value? Primary Value Chain Activities-in bound logistics, production/operations, out bound logistics, marketing and sales, after sale service Supportive Activities-Company infrastructure, HR management, procurement, value-adding technology
  37. 37. Some questions to answer  How can we best provide that customer value at reduced cost and make better profits?  Which activities are now core or non core in relation to creating better customer value?  Which ones are we known to have competence in/give us a competitive advantage (core competence)?  How can we strategically manage such activities either by ourselves or through well controlled out-sourcing to competent firms?
  38. 38. Strategic Gap Analysis  A futuristic strategic gap in performance  Involves some proactive control/management  If it is there, what new strategies to we need to correct this gap  Adjust the tactics or change the strategy in place?
  39. 39. Cont 1. 2. 3. 4. 5. 6. The analysis is in stages Consider the past trend and project into the future in relation to your goal/objective Why might the future trend be that way?, with reasons adjust your projection What assumptions are we basing on , and how do they affect our projection? If corrective action is taken, what do we now predict? Consider other factors besides the initial one If there is a gap, when is it likely to occur ?
  40. 40. Key Success Factors     Things your company must be good/excel at in order to succeed in a given industry Premising/bench marking with those best-inclass rivals helps you to identify them They differ from one industry to another under different conditions Different from Key Result Areas
  41. 41. Chief Executives     1. 2. 3. Strategic level managers Strategic planning and policy formulation as directed by the board of directors They also provide effective leadership , are strategic information bearer, advisers to the board among other roles Issues to analyze may among others include; Their responsiveness and adaptability Attitude to risk Generic skills and experiences ,etc
  42. 42. Next    From the external/environmental analysis, you will identify all the available opportunities and threats From the internal/organizational analysis, you will identify all your internal strengths and weaknesses Match all those results using through SWOT analysis remembering that some of those trends/developments/changes/factors may not be of significance to you
  43. 43. SWOT ANALYSIS Is usually required when;  When formulating your strategic direction  Drawing strategic/business/marketing plans  Convincing creditors, investors, and top management about the firm’s future or strategic direction  When making your strategic choice/when modifying the existing strategy or its tactics/crafting (formulating) a new strategic 
  44. 44. Internal assessment:  Strengths  Weaknesses  External assessment:  Opportunities  Threats  Which of these are of important or not, urgent or not, relevant or not in relation to your strategic direction, strategy to be used, resources available (feasibility?), and values of top management? 
  45. 45.  A firm needs to:  Respond to / take advantage of those golden opportunities  Cope with and encounter those potentially frustrating threats  Correct weaknesses  Exploit / capitalize on its strengths  This matching of the SWOT variables/issues results into SWOT matrix that guides the appropriateness of your future strategic choice  Develop a SAP chart for Strengths and weaknesses, and an ETOP chart for Opportunities and Threats to decide on the appropriate tactics (actions) to use in your chosen strategies
  46. 46. A firm should single out those SWOT facts that are more urgent, important and most likely to influence its strategy/approach to your strategic direction.  A firm should also match its strengths and weaknesses, to its opportunities and threats in the environment in form of a SWOT matrix. 
  47. 47. Before your SWOT matrix ,ask yourselves internally       In what areas have our strengths improved within this period, and to what extent? Where have we managed to counter our weaknesses? In which areas of weakness are we continuously deterioting? Are we too weak, strong enough, or stable? Are these areas of importance to us? What can we then do with our strengths, and about our areas of weaknesses? Not ignoring those relevant Opportunities and Threats, after answering those relevant questions, go a head with your SWOT matrix
  48. 48. OPPORTUNITIES -Growing market for our products -Tax holidays -Competent-willing suppliers THREATS -Better competititors -Future hostile takeover -Political instability -Inferior product range STRENGTHS -Strong capital base -Many loyal customers -Competent and customer-centered staff WEAKNESSESES -Low market share -Uncommitted staff -High production costs
  49. 49. Strengths Weaknesses Correcting Opportunit Using strengths to exploit opportunities weaknesses to ies exploit opportunities Threats Using strengths to combat threats Correcting weaknesses to combat threats
  50. 50. Strengths Weaknesses Strategies Opportunit Strategies Expansion/diversify Acquisition of the ies ing Controlled outsourcing to such suppliers Tax Consulting Threats rival/team work  Use a white knight/poison pill Product innovations/ developments Controlled expansion    MBO Overall Cost
  51. 51. Tasks  1. 2. Read about Identify the strengths and weaknesses of such a model using all the models above. Use a firm of your choice Discuss-understand and pass SM highly , become a world class business competititor, and put God first because he is the best strategist.

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