Strategy ToolKit


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Strategy is often a challenging topic. This Toolkit will help you in the development of your business strategy with some models such as:
*Common STEEP Factors
*Five Forces Questions
*5 Market Test
*Generic Strategies
*Competitor Analysis
*TOWS Analysis
*Grand Strategy Selection Matrix
*Grand Strategy Clusters
*Risks & Mitigations

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Strategy ToolKit

  1. 1. Social / Demographic Level Impact Ecological / International Air and water quality Recycling Power sources Product life-cycle stage Pollution levels Substitutibility of raw materials Environmental regulation International trade Effect of climate Level Impact Political / Legal Policies of political parties Regulatory activism Property protection laws Influence on political decision making Voting rates and trends Power and decision making structures Public opinion Level Impact Ideological Characteristics Types of Union Organizations Income Gaps among social segments Population percentages in economic or social segments Value systems Demographic shifts Cultural backgrounds Birth/death rates
  2. 2. Technological Level Impact Level Impact Patents held R&D budgets Number of colleges and universities in region Pace of technological Change Presence of technological clusters Pace of process or product improvements Bandwidth capacity Intellectual Property Protection Economic GDP growth rates Exchange reserves Inflation rates Income levels and distribution Interest rates Small business lending levels Balance of payments These are the common STEEP factors, but are by no means an exhaustive list. Next to each factor you can assess its level (High/Medium/Low) and its impact (+/0/-). This will help determine what factors are most important in the external environment. Once you've identified the key factors, you need to understand the interrelationships between and among the trends. The next step is to relate the trends to issues, and forecast the future direction of those issues. Finally, derive implications from those forecasts.
  3. 3. Please see "The Five Competitive Forces that Shape Strategy" by Michael Porter for more information on the questions Industry: Barriers to Entry (Threat of Entrants) Absolute cost advantages? Proprietary learning curve? Limited access to inputs? Barriers from government policy? Economies of scale? High capital requirements? Strong brand identity? Switching costs? Limited access to distribution? Expected retaliation? Proprietary products? Score Weight 0 0 0 0 0 0 0 0 0 0 0 0 Average Buyer Power Are the buyers concentrated? No switching costs? Is the buyer volume high Is the buyer's purchasing a nondifferented product? Does the buyer have bargaining leverage? Does the buyer have the cost information? Is the buyer price sensitive? Is there a credible threat of backward integration? Are substitutes available? Are buyer incentives offered? Average Score Substitutes No switching costs? Are cheaper alternatives available? Are more beneficial alternatives available? Score Average 0 0 0 0 0 0 0 0 0 0 0 Weight 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Weight 0 0 0 0 0 0 0
  4. 4. e information on the questions ry: Supplier Power Supplier concentration? Is volume important to supplier? Are the supplier's products differentiated? Do imputs impact cost or differentiation? Are there switching costs? Are there substitute inputs? Is there a credible threat of forward integration? Is the cost relative to total purchases high? Average Score Rivalry Does the industry have exit barriers? Is the industry fragmented? Are fixed costs high? Is industry growth low? Does overcapacity exist? Are products undifferentiated? No costs to switch? Is product branding low? Are rivals homogenous in size, resources, etc? Average Weight Score 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Weight 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Scores 3 = Yes 2 = Perhaps 1 = No Weight 0 to 1 Here are a number of the common Five Forces factors. The are worded to allow them to be answered in a "Yes/Perhaps/No" manner. So it is important to read the question carefully when answering. After scoring each factor, assign a weight of 0 to 1 to assess the impact of this on the industry. So, for example, if (under buyer power) buyers are concentrated, you would give a score of 3 and then you would determine the weight of this factor on the industry. If it is only .5 (half way between important and not important), you would put .5 in the weight column. After filling in all of the questions you should have a score from 0 to 3 in terms of the effect of that factor on the industry, with 3 indicating substantial effect and 0 indicating no effect. While precision with this framework is difficult, it is hoped that by considering all the factors listed you will have a better concept of how attractive the industry is.
  5. 5. # RESOURCE/CAPABILITY COMPETITIVIVELY SUPERIOR? INIMITABLE? 1 2 3 4 5 6 Instructions In the Resource/Capability column, list the resource or capability that you wish to examine u each column. A 1 is "No", a 2 is "Perhaps" and a 3 is "Yes". These are then multiplied togeth
  6. 6. DURABLE? APPROPRIABLE? NONSUBSTITUTABLE? ou wish to examine using the 5 Market Test. Then place a 1, 2, or 3 in hen multiplied together to generate a score in the far right column. SCORE 0 0 0 0 0 0
  7. 7. Generic Strategy Firm 1 Firm 2 Firm 3 Firm 4 Firm 5 Firm 6 Firm 7 Firm 8 Firm 9 Firm 10 Broad Instructions: Once you have determined the generic strategies being used by the various firms in the industry, you can map them into a grid similar to that to the right. It is also often helpful to know in what direction the firms are moving, or if they are solidly occupying their strategic position Focused Characteristics of Business Strategy Cost Leadership Differentiation Value provided by unique features Efficient scale facilities and characteristics Tight control of production costs and Premium price overhead Costs of sales, R&D and service minimized High customer service State of the art manufacturing facilities Superior quality Monitoring costs of activities provided by outsiders Simplification of processes Relatively standardized products Prestige or exclusivity Rapid innovation Shaping perceptions through advertising Features acceptable to many customers Quality focus Lowest competitive price Capability in R&D Human resources very important Lower Buyers’ Costs Raise Buyers’ Performance Perceptions of uniqueness Switching costs through differentiation
  8. 8. Example of Business Strategy Matrix Cost Leadership Differentiation Focused Cost Leadership Focused Differentiation Cost Leadership Firm 4 Firm 5 Broad Differentiation Firm 2 Firm 1 Focused Firm 3 Firm 6
  9. 9. Resource Similar: The competitor firm has roughly the same resource allocation (e.g., number and type of employees, plant and equipmen location, technology, raw materials access) Market Common: The competitor competes in the same markets for the same customers Instructions: Put a "1" in the column if the answer to the question is "Yes" and a "0" if it is "No" Competitor Firm 1 Firm 2 Firm 3 Firm 4 Firm 5 Firm 6 Firm 7 Firm 8 Firm 9 Firm 10 Resource Similar 1 0 1 1 0 1 0 1 0 1 Market Common 1 1 0 1 0 0 1 1 0 0 The two most dangerous types are the "Potentially Dangerous Competitors" and the "Potential Entrants". The first is dangerous becau different resource allocation, it can take actions that your firm may be unable to take. The second is dangerous because it may enter la into your markets. "Known Competitors" are less dangerous because they are similar to your firm and won't engage in radical competi actions because your firm would respond tit-for-tat. "Non-threatening Competitors" should be monitored, but they do not constitute a danger to your firm.
  10. 10. location (e.g., number and type of employees, plant and equipment, e same customers swer to the question is "Yes" and a "0" if it is "No" Competitor Type Known Competitor Potentially Dangerous Competitor Potenential Entrant Known Competitor Non Threatening Competitor Potenential Entrant Potentially Dangerous Competitor Known Competitor Non Threatening Competitor Potenential Entrant titors" and the "Potential Entrants". The first is dangerous because with a e unable to take. The second is dangerous because it may enter latererally they are similar to your firm and won't engage in radical competitive g Competitors" should be monitored, but they do not constitute a direct
  11. 11. External Internal Strengths Weaknesses N Opportunities Threats Cell 3: S turna oriented Instructions: Once you have identitifed the firm's internal strengths and weaknesses and its external opportunities and threats, it is helpful to map them into a matrix similar to that above, joining the various internal and external components into a more complete picture of the firm's situation. Then, after doing the mapping, you can use the hueristics found in the graphic to the right to determine what type of overarching strategy the firm may wish to pursue. Critical internal weaknesses Cell 4: S defensiv Maj
  12. 12. Numerous environmental opportunities Cell 3: Supports a turnaroundoriented strategy Critical internal weaknesses Cell 4: Supports a defensive strategy Cell 1: Supports an aggressive strategy Cell 2: Supports a diversification strategy Major environmental threats Substantial internal strengths
  13. 13. Substantial internal strengths
  14. 14. Threats T1 ______________ T2 ______________ T3 ______________ Opportunities O1 ____________ O2 ____________ O3 ____________ Strengths S1 ____________ S2 ____________ S3 ____________ Weaknesses W1 ___________ W2 ___________ W3 ___________
  15. 15. TOWS is a powerful analysis tool where Strenths and Weaknesses are joined with Opportunities and Threats to provide a spectrum of opportunities that the firm could pursue. The real value of the tool is the breadth of options it provides that then can be analyzed in greater depth using other analytical tools.
  16. 16. Overcome weaknesses Internal (redirected resources within the firm) Vertical integration Conglomerate diversification Turnaround or retrenchment Divestiture Liquidation II I III IV Concentrated growth Mkt. Development Prod. Development Innovation Horizontal integration Concentric diversification Joint venture Maximize strengths
  17. 17. gration ate diversification ntegration diversification External (acquisition or merger for resource capability)
  18. 18. Rapid market growth 1. 2. 3. Concentrated growth Vertical Integration Related diversification I IV Strong competitive position 1. 2. 3. Related diversification Unrelated diversification Joint venture 1. 2. 3. 4. II III Reformulation of concentrated growth Horizontal integration Divestiture Liquidation Weak competitiv position 1. 2. 3. 4. 5. Slow market growth Turnaround or retrenchment Related diversification Unrelated diversification Divestiture Liquidation
  19. 19. ted growth l integration Weak competitive position d or retrenchment versification diversification
  20. 20. Threat High b Medium a Low c Low a b c Medium Probability High Example Risks Cannot secure short-term credit Main customer declares bankruptcy Increased government regulation This matrix is simply to have you assess the threats to your recommendation, and the probablity of those threats occuring. Any risk falling into the yellow or red zones should have appropriate mitigations outlined for it.