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Essential strategy models
This document provides summaries of several common strategic planning models: - SWOT analysis evaluates internal strengths and weaknesses and external opportunities and threats. Insights can be summarized in a SWOT. - McKinsey 7-S model analyzes seven internal elements: strategy, structure, systems, shared values, style, staff, and skills. Insights become SWOT factors. - Porter's 5 Forces analyzes competitive forces. Insights become SWOT opportunities and threats. - PEST analysis evaluates political, economic, social, and technological trends. Insights become SWOT opportunities and threats. - Other models covered include the business model canvas, target operating model, activity system, customer segmentation, strategy canvas,
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Essential strategy models
- 1. Essential Strategy Models Acollection of essential models for every strategist’s toolkit
- 2. SWOT analysis www.chriscfox.com 2 StrengthsWeaknesses Opportunities Threats Summarise the firms Strengths, Weaknesses, Opportunities and Threats Strengths and Weaknesses are typically internal to the firm and describe the current reality Opportunities and Threats typically arise from factors in the firms competitive environment and may exist already or have the potential to occur in the future. Strengths and Opportunities should be leveraged, Weaknesses and Threats should be mitigated. A SWOT is a useful tool to summarise the insights gained from using other models.
- 3. McKinsey 7-S analysis 3 Describeand analyse strengths and weaknesses in terms of: the “hardware” ◦ Strategy: alignment, implementation, communication, planning vs opportunism, rigour, depth, transformative vs incremental ◦ Structure: committees, governance, depth, breadth, collaboration, ◦ Systems: IT, operational, finance, HR, etc. level of rigour the “software” ◦ Style: culture, leadership, managerial versus transformational ◦ Staff: selection, reward, autonomy, empowerment ◦ Skills: ability, training, experience ◦ Shared Values: alignment, positive or negative, hard minds vs soft hearts Consider applying this lens to each process in the Value Chain Structure Systems Style Staff Skills Strategy Shared Values www.chriscfox.com Insights from a 7-S analysis can be summarised as Strengths or Weaknesses in a SWOT analysis
- 4. Porter’s 5 Forcesanalysis 4 Analyse the competitive forces in the industry Sample issues to consider: Bargaining power of suppliers ◦ Extracting a higher margin ◦ Forward integrating Bargaining power of buyers / distributors ◦ Price sensitivity ◦ Backward integration ◦ Switching costs Threat of new entrants ◦ Industry profitability ◦ Barriers to entry Threat of substitutes ◦ Disruptive change ◦ Perceived level of differentiation Rivalry ◦ Concentration & stability ◦ Industry growth rates Threat of Substitutes Bargaining Power of Suppliers Bargaining Power of Buyers Threat of New Entrants Rivalry www.chriscfox.com Insights from a 5 Forces analysis can be summarised as Opportunities or Threats in a SWOT analysis
- 5. PEST analysis www.chriscfox.com 5 PoliticalEconomic Social Technological Identify environmental trends in the competitive environment: Political: Changes in the political, regulatory, legal and special interest groups sphere. Economic: Macro-economic trends such as interest rates, equity markets, inflation / purchasing power and disposable income; and micro-economic trends such as supply, demand and elasticity. Social: and socio-economic trends such as health, longevity, family and living patterns, behaviour and fashions. Technological: trends in product development, procurement, manufacturing, distribution and customer engagement. The model is sometimes extended as PESTLE to include: Legal: as a separate sphere Environmental: an increasing consideration in many industries Insights from a PEST analysis can be summarised as Opportunities or Threats in a SWOT analysis
- 6. Business Model Canvas www.chriscfox.com6 KP Which Key Partners does the firm rely on, and for what? KA What Key Activities must the firm perform? VP What Value Proposition does the firm offer to solve its customers’ problems or satisfy their needs? CS What Customer Segments does the firm target? KR What Key Resources does the firm need? CR What kinds of Customer Relationships does the firm have? CH Through which CHannels does the firm deliver its products and services? C$ What is the Cost structure of the firm? R$ What is the Revenue structure of the firm? Firms extract value from the markets in which they compete by integrating the 9 elements of their business model.
- 7. Target Operating Model Identifythe People, Processes and Technology required to deliver each value add in the Value Chain www.chriscfox.com 7
- 8. Activity System Asubset of Southwest Airlines’ activity system Key strategic activities are mutually reinforcing Individual activities are easy for competitors to copy; the whole system is harder to copy = sustainable competitive advantage Focused – will not appeal to all passengers; not trying to be the best at everything Specific – regarding what is done and what is not done Differentiated – no other airline pursues the same strategy 8 Limited passenger service Frequent Reliable Departures High Aircraft utilisation Very low ticket prices Short-haul point-point 2ndary airports Lean productive ground crews No meals No seat assigns No bag transfer No connec- tions 15 min turn- around 737s only High compen- sation Flexible union contracts “low cost airline” Competitive Strategy is about being different. It means deliberately choosing a set of activities to deliver a unique mix of value. Michael E. Porter, 1998 www.chriscfox.com
- 9. Customer segmentation Kaplan andNorton, 1996 9 Some managers object to choosing targeted customer segments; they have never seen a customer they didn't like, and want to be able to satisfy all customers' preferences. But this approach runs the risk of doing nothing well for anybody. The essence of strategy is not just choosing what to do, it also requires choosing what not to do. Segment Value Proposition Objectives Measures TargetsProducts www.chriscfox.com
- 10. Strategy Canvas www.chriscfox.com 10 Asample Strategy Canvas for Southwest Airlines A Strategy Canvas is a visual representation of how a firm differentiates its value proposition(s) from those of its competitors: Identify the factors which your customers consider important. Chart how well your competitors/substitutes perform against each category. A Strategy Canvas can be used to understand an existing value proposition, or to identify a new opportunity. Individual canvases can be produced for different target customer segments.
- 11. BCG Matrix 11 Formulti-line portfolios, map market growth against market share Interpretation: ◦ Invest in Stars – they are the source of future profitability ◦ Improve efficiencies in Cash Cows – they are funding the investment in your Stars ◦ Decide whether you can turn Question Marks into Stars or not ◦ Exit Dogs – unless there are cross- line synergies (e.g. loss leaders); remember that all costs are variable in the long term Variations: e.g. Bubble size for profit contribution Market scope definition is key Portfolio analysis can be performed for different products, services, customer segments, geographic markets, channels, brands, etc. Cash Cows Stars Dogs Question Marks MarketShare HighLow Market Growth Low High www.chriscfox.com
- 12. A Balanced Scorecard Definemeasureable outcomes Answer 4 simple questions using SMART objectives For a mutual, replace shareholders with customers and regulators. For business units, treat the parent as the shareholder. Define measures and targets Aim for between 16 and 24 measurable outcomes (in total) Aim for a balance between the four questions – don’t let one aspect of the strategy dominate the others You get what you measure. If you can’t measure it, you can’t manage it. Don’t confuse balanced scorecard metrics with benchmarking – strategy is non- comparable 12 To succeed financially, how should we appear to our shareholders? To achieve our vision, how should we appear to our customers? To satisfy our customers and shareholders, what business processes must we excel at? To achieve our vision, how will we sustain our ability to learn and improve? www.chriscfox.com
- 13. Chris C FoxConsulting Limited is registered in England and Wales as a Private Limited Company: Company Number 6939359. Registered Office: Unit 4 Vista Place, Coy Pond Business Park, Ingworth Road, Poole BH12 1JY www.chriscfox.com 13 For a confidential discussion, contact Chris C Fox Consulting Limited www.chriscfox.com