Analysis Tools for SM.pdf

Strategy Formulation:
Situation Analysis
Part 3
Lectured By
Dr. Zar Ni Maw Win
M.E (Tech.), Ph.D (Tech.), M.PA (YUEco),
Lectured by Dr. Zar Ni Maw Win 1
6/2/2022

Contents
✓ BCG Growth-Share Matrix
✓ Situational (SWOT) Analysis
✓ Analysis of the External Environment (PESTEL)
✓ The Five Generic Competitive Strategies
✓ Porter‘s Five-Forces Model
6/2/2022

Learning Objectives
1. Define how Strategic decision-making mode by using BCG portfolio matrix
2. Utilize the SWOT diagram to examine business strategy.
3. Identify factors in a company’s broad macro-environment (PESTEL) that may have
strategic significance and impact to the organization
4. Understand the five generic strategies of Professor Michael Porter in competitive
business industry.
5. Explain the significance of five forces of Professor Michael Porter in competitive
condition.
6/2/2022

Strategy Management Framework/Model
6/2/2022 Lectured by Dr. Zar Ni Maw Win 4

BCG Growth-Share Matrix
The BCG Growth-Share Matrix is a very well-known portfolio concept
with some clear advantages. It is quantifiable and easy to use. Cash cow,
dog, question mark, and star are easy-to-remember terms for referring
to a corporation’s business units or products.

Bruce Doolin Henderson (April 30, 1915 – July 20,
1992) was an American entrepreneur and founder of
the Boston Consulting Group (BCG). He founded
BCG in 1963 in Boston, Massachusetts and headed
the firm as the president and CEO until 1980. He
continued to serve as chairman of BCG until 1985.

BCG Growth-Share Matrix & Product life Cycle

Conclusion
✓BCG matrix quadrants are simplified versions of the reality and
cannot be applied blindly.
✓They can help as general investment guidelines but should not change
strategic thinking.
✓Business should rely on management judgement, business unit
strengths and weaknesses and external environment factors to make
more reasonable investment decisions.

Scanning External & Internal (Micro & Macro) Business
Environment
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Internal Business Environment
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External Business Environment
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Strategy analysis – Internal Capability or Internal Environment
✓Analysing the internal capability of an organisation provides insights into its areas of strength and the
inherent weaknesses within it.
✓An analysis of internal capability is crucial to understand where the core skills of the organisation lie, so
that relevant courses of action can be identified, and any changes be made in the knowledge that they
have a good chance of success.
✓There is simple technique that may be used to examine the internal capability of an organisation: SWOT
Analysis.
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Strengths and Weaknesses
There are three broad categories of firm resources that form the foundation
for firm strengths and weaknesses:
1. Human resources: The experience, capabilities, knowledge, skills, and judgment of all the firm‘s
employees.
2. Organizational resources: The firm‘s systems and processes, including its strategies at various
levels, structure, and culture.
3. Physical resources: Plant and equipment, geographic locations, access to raw materials, distribution
network, and technology. Each resource category is discussed in greater detail next.

Internal Strengths and Weaknesses for the Organization
Many possible organizational strengths and weaknesses can emanate from its
resource base, including (but not limited to) the following:
1. Brand names and recognition
2. Company reputation
3. Control systems
4. Costs (internal)
5. Customer loyalty
6. Decision making

7. Distribution
8. Economies of scale
9. Environmental scanning
10. Executive leadership
11. Financial resources
12. Forecasting
13. Government lobbying
14. HR
15. Information systems and technology
16. Internet presence

17. Labor relations
18. Location
19. Logistics and inventory management
20. Manufacturing and operations
21. Market share
22. Organizational structure
23. Physical facilities and equipment

24. Product/service differentiation
25. Product/service quality
26. Promotion and advertising
27. Public relations
28. Purchasing and channel management
29. Quality control
30. R & D
31. Sales
32. Strategic capabilities
33. Technology and patents

Opportunities and Threats for the Organization
External opportunities and threats must not be confused with internal strengths and weaknesses. Factors
associated with the firm such as a poor financial position, an ineffective marketing strategy, or strong brand
images are internal factors and therefore must be classified as strengths or weaknesses.
In contrast, factors outside the firm such as demographic changes, competitive threats, or recent legislation
are external factors and therefore must be classified as opportunities or threats.
At the international level, a number of external factors should be considered as prospective opportunities and
threats, including the cyclical or seasonal nature of the industry in which the firm operates, as well as the
intensity of global competition.

Opportunities and Threats for the Organization
It is also critical to distinguish between opportunities and alternatives, although the distinction
can sometimes appear to be one of semantics. Opportunities represent the application of forces in
the external environment to a specific organization. Alternatives emanate from the SW/OT matrix
and represent specific courses of action that the organization may choose to pursue. The two are
related but must be distinguished.

Weihrich’s SWOT Matrix
STRENGTHS
List Strengths
WEAKNESSES
List Weakness
OPPORTUNITIES
List opportunities
Use strengths to take
advantage of opportunities
Over come weakness by
taking advantage of
opportunities
THREATS List Threats Use strengths to avoid
threats
Minimize weaknesses and
avoid threats
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Strategic Alternatives to the Organization
Alternatives are organizational courses of action that (1) are worth
considering because they offer some potentially positive benefits and (2)
are within the realm of possibilities for the organization. For starters, one
alternative is to continue with the present strategy. Sometimes this
alternative is the most desirable, but typically some changes are needed.

Strategic Alternatives to the Organization
Additional alternatives should be identified from the SW/OT matrix in two
ways. First, one should consider more fully utilizing one’s strengths to take
advantage of existing opportunities or palliate threats if the organization is
not presently doing so.
For example, if an organization has excess production capacity and there exists a
market not presently served, then moving into this market is worth considering. Second,
one should also consider taking action to minimize the weaknesses so that the
organization can pursue opportunities or minimize the effect of threats.

Criticisms of SWOT analysis
✓It generates lengthy lists.
✓It uses no weights to reflect priorities.
✓It uses ambiguous words and phrases.
✓The same factor can be placed in two categories (e.g., strength may also
be a weakness).
✓There is no obligation to verify opinions with data or analysis.
✓It only requires a single level of analysis.
✓There is no logical link to strategy implementation.

SWOT VS PEST Analysis – External Business Environment

Strategy Analysis : External Business Environment
The most commonly used approaches to external environment analysis are:
✓ PEST (Political, Economic, Socio-cultural, Technological);
✓ PESTEL (Political, Economic, Socio-cultural, Technological, Environmental
(or ecological), Legal);
✓ PESTLIED (Political, Economic, Socio-cultural, Technological, Legal,
International, Environmental (or ecological), Demographic);
✓ STEEPLE (Socio-cultural, Technological, Environmental (or ecological),
Economic, Political, Legal, Ethical).

✓ SLEPT (Socio-Cultural, Legal, Economic, Political, Technological);
✓ LONGPESTLE (Local, National, and Global versions of PESTLE).
(These are best used for understanding change in multinational
organizations.)
Choose the varients that best suits your organizational situation.

The purpose of this analysis is to understand the types of external factors
that influence businesses. The internal team can’t change these factors —
in fact, the team often has no influence whatsoever on these factors.

Evaluating a Company’s External
Environment (PESTEL)

Evaluating a Company’s External Environment
(PESTEL)

History of Strategy Analysis : PESTEL
✓Harvard professor Francis Aguilar is thought to be the
creator of PEST Analysis.
✓ He included a scanning tool called ETPS in his 1967 book, "Scanning
the Business Environment.“
✓ The name was later tweaked to create the current acronym.

PEST Analysis is useful for four main
reasons:
1.It helps you to spot business or personal opportunities, and it gives you
advanced warning of significant threats.
2.It reveals the direction of change within your business environment. This
helps you shape what you're doing, so that you work with change, rather
than against it.
3.It helps you avoid starting projects that are likely to fail, for reasons
beyond your control.
4.It can help you break free of unconscious assumptions when you enter a
new country, region, or market; because it helps you develop an objective
view of this new environment.

Evaluating a Company’s External Environment (PESTEL)

Evaluating a Company’s External Environment
(PESTEL)

Important Variables in international societal Environments
Source: Thomas L. Wheelen, J. David Hunger, 2012. Strategic Management and Business Policy. P-136
6/2/2022

Discussion & Question
Lectured by Dr. Zar Ni Maw Win
THANK YOU
37
6/2/2022

Porter’s Competitive Strategies
• In 1980 the book Competitive Strategy in which
he described the three generic positions of
differentiation, cost leadership and focus.
• In 1979 he published an article in Harvard
Business Review titled ‘How competitive forces
shape strategy’.
• This was the genesis of his other big theory, the
five forces that influence the market.

The Five Generic Competitive Strategies

1. Overall low-cost provider strategy —striving to achieve lower overall costs
than rivals and appealing to a broad spectrum of customers, usually by
underpricing rivals.
2. Focused low-cost strategy —concentrating on a narrow buyer segment (or market niche)
and outcompeting rivals by having lower costs than rivals and thus being able to serve
niche members at a lower price.

3. Broad differentiation strategy —seeking to differentiate the company’s
product or service from rivals’ in ways that will appeal to a broad spectrum
of buyers.
4. Focused differentiation strategy —concentrating on a narrow buyer
segment (or market niche) and outcompeting rivals by offering niche
members customized attributes that meet their tastes and requirements better
than rivals’ products

5. A best-cost provider strategy —giving customers more value for the money
by satisfying buyers’ expectations on key quality/features/performance/ service
attributes while beating their price expectations.
This option is a hybrid strategy that blends elements of low-cost provider
and differentiation strategies; the aim is to have the lowest (best) costs and prices
among sellers offering products with comparable differentiating attributes.

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Risks of Generic Strategies
Risks of Cost Leadership
Cost leadership is not
sustained:
• Competitors imitate.
• Technology changes.
• Other bases for cost
leadership erode.
Proximity in differentiation is
lost.
Cost focusers achieve even
lower cost in segments.
Risks of Differentiation
Differentiation is not
sustained:
• Bases for differentiation
become less important to
buyers.
Cost proximity is lost.
Differentiation focusers
achieve even greater
differentiation in segments.
Risks of Focus
The focus strategy is
imitated:
The target segment becomes
structurally unattractive:
• Structure erodes.
• Demand disappears.
Broadly targeted competitors
overwhelm the segment:
• The segment’s
differences from other
segments narrow.
• The advantages of a
broad line increase.
New focusers subsegment
the industry.
Risks of Cost Leadership
Cost leadership is not
sustained:
• Technology changes.
• Other bases for cost
leadership erode.
Proximity in differentiation is
lost.
Cost focusers achieve even
lower cost in segments.
Risks of Differentiation
Differentiation is not
sustained:
• Bases for differentiation
become less important to
buyers.
Cost proximity is lost.
Differentiation focusers
achieve even greater
differentiation in segments.
Risks of Focus
The focus strategy is
imitated:
The target segment becomes
structurally unattractive:
• Structure erodes.
• Demand disappears.
Broadly targeted competitors
overwhelm the segment:
• The segment’s
differences from other
segments narrow.
• The advantages of a
broad line increase.
New focusers sub-segment
the industry.

History of Competitive Advantage
(Porter’s Five Forces Analysis )
Michael Porter created Five Forces Analysis
— a method to find advantages in five key
sectors. It’s a fantastic analysis for developing
a brand new business or product in a specific
industry.

Porter’s Five-Forces Model or 5C analysis
• According to Michael Porter, a Harvard Business School
professor’s Five-Forces Model of competitive analysis is a
widely used approach for developing strategies in many
industries.
• Several factors can be identified that affect the intensity of
competition in an industry.

Porter’s Five-Forces Model
Source: Porter's Five Forces Analysis (Pringle & Huisman, 2011; Porter, 2008)

Porter’s Five Forces framework

Integration of SWOT & Porter’s Five Forces

Resource Based Successful Competitive Strategies
• For a company’s competitive strategy to succeed in delivering good performance and the intended
competitive edge over rivals, it has to be well matched to a company’s internal situation and underpinned by
an appropriate set of resources, know-how, and competitive capabilities.
• To succeed in employing a low-cost provider strategy, a company has to have the resources and capabilities
to keep its costs below those of its competitors; this means having the expertise to cost-effectively manage
value chain activities better than rivals and/or the innovative capability to bypass certain value chain
activities being performed by rivals.
• To succeed in strongly differentiating its product in ways that are appealing to buyers, a company must have
the resources and capabilities (such as better technology, strong skills in product innovation, expertise in
customer service) to incorporate unique attributes into its product offering that a broad range of buyers will
find appealing and worth paying for.
• Strategies focusing on a narrow segment of the market require the capability to do an outstanding job of
satisfying the needs and expectations of niche buyers.
• Success in employing a strategy keyed to a best value offering requires the resources and capabilities to
incorporate upscale product or service attributes at a lower cost than rivals.

Strategy Formulation
• Mission: the rationale and direction for the organisation.
• Objectives: the goals that the organisation aims to achieve.
• Strategy: the medium- to long-term plans and actions that will enable
the organisation to achieve its objectives.
• Tactics: the detailed, short-term plans and actions that will deliver the
strat

The three dimensions of organizational purpose
Source:

Strategy, Corporate Social Responsibility and Managerial
Ethics
✓Strategy decisions should not be based solely on projected effects on
financial performance.
✓An organization’s strategies at all levels should be compatible with its
stance on social responsibility and ethics.
✓Strategic alternatives should be considered in light of stated positions on
corporate social responsibility (CSR).

Strategy, Corporate Social Responsibility and Managerial
Ethics
✓Marketers of alcoholic beverages must consider whether or not attractive
advertising campaigns may attract minors as well. A manufacturer must
consider how plant relocation might affect the community in which it is
currently located. Video game developers, for example, must consider
how much violence is acceptable in the games they market to various age
groups. Hence, there are social responsibility and/or ethical
considerations facing every organization.

Conclusion
• Not copy other’s strategy
• Create own best fit strategy
• Business Analytic & Research is important
• Environmental scanning is crucial before
formulation
• Integration & Diversification is needed

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