STRATEGIC ANALYSIS -2STRATEGIC ANALYSIS -2

1.1. Industry & Competitive AnalysisIndustry & Competitive Analysis2.2. Situation Analysis Situation Analysis

Evaluating Company Resources and Competitive Evaluating Company Resources and Competitive CapabilitiesCapabilities

Strategic Analysis Leads to Strategic ChoicesStrategic Analysis Leads to Strategic Choices

1. Industry’s dominant economic traits2. Nature of competition & strength of

competitive forces3. Drivers of industry change4. Competitive position of rivals5. Strategic moves of rivals6. Key success factors7. Conclusions about industry attractiveness

Assess Industry & Competitive Conditions

1. Assessment of company’s present strategy2. Resource strengths and weaknesses,

market opportunities, and external threats3. Company’s costs compared to rivals4. Strength of company’s competitive position5. Strategic issues that need to be addressed

Assess Company Situation

IdentifyStrategic Optionsfor the

Company

Select the Best Strategyfor the

Company

Situation Analysis – 5 QuestionsSituation Analysis – 5 Questions1.1. How well is How well is Present StrategyPresent Strategy working?working?

2.2. What are the What are the Resource Strengths and WeaknessesStrengths and Weaknesses and its and its External External Opportunities and ThreatsOpportunities and Threats??

3.3. Are firm’s Are firm’s Prices and CostsPrices and Costs competitive? competitive?

4.4. How strong is Organization’s How strong is Organization’s Competitive PositionCompetitive Position relative relative to rivals?to rivals?

5.5. What What Strategic IssuesStrategic Issues does Organization face? does Organization face?

1.1. Present StrategyPresent Strategy How well is the present How well is the present

strategy workingstrategy working??

Evaluating Current StrategyEvaluating Current StrategyCompany’s Overall PerformanceCompany’s Overall Performance– From a Qualitative StandpointFrom a Qualitative Standpoint

Completeness, Completeness, Internal Consistency, Internal Consistency, Rationale, and Rationale, and Suitability to the Situation Suitability to the Situation

– From a Quantitative Standpoint From a Quantitative Standpoint Strategic and Financial Results the strategy is producing. Strategic and Financial Results the strategy is producing.

The stronger a company’s current overall performance, the less The stronger a company’s current overall performance, the less likely the need for radical strategy changes. likely the need for radical strategy changes.

The weaker a company’s performance and/or the faster the The weaker a company’s performance and/or the faster the changes in its external situation (which can be gleaned from changes in its external situation (which can be gleaned from industry and competitive analysis), the more its current strategy industry and competitive analysis), the more its current strategy must be questioned.must be questioned.

2. SWOT Analysis2. SWOT Analysis What are the resource strengths What are the resource strengths and weaknesses and its external and weaknesses and its external

opportunities and threatsopportunities and threats??

Firm’s Strengths, Weaknesses, Firm’s Strengths, Weaknesses, Opportunities and ThreatsOpportunities and Threats

S W O T S W O T represents the first letter in:-represents the first letter in:-– SS trengthstrengths

– WW eaknesses eaknesses

– OO pportunities pportunities

– TT hreats hreats

For a company’s strategy to be well-conceived, it For a company’s strategy to be well-conceived, it must be matched to both:-must be matched to both:-– ResourceResource strengths and weaknessesstrengths and weaknesses

– Best market Best market opportunitiesopportunities and external and external threats threats to to its well-beingits well-being

What are the resource strengths and weaknesses What are the resource strengths and weaknesses

and its external opportunities and threatsand its external opportunities and threats??

A SWOT analysis provides an overview of a firm’s situation.A SWOT analysis provides an overview of a firm’s situation.

A Company’s Resource strengths, competencies, and A Company’s Resource strengths, competencies, and competitive capabilities are important because they are the competitive capabilities are important because they are the most logical and appealing building blocks for strategy; most logical and appealing building blocks for strategy;

A Company’s resource weaknesses are important because A Company’s resource weaknesses are important because they may represent vulnerabilities that need correction. they may represent vulnerabilities that need correction.

External Opportunities and Threats come into play because External Opportunities and Threats come into play because a good strategy necessarily aims at capturing a company’s a good strategy necessarily aims at capturing a company’s most attractive opportunities and at defending against threats most attractive opportunities and at defending against threats to its well-being.to its well-being.

SWOT Analysis - What to Look ForSWOT Analysis - What to Look For

Potential Strengths

Potential Weaknesses

Potential Opportunities

Potential Threats

1. Powerful strategy

2. Strong financial condition

3. Strong brand /reputation

4. Market leader

5. Proprietary Technology

1. No clear strategic direction

2. Obsolete Facilities

3. Weak B/S

excess debt

4. Higher costs than rivals

5. Lack of key skills

1. Additional customer groups

2. Expanding to new geographic areas

3. Expanding product line

4. Transferring skills to new products

5. Vertical integration

1. Entry of potent new competitors

2. Loss of sales to substitutes

3. Slowing market growth

4. Adverse shifts in exchange rates & trade policies

5. Costly new regulations

Continued…..Continued…..

Potential Resource Strengths

Potential Resource Weaknesses

Potential Company Opportunities

Potential External Threats

6. Cost advantages

7. Strong advertising

8. Product innovation skills

9. Good customer service

10. Better product quality

11. Alliances or JVs

6. Subpar profits

7. Internal operating problems

8. Falling behind in R&D

9. Too narrow product line

10. Weak marketing skills

6. Take market share from rivals

7. Acquisition of rivals

8. Alliances or JVs to expand coverage

9. Openings to exploit new technologies

10. Openings to extend brand name/image

6. Vulnerability to business cycle

7. Growing leverage of customers or suppliers

8. Reduced buyer needs for product

9. Demographic changes

Mobilizing Resources for Competitive AdvantageMobilizing Resources for Competitive Advantage

Competitive Advantage

Strategic Assets and Market Achievements

Core and Distinctive Competencies

Competitive Capabilities

Company Resources

Competencies, Core Competencies, Competencies, Core Competencies, Distinctive CompetenciesDistinctive Competencies

A company A company competencecompetence is the product of is the product of organizational learning and experience and organizational learning and experience and represents real proficiency in performing an represents real proficiency in performing an internal activityinternal activity

A A core competencecore competence is a well-performed internal is a well-performed internal activity that is central (not peripheral or incidental) activity that is central (not peripheral or incidental) to a company’s competitiveness and profitabilityto a company’s competitiveness and profitability

A A distinctive competencedistinctive competence is a competitively is a competitively valuable activity that a company valuable activity that a company performs better performs better than its rivalsthan its rivals

Distinctive Competence – Distinctive Competence – A Competitively Superior ResourceA Competitively Superior Resource

A A Distinctive CompetenceDistinctive Competence is a competitively is a competitively significant activity that a company significant activity that a company performs performs better than its competitorsbetter than its competitors. .

A Distinctive Competence Represents a competitively valuable capability that rivals do not have Presents attractive potential for being a cornerstone of strategyCan provide a competitive edge in the market because it represents a competitively superior resource strength

Competitive Value of a ResourceCompetitive Value of a Resource

To qualify as the basis for To qualify as the basis for sustainable sustainable competitive advantagecompetitive advantage, a , a “resource” “resource” must pass 4 Tests: must pass 4 Tests:

1.1. Is the Resource Is the Resource hard to copy hard to copy ??

2.2. Does the Resource have Does the Resource have staying powerstaying power? ?

3.3. Is the Resource really Is the Resource really competitively competitively superiorsuperior ??

4.4. Can the Resource be Can the Resource be trumpedtrumped by the by the different capabilities of rivals ?different capabilities of rivals ?

3.3. Company’s Prices and CostsCompany’s Prices and Costs Are the Company’sAre the Company’s

Prices and CostsPrices and Costs competitive competitive??

Are the Are the Company’s Prices and CostsCompany’s Prices and Costs competitivecompetitive??

One telling sign of whether a company’s situation is strong or One telling sign of whether a company’s situation is strong or precarious is whether its prices and costs are competitive with precarious is whether its prices and costs are competitive with industry rivals. Essential Tools in benchmarking a company’s industry rivals. Essential Tools in benchmarking a company’s Prices and Costs against rivals are:Prices and Costs against rivals are:1.1. Strategic Cost AnalysisStrategic Cost Analysis2.2. Value Chain AnalysisValue Chain Analysis

Strategic Cost Analysis determines whether the company is Strategic Cost Analysis determines whether the company is performing particular functions and activities cost effectively, performing particular functions and activities cost effectively, learning whether its costs are in line with competitors, and learning whether its costs are in line with competitors, and deciding which internal activities and business processes need deciding which internal activities and business processes need to be scrutinized for improvement. to be scrutinized for improvement.

Value Chain Analysis teaches as to how competently a Value Chain Analysis teaches as to how competently a company manages its value chain activities relative to rivals, company manages its value chain activities relative to rivals, which is a key to building valuable competencies and which is a key to building valuable competencies and competitive capabilities and then leveraging them into competitive capabilities and then leveraging them into sustainable competitive advantage.sustainable competitive advantage.

Strategic Cost AnalysisStrategic Cost Analysis

Focuses on firm’s costsFocuses on firm’s costs relative to its rivals relative to its rivals

Compares firm’s costs Compares firm’s costs activity by activity activity by activity against costs of key rivals:against costs of key rivals:

– From raw materials purchase From raw materials purchase toto

– Price paid by ultimate customerPrice paid by ultimate customer

Pinpoints which Pinpoints which internal activities internal activities are a are a source of cost advantage or disadvantagesource of cost advantage or disadvantage

Typical Company Value ChainTypical Company Value Chain

DistributionAnd

OutboundLogistics

Operations

PurchasedSupplies

andInboundLogistics

Sales and Marketing

ServiceProfit

Margin

Product R&D, Technology, Systems Development

Human Resources Management

General Administration

Primary Activities and Costs

Support Activities and Costs

Value Chain System for an Entire IndustryValue Chain System for an Entire Industry

SupplierValue Chains

A Company’s Value Chain

Forward Channel

Value Chains

Activities, Costs, &

Margins ofForwardChannelAllies &

StrategicPartners

InternallyPerformedActivities, Costs, &Margins

Activities, Costs, &

Margins ofSuppliers

Buyer or End User

ValueChains

4. Competitive Position4. Competitive Position How strong is company’s How strong is company’s

competitive positioncompetitive position??

How strong is the company’s How strong is the company’s competitive positioncompetitive position??

Key Appraisals here involve: Key Appraisals here involve: – Whether the company’s position is likely to improve or deteriorate if the Whether the company’s position is likely to improve or deteriorate if the

present strategy is continued?present strategy is continued?– How does the company match up against key rivals on industry key How does the company match up against key rivals on industry key

success factors and other chief determinants of competitive success? success factors and other chief determinants of competitive success? – Whether and why the company has a competitive advantage or Whether and why the company has a competitive advantage or

disadvantage?disadvantage?

Competitive Strength indicate where a company is Competitive Strength indicate where a company is competitively strong and weak and provide insight into the competitively strong and weak and provide insight into the company’s ability to defend or enhance its market position. company’s ability to defend or enhance its market position. As a rule, a company’s competitive strategy should be built As a rule, a company’s competitive strategy should be built around its competitive strengths and should aim at shoring up around its competitive strengths and should aim at shoring up areas where it is competitively vulnerable. areas where it is competitively vulnerable. Also, the areas where company strengths match up against Also, the areas where company strengths match up against competitor weaknesses represent the best potential for new competitor weaknesses represent the best potential for new offensive initiatives.offensive initiatives.

From Value Chain Analysis to From Value Chain Analysis to Competitive AdvantageCompetitive Advantage

A company can create A company can create competitive advantage competitive advantage by managing its value chain toby managing its value chain to– Integrate Integrate knowledge and skills of employees in knowledge and skills of employees in

competitively valuable wayscompetitively valuable ways

– LeverageLeverage economies of learning / experience economies of learning / experience

– CoordinateCoordinate related activities in ways that build related activities in ways that build valuable capabilitiesvaluable capabilities

– Build dominating expertise Build dominating expertise in a value chain in a value chain activity critical to customer satisfaction or market activity critical to customer satisfaction or market successsuccess

5. Identify Strategic Issues5. Identify Strategic Issues What Strategic Issues does What Strategic Issues does

the company facethe company face??

What strategic issues does the What strategic issues does the company facecompany face??

The purpose of this analytical step is to zero in on the The purpose of this analytical step is to zero in on the strategic challenges to the company’s future success, strategic challenges to the company’s future success, identified by using the results of both industry and identified by using the results of both industry and competitive analysis and company situation analysis.competitive analysis and company situation analysis.

The objective is to resolve the strategic issues in order The objective is to resolve the strategic issues in order for the company to be competitively successful in the for the company to be competitively successful in the years ahead. years ahead.

Strategic Issues frame the strategic agenda that Strategic Issues frame the strategic agenda that management needs to act on.management needs to act on.

Identifying Strategic IssuesIdentifying Strategic Issues

Is Present Strategy adequate in the light of Is Present Strategy adequate in the light of competitive pressures and driving forces?competitive pressures and driving forces?

Is Strategy well-matched to the industry’s future key Is Strategy well-matched to the industry’s future key success factors? success factors?

Does the company need new or different resource Does the company need new or different resource strengths and competitive capabilities?strengths and competitive capabilities?

Does present strategy adequately protect against Does present strategy adequately protect against external threats and resource deficiencies?external threats and resource deficiencies?

Is firm vulnerable to competitive attack by rivals?Is firm vulnerable to competitive attack by rivals?

Where are strong/weak spots in present strategy?Where are strong/weak spots in present strategy?

CONCLUSIONCONCLUSION

Good company situation analysis, like good industry Good company situation analysis, like good industry and competitive analysis, is a crucial prerequisite to and competitive analysis, is a crucial prerequisite to good strategy-making.good strategy-making.

A competently done evaluation of a company’s A competently done evaluation of a company’s resources and competencies exposes strong and resources and competencies exposes strong and weak points in the present strategy, company weak points in the present strategy, company capabilities and vulnerabilities, and the company’s capabilities and vulnerabilities, and the company’s ability to protect or improve its competitive position in ability to protect or improve its competitive position in the light of driving forces, competitive pressures, and the light of driving forces, competitive pressures, and the competitive strengths of rivals. the competitive strengths of rivals.

Managers need such understanding to craft a strategy Managers need such understanding to craft a strategy that fits the company’s situation well.that fits the company’s situation well.

THANK YOUTHANK YOU