critical success factors
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STRATEGIC MANAGEMENT
CRITICAL SUCCESS FACTORS
&
SWOT ANALYSIS
1April 7, 2023 NRKA/MBA-STR.MGMT
IDENTIFYING THE INDUSTRY’S
CRITICAL SUCCESS FACTORS
April 7, 2023 2
What are Critical Success Factors (CSFs)?
CSFs highlight the things all firms in the industry must pay close attention to in order to be successful.
CSFs vary from one industry to another Some common ones include
speed of delivery quality product or service offering, innovativeness wider distribution network a good corporate or brand image price competitiveness, speedy response to customer
needs.
April 7, 2023 3
Identifying CSFs
A top priority strategic consideration. Management needs to know the industry well enough
to conclude what is more important to competitive success and what is less important.
CSFs serve as cornerstones on which business strategy is built – frequently, a firm can gain competitive advantage by concentrating on being distinctively better than rivals in one or more of the industry’s key success factors.
CSFs differ from one industry to another, and changes from time to time within the same industry as driving forces and competitive conditions change.
April 7, 2023 4
Some Industry-Based Examples of CSFs
In the brewery industry for example, CSFs include:
1) Capacity: Availability of capacity to cater for rising demand
2) Efficient Utilization of brewing capacity - to keep manufacturing costs low.
3) A strong network of wholesale distributors - to gain access into many retail outlets, achieving national coverage.
4) Creative advertising – to induce beer drinkers to buy a particular brand and thereby pull beer sales through established channels of distribution, including hotels, pubs or drinking bars.
5) Expertise in brewing and marketing beer products
6) Innovation – being innovative, building powerful brands
7) Financial Performance – consistent growth in profitability, earnings per share, dividend cover, etc.
8) Investment in research and development (R&D) and modern state of the art technology
April 7, 2023 5
CSFs In the Automobile & Life Assurance Industries
In the automobile industry, a firm must:o Build strong dealer networko Develop manufacturing cost control systemso Have the capacity to meet EPA standardso Develop a strong R&D capacity for introducing new models
In the life assurance industry, a firm must:o Have high calibre agency personnelo Be innovative in policy development and marketing strategyo Have effective control of clerical personnelo Have a substantial financial back-up to respond to claims
April 7, 2023 6
CSFs in the Household Appliance Industry
In the household appliance industry, a firm must: o Achieve low costs, typically by building large manufacturing
facilities for making multiple versions of one type of appliance, such as washing machines.
o Have a strong presence in the mass merchandiser distribution channel.
o Offer a full range of applianceso Provide just-in-time delivery system to keep store inventory and
ordering costs downo Have excellent R&D facilities to provide consumer expectations
of reliability and durability.
April 7, 2023 7
CSFs in the Clothing Industry
In the clothing industry CSFs include:1) Fashion design – to create buyer appeal2) Manufacturing efficiency – to keep selling prices
competitive.3) Specialized distribution – to reach the life style
buyer through the appropriate retail outlets4) Advertising in life-style magazines – to appeal to
the right target user.
April 7, 2023 8
CSF Identification - The 3Cs Model Approach
Customers: What are customers’ real needs? What are the segments in the market? Which customer groups do we target?
Competition: How can the firm beat or survive the competition? What resources do they have? What customers are they targeting? How successful are they? How does the firm compare on price, quality and speed of delivery? Does the competitor have a wider distribution network?
Corporation ( Resources): What requisite resources does our company possess? How do these resources compare with our competitors? How does our costs compare with that of our rivals? Do we have the requisite skills, technologies, and organizational culture?
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Illustrative CSFs and Related Consequences
Company: A Bank offering lending products to customers comprising small-scale businesses.
Competitors: Intense competitive rivalry from other lending banks
Customer Requirements (CSFs): Understanding customer needs Understanding customer’s business Cost (charges/rate) Consistent/Reliable service Continuity of primary contact Speed of response Speed of supply (making funding available) Quality of primary contact Competitive terms of business (security fees, etc.)
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Illustration
CSF Action RequiredPrime Contact quality & continuity Appointment of relationship managers
with high personal credibility.
Training of Relationships Managers in
business/commercial awareness, and
needs identification skills.
Price Competitiveness Strong cost control and efficiency measures.
Effective lending risk assessment and
margin management
Service responsiveness, Reliable systems
Accuracy & Quality Staff development and Motivation
Highly developed customer awareness
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Competitor Profiling
April 7, 2023 13
KEY SUCCESS FACTORS
WEIGHT RATING WEIGHTED SCORE
Market share 0.30 +4 +1.20
Price competitiveness 0.20 +3 +0.60
Facilities location 0.20 +5 +1.00
Raw materials costs 0.10 -3 -0.30
Caliber of personnel 0.20 +1 -0.20
SWOT ANALYSIS
April 7, 2023 NRKA/MBA-STR.MGMT 14
Introduction to SWOT Analysis
One of the useful ways of getting a clearer picture of the key issues and trends persisting, or anticipated from the external and internal environmental analysis is to develop a SWOT analysis.
SWOT is an acronym for a firm’s internal Strengths and Weaknesses, set against the business Opportunities and Threats identified in its external environment.
The analysis is a widely used technique through which managers create a quick overview of a firm’s strategic position in its competitive environment.
It is based on the assumption that an effective strategy derives from a sound “fit” between a firm’s internal resources (strengths & weaknesses) and its external environmental situation (opportunities & Threats).
A good fit maximizes a firm’s strengths and opportunities and minimizes its weaknesses and threats.
15April 7, 2023 NRKA/MBA-STR.MGMT
The Importance of SWOT Analysis
SWOT highlights the attractiveness or otherwise of a firm’s competitive position in the market.
It drives the formulation of corporate and business-level strategy.
SWOT analysis helps a company to develop competitive advantage at the marketplace: By recognizing its current competitive situation a firm is able to match its competences with the critical success factors of the industry.
Accurately applied, this simple technique provides a framework for the design of a successful strategy.
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What are Opportunities?
An opportunity is a major favourable situation in a firm’s environment. Opportunities are prevailing or emerging factors, trends and events in
the external environment that opens important avenues for business development, stability and growth. Examples of recent events creating opportunity for business in Ghana, include Ghana @ 50, CAN 2008, UNCTAD XII.
Opportunities include the following:a) Identification of previously overlooked market segmentb) Changes in competitive or regulatory circumstancesc) Technological changesd) Improved buyer relationshipe) Improved seller relationship
17April 7, 2023
Other Sources of Opportunities
Opportunity to:
1) Enter new markets or segments
2) Expand product line to meet broader range of customer needs.
3) Diversify into related product/market
4) Vertically integrate – merger, acquisition, take-over
5) Exploit fast growing markets
6) Exploit complacency among rival firms
7) Take advantage of falling trade barriers in attractive foreign markets.
Opportunities must be attractive in terms of the competitive advantage they offer.
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Attractive Opportunities
Opportunities are attractive when:
a) No competitor has identified it.
b) Company has huge resources and capabilities to exploit.
c) Market has high growth rate potential, but not attractive to big competitors
April 7, 2023 19
What are Threats?
Threats are challenges posed by an unfavourable event, trend or environmental development, that can endanger a company’s competitive position or impose constraints on its efforts to be successful.
Threats can stem from:
a) Changing buyer needs and tastes
b) Increasing demand of substitute products
c) Entrance of new competitors
d) Slow market growth
e) Vulnerability to business cycle in time of recession
f) Increased bargaining power of key buyers or suppliers.
g) Lacking the appropriate resources to exploit business opportunities
h) Technological changes
i) New or revised regulations
April 7, 2023 20
Other Sources of Threats
Emergence of cheaper technologies The launching of new or better products by rival firms The entry of low-cost foreign competitors into a firm’s market
stronghold Rising inflation and interest rates Potential of a hostile take-over Unfavourable demographic shifts Rising crude oil prices on the world market Energy crisis
April 7, 2023 21
What are Strengths?
A strength is a resource advantage relative to competitors and the needs of the markets a firm serves or expects to serve.
It is a distinctive competence when it gives the firm a competitive advantage at the marketplace.
Strengths arise from the resources and competences available to the firm, and include things that a company is capable of doing better than its competitors. For example:
1) A better product or service
2) A more powerful brand image
3) A superior technology
4) A better quality customer service
5) A wider distribution coverage
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Other Sources of Strengths
Stronger financial position in terms of gearing ratio (i.e. more equity than loan capital)
Superior leadership and management team An acknowledged market leader A more positive corporate image
23April 7, 2023
What are Weaknesses?
A weakness is a limitation or deficiency in one or more resources or competencies relative to competitors that impedes a firm’s effective performance.
Thus, weaknesses include:
a) Important resources that a company lacks.
b) Things that a company does poorly in comparison with the competition.
c) Internal conditions that put a company at a competitive disadvantage.
A weakness can be strategically important or not, depending on how much it matters, as a critical success factor.
24April 7, 2023
Sources of Weaknesses
No vision, mission – no clear strategic direction A weak financial position Lack of managerial depth and talent Lacking some key skills or competence Higher rate of staff turnover – e.g. above industry av. Plagued with internal operating problems Unable to finance needed changes in strategy. Too narrow a product line A weaker distribution network
25April 7, 2023
Guidelines for Developing SWOT Analysis
Keep it brief: pages of analysis are usually not required. Relate strengths and weaknesses to critical success factors State strengths and weaknesses in competitive terms – i.e.
compare yourself with your competitors Be specific – avoid blandness Distinguish between where the company is now and where it
wishes to be - realistic strategic gaps should be indicated Be realistic about your own strengths/weaknesses, and those of
your competitors.
26April 7, 2023
Post SWOT Analysis Questions
Has the company a distinctive competence on which to build an attractive strategy around?
If not, is there potential for turning some of its strengths into distinctive competences?
Is the company competitively vulnerable due to its weaknesses?, or is it disqualified from exploiting important opportunities?
Which weaknesses does strategy need to correct? Which opportunities does the company have the skills and resources to
exploit with a real chance of success? What threats should management be mostly worried about, and what
strategic moves does management need to consider in formulating a good defence?
The figure, next slide illustrates how SWOT analysis builds on the results of the RBV of the firm to aid strategic analysis
27April 7, 2023
Cell 3 Supports a Turnaround . Strategy
Cell 1
Supports aggressive New Market Development
Strategy
Cell 4Supports a Divestment
Strategy
NumerousEnvironment Opportunities
CriticalInternal
Weakness-es
SubstantialInternal
Strengths
Cell 2Supports a Diversification
Strategy
Major Environmental Threats
Key Opportunities & Threats Compared with Internal Resources & Competencies
Cell 1 is the most favourable situation: The firm faces several environmental opportunities and has numerous strengths that encourage exploitation of those opportunities. The situation suggests an aggressive growth-oriented strategy, such new market development
Cell 2 represents a firm whose RBV has identified several key strengths, but faces an unfavourable environment. The situation suggests a diversification strategy, involving the redeployment of those strong resources and competencies to exploit long-term growth opportunities in other product markets
Cell 3 represents a firm that faces impressive market opportunity but is constrained by weak internal resources. The focus of strategy for such a firm is to eliminate the internal weaknesses so as to more effectively exploit the opportunities to its advantage.
Cell 4 is the least favourable situation – the firm faces major environmental threats from a weak resource position. The situation suggests a divestment strategy
April 7, 2023 29
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