Analytic Tools for Guiding the Section of Strategy Alternatives Flashcards
What 2 Key Questions should be asked at a corporate level?
- Should our company be in a particular industry?
- If yes, how should we compete?
For example, Virgin should have asked:
- Should we be in the hotel
industry? - If yes, how should we
compete? Should we be in
the budget hotel industry, mid
level industry or high end? - Should we focus on families
or business travellers?
Market
A group of individuals and organizations that have the willingness and ability to buy good or services to satisfy a particular class of wants or needs
Industry
A group of firms that offer a product or class of products that are similar and substitutes for one another
Macro Trend Analysis
The term macroenvironment refers to the market or field in which a company performs. While macro factors may affect the industry as a whole, they rarely have a direct impact on a specific company.
Components of a macroenvironment
- Demographic (age, socioeconomic status, race and gender, immigration status)
- Sociocultural (CSR, fitness & nutrition): A SOCIAL environment refers to the way companies and consumers respond to social experiences. For example, an organization might donate a portion of its earnings to nonprofits or government agencies that help communities in need. The values, opinions and beliefs of a potential customer may change based on what they experience, who they interact with and what values they observe in a company. A CULTURAL environment refers to the way local communities interact with each other and your brand. Some factors that influence a cultural environment include people’s opinions about their community, other social groups and your company. For this reason, identifying and monitoring your customers’ opinions can help your company adapt quickly to cultural shifts. Some factors that influence a cultural environment include people’s opinions about their community, other social groups and your company. For this reason, identifying and monitoring your customers’ opinions can help your company adapt quickly to cultural shifts.
- Economic: A company’s economic environment refers to the factors that influence consumer buying habits and the company’s performance. A company’s economic environment may fluctuate based on government funding, credit availability, market trends, interest rates and shifts in the global economy. For example, an economic recession could negatively impact a business’s profits, but an economic surplus might encourage customers to make larger purchases.
- Regulatory/Political (regulation, deregulation, and/or reregulation): Changes in a country’s national or local political situation can modify a company’s external marketing environment. Politics might determine tariffs, regulations and other standards that affect the cost of purchasing goods and conducting business operations. Political environments may sometimes influence the global economy, which can alter the behavior of a market.
- Technological (digitization, customization, communication, etc.): A technological environment includes a specific market, technological equipment and innovative practices and products. Technology like laptops, automated machines and social media can all improve an organization’s productivity and reach. In this type of marketing environment, it’s important for companies to understand customer behavior. This can provide them with basic market information and help them determine if they need to develop additional technology to follow market trends. Companies may also gather information about customer behavior to help them evaluate and update their technology regularly.
- Natural: A natural environment, or physical environment, refers to both the location a business operates and the place it sources any natural resources it needs. For example, a lumber shortage is a natural marketing environment that may affect a construction business.
Information Sources for Macro-Level Analysis
- Popular and business press: The term “popular press” refers to material written for the general public. This is opposed to scholarly material written for an academic or research audience, or trade material written for an industry audience.
- Internet
- Supplier and customer contacts
- Trade associations
- Trade magazines
How to inspect markets at a MICRO-level
Opportunities are ATTRACTIVE when:
- There’s an identifiable source of customer pain that can be resolved by the product offered
- Target customers are clearly identified
- The offering provides customers benefits that other solutions do NOT
- The target segment is likely to grow
- There are other segments for which the currently targeted segment may provide a springboard for subsequent entry.
What should the company have at a MICRO level?
- Opportunities are attractive when the company:
- Possesses something proprietary that other companies cannot easily duplicate or imitate
- Can develop superior organizational processes, capabilities, or resources that:
- Others would find it difficult to imitate or duplicate
- Aka the VRIO analysis of the firm is good.
- Business model is economically viable
The Teams Domain
- Firms can use the information generated from the environment (aka an External Analysis) to make strategic choices.
- Firms can become aware of threats in the environment before committing to a strategic action.
- Opportunities are only as good as the people who will pursue them
- Mission, aspirations and risk propensity
- Ability to execute on the industry’s critical success factors (CSF)—similar to VRIO resources and capabilities. A critical success factor is any factor that you NEED in order to succeed (e.g. effective management). Do we have the people necessary to execute CSFs.
- Connectedness—it’s who you know, not what you know
Legend
Everything in blue on the diagram → External Analysis
Everything in white on the diagram → Internal Analysis
All of the pieces below (white pieces & blue) create 7 domains that fit together. All 7 domains paint a picture of the fundamental health of a business.
Porter’s Five Forces Method for Analysing Industry Attractiveness
Threats of New Entrants
- New entrants into the market create competition that can drive down prices and profitability.
- New entrants into the market can lead to market segmentation which decreases the size of the market.
Barriers to New Market Entry
- Inability to compete with companies that have high economies of scale.
- Inability to establish strong differentiation required to break current consumer loyalties.
- High capital requirements. Barriers exist if large amounts of money are required for advertising, R&D, building manufacturing facilities.
- High customer switching costs (i.e. book publishers, contractual obligations)
- Limited access to distribution channels.
- Cost disadvantages independent of scale:
- 1 Proprietary technologies.
- 2 Favorable access to raw materials.
- 3 Favorable location.
- 4 Government subsidies.
- 5 Learning or experience curve.
- 6 Government policies.
Bargaining Power of Buyers
- Can the buyer go without your product?
- Are there many alternatives the consumer can choose from?
- Buyers compete with industry by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other – all at the expense of profitability.
Threat of Substitute Products or Services from Existing Competitors
- Can competitors create a substitute product?
- What stage in the Product Life Cycle is your company?
Bargaining Power of Suppliers
- Can suppliers drive the costs of inputs up?
(Which leads to decreased profitability) - Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods and services.
- Powerful suppliers can squeeze profitability out of an industry where the companies are unable to pass on increased input costs to customers.
Rivalry of Existing Competitors
- Better Terms of Payment
- Extended Warranties
- Increased Customer Service
- Rapid Product Introductions
- Price Wars
- Advertising Budget
Porter’s Method for Analyzing Industry Attractiveness
If all five forces are in our favour, it’s an attractive industry to enter (if you only get one star…don’t do it, girl)
What does it mean to be Market Oriented?
How de we decide on how we should be unique?
BCG’s Market Growth Relative Share Matrix
The BCG Matrix can help a business identify:
- Where they are now.
- Whether they should be in a specific industry.
- What type of investments will be required to move within the industry.
Cash Flows across Businesses in BCG Portfolio Model
Blue arrows mean that “money gained from cash cows can be used to finance the stars and question marks”
Anticipating and Responding to Environmental Change
- Management needs systems to help identify, evaluate, and respond to:
- Environmental events that may affect the firm’s
- longer term profitability and position
You’ll want to identify, evaluate, and respond to environmental changes faster than the competitors. You can do this by using the BCG matrix, opportunity-threat matrix (see image on slide for an example), and Porter’s 5 forces.
VRIO Framework
The VRIO framework is a strategic planning tool designed to help organization uncover and protect the resources and capabilities that give them a long-term competitive advantage. This tool helps you uncover sustainable competitive advantage (which is an advantage that competitors can’t easily duplicate in the foreseeable future) which is a crucial element to business success.
Questions of the framework
- Value: Do you offer a resource that adds value for customers? Are you able to exploit an opportunity or neutralize competition with an internal capability?
- No: You are at a competitive disadvantage and need to reassess your resources and capabilities to uncover value.
- Yes: If value is established, move on in your VRIO analysis to rarity.
- Rarity: Do you control scarce resources of capabilities? Do you own something that’s hard to find yet in demand?
- No: You have value but lack rarity, putting your company in a position of competitive parity. Your resources are valuable but common, which makes competing in the marketplace more challenging (but not impossible). It’s recommended to go back one step and reassess.
- Yes: With value and rarity identified, your next hurdle is imitability.
- Imitability: Is it expensive to duplicate your organization’s resource or capability? Is it difficult to find an equivalent substitute to compete with your offerings?
- No: If your resource has value and rarity, but is affordable or easy to copy, you have a temporary competitive advantage. It will require considerable effort to stay ahead of competitors and differentiate your services—go back one step and reassess.
- Yes: You offer something that’s valuable, rare, and hard to imitate—now the focus is on your organization.
- Organization: Does your company have organized management systems, processes, structures, and culture to capitalize on resources and capabilities?
- No: Without the internal organization and support, it will be difficult to fully realize the potential of your valuable, rare, and costly-to-imitate resources. Your company will have a unused competitive advantage and will need to reassess how to attain the needed organization.
- Yes: Your company has achieved the ultimate goal of sustained competitive advantage when it has successfully identified all four components of the VRIO framework.
