Strategic Analysis

Question 1

What questions is a business addressing?

Answer 1

Where do we want to go?
What constraints are on our resources?
What are they key threats from the external environment?

Question 2

Where do we want to go?

Answer 2

Key influencers are often the owners (shareholders) who may have a particular expectation for the organisation.
Need to also take into account other stakeholder influences such as government.

Question 3

What constraints exist on our resources?

Answer 3

6Ms
money
machinery
manpower
markets
materials
make up

Question 4

Money

Answer 4

how much do we have?
what is the current cost of our capital?
is the company excessively geared or are there any opportunities for raising additional finance?

Question 5

Machinery

Answer 5

how technically up to date is the machinery?
is there a danger of obsolescence?
has it been poorly maintained over the years?

Question 6

manpower

Answer 6

how expensive is our workforce?
how efficient are our employees?
is the business over staffed?
is it understaffed?
what is the absence rate?

Question 7

markets

Answer 7

are the markets declining or growing?
where are new markets emerging?
how strong are our brands in the current market?

Question 8

materials

Answer 8

how expensive are our materials compared to our competitors?
do our suppliers have excessive control of materials?
do we have favourable access to materials?
are our raw materials becoming exhausted?

Question 9

make-up

Answer 9

what type of structures do we have and are they likely to limit future growth?
what is the culture of the organisation and will it stifle or fuel future developments?

Question 10

what are the key threats from the external environment?

Answer 10

the easiest way to assess the external environment is to use the following two frameworks
- Porter’s five forces
- PESTEL analysis

Question 11

porters five forces

Answer 11

the threat from new entrants
the bargaining power of buyers
the bargaining power of suppliers
the threat from substitute products
the extent of competitive rivalry

Question 12

the threat from new entrants

Answer 12

if competitors can easily enter your business sector they will be able to put a ceiling on your profits. therefore the greater the threat from new entrants entering the sector, the higher the levels of competition. the ease with which new entrants can enter the business segment is largely determined by the extent of the barriers to entry.

Question 13

barriers to entry - capital cost of entry

Answer 13

the higher the capital cost, the greater the deterrent to someone entering the business and therefore the likelihood of competition being less than in industries where it is much cheaper to set up business

Question 14

barriers to entry - economies of scale

Answer 14

this will apply if a substantial investment is needed to allow a new entrant to achieve cost parity. therefore anyone entering the segment that cannot match the economies of scale will be at a substantial cost disadvantage from the start.

Question 15

barriers to entry - differentiation

Answer 15

differentiation occurs if consumers perceive a product or service to have properties which make it unique or distinct from its rivals. therefore if new entrants are to be successful in entering the market they will need to spend a lot of money on developing the image of the product - hence they are likely to be put off.

Question 16

barriers to entry - switching costs

Answer 16

this is the cost not incurred by a new company wishing to enter the market but by the existing customers. if the buyer will incur expense by changing to a new supplier, they may not wish to change. e.g. buying a cd player for cds

Question 17

barriers to entry - expected retaliation

Answer 17

if a competitor entering a market believes that the reaction of an existing firm will be too great then they will not enter the market.

Question 18

barriers to entry - access to distribution channels

Answer 18

existing relationships between manufacturers and the key distributors of the products may make it difficult for anyone else to enter the market.

Question 19

bargaining power of buyers

Answer 19

do the buyers of the product have the power to depress the suppliers prices? if yes then it is likely that competition will increase.
buyers will have power when:
- they are concentrated and can exert pressure on the supplier
- the buyer has a choice of alternative sources of supply

Question 20

the bargaining power of suppliers

Answer 20

the extent of supplier bargaining power is very closely linked in with the issues of buyer power. the extent of the power of the suppliers will be affected by:
- the concentration of suppliers (if few suppliers, buyers have less opportunity to shop around)
- the degree to which products can be substituted by the various suppliers
- the level of importance attached to the buyer by the supplier

Question 21

the threat from substitute products

Answer 21

if there are similar products that can be used as substitute then the demand for the product will increase or decrease as it moves upwards or downwards in price relative to substitutes.

Question 22

the extent of competitive rivalry

Answer 22

• the number of competitors and the degree of concentration
• the rate of growth of the industry
• the exit costs, if high firms may be willing to accept low margins so as to stay in the industry

Question 23

PESTEL factors

Answer 23

Political
Economic
Social
Technological
Environmental
Legal

Question 24

political environment

Answer 24

organisation must react to the attitude of the political party that is in power at the time.
the government is the nations largest supplier, employer, customer and investor and any change in government spending priorities can have a significant effect on business.
includes legislation on trading, pricing, dividends, tax, employment, health and safety

Question 25

economic environment

Answer 25

current state of the economy can affect how a company performs.
rate of growth in the economy is a measure of the overall change in demand for goods and services.
other influences include - taxation levels, inflation rates, level of unemployment, government subsidies

Question 26

social environment

Answer 26

organisation is influence by changes in the nature, habits and attitudes of society.
- changing values and lifestyles
- changing values and beliefs
- changing patterns of work and leisure
- demographic changes

Question 27

technological influences

Answer 27

change takes place very rapidly and the organisations need to be constantly aware of what is going on.
technological change can influence the following
- changes in production techniques
- types of products that are made and sold
- how services are provided
- how we identify markets

Question 28

environmental

Answer 28

concerns issues regarding factors that could impact on the ecological balance of the environment and could include such issues as climate change and pollution

Question 29

legal environment

Answer 29

how an organisation does business
- law of contract, law on unfair selling practices, health and safety legislation
- how an organisation treats its employees, employment law
- how an organisation gives information about its performance