UNIT 6. Chapter 35. Strategic analysis Flashcards
Def. Strategic analysis
The process of conducting research into the business environment within which an organisation operates, and into the organisation itself, to help form future strategies.
Methods of analysis (4)
- SWOT
- PEST
- Boston Matrix
- Porter’s five forces
Def. SWOT analysis
Strengths, Weaknesses, Opportunities, Threats.
A form of strategic analysis that identifies and analyses the main internal strengths and weaknesses and external opportunities and threats that will influence the future direction and success of a business.
Further detail on SWOT analysis individual categories (3 3 3 3)
Strengths:
• Internal
• Could be used as a basis for developing a competitive advantage
• e.g. Experienced management, loyal workforce
Weaknesses:
• Internal
• Negative factors of the business
• E.g. poorly trained workforce, limited production capacity.
Opportunities:
• External
• Potential areas of expansion and future profits
• E.g. new technologies, lower rates of interests and increasing consumer demand
Threats:
• External
• Negative impacts of the economic environment, market conditions or competitors
• E.g. Globalisation driving down prices, Changes in government economic policy
Benefits and limitations of SWOT analysis (2 2)
Benefits:
• Helps managers asses the most likely successful future strategies and their constraints
• A starting point for developing corporate strategies
Limitations:
• Subjective
• Not a quantitive assessment
Def. PEST analysis
+ Examples of the 4 factors
Political, Economical, Social, Technical factors.
The strategic analysis of a firm’s macro-environment, including the 4 factors.
Political: e.g. Employment law, Consumer law protection
Economical: e.g. Exchange rate stability
Social: e.g. Education standards, Ageing population
Technological: e.g. Internet access, technological obsolescence
Benefits and limitations of PEST analysis
Benefits: • Help enter new markets • Helps strategic decision making Limitations: • Needs to be constantly updated • If the firm wants to expand into many countries, needs to be done for each individual country
Def. Mission statement and Vision Statement
• Mission statement is a statement of a business’s core purpose and focus, phrased in a way to motivate employees and to stimulate interest by outside groups.
• Vision statement is a statement of what the organisation would like to achieve or accomplish in the long term.
The difference between the two is that mission statement states what the business is about now (present), and vision statement is what the business wants to become (future).
Link between mission and vision statements and strategic planning
They help the business to have a direction to head in, so, for example, when strategic analysis is conducted it could be of only areas that are of business’s interest.
Def. Boston Matrix
A method of analysing the product portfolio of a business in terms of market share and market growth.
The 4 areas of the Boston Matrix
Dog: Low market growth, Low market share
• This is usually a product at the ‘decline’ part of the product cycle
Problem child: High market growth, Low market share
• Usually a newly launched product with little return, which tends to need a lot of promotion (possibly financed from returns of cash cows)
Star: High market growth, High market share
• A product that generates high amount of income and also needs a lot of promotion
Cash cow: Low market growth, High market share
• Well established product in a mature market.
• Sales are high (high returns) and promotion costs are low
Benefits and limitations of Boston Matrix
Benefits:
• Helps to focus on which products need support and which need corrective action.
• The correction actions can be:
- Building: further supporting ‘Problem Child’ with promotion
- Holding: continuing supporting ‘Star’ products
- Milking: taking the positive cash flow from ‘Cash cows’ and investing into other products
- Divesting: stopping production for some ‘Dogs’
Limitations:
• Greater market shares may not mean greater profits (if greater market shares are gained by reducing prices)
• Doesn’t tell anything about the future of products
• Tends to oversimplify the factors determining success of products
Name the Porter’s Five Forces analysis
- Barriers to entry
- The power of buyers
- The power of suppliers
- The threat of substitutes
- Competitive rivalry
Explain the five forces
• Barriers to entry: The ease with which other firms can join the industry and compete with existing businesses. High when: e.g. The technology needed to enter the industry is cheap, Distribution channels are easy to access
• The power of buyers: Power the costumers have on the business (the suppliers in this case)
High when e.g. Buyers can easily buy from other suppliers, There are many undifferentiated suppliers
• The power of suppliers:
High when e.g. The cost of switching suppliers is high, Customers are small firms with little power
• The threat of substitutes: This doesn’t mean substitutes in the same industry, but substitutes in other industries (because these are barriers into an industry). For example how prices of aluminium for cans depend of plastic for containers.
High when e.g. New technology making other options available like satellite TV over antenna reception, Price competition
• Competitive rivalry: based on the other 4 forces
High when the other 4 forces are high and when e.g. there is slow market growth
Benefits and limitations of Porter’s Five Forces
Benefits:
• Helps the business take important strategic decisions by:
- The analyses of new markets help to decide whether to enter or not
- Analyses of existing markets help decide whether to stay or not
- From knowledge of competitive forces, business can improve competitive position e.g. by product differentiation
Limitations:
• Analyses an industry at 1 moment in time and many industries change rapidly
• Too complicated with industries with joint ventures and multiple market segments in the same segment.
