Unit 6. Chapter 35. Strategic analysis Flashcards
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.
Strategic analysis tries to find answers to 3 questions
- Where the business now?
- How might the business be affected by what is happening or likely to happen?
- How could the business respond to these likely changes?
Effective strategic analysis
- Clearer and more relevant business goals
- Better-quality strategic decisions
- Less risky future for a business
SWOT analysis
a form of strategic analysis that identifies and analyses the main internal Strengths, Weaknesses, external Opportunities and Threats that will influence the future direction and success of a business.
Internal strengths
real advantages, basis for developing a competitive advantage.
- undertaking an internal audit of the firm (specialist management consultants)
+ specialist marketing expertise
+ a new, innovative product or service
+ location of your business
+ quality processes and processes
+ any other aspect that adds value to product/ service
Weaknesses
- lack of marketing expertise
- undifferentiated products or services (in relation to competitors)
- location of business
- poor-quality goods and services
- damaged reputation
Opportunities
potential areas for expansion and future profits
- A developing market (e.g. Internet)
- Mergers, joint ventures or strategic alliances
- moving into new market segments that offer improved profits
- A new international market
- A market vacated by an ineffective competitor
Threats
analyses the business and economic environment, market conditions and strength of competitors.
- A new competitor in your home market
- Price wars with competitors
- A competitors has a new, innovative product or service
- Competitors have superior access to channels of distribution
- Taxation of product or service
Evaluation of SWOT evaluation
- no 2 managers would arrive at the same assessment of the company
- not a quantitative form of assessment so the cost of correcting a weakness cannot be compared with the potential profit from pursuing an opportunity.
- management guide for future
- helps managers assess the most likely successful future strategies an the constraints on them
- common starting point, rarely sufficient.
- further analysis and planing needed before strategic choices can be made.
PEST analysis
the strategic analysis of a firm’s macro-environment, including Political, Economic, Social and Technological factors
Political and legal
- Stability of the government
- Are changes in the law likely to impact on a particular industry?
- Environmental regulations
- Employment law
- Competition regulations
- Consumer protection laws
- Government attitude to free market or controls over business
Economic
- Rate of economic growth/ recession
- Exchange rate stability
- Contry’s membership of free-trade areas
- Membership or likely membership of a common currency scheme (EURO)
- Tax rates and likely changes
- Interest rates and likely changes
- Inflation rates and stage of business cycle
Social
- Demographic changes, e.g. ageing ot more youthful population
- Dominant religion and impact, e.g. on marketing strategies
- Education standards, e.g. skilled labour force
- Roles of men and women in society
- Social and environmental issues could be of increasing concern to the population
- Labour and social mobility, such as migration between countries or from rural areas to cities as in China and India.
- One or many languages spoken
Technological
- Rapidly changing technology allowing products to be made more cheaply
- Government support for R&D spending
- Internet access, speed of broad band and its impact on marketing and other strategies
- Renewable energies and the cost of these compared to fossil fuels
- Speed of technological obsolescence
- new product inventions and the importance of these to consumers
- Changes in IT speed and range of applications
Evaluation or PEST
Needs constantly updated and reviewed, especially in a rapidly changing wider environment.
Business vision/ mission statements and strategic analysis
+ Mission statement: a statement of the business’s core purpose and focus, phrased in a way to motivate employees and to stimulate interest by outside groups
+ Vision statement: a statement of what the organisation would like to achieve or accomplish in the long term
- Give sense of purpose to an organisation
- Need to be applicable to the business, understood by employees and convertible into genuine strategic actions
Boston matrix
a METHOD of analysing the PRODUCT PORTFOLIO of a business in terms of Market Share and Market Growth
- analysis of an existing product portfolio
- future strategies the firm could take next.
- size of the circle represents the total revenue earned by each product.
- Cash Cow, Star, Problem Child, Dog
Cash Cow
- LOW market growth, HIGH market share
- well-established product in a mature market
- high positive cash flow, profitable
- high consumer awareness
- low promotional costs
- cash from this INJECTED (milked) into some of the other products in the portfolio.
Star
- HIGH market growth, HIGH market share
- high promotion costs to differentiate the product and reinforce brand image
Problem Child
- HIGH market growth, LOW market share
- newly launched -> need heavy promotion costs to help become established
- sales do not improve -> revised design, relaunch, withdrawal from the market
Dog
- LOW market growth, LOW market share
- withdraw
Boston Matrix and strategic analysis
Support and corrective action
+ Building
- supporting Problem Child products with additional advertising or further distribution outlets
+ Holding
- continue support Star so maintain good market position
+ Milking
- taking the positive cash flow from established products and investing in other products in the portfolio
+ Divesting
- identify Dog and stop the production and supply.
- impact on the workforce
- whether the spare capacity freed up by stopping production can be used profitably for another product.
Evaluation of the Boston Matrix
- analysing the performance and current position of existing products
- planning action to be taken with existing products
- planning the introduction of new products
- No guarantee business success
-> depend on the ACCURACY of the analysis by the marketing managers and the SKILLS they possess in employing appropriate marketing strategies.
Disadvantages: - Little use in predicting future success or failure
- Cannot tell a manager what will happen next with any product.
-> Detailed and continuous market research will help.
-> Conscious of the potential dramatic effects of competitors’ decisions, technological changes and the fluctuating economic environment - Planning tool
- Assumption is made that higher rates of profit are directly related to high market shares
Porter’s Five Force Analysis
- Framework for business strategy, analysis of the competitive situation in an industry
- Understand the industry context
- External environmental audit
- Focuses on single or stand-alone business units rather than a single product or a range of products
1. Barriers to entry
2. The power of buyers
3. The power of suppliers
4. The threat of substitutes
5. Competitive rivalry
- Barriers to entry
The ease with which other firms can join the industry and compete with existing businesses
- This threat of entry is greatest when:
+ Economies of scale are low in the industry
+ Technology needed to enter the industry is relatively cheap
+ Distribution channels are easy to access
+ No legal or patent restrictions on entry
+ Importance of product differentiation is low, so extensive advertising may not be required to get established
- The power of buyers
- Power that customers have on the producing industry.
Increased when: - there are many undifferentiated small supplying firms
- The cost of switching suppliers is low
- Buyers can realistically and easily buy from other suppliers
- The power of suppliers
Suppliers more powerful than buyers
- Cost of switching is high
- When the brand being sold is very powerful and well known
- Suppliers could realistically threaten to open their own FORWARD-INTEGRATION operations
- Customers have little bargaining power as they are small firms and fragmented.
- The threat of substitutes
- Substitute products in other industries
Exist when: - New technology makes other option available
- Price competition forces customers to consider alternatives
- Any significant new product leads to consumer spending that results in les being spent on other goods
- Competitive rivalry
Determine the level of competition or rivalry in an industry
- Centre of Five Forces Diagram
High when:
- It’s cheap and easy for new firms to enter an industry
- There’s a threat from substitute products
- Suppliers have much power
- Buyers have much power
Great rivalry between competing firms in an industry:
- Large number of firms with similar market share
- High fixed costs -> firms try to obtain economies of scale
- Slow market growth -> firms take a share from rivals if they wish to increase sales.
Porter’s Five Forces and strategic decisions
- Analysing new markets
-> Helps firms decide whether to enter or not
-> Provides an insight into the potential profitability of markets - Analysing the existing markets a business operates in. DECISIONS about
-> Stay in the future if they are becoming more competitive
-> How to reduce the level of competitive rivalry in these markets and thus increase potential profitability - Knowledge gained and power of competitive forces, business
-> Develop strategies improve competitive position
+ Product differentiation
+ Buying out some competitors
+ Focus on different segments that might be less competitive
+ Communicate and collude with rivals to reduce competition
Evaluate the Five Forces model
- Advantages:
+ Good starting point for further analysis - Disadvantages:
+ Static analysis: analyses an industry at just one moment in time. -> many industries are changing very rapidly
+ Model can become very complex when trying to use it to analyse many modern industries with joint ventures
-> Multiple product groups and different market segments within the same industry
Core competence
an important business capability that gives a firm competitive advantage
Core product
product based on a business’s core competences, but not necessarily for final consumer or ‘end’ user
Prahalad and Hamel’s Core Competencies analysis
- framework for business strategy
- Core competences lead to the development of core products
Developing core competences
- Business particularly good at a certain activity which is not easy to copy
- Depends on Integrating Multiple Technologies and different product Skills
- Coordinate designers, production specialists, IT experts into a team to develop a new and different competences
E.g. Philips: optical media, Sony: ability to miniaturise electronic components -> core products
Core competences and strategy
Core competence established -> opens up strategic opportunities for developing core products -> end products -> new market
