Module II Strategic Analysis, Internal Analysis, Busines Portfolio Analysis
- 1. Module II Strategic Analysis Dr. Yasmin Begum Nadaf Department of Business Administration Rani Channamma University Belagavi-591156
- 2. Environmental analysis According to William F. Glueck “it is the process by which strategists monitor the economic, governmental, legal, market, competitive, supplier, technological, geographic and social settings to determine opportunities and threats to their firms”. According to Kenichi Ohmae environment analysis is defined as “the analysis is the critical starting point of strategic thinking”.
- 3. The Strategic Analysis It is a component of business planning that has a methodical approach, makes the right resource investments, and may assist business in achieving its objective. It forces to think about the rivals and aids in the evaluation of business plans to stay ahead of the competition. The two important situational considerations are: 1. Industry and competitive conditions 2. An organization’s own capabilities, resources, internal strengths, weaknesses, and market position.
- 5. FRAMEWORK OF STRATEGIC ANALYSIS External Analysis Customer Analysis: Segments, motivations, unmet needs. Competitor Analysis: Strategic groups, performance, objectives, strategies, culture, cost structure. Market Analysis: Size, growth, profitability, entry barriers. Environmental Analysis: Technological, government, economic, cultural, demographic. Internal Analysis Performance Analysis: Profitability, sales, customer satisfaction, product qualify, relative cost, new products, human resources. Determinants Analysis: Past and current strategies, strategic problems, organizational Capabilities and constraints, financial resources, strengths, and weaknesses. Strategy Identification & Selection ¨Identify strategic alternatives ¨Select strategy ¨Implement the operating plan ¨Review strategies Strategic strengths, weaknesses, problems, constraints, and uncertainties Opportunities, threats, trends, and Strategic uncertainties
- 6. Issues to consider for Strategic Analysis 1. Strategy evolves over a period of time 2. Balance of external and internal factors 3. Risk
- 7. STRATEGY AND BUSINESS ENVIRONMENT The term "business environment" refers to all external factors, influences, or situations that in some way affect business decisions, plans, and operations. Organisational success is determined by its business environment, and even more from its relationship with it. Resources Environment Strategy Management
- 8. Strategy helps the business environment in the following ways: 1. Determine opportunities and threats: 2. Give direction for growth 3. Continuous Learning 4. Image building 5. Meeting Competition
- 9. ENVIRONMENTAL ANALYSIS PROCESS The process of analyzing the business environment includes several steps: 1. Factor Identification: The first step in the process of analyzing the environment is identifying the factors prevailing in the environment. The environmental factors differ from nation to nation. 2. Factor Selection: The next step involves selecting the relevant factors and analyzing the related variables to forecast the effect of such factors on the business.
- 10. ENVIRONMENTAL ANALYSIS PROCESS 3. Variable analysis: This is followed by profiling the factors according to the positive and negative aspects it can create for the business. 4. Strategic Positioning: The last step in the process of environmental analysis is determining a strategic position based after analyzing the environmental threats and opportunities and organizational strengths and weakness.
- 12. Micro and Macro Environment The environment in which an organization exists can be described in terms of the opportunities and threats operating in the external environment apart from the strengths and weaknesses existing in the internal environment. The external environment can be categorised in two major types: • Micro environment • Macro environment
- 13. Micro Environment Micro-environment is related to small area or immediate periphery of an organization. It influences an organization regularly and directly. Micro environment consists of suppliers, consumers, marketing intermediaries, competitors, etc. These are specific to the said business or firm and affect its working on a direct and regular basis.
- 14. Macro Environment: “The environment includes factors outside the firm which can lead to opportunities for, or threats to the firm. Although, there are many factors, the most important of the factors are socio-economic, technological, supplier, competitors, and government.”Gluek and Jauch Elements of micro environment: 1. Demographic environment 2. Social-cultural environment 3. Economic environment 4. Political – legal environment 5. Technological environment
- 15. PESTEL FRAMEWORK PESTLE– A tool to Analyse Macro Environment
- 16. Political Factors: Political stability Political principles and ideologies Current and future taxation policy Regulatory bodies and processes Government policies Government term and change Thrust areas of political leaders
- 17. Economic Factors: Population demographics Social mobility Lifestyle changes Attitudes towards work and leisure Education-spread or erosion of educational standards Health and fitness awareness Multiple income families
- 18. Socio-cultural Factors: GNP trends Interest rates/ savings rate Money supply inflation rate Inflation rate Unemployment Disposable income Business cycles Trade deficit/surplus
- 19. Technological Factors: Biotechnology Process innovation Digital revolution Government spending on research Government and industry focus on technological effort New discoveries/development Speed of technology transfer Rates of obsolescence
- 20. Environmental Factors: Carbon emissions Pollution levels Environmental sustainability Global warming Biodegradable material
- 21. Legal Factors: • Business and Corporate Laws • Employment Law • Competition Law • Health & Safety Law • International Treaty and Law • Regional Legislation
- 22. Understanding Product and Industry Product Life Cycle: An important concept in strategic choice is that of product life cycle (PLC). It is a useful concept for guiding strategic choice. Essentially, PLC is an S-shaped curve which exhibits the relationship of sales with respect of time for a product that passes through the four successive stages of introduction, growth, maturity and decline.
- 23. Porter’s Five Forces Framework
- 24. Threat of New Entrants 1. Economies of scale 2. Learning or experience effect 3. Cost disadvantage independent of scale 4. Brand benefits 5. Capital requirements 6. Switching costs 7. Access to distribution channel 8. Anticipated growth 9. General entry barriers – regulatory barriers, tariffs and trade restrictions
- 25. Bargaining Power of Suppliers 1. Importance of the buyer to the supplier group 2. Importance of the supplier’s product to buyers 3. Greater concentration among suppliers than among buyers 4. High switching costs for buyers 5. Credible threat of forward integration by suppliers
- 26. Bargaining Power of Customers 1. Undifferentiated or standard supplies 2. Customer’s price sensitivity 3. Accurate information about the cost structure of suppliers 4. Greater concentration in buyer’s industry than in supplier’s industry and relatively large volume purchase 5. Credible threat of backward integration by buyers
- 27. Threat of Substitutes The competitive pressure, which any industry may face, depends primarily on three factors: 1. Whether the substitutes available are attractively priced 2. Whether buyers view substitutes available as satisfactory in terms of their quality and performance 3. How easily buyers can switch to substitutes.
- 28. Competitive Rivalry The competitive pressure, which any industry may face, depends primarily on three factors: 1. Industry leader 2. Number of competitors 3. Fixed costs 4. Exit barriers 5. Product differentiation 6. Slow growth
- 29. Resource Based View Model
- 30. Value Chain Analysis: Understanding value chain of an organisation is critical for evaluating how much value it generates. Value chain analysis is a method used by strategists to break down each process that their business employs. This analysis could be used to improve the sequence of operations, enhancing efficiency and creating a competitive advantage. Value chain analysis is a method of examining each activity in value chain of a business in order to identify areas for improvements.
- 31. Figure: Value Chain (Michael Porter)
- 32. THE VALUE CHAIN FRAMEWORK
- 33. THE VALUE CHAIN FRAMEWORK I. Select guiding points for evaluating primary activities 1.Inbound Logistics Soundness of material and inventory control systems Efficiency of raw material warehousing activities 2. Operations Productivity of equipment compared to that of key competitors Appropriate automation of production processes Effectiveness of control systems to improve quality and reduce cost Efficiency of plant layout and work flow design 3. Outbound Logistics Timeliness and efficiency of delivery of finished goods and services Efficiency of finished goods warehousing activities
- 34. 4. Marketing and Sales Effectiveness of market research to identify customer segments and needs Innovation in sales promotion and advertising Evaluation of alternate distribution channels Motivation and competence of sales force Development of an image of quality and a favourable reputation Extent of market dominance within the market segment or overall market 5. Customer Service Means to solicit customer input for product improvements Promptness of attention to customer complaints Appropriateness of warranty and guarantee policies Ability to provide replacement parts and repair services
- 35. II. Select guiding points for evaluating Support activities 1. Organization Infrastructure Coordination and integration Level of Information system Quality of planning system Timely and accurate information on environment 2. Human Resource Management Effectiveness of recruitment, training procedures Appropriateness of reward systems Relationship with trade unions Level of employee motivation and job satisfaction
- 36. 3. Technology Development Success of R & D environment Quality of laboratories and other facilities Ability of work environment Qualification and experience of technical hands 4. Procurement Sources of raw material – time, cost, quality Procedures for procurements Relationships with reliable suppliers
- 37. External Factor Evaluation Matrix It involves five steps which are as follows: Step I: List key external factors Step II: Assign weight to each factor Step III: Assign a rating to each factor 1 = Poor response 2 = Average response 3 = Above average response 4 = Superior response. Step IV: Determine a weighted score Step V: Determine the total weighted score.
- 39. SWOT for X Corporation STRENGTHS WEAKNESSES OPPORTUNITIES THREATS High quality products Good reputation Learning from mistakes and producing better products Highly competitive Competitive pricing Low production cost Into loss making Sales slowing down No sense of direction Decrease in productivity No proper collaboration within the functional departments Increase in the size of engineering division. Original work Increase in promotional techniques Trying to sell high quality products cheaper May expand its operations Increase in demand of products Overseas demand Favourable government policies Competitors like Y corporations Reports show that some of its products are fake, decline in reputation Lacks proper strategy Losing to competitors due to the complexity of products Entry of new substitutes in market Inflation in raw material cost
- 40. Internal Factor Evaluation Matrix It involves five steps which are as follows: 1. List key internal factors 2. Assign weight to each factor 3. Assign a rating to each factor 1 = major weakness 2 = minor weakness 3 = minor strength 4 = major strength 4. Determine a weighted score 5. Determine the total weighted score.
- 41. A sample of Internal Factor Evaluation Matrix
- 42. Industry Life Cycle Analysis
- 43. Criteria for Building Core Competencies VRIO Framework Four specific criteria of sustainable competitive advantage that firms can use to determine those capabilities that are core competencies. Capabilities that are valuable, rare, costly to imitate, and non-substitutable are core competencies. 1. Valuable 2. Rare 3. Costly to imitate 4. Non-substitutables