Strategic analysisppt

 Environmental Appraisal
 Organizational Appraisal
 SWOT Analysis
 Porters Five Forces Model - Value Chain
 McKinsey 7s Framework
 Corporate Portfolio Analysis
 BCG and GE 9 cell

 Environment of any organization is the
aggregate of all conditions, events and
influences that surrounds and affect it.
 Organization environment is divided into two
parts –
* External Environment
* Internal Environment

 It is complex
 It is dynamic
 It is multi-faceted
 It has a far-reaching impact

 The process of strategic formulation starts
with, and depends on, the appraisal of
the external and internal environment of
organization

 Opportunity – Favourable Conditions
 Threat – Unfavourable Conditions
 Strength – Inherent capacity of organization
to gain strategic advantage
 Weakness – Inherent limitation or constraints
which creates strategic disadvantage

 All the organizations concern about relevant
environment which focuses on the factors
related to mission, purpose, objectives and
strategies.
 Having identified its relevant environment, an
organization can systematically appraise it and
implement the result of such appraisal in
strategic planning.
 The organization environment can be divided
into different sectors depending upon size of
organization, nature product, type of technology
used etc.
 This division helpful in analyzing – appraising the
environment.

 Market Environment – It largely depends
upon the type of industry structure.
 Some important factors and influences
operating in this environment -
1. Customer or Client factors
2. Product factors
3. Marketing intermediary factors
4. Competitor related factors

 Change in technology can create new market and
new business segment. It can also change relative
competitive cost position.
 Some important factors and influences operating in
this environment -
1. Sources of Technology
2. Technological Development
3. Impact of technology on people
4. Communication and infrastructure in
management

 It consist of factors related to cost, reliability,
availability of the factors of production or service.
 Some important factors and influences operating in
this environment -
1. Cost, availability and continuity of supply of raw
materials and relative components
2. Cost and availability of Finance
3. Cost, reliability and availability of energy
4. Cost, availability and dependability of workforce
5. Cost, availability of and the existence of sources
6. Infrastructural support

 It consist of macro level factors related to the
means of production and distribution of wealth
1. The economic stage of the country at given
point
2. The economic structure adopted
3. Economic Policies
4. Economic Planning
5. Economic Indices i.e. national income, the
balance of payments, rate of savings and
investment etc.
6. Infrastructural factors such as financial
institutions, banks etc.

 It consist of factors related to planning,
promotion and regulation of economic
activities by the government.
1. The constitutional frame work
2. Policies related to licensing, foreign
investment
3. Policies related to distribution and pricing and
control
4. Policies related to imports and exports
5. Other policies related to public sector, SSI,
consumer protection etc.

 It consist of factors related to the
management of public affairs and their
impact on the business of the
organization.
operating in this environment –
1. The Political System and its feature
2. The Political Structure, its goals and
stability
3. Political Processes
4. Political Philosophy, government’s role
etc.

 It consist of factors related to human relationships
within a society, shared behaviour of groups of human
beings in the business
 Some important factors and influences operating in this
environment -
1. Demographic Characteristics
2. Socio-cultural concern such as environmental pollution,
consumerism etc.
3. Socio-cultural attitudes and values
4. Family structure and changes in it
5. The role and position of me, women, children in family
and society
6. Educational levels, awareness and consciousness of
rights, work ethics and attitude towards minority

 It consist of all the factors that operate at cross-cultural,
and across-the-border level.
 Some important factors and influences operating in this
environment -
1. Globalization, its process, its content and direction
2. Global economic forces, organization
3. Global trade and commerce, its process and trends
4. Global Information System
5. Global Technological and Quality systems and Standards
6. Global Market and Competitiveness
7. Global Legal System
8. Global Human Resources
9. Globalization of Management and allied disciplines
10. Geopolitical Situation, Strategic interest of nations

 The process by which organizations monitor
their relevant environment to identify
opportunities and threats affecting their
business is known as environmental scanning.
 It is necessary for strategy formulation of the
orgnization

 Factors considered for ES – Event,
Trends, Issues, expectations
 Approaches to ES –
1. Systematic Approach
2. Ad hoc Approach
3. Processed-form Approach
 Irrespective of approach is adopted for
environmental scanning, data collection
is necessary for driving information
about environmental factors.

 Documentary or Secondary sources of
Information
 Mass Media like radio, television
 Internal Sources like company files and
documents
 External Agencies like customers, suppliers,
government agencies etc.
 Formal Studies conducted by consultant,
educational institute etc.
 Spying and Surveillance through ex-employees of
competitors

 In order to have clear cut idea about
opportunities and threats faced by
organization at a given time, it is necessary
to appraise the environment

 Strategist-related factors – Education,
motivation level, ability to withstand time
pressure and strain, interpersonal
relationship between the group, appraisal
system etc.
 Organization-related factors –
Organization size and complexity, nature
of market, product and services provided
by the organization
 Environmental-related factors – The
nature of environment depends upon its
complexity, volatility, hostility and
diversity

 An important factors can be identified by
testing each factor w.r.to its impact on the
business of the organization and probability
of such impact.
 The issues or factors, which are critical,
need to pay immediate attention should be
given high priority while formulating the
strategy of the organization

 It is structured by the preparation of the
environmental threats and opportunities
profile (ETOP), which involves dividing
the environment into different sectors
and then analyzing the impact of each
sector on the organization.
 The preparation of an ETOP provides the
strategist with a clear picture of which
sectors have a favorable impact on the
organization.

 An organizational appraisal enables a firm to
decide about what it can do.
 The result of organizational appraisal are
structured through the preparation of an
organizational capability profile and a
strategic advantage profile

Strategic Advantage

Organizational Capability

Competencies

Synergistic Effects

Strengths and Weakness

Organizational Resources + Organizational
Behaviour

 Financial Capabilities – It relates to the
availability, usages, and management of
funds.
 Marketing Capabilities – It relates to the
pricing, promotion, and distribution of
product and services.
 Operation Capabilities – It relates to the
production of products or services and the
use of material resources.

 Personal Capabilities – It is related to the
existence and use of human resources and
skills.
 Information Management Capabilities – It
relate to the design and management of the
flow of information from outside into and
within, an organization for the purpose of
decision making
 General management Capabilities – It relates
to the integration, coordination, and
direction of the functional capabilities
towards the common goal.

 It involves the factors that affects the
appraisal, the approaches that can be
adopted to appraise them, and the
sources of information available to
perform the appraisal.
 By appraising on organization, the
strategists develop an assessment of its
organizational capability to compete in
the market.

 The ability of strategists to comprehend
complexity
 The size of the organizational – affects the
quality of appraisal
 The nature of an organization and internal
environment – its complexity and diversity

 Internal Analysis – It consist of value chain
analysis, quantitative analysis including
financial and non financial analysis, and
qualitative analysis.
 Comparative Analysis – It consist of
techniques of historical analysis, industry
norms, and benchmarking
 Comprehensive analysis – It is done
through the methods of balanced
scorecard and key factor rating.

 The purpose of organizational appraisal is
to determine the organizational capability
in terms of strengths and weakness that
lie in the different functional areas.
 It could be done by a detailed
organizational capability profile (OCP)
and summarized strategic advantages
profile (SAP)

 It is carried out to understand external as
well as internal environment of the
business firm.
 To form a effective strategy, it is
necessary to match strengths and
weaknesses with threats and
opportunities of the organization.
 An effective organizational strategy is the
one who capitalizes opportunities with
help of strengths and neutralize threats
by minimizing the impact of weaknesses.

 This is a method for assessing the
strengths and weaknesses of an
organization on the basis of an
understanding of the series of activities it
performs.
 Porter is credited with introduction of the
framework called ‘Value Chain’ (1985)
 A value chain is a set of interlinked value-
creating activities performed by an
organization.

 These activity begins with procurement of
basic raw materials, go through its
processing in various stages, and continue
right up to the end products finally marketed
to the to the customer.
 Porter divided the value chain of
manufacturing organization into primary and
support activities.

 Inbound Logistics – Scheduling,
Warehouseing, Materials Handling, Inventory
Control etc.
 Operations – Manufacturing, Packaging,
Assembly, Maintenance etc.
 Outbound Logistics – Transportation, Order
Processing etc.
 Service – After sale service, training

 Procurement – Purchasing, Physical,
Resources etc.
 Human Resource Development –
Recruitment, Rewarding, Developing,
Retrenchment etc,
 Technology Development – Equipping
Assimilation
 Infrastructure – Organizational Design,
Staff Functions

Structure

Strategy Systems

Shared Values

Skills Style

Staff

It is value based management that describes the
way in which the organization operates based on
the following factors.
SHARED VALUES: The interconnecting center of
Mckinsey’s model. This represents what does
the organization stands for and what it believes
in. [Beliefs, Attitudes]
STATEGY: Plans for the allocation of a firms scare
resources, overtime to reach identified goals.
[Environment, Competition, Customers]

STRUCTURE: The way the organization’s units
relates to each other. [Centralized, functional
division (top-down), Decentralized (the trend in
larger organization), Network, Holdings etc.]
SYSTEM: The procedures, processes and routines
that characterize how important work is to be
done. [Financial systems, Hiring, Promotion,
Performance Appraisal System, Information
System]
STAFF: Number and Types of personnel with in
the organisation.

STYLE: Cultural style of the organization and
how key managers behaves in achieving the
organizational goals.
SKILLS: Distinctive capabilities of personnel of
the organization as a whole.

Potential threats from
Firm’s which make
substitute products or
services

Supplier’s bargaining Forces of Competition Buyer’s bargaining
Power Created by rivalry Power

Potential threats from
Entry of new firm

 According to Porter, a structural analysis of
industries be made so that a firm is in a
better position to identify its strengths and
weaknesses.
 The five forces indicated in his model
determine the intensity of industry
competition and profitability.

1. Threats of new entrants – New entrants
cause a comparatively lesser sales volume
and lower the returns for all the firms in
the industry. The chances that new
entrants will enter into industry depends
on two factors – the entry barriers to an
industry and expected retaliation from
existing firms.
 An entry barrier depends on Economy of
scale, Capital requirements, Product
differentiation, Access to the distribution
channels and Government policies etc.

2. Forces of competitors created by rivalry –
The desire to be the market leader or to
corner a larger market share leads to rivalry
among the competitors.
 The dimensions of such rivalry are –
Competitive structures (size & diversity),
Demand conditions, Exist barriers (consists of
economic, emotional and strategic factors)
etc. These factors determines the business
strategies that a firm is likely to adopt.

3. Bargaining Power of Buyer – It constitutes
the ability of the buyers, individually or
collectively, to force a reduction in the
prices of products or services, demand a
higher quality or better service or to seek
more value for existing firm or new entrants
of an industry.
 A high buyer bargaining power constitute a
negative feature for existing firms or new
entrants.
 A low supplier bargaining power enables a
firm to pass on cost increase to buyer or to
make the buyers accept a lower quality of
product and service at a higher price.

4. Bargaining Power of Supplier – It constitutes
the ability of supplier, individually or
collectively, to force an increase in the
prices of products or services, or make the
buyer to accept a lower quality product or
service.
 A high supplier bargaining power constitute a
negative feature for existing firms or new
entrants.
 A low supplier bargaining power enables a
firm to negotiate the price increases in its
favour or to make the supplier offer higher
quality at a lower price.

5. Threat of substitute products – It means
apparently different product or service offer
for satisfaction of same set of customer
needs.
 The availability of close substitute constitute
a negative competitive force in an industry.
The level of price is restricted by the price of
substitute.
 Hence the firm has to formulate their
business strategies keeping in vies the
intensity of competitive force arising out of
the presence or absence of the threat of
substitutes.

 It provides a graphic representation for an
organization to examine the different
businesses in its portfolio on the basis of
their relative market shares and industry
growth rates.
 The four cells of BCG matrix termed as
stars, cash cows, question marks (or
problems children), and dogs.
 Each of these cells represents a particular
type of businesses.

HIGH
20%
STARS QUESTIONS
15%
Industry MARKS
Growth 10%
Rate CASH DOGS
5%
COWS
HIGH LOW
Relative Market Share

 Stars are high growth high market share business
which may or may not be self sufficient in terms
of cash flow. This call corresponds closely to the
growth phase of the product life cycle.
 A company generally pursues an expansion
strategy to establish a strong competitive
position with regard to a ‘star’ business.
 Government still seek to determine the ‘star’
status of any industry in India.
 e.g. Petrochemicals, Electronics,
Telecommunication industries

 It indicate, the businesses which generate large
amounts of cash but their growth rate is low.
 In terms of PLC, these businesses are at mature state
which are reaping the benefits of experience curve.
 The cash generation exceeds the reinvestment that
could profitably made into ‘cash cows’
 The cash generated by ‘cash cows’ is reinvested in ‘
stars’ and ‘question marks’.
 Companies which are well-entrenched in an
established market can enjoy the benefits of ‘cash
cows’.
 e.g. Scooters for Bajaj Auto, Decorative paint for
Asian Paints etc.

 The businesses with high industry growth but low
market share for a company are ‘ question marks’ or
‘problem children’.
 They require high amount of cash to maintain or gain
market share.
 These are generally new products or services which
have a good commercial potential.
 Based on the logic of the experience curve, indicates
that the company obtaining an early lead can expect
cost advantages and market leadership and can
successfully create entry barriers.
 The list of ‘question marks’ industries keeps on
changing with the changes in government policy and
other environmental factors.

 These businesses are related to slow-growth
industries and where a company has a low
relative market share.
 They neither generate nor require large amount
of cash.
 In terms of PLC, the ‘dogs’ are products in late
maturity or a declining stage.
 The experience curve for the company shows
that it faces cost disadvantages owing to low
market share.
 e.g. Jute, Cotton, Shipping Industries etc.

 A BCG matrix offer a facility for visual
examination of the portfolio of the
businesses of a company.
 A disadvantages lies in basic assumptions –
the growth rate of an industry is taken as
an indicator of its attractiveness and its
market share for profitability.
 Difficulties in measuring the respective
market shares or deciding who are the
market leaders.
 Simplistic approach

 Based on efforts of GE (General Electric)
company of US supported by the consulting
firm McKinsey & Company.
 This matrix are grouped on the basis of low
to high industry attractiveness, and weak to
business strength.

 Three zones of three cells each made, denoting
different combination represented by green,
yellow, and red colours.
 Green zone (go ahead) – indicates expansion
strategies. The business in this zone attracts
more investments.
 Yellow zone (wait & see) – indicates hold and
maintain type of strategies aimed at stability and
consolidation.
 Red zone (stop) – indicates the retrenchment
strategies of divestment and liquidation or
rebuilding approach for adopting turnaround
strategies.

 The vertical axis represents industry attractiveness,
which is weighted composite ratings based on eight
different factors.
 These different factors are: market size and growth
rate, industry profit margin, competitive intensity,
seasonality, cyclicality, economies of scale,
technology and social, environmental, legal and
human impacts.
 The horizontal axis represents business strength
competitive position , which is again a weighted
rating based on seven factors.
 These factors are: relative market share, profit
margins, ability to compete on price and quality,
knowledge of customer and market, competitive
strengths and weaknesses, technological capability,
and caliber of management

 It offers an intermediate classification of
medium and average ratings.
 It incorporates larger variety of strategic
variable like the market share and industry size.
 It is a powerful analytical tool to channel
corporate resources to businesses that combine
medium to high industry attractiveness with
average to strong business strengths/competitive
position.
 Drawback is, it only provides broad strategic
prescriptions rather that specific business
strategy.

Strategic analysisppt

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Strategic analysisppt