Allama Iqbal Open University, Islamabad

Assignment # 2 Report on Strategic Analysis Subject: Strategic Mangement MBA 3rd semester (Human Resource Department)

Submitted to: Sir Yaseen Jamal Submitted by: Saira Perveen Roll No: 508194441 MBA: 3rd Semester

Acknowledgements
Praise to be Allah, the cherisher and Lord of the world, most gracious and most merciful. I am most grateful to Almighty Allah, the most beneficial, the merciful and gracious, whose faith encouraged me to complete the work presented in this assignment. Our teachers have been the driving force behind our education. Here Id first like to thanks Sir Yaseen

Jamal who doubled as our Strategic Management teacher and advisor. He helped me to deal with disappointment and helped me remain focused on my goals in time and I am successful in research work. Secondly, I would like to say thanks to my parents who guided me in every path of life.

Contents
1)-Introduction to topic 2)-Tools of Strategic Analysis 3)-PEST Analysis 4)-Scenario Planning or Scenario Thinking

5)-The Five Forces Analysis 6)-Market Segmentation 7)-Directional Policy Matrix 8)-Competitor Analysis 9)-Critical Success Factor Analysis 10)-SWOT Analysis 11)-Comprehensive Strategy-Formulation Analytical Model Framework 12)-Introduction to Organization 13)-PTCL VSS strategy 14)-Purpose of PTCL VSS strategy 15)-How PTCL analyzed this strategy before implementation

15.1)-PTCL Vision 15.2)-PTCL Mission 15.3)-PTCL Market Segmentation 15.4)-SWOT Analysis of the VSS strategy 16)-Conclusion 17)-Recommendations 18)-References

Executive Summary
The purpose of this research is to enhance my understanding of the unique purpose of strategic analysis. Strategic analysis is done to check for a strategy either it should be implemented or not. Strategic analysis could done through the use of

various tools and techniques like Directional Policy Matrix, Competitor Analysis, Boston Consulting Matrix, SWOT Analysis, PEST Analysis etc. PTCL has implemented voluntary separation scheme to increase the efficiency of the organization. VSS was actually for those employees who were not aware of the latest technology. So, VSS was a good strategy to reduce such kind of employees, although the company has an effect on its finances in 2008. But in future, it will be proved as the best strategy adopted by the company.

1)-Introduction to topic
Before discussion on Strategy Analysis, I will tell that what is a strategy? "Strategy is the direction and

scope of an organization over the long-term: which

achieves advantage for the organization through its configuration of resources within a challenging

environment, to meet the needs of markets and to

fulfill stakeholder expectations".
S Strategy Formulation Strategic Analysis Strategy Evaluation Strategy Implementation trategic Model

Setting a areas:

strategy requires knowledge in three

Customers: Existing customers and potential customers and markets. What do they do? What would help them do what they do better? What are their needs? Where are the most profitable customers? Competencies: Skills, knowledge and relationships. What do you do well? What abilities could you draw on? What costs do you have to carry? Where do you make money? Competition: The whole competitive environment from regulation to real life competition. What is the basis of competition? Where are the threats? Where is their pressure and where is the market easy? Analysis of the three areas is interrelated. Who you choose as your target audience will have implications for what capabilities you need, which will have an

impact on what competitive pressures are around which will influence who you choose as your target audience. We take each of these areas in turn.

Analysis of target markets Analysis of competencies Analysis of competition and environment

Some companies will have all this knowledge to hand easily and readily. Others will require information and analysis to be carried out in order to bring together the knowledge together into one place. Strategy Analysis, is all about the analyzing the strength of businesses' position and understanding the important external factors that may influence that position.

Before the strategic analysis, mission statement must be taken into consideration.

2)-Tools of Strategic Analysis

The process of Strategic Analysis can be assisted by a number of tools, including:

PEST Analysis Scenario Planning Five Forces Analysis Market Segmentation Directional Policy Matrix Competitor Analysis Critical Success Factor Analysis SWOT Analysis

3)-PEST Analysis

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added Legal and rearranged the mnemonic to SLEPT; inserting Environmental factors expanded it to PESTEL or PESTLE, which is popular in the UK.

Political factors, are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability.

Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how

businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands.

Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety.

Technological factors include ecological and environmental aspects, such as R&D activity, automation, technology incentives and the rate of technological change.

Environmental factors include weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance.

Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law.

4)- Scenario planning or scenario thinking

It is a strategic planning tool used to make flexible long-term plans. It is a method for learning about the future by understanding the nature and impact of the most uncertain and important driving forces affecting our world. The method is based on creating a series of 'different futures' generated from a combination of known factors, such as demographics, with plausible alternative political, economic, social, technical, legal and environmental (PESTLE) trends which are key driving forces. The goal is to craft diverging worlds by extrapolating these heavily-influencing driving forces.

The technique can also include anticipatory thinking elements that are difficult to formalize, such as subjective interpretations of facts, shifts in values, new regulations or inventions.

5)-The Five Forces Analysis

The threat of substitute products The existence of products outside of the realm of the common product competitors that increases the propensity of customers to switch to alternatives:

Relative price performance of substitutes Buyer switching costs Perceived level of product differentiation

The threat of the entry of new competitors Profitable markets that yield high returns will draw firms. This results in many new entrants, which will

effectively decrease profitability. Unless the entry of new firms can be blocked by incumbents, the profit rate will fall towards a competitive level (perfect competition).

The existence of barriers to entry (patents, rights, etc.)

Economies of product differences Brand equity Switching costs or sunk costs Capital requirements Access to distribution Customer loyalty to established brands Absolute cost advantages Learning curve advantages Expected retaliation by incumbents Government policies

The intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

Sustainable competitive advantage through improvisation

The bargaining power of customers The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.

Buyer concentration to firm concentration ratio Degree of dependency upon existing channels of distribution

Bargaining leverage, particularly in industries with high fixed costs

Buyer switching costs relative to firm switching costs

Buyer information availability Availability of existing substitute products Buyer price sensitivity Differential advantage (uniqueness) of industry products

The bargaining power of suppliers The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources.

Supplier switching costs relative to firm switching costs

Degree of differentiation of inputs Presence of substitute inputs Supplier concentration to firm concentration ratio Employee solidarity (e.g., labor unions)

6)-Market Segmentation
A market segment is a group of people or organizations sharing one or more characteristics that cause them to have similar product and/or service needs. A true market segment meets all of the following criteria: it is distinct from other segments (different segments have different needs), it is homogeneous within the segment (exhibits common needs); it responds similarly to a market stimulus, and it can be reached by a market intervention. The term is also used when consumers with identical product and/or service needs are divided up into groups so they can be charged different

amounts. These can broadly be viewed as 'positive' and 'negative' applications of the same idea, splitting up the market into smaller groups.

7)-Directional Policy Matrix

This matrix measures the health of the market and your strength to pursue it. The results indicate the direction for future investment. The recommendation may be to invest, grow, harvest or divest.

Characterize Your Enterprise The expert system will position your enterprise on the chart based upon your description of:

Supplier Bargaining Power Threat of Substitutes Threat of New Entrants

Competitive Rivalry Buyer Bargaining Power Product Quality Product Value Relative Market Share Reputation Customer Loyalty Staying Power Experience

You can trace through the supporting analysis and its conclusions, adjusting your input until you are satisfied your description accurately characterizes your enterprise.

Analysis of Your Enterprise Position Invest High Market Attractiveness High Business Strengths This is the ideal quadrant. Your strengths are directed at a highly attractive market. Invest your best resources in those parts of your business which are in this quadrant. Grow High Market Attractiveness Low Business Strengths You are in an uncomfortable quadrant. The market potential is attractive but you do not have the business strengths necessary for being really successful. The options facing you are either to take what you can while it is still possible or to invest in building a better competitive position. You must be selective in your efforts here, as this segment will cost you to invest in every aspect of the business. Harvest Low Market Attractiveness High Business Strengths In this quadrant you have high strengths in a market that has lost its attractiveness in terms of future potential. It is still good for near term profits, so maintain the position for as long as possible. Divest Low Market Attractiveness Low Business Strengths

Think carefully about what you are doing to be in this quadrant. The market is not particularly attractive and your business strengths are below average here. Keep in this segment only if it supports a more profitable part of your business (for instance, if this segment completes a product line range) or if it absorbs some of the overhead costs of a more profitable segment.

8)-Competitor Analysis
One common and useful technique is constructing a competitor array. The steps include:

Define your industry - scope and nature of the industry Determine who your competitors are Determine who your customers are and what benefits they expect Determine what the key success factors are in your industry Rank the key success factors by giving each one a weighting - The sum of all the weightings must add up to one. Rate each competitor on each of the key success factors Multiply each cell in the matrix by the factor weighting. Sum columns for a weighted assessment of the overall strength of each competitor relative to each other.

This can best be displayed on a two dimensional matrix - competitors along the top and key success factors down the side. An example of a competitor array follows:

Key Industry Success Factors 1 Extensive distribution 2 Customer focus 3 Economies of scale 4 Product innovation Totals

Weighting

Competitor #1 rating

Competitor Competitor #1 #2 rating weighted

Competitor #2 weighted

.4

2.4

1.2

.3

1.2

1.5

.2

.6

.6

.1

.7

.4

1.0

20

4.9

15

3.7

In this example competitor #1 is rated higher than competitor #2 on product innovation ability (7 out of 10, compared to 4 out of 10) and distribution networks (6 out of 10), but competitor #2 is rated higher on customer focus (5 out of 10). Overall, competitor #1 is rated slightly higher than competitor #2 (20 out of 40 compared to 15 out of 40). When the success factors are weighted according to their importance, competitor #1 gets a far better rating (4.9 compared to 3.7).

9)-Critical Success Factor Analysis

Critical Success Factors (CSFs) are the critical factors or activities required for ensuring the success your business. The term was initially used in the world of data analysis, and business analysis. There are four basic types of CSF's , they are:

1.

Industry CSF's resulting from specific industry characteristics;

2.

Strategy CSF's resulting from the chosen competitive strategy of the business;

3.

Environmental CSF's resulting from economic or technological changes; and

4.

Temporal CSF's resulting from internal organizational needs and changes.

Examples of Critical Success factors Statistical research into CSFs on organizations has shown there to be seven key areas. These CSF's are:
1. 2. 3. 4. 5.

Training and education Quality data and reporting Management commitment, customer satisfaction Staff Orientation Role of the quality department

6. 7.

Communication to improve quality, and Continuous improvement

These were identified when Total Quality was at its peak, so as you can see have a bias towards quality matters. You may or may not feel that these are right or indeed critical for your organization.

10)-SWOT Analysis
SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment.

Strengths and weaknesses are Internal factors. For

example, a strength could be your specialist marketing

expertise. A weakness could be the lack of a new product.

Opportunities and threats are external factors. For

example, an opportunity could be a developing distribution channel such as the Internet, or changing consumer lifestyles that potentially increase demand for a company's products. A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete.

11)-Comprehensive Strategy-Formulation Analytic model Framework

It is a second model to analyze a strategy.

Internal Factor Evaluation Matrix (IFE) Competitive Profile Matrix (CPM) External Factor Evaluation Matrix (EFE)

CPM & EFE from external assessment

Stage 1: The Input Stage

Basic input information for the matching & decision stage matrices

Requires strategists to quantify subjectivity early in the process

Good intuitive judgment always needed

SWOT Matrix BCG Matrix Grand Strategy Matrix

Stage 2: The Matching Stage Match between organizations internal resources & skills and the opportunities & risks created by its external factors

E.g. internal: strong R and D function External changing demographics (population getting older) Strategy: Develop new products for older adults (related to long term objectives financial or strategic)

SWOT Matrix
Leave Blank
Strengths S List Strengths Weaknesses W List Weaknesses

Opportunities O List Opportunities

SO Strategies

Use strengths to take advantage of opportunities

WO Strategies

Overcoming weaknesses by taking advantage of opportunities

Threats T

ST Strategies
Use strengths to avoid threats

WT Strategies
Minimize weaknesses and avoid threats

List Threats

Strengths:

Weaknesses:

1. R and D almost complete 2. Basis for strong management team 3. Key first major customer acquired 4. 4.Initial product can evolve into range of offerings Located near a major centre of excellence 5. Very focused management/staff Well-rounded and managed business

1. Over dependent on borrowings - Insufficient cash resources 2. Board of Directors is too narrow 3. Lack of awareness amongst prospective customers 4. Need to relocate to larger premises 5. Absence of strong sales/marketing expertise 6. Overdependence on few key staff Emerging new technologies may move market in new directions

Threats: 1. 1.Major player may enter targeted market segment 2.New technology may make products obsolescent Economic slowdown could reduce demand 2. Euro/Yen may move against $ 3. Market may become price sensitive

Opportunities: 1. Market segment is poised for rapid growth 2. Export markets offer great potential 3.Distribution channels seeking new products Scope to diversify into related market segments

BCG Matrix

Enhances multi-divisional firm in formulating strategies

Autonomous divisions = business portfolio Divisions may compete in different industries F High 1.0 Medium .50 Low 0.0 ocus on market-share position & industry growth rate Stars II
Medium 0

Question Marks I

Cash Cows III

Low -20

Dogs IV

Grand Strategy Matrix

Tool for formulating alternative strategies Based on two dimensions Competitive position Market growth
Quantitative Strategic Planning Matrix (QSPM)

QSPM : information from IFE and EFE

Key External Factors Economy Political/Legal/Governmental

Social/Cultural/Demographic/Environmental Technological Competitive Weight Strategy 1 Strategy 2 Stratey 3

Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development

Computer Information Systems Sum total A.S.

This is the second way to analyze a strategy.

12)-Introduction to organization

Pakistan Telecommunication Company Limited (PTCL) is the largest telecommunication company in Pakistan. This company provides telephony services to the nation and still holds the status of backbone for country's telecommunication infrastructure despite arrival of a dozen other telcos including telecom giants like Telenor and China Mobile. From the beginnings of Posts & Telegraph Department in 1947 and establishment of Pakistan Telephone & Telegraph Department in 1962, PTCL has been a major player in telecommunication in Pakistan. Despite having established a network of enormous size, PTCL workings and policies have attracted regular criticism from other smaller operators and the civil society of Pakistan.

Pursuing a progressive policy, the Government in 1991, announced its plans to privatize PTCL, and in 1994 issued six million vouchers exchangeable into 600 million shares of the would-be PTCL in two separate placements. Each had a par value of Rs. 10 per share. These vouchers were converted into PTCL shares in mid-1996. In 1995, Pakistan Telecommunication (Reorganization) Ordinance formed the basis for PTCL monopoly over basic telephony in the country. The provisions of the Ordinance were lent permanence in October 1996 through Pakistan Telecommunication (Reorganization) Act. The same year, Pakistan Telecommunication Company Limited was formed and listed on all stock exchanges of Pakistan.

In the middle of 2005 Government of Pakistan had decided to sell at least 26 percent of this company to some private agency.

13)-PTCL VSS Strategy

PTCL has announced voluntary separation scheme in November 2007. PTCL has introduced Voluntary Separation Scheme (vss), so that employees whose age is over 58 years, will take retirement. PTCL will pay a more amount than the normal retirement amount. PTCL has paid ; Gazetted officers = 90*basic pay Non-Gazetted officers = 120*basic pay

The pension benefit will be given to those employees whose service is 20 years minimum. Total cost is about Rs 35 billion, out of which 50 per cent amount will be paid by the good old Government of Pakistan. The scheme was projected to cost Rs 34.858 billion, assuming that 60 percent of the employees avail this package. The share of GoP will be Rs 17.429 billion to be paid out of the privatization proceeds.

14)-Purpose of the VSS strategy

The intended / eligible target of VSS are PTCL employees who are not over 58 years of age probably management does not consider them relevant to the latest technology and strategy. According to insiders, this scheme works well for those who are relatively new at PTCL.

15)-How PTCL analyzed this strategy before implementation

PTCL analyzed this strategy by using the following tools and techniques. Before analyzing a strategy after formulation of strategy, mission and vision must be considered. And PTCL mission and vision are as follows.

15.1)-PTCL Vision
To

be the leading information and communication

technology service provider in the region by achieving customer satisfaction and maximizing shareholders value.

15.2)-PTCL MISSION
To achieve our vision by having;

An organizational environment that fosters professionalism, motivation and quality.

An environment that is cost effective and quality conscious.

Services that are based on the most optimum technology.

Quality

and Time conscious customer service.

Sustained growth in earnings and profitability.

15.3)-PTCL Market Segmentation

As the vision statement shows for PTCL the country is the target. As it is the backbone of fixed line telecommunications in Pakistan.

15.4)-PTCL SWOT Analysis For The Strategy

The swot analysis of the VSS is as follows;

Strengths of the strategy

Strategy will reduce number of employees. Expenses regarding permanent employees will be reduced.

Training cost of employees will be reduced. Motivated employees could be appointed on temporary basis.

Weaknesses of the strategy

It can effect the financial position of PTCL.

Opportunities

Latest technology could be easily used. This strategy is a step towards efficient/cost effective operations.

Threats

No market threat has been observed.

16)-Conclusion
Although the Voluntary Separation Scheme is a successful step to improve the company. As the efficiency of employees has been increased and the new technologies have been adopted by the company. But the PTCL could not announce final dividend due to high cost of Voluntary Separation Scheme.

17)-Recommendations
As the VSS is for the improvement of PTCL but some other steps could also be taken, some of these steps are as follows;

PTCL should reduce the line rent to attract most customers.

Complaint service should be quick. PTCL should introduce separate packages for rural and urban areas.

18)-References

Text book of Strategic Management by Fred R.David

WWW.Google.com Visit

to organization

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