Business Policy and Strategic Analysis

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Kolhan University
Semiester - 3
Business Policy and Strategic Analysis
Sandeep Ghatuary
Business Policy and Strategic Analysis BUSINESS POLICY
Business Policy - Business Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organization. It permits the lower level management to deal with the problems and issues without consulting top level management every time for decisions. Business policies are the guidelines developed by an organization to govern its actions. They define the limits within which decisions must be made. Business policy also deals with acquisition of resources with which organizational goals can be achieved. Business policy is the study of the roles and responsibilities of top level management, the significant issues affecting organizational success and the decisions affecting organization in long-run. Features of Business Policy- An effective business policy must have following features1. Specific - Policy should be specific and definite. If it is uncertain, then the implementation will become difficult. 2. Clear - Policy must be unambiguous. It should avoid use of jargons and connotations. There should be no misunderstandings in following the policy. 3. Reliable/Uniform - Policy must be uniform enough so that it can be efficiently followed by the subordinates. 4. Appropriate - Policy should be appropriate to the present organizational goal. 5. Simple - A policy should be simple and easily understood by all in the organization. 6. Inclusive/Comprehensive - In order to have a wide scope, a policy must be comprehensive. 7. Flexible - Policy should be flexible in operation/application. This does not imply that a policy should be altered always, but it should be wide in scope so as to ensure that the line managers use them in repetitive/routine scenarios. 8. Stable - Policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who look into it for guidance.
Importance of business Policy

1. Learning business policy to integrate the knowledge and experience gained in various functional areas of management. It enabled the learner to understand and make sense of the complex interaction between different functional areas. 2. Business Environment - business policy helps to make the study and practice of management more meaningful as one can view business decision making in its proper perspective. Short terms gains for department may be sacrificed in the interest of the long term benefits that may accrue to organization as a whole. 3. Understanding the Organization business policy helps to create an understanding of how policies are formulated. Its helps to creating an appreciation of the complexities of the environment that are faced by senior management. 4. Personal Development beneficial for an executive to understand the impact of policy shifts on the status of ones department and the position one occupies. Understanding of business policy enables executive opportunity or avoids a risk with regard to career planning and development.
Purpose of Business Policy

1. To integrate the knowledge gained in various functional areas of management 2. Adopt a generalist approach to solving problems 3. Understand the complex interlink ages operating within the organization. Through the use of system approach to decision making and relating these chances taking places in the external environment.
Objectives of Business Policy

1. In Terms Of Knowledge The Various concepts like Strategy, Policy, Plans and Programmes are encountered in the functional area course too. It is imperative to understand these concepts specifically in the business policy. Through all these tool Learner can understand the environment in which firms operates. The development of such approach helps in problem solving and decision making for Business. 2. Skills Attainment of knowledge should lead to skills in order to apply hat has been learnt. This can be taken place by an analysis and interpretation of case studies as well as business events to develop skill of identifying the factors relevant in decision making. Analysis of Swot and suggestion of appropriate strategies and policies of core content of general management decision making.
3. Attitude - Inculcation of appropriate attitude amongst Learner. Function under partial ignorance conditions. In long range planning especially the manager has to make do with incomplete information.
Difference between Policy and Strategy - The term policy should not be considered as synonymous to the term
strategy. The difference between policy and strategy can be summarized as follows1. Policy is a blueprint of the organizational activities which are repetitive/routine in nature. While strategy is concerned with those organizational decisions which have not been dealt/faced before in same form. 2. Policy formulation is responsibility of top level management. While strategy formulation is basically done by middle level management. 3. Policy deals with routine/daily activities essential for effective and efficient running of an organization. While strategy deals with strategic decisions. 4. Policy is concerned with both thought and actions. While strategy is concerned mostly with action. 5. A policy is what is, or what is not done. While a strategy is the methodology used to achieve a target as prescribed by a policy.
Strategic planning - Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. In order to determine the future direction of the organization, it is necessary to understand its current position and the possible avenues through which it can pursue particular courses of action. Many organizations view strategic planning as a process for determining where an organization is going over the next year ormore typically3 to 5 years (long term), although some extend their vision to 20 years. Generally, strategic planning deals with at least one of three key questions 1. "What do we do?" 2. "For whom do we do it?" 3. "How do we excel?"
Strategic Planning has Three Attributes
1. Strategic Vision 2. Strategic Mission 3. Strategic Objectives and Goals
Strategic Vision - A strategic vision is a broad term used to describe one of the essential elements of an overall strategic planning endeavor. Essentially, a vision is a global concept; it paints a picture of the social enterprises direction and future. An effective vision statement succinctly communicates an uplifting philosophy that energizes social enterprise stakeholders to embrace challenges in order to successfully accomplish its goals. Within this context, the strategic vision helps to set the parameters for the development of planning specific steps to go about making that vision come true, since it establishes the general direction that the business will pursue. A workable vision clearly looks beyond where the company is today and determines where the owners want the company to be at some point in the future. Definition by Kotler description of something (an organization, corporate culture, a business, a technology, an activity) in the future Definition by Miller and Dess category of intentions that are broad, all inclusive and forward thinking In order to properly craft a strategic vision, several key elements must be considered in order for that vision to be truly viable. One of those elements is that the vision must be realistic. This means that vision must be somewhat specific rather than a vague idea about the future. Example, setting a vision to become the largest pencil manufacturer in the world may be a bit broad, whereas a vision to capture five percent of the pencil market within a given country within the next ten years does have focus and has the potential to be workable. A vision statement should remain relatively constant well beyond the life of your involvement as an international organization or intermediary in the social enterprise. The normal life span of a vision statement is 10 to 20 years. It articulates the ultimate long-range goal for your social enterprise. The time to revisit your vision statement is the point when your enterprise either has achieved its vision or has substantially moved away from it. For example, Microsofts corporate vision since 1975 was to put a computer on every desk and in every home. In March 1999 Microsoft drafted a new company vision that focuses on the power of the Internet, offering people and businesses the ability to be connected and empowered anytime, anywhere, and on any device.

The three elements of a strategic vision
1. Coming up with a mission statement that defines what business the company is presently in and conveys the essence of Who we are and where we are now? 2. Using the mission statement as basis for deciding on a long-term course making choices about Where we are going? 3. Communicating the strategic vision in clear, exciting terms that arouse organization wide commitment.
What are the components of an effective business vision?

Davidson identifies six requirements for success: 1. Provides future direction 2. Expresses a consumer benefit 3. Is realistic 4. Is motivating 5. Must be fully communicated 6. Consistently followed and measured
How to develop a strategic vision

1. The entrepreneurial challenge in developing a strategic vision is to think creatively about how to prepare a company for the future. 2. Forming a strategic vision is an exercise in intelligent entrepreneurship. 3. Many successful organizations need to change direction not in order to survive but in order to maintain their success. 4. A well-articulated strategic vision creates enthusiasm for the course management has charted and engages members of the organization. 5. The best-worded vision statement clearly and crisply illuminates the direction in which organization is headed.
Advantages of Strategic Vision

1. 2. 3. 4. 5. 6. 7. They foster experimentation Vision promotes long term thinking Visions foster risk taking They can be used for the benefit of people They make organizations competitive, original and unique Good vision represent integrity They are inspiring and motivating to people working in an organization
Mission Statement
A mission statement is a brief description of a company's fundamental purpose. It is typically focused on its present business scope who you are and where you are going. and Why do we exist?" Mission statements broadly describe organizations present capabilities, customer focus, activities, and business makeup the mission statement articulates the company's purpose both for those in the organization and for the public. Definition by Mintzberg A mission describes the organizations basic function in society, in terms of the products and services it produces for its customers. Definition by Hynger and Wheelen purpose or reason for the organizations existence Definition by David F.Harvey A mission provides the basis of awareness of a sense of purpose, the competitive environment , degree to which the firms mission fits its capabilities and the opportunities which the government offers For instance 1. The mission statement of Canadian Tire reads (in part): Canadian Tire is a growing network of interrelated businesses... Canadian Tire continuously strives to meet the needs of its customers for total value by offering a unique package of location, price, service and assortment.
2. The mission statement of River corp., business development consultants in Campbell River, B.C., is: To provide one stop progressive economic economic development services through partnerships on behalf of shareholders and the community. As you see from these two examples, mission statements are as varied as the companies they describe. However, all mission statements will "broadly describe an organization's present capabilities, customer focus, activities, and business makeup"
Elements of Mission Statement:

1. A Purpose Why does the business exist? Is it to create wealth for shareholders? Does it exist to satisfy the needs of all stakeholders (including employees, and society at large?) 2. A Strategy and Strategic Scope - A mission statement provides the commercial logic for the business and so defines two things: The products or services it offers (and therefore its competitive position) The competences petences through which it tries to succeed and its method of competing 3. Policies and Standards of Behaviour - A mission needs to be translated into everyday actions. For example, if the business mission includes delivering outstanding customer service, th then en policies and standards should be created and monitored that test delivery. 4. Values and Culture - The values of a business are the basic, often un un-stated, stated, beliefs of the people who work in the business. These would include: Business principles (e.g. social soci policy, commitments to customers) Loyalty and commitment (e.g. are employees inspired to sacrifice their personal goals for the good of the business as a whole? And does the business demonstrate a high level of commitment and loyalty to its staff?) Guidance idance on expected behavior a strong sense of mission helps create a work environment where there is a common purpose
Why organization should have mission?

1. 2. 3. 4. 5. To ensure unanimity of purpose within the organization. To provide a basis for motivating the use of the organizations resources. To develop a basis, or standard, for allocating organizational resources. To establish a general tone or organizational climate, for example, to suggest a business like operation. To serve as a focal point for those who can identify with the organizations purpose and direction, and to deter those who cannot form participating further in the organizations activities. 6. To facilitate the translation of objective and goals into a work structure involving the assignment of tasks to responsible elements within the organization.

The benefits of having a vision and mission statement are discussed below:
1. Above everything else, vision and mission statements provide unanimity unanimity of purpose to organizations and imbue the employees with a sense of belonging and identity. Indeed, vision and mission statements are embodiments of organizational identity and carry the organizations creed and motto. For this purpose, they are also called cal as statements of creed. 2. Vision and mission statements spell out the context in which the organization operates and provides the employees with a tone that is to be followed in the organizational climate. Since they define the reason for existence of the e organization, they are indicators of the direction in which the organization must move to actualize the goals in the vision and mission statements. 3. The vision and mission statements serve as focal points for individuals to identify themselves with the organizational ganizational processes and to give them a sense of direction while at the same time deterring those who do not wish to follow them from participating in the organizations activities. 4. The vision and mission statements help to translate the objectives of th the e organization into work structures and to assign tasks to the elements in the organization that are responsible for actualizing them in practice. 5. To specify the core structure on which the organizational edifice stands and to help in the translation of objectives ob into actionable cost, performance, and time related measures. 6. Finally, vision and mission statements provide a philosophy of existence to the employees, which is very crucial because as humans, we need meaning from the work to do and the vision and and mission statements provide the necessary meaning for working in a particular organization.
Mission vs. Purpose

1. Mission is the societal reasoning while the purpose is the overall reason 2. Mission is external reasoning and relates to external environment. Purpose is internal reasoning and relates to internal environment 3. Mission is for outsiders while purpose is for its own employees
Objectives and Goals

Business organization translates their vision and mission into objectives. As such the term objectives is synonymous with goals, Objectives refer to the ultimate end results which are to be accomplished by the overall plan over a specified period of time Objectives are organizations performance targets the results and nd outcomes it wants to achieve. They function as yardstick for tracking an organizations performance and progress.
Importance of Objective and Goals

1. 2. 3. 4. 5. Objectives provide yardstick to measure performance of a department or SBU or organization Objectives serve as a motivating force. All people work to achieve the objectives Objectives help the organization to pursue its vision and mission Objectives define the relationship of organization with internal and external environment Objectives ctives provide a basis for decision decision-making

Characteristics of Objectives and Goals:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. They should be facilitative towards achievement of mission and purpose. They should provide the basis for strategic decision-making They should provide standards for performance appraisal. Objectives should be understandable. Objectives should be concrete and specific Objectives should be related to a time frame Objectives should be measurable and controllable Objectives should be challenging Different objectives should correlate with each other Objectives should be set within constraints
Areas for setting objectives

1. 2. 3. 4. 5. 6. 7. Profit objective or performance objectives Market objective - increase in market share Productivity objective cost per unit of production Product objective product development, product diversification, branding, etc Social objective tree plantation, provision for drinking water, setting up of community center, etc Financial objective relates to cash flow, debt equity ratio, working capital, new issues, etc Human resource objective described in terms of absenteeism, turnover, number of grievances, strikes and lockouts, etc
Difference between objectives and goals

1. 2. 3. 4. The goals are broad while objectives are specific The goals are set for a relatively longer period of time Goals are more influenced by external environment Goals are not quantified while objectives are quantified
Competitive advantage
Competitive advantage is gained when a firm acquires attributes that allow it to perform at a higher level than others in the same industry. A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retains more customers than its competition. There can be many types of competitive advantages including the firm's cost structure, product offerings, distribution network and customer support. When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage
Characteristics of Competitive Advantage

1. Distinctive competence - Special skills and resources that generate strengths those competitors cannot easily match or imitate. 2. First mover advantage - The competitive advantage held by a firm from being first in a market or first to use a particular strategy. 3. Late mover advantage - The competitive advantage held by firms that are late in entering a market. Late movers often imitate the technological advances of other firms or reduce risks by waiting until a new market is established. 4. Sustainable competitive advantage - A competitive advantage that cannot easily be imitated and wont erode over time. 5. Group thinks - A tendency of individuals to adopt the perspective of the group as a whole. It occurs when decision makers dont question the underlying assumptions. Michael Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage. The strategies relate to the extent to which the scope of a business' activities are narrow versus broad and the extent to which a business seeks to differentiate its products.

Michael Porter four strategies are summarized in the figure below:
Michael Porter four strategies for competitive Advantages

1. Cost leadership - With this strategy, the objective is to become the lowest-cost cost producer in the industry. The traditional method to achieve this objective is to produce on a large scale which enables the business to exploit economies of scale. Why is cost leadership leadership potentially so important? Many (perhaps all) market segments in the industry are supplied with the emphasis placed on minimizing costs. If the achieved selling price can at least equal (or near) the average for the market, then the lowest-cost lowest producer cer will (in theory) enjoy the best profits. This strategy is usually associated with large-scale large scale businesses offering "standard" products with relatively little differentiation that are readily acceptable to the majority of customers. Occasionally, a low low-cost leader will also discount its product to maximize sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share. To be the lowest-cost cost producer, a firm is likel likely y to achieve or use several of the following: High levels of productivity High capacity utilization Use of bargaining power to negotiate the lowest prices for production inputs Lean production methods (e.g. Just in time {JIT}) Effective use of technology in the production process Access to the most effective distribution channel 2. Cost focus - Here a business seeks a lower lower-cost cost advantage in just one or a small number of market segments. The product will be basic - perhaps a similar simil product to the higher-priced priced and featured market leader, but acceptable to sufficient consumers. Such products are often called "me-too's". "me 3. Differentiation focus - In the differentiation focus strategy, a business aims to differentiate within just one or o a small number of target market segments. The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers. The important issue f for or any business adopting this strategy is to ensure that customers really do have different needs and wants - in other words that there is a valid basis for differentiation - and that existing competitor products are not meeting those needs and wants. Differentiation erentiation focus is the classic niche marketing strategy. Many small businesses are able to establish themselves in a niche market segment using this strategy, achieving higher prices than un-differentiated differentiated products through specialist expertise or other ways to add value for customers. There are many successful examples of differentiation focus. A good one is Tyrrells Crisps which focused on the smaller hand-fried, fried, premium segment of the crisps industry. 4. Differentiation leadership - With differentiation leadership, the business targets much larger markets and aims to achieve competitive advantage across the whole of an industry. This strategy involves selecting one or more
criteria used by buyers in a market - and then positioning the business uniquely to t meet those criteria. This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added value features provided for the consumer. Differentiation is about charging a premium price ice that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products. There are several ways in which this can be achieved, though it is not easy and it requires substantial and sustained marketing investment. The methods include: Superior product quality (features, benefits, durability, reliability) Branding (strong customer recognition & desire; brand loyalty) Industry-wide wide distribution across all major channels (i.e. the product or brand is an essential item to be stocked by retailers) Consistent promotional support often dominated by advertising, sponsorship etc Great examples of a differentiation leadership include global brands like Nike and Mercedes. These brands achieve significant economies of scale, but they do not rely on a cost leadership strategy to compete. Their business and brands are built on persuading customers to become brand loyal and paying a premium for their products. product
Sustainable Competitive Advantage

A sustainable competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors. These attributes can include access to natural resources or access to t highly trained d and skilled personnel human resources. It is an advantage (over the competition), and must have some life; the competition must not be able to do it right away, or it is not sustainable. It is an advantage that is not easily copied and, thus, can be maintained tained over a long period of time. Competitive advantage is a key determinant of superior performance, and ensures survival and prominent placing in the market. Superior performance is the ultimate, desired goal of a firm; competitive advantage becomes the foundation. It gives firms the ability to stay ahead of present or potential competition and ensure market leadership. When these four criteria meet then a firm can be said to have a sustainable competitive advantage. 1. Are they valuable? (Do they enable a firm to devise strategies that improve efficiency or effectiveness?) 2. Are they rare? (If many other firms possess it, then it is not rare.) 3. Are they imperfectly imitable (because of unique historical conditions, causally ambiguous, and/or are socially complex)? substitutable? (If a ready substitute can be found, then this condition is not met?) 4. Are they non-substitutable?
Developing Sustainable Competitive Advantages

1. Customer Loyalty: Customers must be committed to buying merchandise and services from a particular retailer. This can be accomplished through retail branding, positioning, and loyalty programs. A loyalty program is like a "Target card." Now, when the customer uses the card as a credit card, Target can track all of their transactions and store it in their data warehouse, which keeps track of the customers needs and wants outside of Target. This will entice Target to offer products that they do not have in stock. Target track tracks all sales done on
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2.
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4. 5. 6. 7.
their cards. So, Target can track customers who use their card at other retailers and compete by providing that merchandise as well. Location: Location is a critical factor in a consumer's selection of a store. Starbucks coffee is an example. They will conquer one area of a city at a time and then expand in the region. They open stores close to one another to let the storefront promote the company; they do little media advertising due to their location strategy. Distribution and Information Systems: Wal-Mart has killed this part of the retailing strategy. Retailers try to have the most effective and efficient way to get their products at a cheap price and sell them for a reasonable price. Distributing is extremely expensive and timely. Unique Merchandise: Private label brands are products developed and marketed by a retailer and available only from the retailer. For example, if you want Craftsman tools, you must go to Sears to purchase them. Vendor Relations: Developing strong relations with vendors may gain exclusive rights to sell merchandise to a specific region and receive popular merchandise in short supply. Customer Service: This takes time to establish but once it's established, it will be hard for a competitor to a develop a comparable reputation. Multiple Source Advantage: Having an advantage over multiple sources is important. For example, McDonald's is known for fast, clean, and hot food. They have cheap meals, nice facilities, and good customer service with a strong reputation for always providing fast, hot food.
ENVIRONMENTAL ANALYSIS
Environmental analysis, also known as environmental scanning or appraisal, is the process through which an organization monitors and comprehends various environmental factors and determines the opportunities and threats that are provided by these factors. This type of analysis is relatively qualitative and involves the identifying, scanning, analyzing and forecasting of the environmental variables. Some frameworks of environmental analysis have received large amounts of attention in the world of business management literature, such as SWOT analysis and PESTEL analysis. It evaluates internal and external factors impacting an organization's performance, especially its marketing effort. Internal factors are referred to as the strengths and weaknesses of the organization. External factors are opportunities and threats presented by forces outside of the company. In general, this information is used by strategic planners in forecasting trends a year or more in advance. This method is distinct from surveillance, which focuses on a specific area or time. It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment. While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one organization may be an opportunity for another.
Process of Environment Analysis: - 1 Identifying 2.Scanning 3. Analyzing 4 Forecasting

1. Identifying - To measure and/or improve the relative position of the business to the intrinsic environmental factors, one must first identify those factors that affect the business. This will need to be done at various internal levels, the company level, the regional level, the domestic level and the global level. While several frameworks exist as an aid to this step of identification (such as SWOT and PESTEL), they are merely tools that remind the identifier to consider certain types of factors. A good identification of environmental factors can be had as the result of a good brainstorming session with or without such frameworks. Those frameworks exist because of the ease of deployment and should be consulted, flexibly. 2. Scanning - This step in environmental analysis can be somewhat confusing. How does one scan for qualitative factors that have already been identified? Scanning, in the context of environmental analysis, refers to the process of distinguishing which of the identified factors have the most effect. Not all of the factors identified in the first step will carry the same weight, and the recognition of environmental factors most significant to the business will assist in rendering a course of improvement. 3. Analyzing - The next step in environmental analysis is to analyze the effect the relevant environmental variables have on different levels of the business, including the business at large. There are a plethora of tools available for this type of analysis, ranging from scenario building to benchmarking to the Delphi technique. Which every tool, or tools, chosen, the information will be collected and analyzed in similar fashions. Brainstorming, reviewing historical data and polling department heads and managers serves to collect information that will be used for statistical analysis; types of analysis include mean, mode, correlation and regression, among others. The methods
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of statistical analysis chosen will vary based upon what is being analyzed and the form held by the data itself. Some useful methods of analysis can be found in the techniques of company ratio analysis 4. Forecasting - Once the environmental variables have been identified, deemed significant and analyzed, it becomes necessary to forecast the effect that said variables would have in the future. This is the primary function of the analysis of current and historical data. By looking at the trend each significant environmental variable is forecasted to take, a strategy report can be created, from which management can develop a business strategy in response
While in external analysis, three correlated environment should be studied and analyzed
* Immediate / industry environment * National environment * Broader socio-economic environment / macro-environment 1) Examining the industry environment needs an appraisal of the competitive structure of the organizations industry, including the competitive position of a particular organization and its main rivals. Also, an assessment of the nature, stage, dynamics and history of the industry is essential. It also implies evaluating the effect of globalization on competition within the industry. 2) Analyzing the national environment needs an appraisal of whether the national framework helps in achieving competitive advantage in the globalized environment. 3) Analysis of macro-environment includes exploring macro-economic, social, government, legal, technological and international factors that may influence the environment. The analysis of organizations external environment reveals opportunities and threats for an organization. Strategic managers must not only recognize the present state of the environment and their industry but also be able to predict its future positions.
INDUSTRY ANALYSIS
Definition of Industry Analysis- Industry analysis involves reviewing the economic, political and market factors that influence the way the industry develops. Major factors can include the power wielded by suppliers and buyers, the condition of competitors, and the likelihood of new market entrants. An industry analysis is a business function completed by business owners and other individuals to assess the current business environment. This analysis helps businesses understand various economic pieces of the marketplace and how these various pieces may be used to gain a competitive advantage. Although business owners may conduct an industry analysis according to their specific needs, a few basic standards exist for conducting this important business function. Facts of Industry Analysis - Small business owners often conduct industry analysis before starting their business. This analysis is included in the entrepreneurs business plan that outlines specific elements of the economic marketplace. Elements may include the number of competitors, availability of substitute goods, target markets and demographic groups or various other pieces of essential business information. This information is commonly used to secure external financing from banks or lenders for starting a new business venture. Features of Industrial Analysis - Industry analysis features include a review of the economic and political underpinnings of the business environment. Economic reviews often include an examination of the industrys business cycle. The business cycle helps individuals understand if the industry is growing, reaching a plateau or in decline. A political review helps individuals understand the amount of government regulation and taxation present in the business industry. Industries with heavy government involvement may have fewer profits for companies operating in these environments. THE IMPORTANCE OF INDUSTRY ANALYSIS - A comprehensive industry analysis requires a small business owner to take an objective view of the underlying forces, attractiveness, and success factors that determine the structure of the industry. Understanding the company's operating environment in this way can help the small business owner to formulate an effective strategy, position the company for success, and make the most efficient use of the limited resources of the small business. "Once the forces affecting competition in an industry and their underlying causes have been diagnosed, the firm is in a position to identify its strengths and weaknesses relative to the industry," Porter wrote. "An effective
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competitive strategy takes offensive or defensive action in order to create a defendable position against the five competitive forces." Some of the possible strategies include positioning the firm to use its unique capabilities as defense, influencing the balance of outside forces in the firm's favor, or anticipating shifts in the underlying industry factors and adapting before competitors do in order to gain a competitive advantage.
Considerations of Industrial Analysis - Industry analysis may be conducted using Michael Porters five forces model.
Porter is a Harvard professor renowned for his work in creating a specialized industry analysis model. The five forces model reviews an industries supplier power, threat of substitutes, buyer power, barriers to entry and the rivalry that is created when companies compete for the previous four forces. This standard industry analysis tool helps individuals use a time-tested management procedure for generating intelligent business analysis.
Time Frame of Industrial Analysis Business owners may need to conduct several industry analyses throughout their companys lifetime. Economic markets are in a constant state of flux and may incur significant changes from shifts in political policy. Although smaller businesses may struggle to conduct an industry analysis in a timely manner, larger or publicly held companies often conduct an analysis each quarter. The results of their analysis are often included in forward-looking statements in quarterly or annual reports. Expert Insight of Industrial Analysis- Small business owners may need to seek outside help for conducting an industry analysis. Management consultants, public accounting firms or the Small Business Administration (SBA) may provide small businesses with copious amounts of resources regarding various industry analyses. This information can save the business owner valuable time from attempting to reinvent the wheel and create a new analysis when one may already exist from a professional organization.
Porter's Five Forces Analysis

The five forces were originally identified and developed by Michael E. Porter while working for the Harvard Business School and the Boston Consulting group. Both were looking for a new and updated version for developing strategies in the area of competitive advantage. He applied the principles of microeconomics and business strategy to analyze requirements in individual sectors. Developing the five forces in line with the business goals of utilizing an organizations projects limited resources on its greatest potential opportunities. The Five Forces Model is a tool that can be used to analyze the opportunities and overall competitive advantage of you, your organization, or your project. It is comprised of five forces that can assist in determining the competitive intensity and potential attractiveness within a specific area. This can be developed to assist in analyzing a specific project and the strategic opportunities for this project, as well as the strategic opportunities, effectiveness and profitability of your organization as a whole.
Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. These are:
1. Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. 2. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you. 3. Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. 4. Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.
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5. Threat of New Entry: Power is also affected by the ability of people to enter your market. mar If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your our position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.
When to use - The Five Forces Model is important for organizations to develop concise evaluations within a specific
area. rea. This will allow you to analyze your organization or project by looking at the specific internal and external forces and how they can potentially affect effectiveness and attractiveness.
How to use - The first three of the forces are external factors while the last two are internal factors that could affect you,
your organization and /or project. For each factor you must look at exactly who, what, why and how these factors could potentially affect you, your organization and/or your project. 1. Competition Who is the current competition? What is the possibility of new competitors in your sector field? What are the abilities that they posses? How could this affect you, your project and/or your organization? Are there any barriers that you and/or they must overcome? 2. New entrants Is there any potential threat of substitution? What are the factors that make them superior if any? Is there any fear of them replacing existing product(s) or service(s)? 3. End users/Buyers Determine who your organizations/ projects potential buyer could be. How many potential bu buyers could there be (Internally Externally)? Externally 4. Suppliers Determine who your organizations/ projects potential suppliers could be. How many potential suppliers could there be (Internally Externally)? Externally 5. Substitutes Is there any rivalry internally or externally regarding your organization or project? How can you increase your strengths while diminishing theirs? Aim to minimize the relative competitive strength of rivals.
Business Policy and Strategic Analysis The EFE Matrix (External Factor Evaluation Matrix)
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External Factor Evaluation (EFE) matrix method is a strategic-management strategic management tool often used for assessment of current business conditions. The EFE matrix is a good tool to visualize and prioritize the opportunities and threats that a business is facing. The EFE matrix is very similar to the IFE matrix. The major difference between the EFE matrix and the IFE matrix is the type of factors that are included in the model. While the IFE matrix deals with internal factors, the EFE matrix is concerned solely with external factors. External factors assessed in the EFE matrix are the ones that are subjected to the will of social, economic, political, legal, and other exte external forces.
How do I create the EFE matrix?

Developing an EFE matrix is an intuitive process which works conceptually very much the same way like creating the IFE matrix. The EFE matrix process uses the same five steps as the IFE matrix. 1. List factors: The e first step is to gather a list of external factors. Divide factors into two groups: opportunities and threats. 2. Assign weights: Assign a weight to each factor. The value of each weight should be between 0 and 1 (or alternatively between 10 and 100 if you use the 10 to 100 scale). Zero means the factor is not important. One or hundred means that the factor is the most influential and critical one. The total value of all weights together should equal 1 or 100. 3. Rate factors: Assign a rating to each factor. Rating Rating should be between 1 and 4. Rating indicates how effective the firms current strategies respond to the factor. 1 = the response is poor. 2 = the response is below average. 3 = above average. 4 = superior. Weights are industry-specific. industry Ratings are company-specific. 4. Multiply weights by ratings: Multiply each factor weight with its rating. This will calculate the weighted score for each factor. sco 5. Total all weighted scores: Add all weighted scores for each factor. This will calculate the total weighted score for the company.
Total weighted score of 2.46 indicates that the business has slightly less than average ability to respond to external factor factors. (See the page on IFE matrix for an explanation of what category the 2.46 figure falls to.)
What at should I include in the EFE matrix?

Now that we know how to construct or create the EFE matrix, let's focus on factors. External factors can be grouped into the following groups: Social, cultural, demographic, and environmental variables: Aging population Percentage or one race to other races Number and type of special interest groups Widening gap between rich & poor Number of marriages and/or divorces Ethnic or racial minorities Education Trends in housing, shopping, careers, business Number of births and/or deaths

Immigration & emigration rates Economic variables : Growth of the economy Level of savings, investments, and capital spending Inflation Foreign exchange rates Stock market trends Level of disposable income Import and export factors and barriers Product life cycle Government spending Industry properties Economies of scale Barriers to market entry Product differentiation Level of competitiveness Political, government, business trends, and legal variables : Globalization trends Government regulations and policies Worldwide trend toward similar consumption patterns Internet and communication technologies (e-commerce) Protection of rights (patents, trademarks, antitrust legislation) Level of government subsidies International trade regulations Taxation Terrorism Elections and political situation home and abroad
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IFE Matrix (Internal Factor Evaluation)

The internal factor evaluation matrix (Internal Factor Evaluation Matrix, IFE matrix), is a kind of internal factors analysis tool, its practice is to find out the impact from the advantages and disadvantages of two aspects Enterprise The key factors for the future development, according to the degree of each influencing factor of determining weights, then press the Enterprise Effective reaction extent of each factor score and the key factors, finally calculates the total weighted score. Through IFE, enterprises can have their own advantages and disadvantages facing the summary, to depict all internal stress. IFE matrix also provides a basis for identifying and evaluating relationships among those areas. The Internal Factor Evaluation matrix or short IFE matrix is used in strategy formulation. The IFE Matrix together with the EFE matrix is a strategy-formulation tool that can be utilized to evaluate how a company is performing in regards to identified internal strengths and weaknesses of a company. The IFE matrix method conceptually relates to the Balanced Scorecard method in some aspects
How can I create the IFE matrix? - The IFE matrix can be created using the following five steps:
1. Key internal factors - Conduct internal audit and identify both strengths and weaknesses in all your business areas. It is suggested you identify 10 to 20 internal factors, but the more you can provide for the IFE matrix, the better. The number of factors has no effect on the range of total weighted scores (discussed below) because the weights always sum to 1.0, but it helps to diminish estimate errors resulting from subjective ratings. First, list strengths and then weaknesses. It is wise to be as specific and objective as possible. You can for example use percentages, ratios, and comparative numbers. 2. Weights - Having identified strengths and weaknesses, the core of the IFE matrix, assign a weight that ranges from 0.00 to 1.00 to each factor. The weight assigned to a given factor indicates the relative importance of the factor. Zero means not important. One indicates very important. If you work with more than 10 factors in your IFE matrix, it can be easier to assign weights using the 0 to 100 scale instead of 0.00 to 1.00. Regardless of whether a key factor is an internal strength or weakness, factors with the greatest importance in your
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organizational performance should be assigned the highest weights. After you assign weight we to individual factors, make sure the sum of all weights equals 1.00 (or 100 if using the 0 to 100 scale weights).The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm's industry. Weights are industry based. 3. Rating - Assign a 1 to X rating to each factor. Your rating scale can be per your preference. Practitioners usually use rating on the scale from 1 to 4. Rating captures whether the factor represents a major weakness (rating = 1), a minor r weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4). If you use the rating scale 1 to 4, then strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating. Note, the weights determined in the previous ous step are industry based. Ratings are company based. 4. Multiply - Now we can get to the IFE matrix math. Multiply each factor's weight by its rating. This will give you a weighted score for each factor. 5. Sum - The last step in constructing the IFE matrix is is to sum the weighted scores for each factor. This provides the total weighted score for your business. Example of IFE matrix - The following table provides an example of an IFE matrix.
What values does the IFE matrix take?

Regardless of how many factors are included in an IFE Matrix, the total weighted score can range from a low of 1.0 to a high of 4.0 (assuming you used the 1 to 4 rating scale). The average score you can possibly get is 2.5. Why is the average 2.5 and not 2.0? Let's explain explain using an example. You have 4 factors, each has weight 0.25. Factors have the following rating: 1, 4, 1, 4. this will result in individual weighted scores 0.25, 1, 0.25, and 1 for factors 1 through 4. If you add them up, you will get total IFE matrix weighted weighted score 2.5 which is also the average in this case. Total weighted scores well below 2.5 point to internally weak business. Scores significantly above 2.5 indicate a strong internal position.
What if a key internal factor is both strength and a weakness in IFE matrix?
When a key internal factor is both strength and a weakness, then include the factor twice in the IFE Matrix. The same factor is treated as two independent factors in this case. Assign weight and also rating to both factors.
What are the benefits of the IFE matrix?

To explain the benefits, we have to start with talking about one disadvantage. IFE matrix or method is very much subjective; after all other methods such as the TOWS or SWOT matrix are subjective as well. IFE is trying to ease some of the subjectivity by introducing numbers into the concept. Intuitive judgments are required in populating the IFE matrix with factors. But, having to assign weights and ratings to individual factors brings a bit of empirical nature into the model.

How does the IFE matrix differ from the SWOT matrix method?
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One difference is already obvious. It is the weights and ratings. This difference leads to another one. While it is suggested that the SWOT matrix is populated with only a handful of factors, the the opposite is the case with the IFE matrix. Populating each quadrant of the SWOT matrix with a large number of factors can lead to the point where we are over over-analyzing the object of our analysis. This does not happen with IFE matrix. Including many facto factors rs into the IFE matrix leads to each factor having only a small weight. Therefore, if we are subjective and assign unrealistic rating to some factor, it will not matter very much because that particular factor has only a small weight (=small importance) in the whole matrix. It is important to note that a thorough understanding of individual factors included in the IFE matrix is still more important than the actual numbers.
Competitive profile matrix

It is an essential strategic management tool to compare the firm with the major players of the industry. Competitive profile matrix shows the clear picture to the firm about their strong points and weak points relative to their competitors. The CPM score is measured on basis of critical success factors factors, , each factor is measured in same scale mean the weight remain same for every firm only rating varies. The best thing about CPM that it includes your firm and also facilitates to add other competitors make easier the comparative analysis. analysis IFE matrix only internal factors are evaluated and in EFE matrix external factors are evaluated but CPM include both internal and external factors to evaluate overall position of the firm with respective to their major competitors.
The competitive profile e matrix consists of following attributes mentioned below.

Critical Success Factors - Critical success factors are extracted after deep analysis of external and internal environment of the firm. Obviously there are some good and some bad for the company in the external environment and internal environment. The higher rating show that firm strategy is doing well to support this critical success factors and lower rating means firm strategy is lacking to support the factor. Rating - Rating in CPM represent the response of firm toward the critical success factors. Highest the rating better the response of the firm towards the critical success factor, rating range from 1.0 to 4.0 and can be applied to any factor. There is some important point related to rating in CPM. Rating is applied to each factor. The response is poor represented by 1.0 The response is average is represented by 2.0 The response is above average represented by 3.0 The response is superior represented by 4.0 Weight - Weight attribute in CPM indicates the relative importance of factor to being successful in the firms industry. The weight range from 0.0 means not important and 1.0 means important, sum of all assigned weight to factors must be equal to 1.0 otherwise the calculation would would not be consider correct. Weighted Score Weighted score value is the result achieved after multiplying each factor rating with the weight. Total Weighted Score - The sum of all weighted score is equal to the total weighted score, final value of total weighted hted score should be between ranges 1.0 (low) to 4.0(high). The average weighted score for CPM matrix is 2.5 any company total weighted score fall below 2.5 consider as weak. The company total weighted score higher than 2.5 is consider as strong in position. The other dimension of CPM is the firm with higher total weighted score considered as the winner among the competitors.
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As the result show Harley Davidson is dominating on critical success factors because the total weighted score is high compare to Yamaha and Honda.
The Value Chain

To better understand the activities through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of value-generating value generating activities referred to as the value chain. Process flows can be mapped, and these flows used to isolate the individual value value-creating creating activities. Once the discrete activities are defined, linkages between activities should be identified. A linkage exists if the performance or cost of one activity affects that of f another. Competitive advantage may be obtained by optimizing and coordinating linked activities. The value chain also is useful in outsourcing decisions. Understanding the linkages between activities can lead to more optimal make-or-buy decisions that can n result in either a cost advantage or a differentiation advantage. In his 1985 book Competitive Advantage, Michael Porter introduced a generic value chain model that comprises a sequence of activities found to be common to a wide range of firms. Porter identified identified primary and support activities as shown in the following diagram:
The goal of these activities is to offer the customer a level of value that exceeds the cost of the activiti activities, thereby resulting in a profit margin.
The primary value chain activities are:

Inbound Logistics: the receiving and warehousing of raw materials and their distribution to manufacturing as they are required. Operations: the processes of transforming inputs into finished products and services. Outbound Logistics: the warehousing and distribution of finished goods. Marketing & Sales: the identification of customer needs and the generation of sales. Service: the support of customers after the products and services are sold to them.
These primary activities are supported by:

The infrastructure of the firm: organizational structure, control systems, company culture, etc. Human resource management: employee recruiting, hiring, training, development, and compensation.
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Technology development: technologies to support value-creating activities. Procurement: purchasing inputs such as materials, supplies, and equipment. The firm's margin or profit then depends on its effectiveness in performing these activities efficiently, so that the amount that the customer is willing to pay for the products exceeds the cost of the activities in the value chain. It is in these activities that a firm has the opportunity to generate superior value. A competitive advantage may be achieved by reconfiguring the value chain to provide lower cost or better differentiation. The value chain model is a useful analysis tool for defining a firm's core competencies and the activities in which it can pursue a competitive advantage as follows: Cost advantage: by better understanding costs and squeezing them out of the value-adding activities. Differentiation: by focusing on those activities associated with core competencies and capabilities in order to perform them better than do competitors.
Cost Advantage and the Value Chain

A firm may create a cost advantage either by reducing the cost of individual value chain activities or by reconfiguring the value chain. Once the value chain is defined, a cost analysis can be performed by assigning costs to the value chain activities. The costs obtained from the accounting report may need to be modified in order to allocate them properly to the value creating activities. Porter identified 10 cost drivers related to value chain activities: Economies of scale Learning Capacity utilization Linkages among activities Interrelationships among business units Degree of vertical integration Timing of market entry Firm's policy of cost or differentiation Geographic location Institutional factors (regulation, union activity, taxes, etc.) A firm develops a cost advantage by controlling these drivers better than do the competitors. A cost advantage also can be pursued by reconfiguring the value chain. Reconfiguration means structural changes such a new production process, new distribution channels, or a different sales approach. For example, FedEx structurally redefined express freight service by acquiring its own planes and implementing a hub and spoke system.
Differentiation and the Value Chain

A differentiation advantage can arise from any part of the value chain. For example, procurement of inputs that are unique and not widely available to competitors can create differentiation, as can distribution channels that offer high service levels. Differentiation stems from uniqueness. A differentiation advantage may be achieved either by changing individual value chain activities to increase uniqueness in the final product or by reconfiguring the value chain. Porter identified several drivers of uniqueness: Policies and decisions Linkages among activities Timing Location Interrelationships Learning Integration Scale (e.g. better service as a result of large scale) Institutional factors Many of these also serve as cost drivers. Differentiation often results in greater costs, resulting in tradeoffs between cost and differentiation. There are several ways in which a firm can reconfigure its value chain in order to create uniqueness. It can forward integrate in order to perform functions that once were performed by its customers. It can backward integrate in order to have more control over its inputs. It may implement new process technologies or utilize new distribution
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channels. Ultimately, the firm may need to be creative in order to develop a novel value chain configuration that increases product differentiation.
Technology and the Value Chain

Because technology is employed to some degree in every value creating activity, changes in technology can impact competitive advantage by incrementally changing the activities themselves or by making possible new configurations of the value chain. Various technologies are used in both primary value activities and support activities: Inbound Logistics Technologies Transportation Material handling Material storage Communications Testing Information systems Operations Technologies Process Materials Machine tools Material handling Packaging Maintenance Testing Building design & operation Information systems Outbound Logistics Technologies Transportation Material handling Packaging Communications Information systems Marketing & Sales Technologies Media Audio/video Communications Information systems Service Technologies Testing Communications Information systems Note that many of these technologies are used across the value chain. For example, information systems are seen in every activity. Similar technologies are used in support activities. In addition, technologies related to training, computer-aided design, and software development frequently are employed in support activities. To the extent that these technologies affect cost drivers or uniqueness, they can lead to a competitive advantage.
Outsourcing Value Chain Activities

A firm may specialize in one or more value chain activities and outsource the rest. The extent to which a firm performs upstream and downstream activities is described by its degree of vertical integration. A thorough value chain analysis can illuminate the business system to facilitate outsourcing decisions. To decide which activities to outsource, managers must
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understand the firm's strengths and weaknesses in each activity, both in terms of cost and ability to differentiate. Managers may consider the following when selecting activities to outsource: o Whether the activity can be performed cheaper or better by suppliers. Whether the activity is one of the firm's core competencies from which stems a cost advantage or product differentiation? The risk of performing the activity in in-house. If the activity relies on fast-changing changing technology or the product is sold in a rapidly-changing changing market, it may be advantageous to outsource the activity in order to maintain flexibility and avoid the risk of investing in specialized assets. Whether the outsourcing g of an activity can result in business process improvements such as reduced lead time, higher flexibility, reduced inventory, etc.
The Advantages of Value Chain Analysis

1. A big advantage is that the value chain is a very flexible strategy too tool l for looking at your business, your competitors and the respective places in the industrys value system. 2. The value chain can be used to diagnose and create competitive advantages on both cost and differentiation. Ive written about this in Using the Valu Value Chain to Create Competitive Advantage. 3. It helps you to understand the organisation issues involved with the promise of making customer value commitments and promises because it focuses attention on the activities needed to deliver the value proposition. 4. Comparing your business model with your competitors using the value chain can give you a much deeper understanding of your strengths and weaknesses to be included in your SWOT analysis. 5. The value chain is well known and has been a mainstay of strategy teaching teaching in business schools for the last 20 to 25 years. The book, Competitive Advantage was published in 1985. 6. It can be adapted for any type of business manufacturing, retail or service, big or small. 7. The value chain has developed into an extra model, the industry value chain or value system which lets you get a better understanding of the much broader competitive arena. If youre interested in this aspect of the value chain, watch the Value Chain Videos for an easy to understand introduction.
The Disadvantages of Value Chain Analysis

1. Its very strengths of flexibility mean that it has to be adapted to a particular business situation and that can be a disadvantage since, to get the best from the value chain, its not plug and play. 2. The format of the e value chain laid out in Porters book Competitive Advantage is heavily oriented to a manufacturing business and the language can be off-putting off putting for other types of business.
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3. The scale and scope of a value chain analysis can be intimidating. It can take a lot of work to finish a full value chain analysis for your company and for your main competitors so that you can identify and understand the key differences and strategy drivers. 4. Many people are familiar with the value chain but few are experts in its use. 5. Michael Porters book is excellent but it is a tough read. Its also dated in its examples which can make some of the ideas more difficult to relate to and understand how things fit together in the Internet age. 6. The value chain idea has been adopted by su supply pply chain and operations experts and therefore its strategic impact for understanding, analyzing and creating competitive advantage has been reduced. 7. Business information systems are often not structured in a way to make it easy to get information for value chain analysis.
SWOT Analysis
A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. It provides information that is helpful in matching the firm's resources and capabilities to the co competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection. The following diagram shows how a SWOT analysis fits into an environmental scan:
SWOT ANALYSIS DEFINITION - SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic
position of the business and its environment. Its key purpose is to identify the strategies that will create a firm specific business model that will best align an organizations rganizations resources and capabilities to the requirements of the environment in which the firm operates. In other words, it is the foundation for evaluating the internal potential and limitations and the probable/likely opportunities and threats from the the external environment. It views all positive and negative factors inside and outside the firm that affect the success. A consistent study of the environment in which the firm operates helps in forecasting/predicting the changing trends and also helps in i including ncluding them in the decision decision-making process of the organization.
The four factors (Strengths, Weaknesses, Opportunities and Threats) is Given iven below1. Strengths - Strengths are the qualities that enable us to accomplish the organizations mission. These are ar the basis on which continued success can be made and continued/sustained. Strengths can be either tangible or intangible. These are what you are well-versed versed in or what you have expertise in, the traits and qualities your employees possess (individually and nd as a team) and the distinct features that give your organization its consistency. Strengths are the beneficial aspects of the organization or the capabilities of an organization, which includes human competencies, process capabilities, financial resources, resources, products and services, customer goodwill and brand loyalty. Examples of organizational strengths are huge financial resources, broad product line, no debt, committed employees, etc. 2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing accomplishing our mission and achieving our full potential. These weaknesses deteriorate influences on the organizational success and growth. Weaknesses are the factors which do not meet the standards we feel they should meet. Weaknesses in an organization may b be depreciating machinery, insufficient research and development facilities, narrow product range, poor decisiondecision making, etc. Weaknesses are controllable. They must be minimized and eliminated. For instance - to overcome obsolete machinery, new machinery can can be purchased. Other examples of organizational weaknesses are huge
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debts, high employee turnover, complex decision making process, narrow product range, large wastage of raw materials, etc. 3. Opportunities - Opportunities are presented by the environment within which our organization operates. These arise when an organization can take benefit of conditions in its environment to plan and execute strategies that enable it to become more profitable. Organizations can gain competitive advantage by making use of opportunities. Organization should be careful and recognize the opportunities and grasp them whenever they arise. Selecting the targets that will best serve the clients while getting desired results is a difficult task. Opportunities may arise from market, competition, industry/government and technology. Increasing demand for telecommunications accompanied by deregulation is a great opportunity for new firms to enter telecom sector and compete with existing firms for revenue. 4. Threats - Threats arise when conditions in external environment jeopardize the reliability and profitability of the organizations business. They compound the vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake. Examples of threats are - unrest among employees; ever changing technology; increasing competition leading to excess capacity, price wars and reducing industry profits; etc.
How to Use SWOT Analysis

1. Strengths: What advantages does your organization have? What do you do better than anyone else? What unique or lowest-cost resources can you draw upon that others can't? What do people in your market see as your strengths? What factors mean that you "get the sale"? What is your organization's Unique Selling Proposition (USP)? Consider your strengths from both an internal perspective, and from the point of view of your customers and people in your market. Also, if you're having any difficulty identifying strengths, try writing down a list of your organization's characteristics. Some of these will hopefully be strengths! When looking at your strengths, think about them in relation to your competitors. For example, if all of your competitors provide high quality products, then a high quality production process is not strength in your organization's market, it's a necessity. 2. Weaknesses: What could you improve? What should you avoid? What are people in your market likely to see as weaknesses? What factors lose you sales? Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that you don't see? Are your competitors doing any better than you? It's best to be realistic now, and face any unpleasant truths as soon as possible. 3. Opportunities: What good opportunities can you spot? What interesting trends are you aware of? Useful opportunities can come from such things as: Changes in technology and markets on both a broad and narrow scale. Changes in government policy related to your field. Changes in social patterns, population profiles, lifestyle changes, and so on. Local events. 4. Threats What obstacles do you face? What are your competitors doing? Are quality standards or specifications for your job, products or services changing? Is changing technology threatening your position? Do you have bad debt or cash-flow problems? Could any of your weaknesses seriously threaten your business?

The result of the analysis is a matrix of positive and negative factors for management to address:
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Positive factors Internal factors External factors Strengths Opportunities
Negative factors Weaknesses Threats
Strategic analysis
Strategic analysis is the process of conducting research on the business environment within which an organisation operates and on the organisation itself, in order to formulate strategy strategy. An objective analysis and understanding of your markets and your costs and capabilities forms the bedrock for th the e strategy development process from this analysis and by applying creativity will comes a number of options and opportunities that can be used to build and implement a solid strategic plan for new or existing markets.
Setting a strategy requires knowledge in three areas:
1. 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? 2. 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? 3. 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 pressu pressures res are around which will influence who you choose as your target audience
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I.
II. III.
Strategy Analysis - This is all about the analysing the strength of businesses' position and understanding the important external factors that hat may influence that position. The process of Strategic Analysis can be assisted by a number of tools, including: PEST Analysis - a technique for understanding the "environment" in which a business operates Scenario Planning - a technique that builds various plausible views of possible futures for a business Five Forces Analysis - a technique for identifying the forces which affect the level of competition in an industry Market Segmentation - a technique which seeks to ident identify ify similarities and differences between groups of customers or users Directional Policy Matrix - a technique which summarizes the competitive strength of a businesss operations in specific markets Competitor Analysis - a wide range of techniques and analysis analysis that seeks to summarize a businesses' overall competitive position Critical Success Factor Analysis - a technique to identify those areas in which a business must outperform the competition in order to succeed SWOT Analysis - a useful summary techniqu technique e for summarizing the key issues arising from an assessment of a businesss "internal" position and "external" environmental influences. Strategic Choice - This process involves understanding the nature of stakeholder expectations (the "ground rules"), identifying ntifying strategic options, and then evaluating and selecting strategic options. Strategy Implementation - Often the hardest part. When a strategy has been analyzed and selected, the task is then to translate it into organisational action. Seven essential strategy analysis tools: SWOT - The SWOT is the most basic form of strategic analysis. Simply list the organizations Strengths, Weaknesses, Opportunities and Threats. McKinsey 7-S - The McKinsey 7-S 7 is useful for ensuring that you consider all aspects of the organisation when identifying its strengths engths and weaknesses. The 7 S stands for: Structure, Systems, Style, Staff, Skills, Strategy and Shared Values. PEST - The PEST framework is useful for ensuring that you consider a broad range of possible sources of opportunities and threats. The letters represent the Political, Economic, Social (or Socio Socio-economic) and Technological opportunities and threats in the firm's environment. Porter's 5 Forces - Porter's 5 Forces model is another framework for identifying threats and opportunities within the firm's environment. It considers the bargaining position of suppliers and customers (including distributors), the threat of new entrants and substitutes, as well well as competitive factors within the industry itself. BCG Matrix - The BCG Matrix can be applied to any business with more than one product or service line, or more than one customer segment. In simple terms, it involves plotting the market share against the market growth rate for each product, service or customer segment, and then basing strategic decisions on their relative position on the chart.
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Pareto Analysis - A Pareto Analysis is based on the maxim that 20 percent of the products, services, customers or distributions deliver 80% of the profits. A Pareto chart is a useful visualization for showing this. Accuracy however depends on the reliability of your cost allocation system. The Voice of the Customer (VOC) - No matter how good your other data is, at some point you have to engage directly with your customers (and other stakeholders). You can use traditional structured methods, such as focus groups, more modern methods, such as social media, or even simply just go and chat to people.
The Tools and Techniques of Strategy Analysis

Senior managers need to make good strategic decisions, but many lack the in-depth knowledge and understanding of the most useful tools and techniques of strategy analysis. They may have come across concepts such as industry analysis and competitive advantage, but are unsure of the ways in which these concepts can be used to enhance strategic decisionmaking. During this intensive, two-day workshop we provide in-depth professional training in the most useful tools and techniques, giving attendees a practical, rigorous foundation in strategy analysis that may be applied to enhance strategic thinking and decision-making in a variety of situations.
Grand Strategies
Grand strategies, often called master or business strategies, provide basic direction for strategic actions Indicate the time period over which long-range objectives are to be achieved Firms involved with multiple industries, businesses, product lines, or customer groups usually combine several grand strategies Any one of these strategies could serve as the basis for achieving the major long-term objectives of a single firm.
Four Alternatives of Grand Strategies - Stability Growth Combination Retrenchment

1. Stability - To remain the same size or To grow slowly and in a controlled fashion 2. Growth Internal growth: It can include development of new or changed products External growth: Its typically involves diversification businesses related to current product lines or into new areas 3. Combination - It involves deliberate use of different strategies for different units or divisions at the same time or chronological use of different strategies over the period of time. 4. Retrenchment - The organization goes through a period of forced decline by either shrinking current business units or selling off or liquidating entire businesses. Grand strategies, often called master or business strategies provide basic direction for strategic actions. They are the basis of coordinated and sustained efforts directed toward achieving long-term business objective. Grand strategies indicated the time period over which long range objective are to be achieved. So, it can be defined as a comprehensive general approach that guides a firm's major actions. Business managers can use tools and techniques such as Grand Strategies selection Matrix or Grand Strategies Cluster or Matched - Pair Analysis to Design means that will be used to achieve long term objective.
The model for grand strategy cluster is shown in figure below. The technique is based on the idea that the situation of business in terms of the growth rate of the general market and the firm's competitive position in that market. When these factors are considered simultaneously, a business can be broadly categorized in one of four quadrants - Strong Competitive Position in a rapidly growing market. , Weak Position in a rapidly growing market. , Weak Position in a slow growth market & Strong Position in a slow growth market.
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The model for Grand Strategy selection Matrix is shown below. The basic idea underlying the matrix is that is that
two variables are of central concern in the selection Process 1. The Process Principal Purpose of the grand strategy 2. The choice of an internal or external emphasis for growth or profitability.

The Principal Grand strategies -
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1) A concentrated growth strategy - It involves focusing on increase market share in existing market. This strategy is also sometime called concentration or market dominance strategy. In stable environment where demand growing, concentrated growth is a low risk strategy. Concentration may involve increasing the rate of use of a product by current customers, attracting competitor's customers; and attracting non users or new customers. for example - XYZ company's Market analysis shows that the decline is fueled by negative publicity, perception of poor customer service, and concern about the price versus the value of the company's service, given the wide array of do it yourself alternatives. XYZ's approach would be increasing market share hinges on addressing quality, price and value issues discontinuing products that the public or environmental authorities perceives as unsafe and improving the quality of its workforce. 2) A market development strategy - It involves selling present products or service in new markets. Manager takes action like targeting promotions, opening sales offices and creating alliance to operationalize a market development strategy. For examples - Du Pont used market development when it found a new application for Kevlar, an organic material that police, security, and military personnel had used primarily for bulletproofing. Kevlar now is being used to refit and maintain wooden hulled boats, since it is lighter and stronger than glass fibers and has 11 times the strength of steel. 3) A product development strategy - It focuses on substantial modification of existing products developing new products for currently served markets and customers. The focus is often on products/service related to current offering. Sometimes quality variations or new models or sizes of products are developed. As part of product development strategy, a company may emphasize getting a product to market quickly, developing a product that can be sold at the lowest cost, or developing a product that has the highest level of product performance, or developing a product with high levels of produce quality and reliability. In some situations, product development is constrained by a development budget. For example - Pepsi changed its strategy on beverage products by creating new products to follow the industry movement away from mass branding. This new movement was designed to attract a younger, hipper customer segment. Pepsi's new products include a version of Mountain Dew, called Code Red and new Pepsi brands called Pepsi Twist and Pepsi Blue. 4) A vertical integration - It is a grand strategy that involves acquiring firms that supply it with inputs (such as Raw materials) or are customers for its outputs (such as warehousers for finished products). The transaction may involve stock purchase, buying assets, or stock swap. Backward vertical integration involves acquiring a firm at an earlier stage of the value chain. Forward integration involves acquiring a firm at a later stage in the value chain. For example - Amoco emerged as North America's leader in natural gas reserves and products as a result of its acquisition of Dome Petroleum. This backward integration by Amoco was made in support of its downstream businesses in refining and in gas stations, whose profits made the acquisition possible. 5) A concentric diversification - It is one type of strategic thrust. Concentric diversification focuses on creating a portfolio of related businesses. The portfolio is usually developed by acquisition rather than by internal new business creation. Product market synergies are a major issue in creating the portfolio of related strategic business units (SBUs) for example - Head Ski initially sought to diversify into summer sporting goods and clothing to offset the seasonality of its "Snow" business. 6) A conglomerate diversification It involves acquiring a portfolio of business based on financial performance criteria. Product market synergies are not an issue. 7) A horizontal integration strategies - It focus on acquiring firms in current markets or in new markets. such acquisition eliminate competitors and provide the acquiring firm with access to new markets. a horizontal integration strategy can support a concentrated growth or a market development strategy. For example N.V.Home's purchase of Ryan Homes another example Nike's acquisition in the dress shoes business. 8) A divestiture - It is a strategic action that involves selling a major component of a firm or the entire firm. the entity is sold as an ongoing business. 9) Liquidation - It involves selling parts of a firm or entire firm at auction or to a private buyer for its tangible asset value. The intent is not to operate an ongoing business. Contrast this strategic action with divestiture. For example - Columbia Corporation, a $ 130 million diversified firm, liquidated its assets for more cash per share than the market value of its stock. 10) A turnaround Strategy - It is used when firms are struggling financially. The strategy usually involves cost reduction and asset reduction. manager reduce costs by reducing staff, leasing rather than buying equipment, reducing marketing expenditures or R&D. assets are also often sold to free up cash for new initiative. in some cases assets are sold and then leased back by the company from the purchaser of the asset. Once costs are reduced
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and assets have been sold to generate cash a positive growth or diversification strategy must be implemented to complete the turnaround. 11) An innovation strategy - It involves the creation of a new device or process based upon study, research and experimentation. An innovation strategy involves new processes, business ideas, and more basic R&D than is usually associated with a product development strategy. stra In business setting, innovation may involve creation of new products and or services. Innovation is usually paired with other strategies as a supporting or complementary strategy firms find it profitable to make innovation their grand strategy. They seek to reap the initially high profits associated with customer acceptance of a new or greatly improved product. Then, Then rather than face stiffening competition as the basis of profitability shifts from innovation to production or marketing competence, they search for other original or novel ideas. 12) A joint ventures - It involves creating complementary synergies. Occasionally two or more capable firms lack a necessary component for success in a particular competitive environment. For example - no single petroleum firm controlled sufficient resources to construct the Alaskan Pipeline. Nor was any single firm capable of processing and marketing all of the oil that would flow through pipeline the solution was a set of joint venture, which is commercial company (children), hildren), created and operated for the benefits f the co owner (parents). These cooperative arrangements provided both the funds needed to build the pipeline and the processing and marketing capacities needed to profitably handle the oil flow.
The Experience Curve

In the 1960's, management consultants at The Boston Consulting Group observed a consistent relationship between the cost of production and the cumulative production quantity (total quantity produced from the first unit to the last). Data revealed that the real value-added added production cost declined by 20 to 30 percent for each doubling of cumulative production quantity: Experience Curve
The vertical axis of this logarithmic graph is the real unit cost of adding value, adjusted for inflation. It includes the cost that the firm incurs to add value to the starting materials, but excludes the cost of those materials themselves, which are subject the experience curves of their suppliers. Note that the experience curve differs from the learning curve. The learning curve describes the observed reduction in the number of required direct labor hours as workers learn their jobs. The experience curve by contrast applies not only only to labor intensive situations, but also to process oriented ones. The experience curve relationship holds over wide range industries. In fact, its absence would be considered by some to be a sign of possible mismanagement. Cases in which the experience curve is not observed sometimes involve the withholding of capital investment, for example, to increase short short-term term ROI. The experience curve can be explained by a combination of learning (the learning curve), specialization, scale, and investment.
Implications for Strategy

The experience curve has important strategic implications. If a firm is able to gain market share over its competitors, it can develop a cost advantage. Penetration pricing strategies and a significant investment in advertising, sales personnel, p production capacity, etc. can be justified to increase market share and gain a competitive advantage. When evaluating strategies based on the experience curve, a firm must consider the reaction of competitors who also understand the concept. Some potential pitfalls include:
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1) The fallacy of composition holds: if all other firms equally pursue the strategy, then none will increase market share and will suffer losses from over over-capacity capacity and low prices. The more competitors that pursue the strategy, the higher the cost of gaining a given market share and the lower the return on investment. 2) Competing firms may be able to discover the leading firm's proprietary methods and replicate the cost reductions without having made the large investment to gain experience. exper 3) New technologies may create a new experience curve. Entrants building new plants may be able to take advantage of the latest technologies that offer a cost advantage over the older plants of the leading firm.
EXPERIENCE CURVE AND WHAT IS THE CAUSES OF EXPERIENCE CURVE EFFECT?

Cost has been correlated with the accumulated experience (of say production) by the Experience Curve Effect. The underlying principle behind the experience curve is that as total quantity of production of a standardized item is increased, its unit manufacturing cost decreases in a systematic manner. The concept of the experience curve was presented by BCG in 1966 and since then it has been accepted as one of the important phenomenon. The experience curve is a rule of thumb. It says costs of value added net of inflation will characteristically decline 25% to 30% each time the total accumulated experience has been doubled (Henderson, 1989). This is also known as learning curve. Initially, this inverse relationship was discovered for the learning costs which are the costs for direct labour input in the manufacturing cost. Thus, as the production of a particular item (such as aircraft components) increased, the quantum of time of direct labour component to make each of these success successive items declined. This helped the aircraft manufacturers to predict the cost of man man-hours hours required to manufacture in future, say the number of aircraft, and helped them to fix the price accordingly. The Experience Curve Effect phenomenon, where costs fall fal with accumulated volume of experience, was known to industrial managers for many years. It took momentum as a tool in business strategy after Boston Consulting Group (BCG) provided the concept. Let us take an illustration to understand this concept. When one starts the production of a new product (2 units), the unit cost is, say Rs. 100. Then, as the accumulated production volume reaches 4 units, the unit cost is reduced by say 20%, to Rs. 80. Furthermore, as the accumulated production reaches 8 units, th the e cost gets reduced by another 20%, to only Rs. 64, and so on. This trend has been tabulated in Table -1 Table 80% Experience Curve Table-1:
As we have seen in the illustration, stration, the experience curve is a cost relationship but looking at the practical situation, the prices may not go hand in hand with costs in the long run. In every nation, there are certain cases where the prices of a particular commodity or service remain in unchanged in terms of their respective currency while the costs decrease. But this case then is followed by prices falling faster than the costs. This then results in a shift in the market share and leadership leadershi of an enterprise. Japan is one country wher where this unstable pattern rarely occurs. In the experience curve one thing is to be noted that each element of cost in an end product experience curve goes down its own independent cost curve and each such element has its own starting point (Henderson, 1989). 1989 Therefore, the slope of each element may be different and each cost element may share experience with other end products. Looking at this explanation, it can be said that an experience curve is an approximation of a trend line.

CAUSES OF EXPERIENCE CURVE EFFECT
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In order to fully utilize the experience curve effect, it is important to fully grasp what causes this effect. With increase in accumulated production of a standardized product, the experience curve effect of systematic reduction in cost is caused due to management synergy, as follows: 1) Improved Productivity of Labour - As the accumulated production of standardized product increases, the labour force acquires the skills to do their task more efficiently. This may be in the form of memorizing the steps involved, or developing reflex actions for doing the needed operations. However, as the experience accumulates, not only the direct labour, but also the supervisory staff as well as managers must successively streamline the needed operation to improve the efficiency. It is important to note that to consolidate the above gains for a sustained improvement, adequate training facilities have to be provided to the new entrants. 2) Increased Specialization - Increased volume of standardised production may also merit specialisation of individual or a group of skills among different employees. Thus as the production volume increases, individual components may also become viable to be produced in different profit centers. Alternatively, suitable vendors for ancillaries may be developed to shift the overheads and other non-productive expenses away from the organisation. For example, a large vehicle plant can procure engines, transmission train, drive, wheel, gear boxes etc. from outside, and do their assembly only within their plants. 3) Innovation in Production Methods - With accumulated experience and higher specialisation, the concerned workers are likely to come across innovative ways of improving the production processes. For instance, Japanese engineering workers evolve unique jigs and fixtures which facilitate their working and smooth flow of operations. However, fixed investments in such jigs and fixtures are viable only at high volumes of production, and they cant be utilised at low production volumes. On enlarged volumes, the unit fixed cost per item reduces substantially, and benefits far exceed the cost. 4) Value Engineering and Fine Tuning - As the experience with the production as well as usage of a product accumulates, newer ideas based on value engineering may be adopted to cut down the unnecessary material consumption and other under-utilised inputs. For instance, for conduction of electricity, copper wires are often the preferred choice. However, by now it has been also scientifically demonstrated that in copper conductors, the current flows only on the surface of the conductors. Thus, to save cost without compromising performance, the lead conductors coated on the surface by copper have been successfully substituted with substantial economies in initial costs and replacement costs. But such coating operations would necessarily require high volume of production. 5) Balancing Production Line - Sometimes, by mere addition of balancing equipments, substantial increases in capacities can be increased without incurring the proportionate new investments. Thus, all these factors have an accumulated integrated influence of reducing the cost with accumulated experience, and the manager must facilitate and promote these factors to get the desired reduction in cost. In the absence of the above, cost economies would not come about. 6) Methods and System Rationalization - The standardization in production, marketing and administrative procedures results in efficiencies over time. Also, more up-to-date technology with better economies of scale can be inducted as the volume increases.
The BCG Growth-Share Matrix

The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's. It is based on the observation that a company's business units can be classified into four categories based on combinations of market growth and market share relative to the largest competitor, hence the name "growth-share". Market growth serves as a proxy for industry attractiveness, and relative market share serves as a proxy for competitive advantage. The growth-share matrix thus maps the business unit positions within these two important determinants of profitability.
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BCG Growth-Share Growth Matrix This framework assumes that an increase in relative market share will result in an increase in the generation of cash. This assumption often is true because of the experience curve; increased relative market share implies that the firm is moving forward on the experience curve relative to its competitors, thus developing a cost advantage. A second assumption is that a growing market requires investment in assets to increase capacity a and nd therefore results in the consumption of cash. Thus the position of a business on the growth-share growth share matrix provides an indication of its cash generation and its cash consumption. Henderson reasoned that the cash required by rapidly growing business units could be obtained from the firm's other business units that were at a more mature stage and generating significant cash. By investing to become the market share leader in a rapidly growing market, the business unit could move along the experience curve and develop a cost advantage. From this reasoning, the BCG Growth-Share Growth Matrix was born.
The four categories are:

1) Dogs - Dogs have low market share and a low growth rate and thus neither generate nor consume a large amount of cash. However, dogs are cash traps traps because of the money tied up in a business that has little potential. Such businesses are candidates for divestiture. 2) Question marks - Question marks are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. The result is large net cash consumption. A question mark (also known as a "problem child") has the potential potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the mar market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share. 3) Stars - Stars generate large amounts of cash because of their strong relative market share, but also c consume large amounts of cash because of their high growth rate; therefore the cash in each direction approximately nets out. If a star can maintain its large market share, it will become a cash cow when the market growth rate declines. The portfolio of a diversified iversified company always should have stars that will become the next cash cows and ensure future cash generation. 4) Cash cows - As leaders in a mature market, cash cows exhibit a return on assets that is greater than the market growth rate, and thus generate e more cash than they consume. Such business units should be "milked", extracting the profits and investing as little cash as possible. Cash cows provide the cash required to turn question marks into market leaders, to cover the administrative costs of the company, to fund research and development, to service the corporate debt, and to pay dividends to shareholders. Because the cash cow generates a relatively stable cash flow, its value can be determined with reasonable accuracy by calculating the present v value of its cash stream using a discounted cash flow analysis. Under the growth-share share matrix model, as an industry matures and its growth rate declines, a business unit will become either a cash cow or a dog, determined solely by whether it had become the market leader during the period of high growth. While originally developed as a model for resource allocation among the various business units in a corporation,
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the growth-share matrix also can be used for resource allocation among products within a single business unit. Its simplicity is its strength - the relative positions of the firm's entire business portfolio can be displayed in a single diagram.
HOW TO DEVELOP GOOD BCG GROWTH-SHARE MATRIX OF A COMPANY?

SBUs or products are represented on the model by circles and fall into one of the four cells of the matrix already described above. Mathematically, the mid-point of the axis on the scale of Low-High is represented by 1.0. At this point, the SBUs or products market share equals that of its largest competitors market share. Next, calculate the relative market share and market growth for each SBU and product. Figure below depicts the formulas to calculate the relative market share and market growth.
Oftentimes, if you are versed with a particular industry and companies operating in it, you could draw up a BCG matrix for any company without necessarily computing figures for the relative market share and market growth. Figure below depicts a fairly accurate BCG growth-share matrix for Apple Computer developed in the spring of 2005 without the author calculating the relative market share and market growth.
Once the products or SBUs have been plotted, the planner then has to decide on the objective, strategy and budget for the business lines. Basically, at this juncture the organizations should strive to maintain a balanced portfolio. Cash generated from Cash Cows should flow into Stars and Question Marks in an effort to create future Cash Cows. Moreover, there are 4 major strategies that can be pursued at this stage as described in the ensuing section.
AVAILABLE STRATEGIES TO PURSUE

Build - The product or SBUs market share needs to be increased to strengthen its position. Short-term earnings and profits are deliberately forfeited because it is hoped that the long-term gains will be higher than this. This strategy is suited to Question Marks if they are to become stars. Hold - The objective is to maintain the current share position and this strategy is often used for Cash Cows so that they continue to generate large amounts of cash. Harvest - Here management tries to increase short-term cash flows as far as possible (e.g. price increase, cutting costs) even at the expense of the products or SBUs longer-term future. It is a strategy suited to weak Cash Cows or Cash Cows that are in a market with a limited future. Harvesting is also used for Question Marks where there is no possibility of turning them into Stars, and for Dogs. Divest - The objective of this strategy is to rid the organisation of the products or SBUs that are a drain on profits and to utilize these resources elsewhere in the business where they will be of greater benefit. This strategy is typically used for Question Marks that will not become Stars and for Dogs.

Strengths of the BCG Model:
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1) The BCG Matrix allows for a visual presentation of the competitive position of all units in a business portfolio. 2) The BCG model allows companies to develop a customized strategy for each product or business unit instead of having a one-size-fits-all all approach. 3) Simple and easy to understand. 4) It works well for companies with multiple divisions and products 5) Allows for quick and simple screening of business opportunities in order to determine investment priorities in the portfolio o of products/business units. 6) It is used to identify how corporate cash resources can be best allocated to maximize a companys future growth and profitability.
Weaknesses of the BCG Model:

1) The BCG model focuses on major competitors when analyzing the relative market share of a company. However, it neglects some small competitors with fast growing market shares. 2) It is a rather short-term term model that doesnt fully show how characteristics of business units change over the long term. 3) The BCG model is more focused on business units than individual products 4) Assumes that high rates of profit are directly related to high market share 5) The BCG model looks at a business unit in isolation without taking into consideration the possible cooperation among various business ness units within the organization 6) BCG is a primarily qualitative model 7) The Y axis represents the annual market growth which fails to see the full picture that goes beyond a one year span 8) It does not take into consideration other important factors such as: market barriers/restrictions, market density, profitability, politics 9) With this or any other such analytical tool, ranking business units has a subjective element involving guesswork about the future, particularly with respect to growth rates.
GE / McKinsey sey Matrix or GE Nine-cell Nine matrix

This matrix was developed in1970s by the General Electric Company with the assistance of the consulting firm, McKinsey Co, USA. This is also called GE multifactor portfolio matrix. The GE matrix has been developed to overcome the obvious limitations of BCG matrix. This matrix consists of nine cells (3X3) based on two key variables: 1) Industry attractiveness 2) Business strength. In the figure below, three possible values of each of these two dimensions are plotted, plotted, resulting in a nine-cell nine 3 x 3 matrix. The horizontal axis represents business strength and the vertical axis represents industry attractiveness attractiveness.
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The nine cells of the GE matrix represent various degrees of industry attractiveness (high, medium or low) and business strength (strong, average and weak). After plotting each product line or business unit on the nine cell matrix, strategic choices are made depending on their position in the matrix. GE matrix is also called Stoplight strategy matrix because the three zones are like green, yellow and red of traffic lights. 1) Green indicates invest/expand if the product falls in green zone, the business strength is strong and industry is at least medium in attractiveness, the strategic decision should be to expand, to invest and to grow. 2) Yellow indicates select/earn if the product falls in yellow zone, the business strength is low but industry attractiveness is high, it needs caution and managerial discretion for making the strategic choice 3) Red indicates harvest/divest if the product falls in the red zone, the business strength is average or weak and attractiveness is also low or medium, the appropriate strategy should be divestment.
Advantages of GE Nine-cell matrix

1) It used 9 cells instead of 4 cells of BCG 2) It considers many variables and does not lead to simplistic conclusions 3) High/medium/low and strong/average/low classification enables a finer distinction among business portfolio 4) It uses multiple factors to assess industry attractiveness and business strength, which allow users to select criteria appropriate to their situation
Limitations of GE Nine-cell matrix

1) It can get quite complicated and cumbersome with the increase in businesses 2) Though industry attractiveness and business strength appear to be objective, they are in reality subjective judgements that may vary from one person to another 3) It cannot effectively depict the position of new business units in developing industry 4) It only provides broad strategic prescriptions rather than specifics of business policy BCG Matrix GE Matrix BCG matrix consists four cell GE matrix consists nine cell The business unit is rated against relative market share and industry growth rate The matrix use single measure to assess growth and market share The matrix uses two types of classification i.e. high and low It has many Limitation The business unit is rated against business strength and industry attractiveness The matrix use multiple measure to assess business strength and industry attractiveness The matrix uses three types of classification i.e. high /medium/ low and strong/average/weak Overcome many Limitation of BCG and is an improvement over it
Business Policy and Strategic Analysis Generic Strategies
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Generic strategies were used initially in the early 1980s, and seem to be even more popular today. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Each of the three options is considered within the context of two aspects of the competitive environment: Sources of competitive advantage Are the products differentiated in any way, or are they the lowest cost producer in an industry? Competitive scope of the market Does the company ompany target a wide market, or does it focus on a very narrow, niche market?
The generic strategies are: 1. Cost leadership, 2. Differentiation, and 3. Focus.

1) Cost Leadership. - The low cost leader in any market gains competitive advantage from being able ab to many to produce at the lowest cost. Factories are built and maintained; labor is recruited and trained to deliver the lowest possible costs of production. 'Cost Cost advantage' is the focus. Costs are shaved off every element of the value chain. Products tend to be 'no frills.' However, low cost does not always lead to low price. Producers could price at competitive parity, exploiting the benefits of a bigger margin than competitors. Some organizations, such as Toyota, are very good not only at producing h high igh quality autos at a low price, but have the brand and marketing skills to use a premium pricing policy. 2) Differentiation - Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. This allows companies to desensitize prices and focus on value that generates a comparatively higher price and a better margin. The benefits of differentiation require producers to segment markets in order to target goods and services at specific segments, generating a higher than average price. For example, British Airways differentiates its service. The differentiating organization will incur additional costs in creating their competitive advantage. These costs must be offset by the increase in revenue generated by sales. Costs ts must be recovered. There is also the chance that any differentiation could be copied by competitors. Therefore there is always an incentive to innovated and continuously improve. 3) Focus or Niche strategy. - The focus strategy is also known as a 'niche' strategy. Where an organization can afford neither a wide scope cost leadership nor a wide scope differentiation strategy, a niche strategy could be more suitable. Here an organization focuses effort and resources resources on a narrow, defined segment of a market. Competitive advantage is generated specifically for the niche. A niche strategy is often used by smaller firms. A company could use either a cost focus or a differentiation focus. With a cost focus a firm aims at being the lowest cost producer in that niche or segment. With a differentiation focus a firm creates competitive advantage through differentiation within the niche or segment. There are potentially problems with the niche approach. Small, specialist niches ches could disappear in the long term. Cost focus is unachievable with an industry depending upon economies of scale e.g. telecommunications. telecommunications

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