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Analysis
D. R. Ziemer and P. D. Maycock
T HE IMPORTANCE WHICH MODERN maker be given visibility of not only what The relationships basic to the framework
management places on strategic plan- has been considered in the analysis, but are shown in Figure 1. We view the evolu-
ning is obvious to anyone who has noted also some of what has been left unexplored. tion of admissible strategies as the inter-
the explosive growth of literature in the A good strategic analysis clearly sets section of sets of relationships that have
field.The diversity of this literature,though, forth the key alternatives to be considered been iteratively interacted with another
points up the fact that strategic planning by the decision maker. The purpose of this one to obtain the best balance among
is a many-faceted, complex subject. The report is to sketch a framework for Needs, Resources and the Environment. To
literature leaves the impression that strat- strategic analysis that will give the analyst facilitate the understanding of the frame-
egic planning is far from a well defined a basis for determining the key alterna- work and its implications for strategic
body of knowledge. tives. analysis, we begin with some definitions.
We believe that plans become strategic In the next section we define the key Needs: Continuing problems or latent
when they are the basis for decisions to concepts in our framework for strategic desires. The totality of needs is the
commit resources over a long period of analysis. We show that each concept is, in potentially available market.
time. ‘Long’ in this context means com- essence, a set of relationships. The key Resources: The totality of the where-
mensurate with the life cycle of the pro- alternatives sought are found by searching withal (ours and the competition’s)
ducts/services involved. We have concluded the intersection of these sets of relation- allocable to finding solutions to needs.
that any lower level planning is tactical in ships. The last section of this paper illus- Resources consist of energy, materials,
that it involves a set of milestones to ac- trates the methodology. information, capital and people.
complish goals for which resources were
allocated. Conversely, any higher level I. INTRODUCTION Environment: Factors and relation-
planning effort is basically at the policy II. DEFINITIONS ships beyond one’s control that provide
level since it considers objectives of the Needs, Resources, Environment, Re- both opportunities and constraints
organization. quirement Analysis, Benefit/Cost for satisfying needs.
c
‘II . . .
Identified Opportunities I
C.. . c.. .
Proposed
Solutions IA
Approach ,IA1
I’,, IA2’
Implementations
JUNE, 1973 7
Figure 2 indicates the immensity of alternatives? are, then those performing This last requirement is the systems
thoroughstrategic analysis. Seldom do time the analysis-by modern standards-have analysis extension of the mathematical
and resources permit a complete analysis failed to complete their assignment. The concept of partitioning. It is extremely
leading to fully documented admissible best method we have found to ensure that a important. As one moves further into the
strategies. In fact, Figure 2 illustrates strategic study has completeness is to future, functional considerations become
the immense amount of information begin each analysis with a partition of its more important because they require less
the continually successful entrepreneur domain. specificity. Functional descriptions of en-
processes - subconsciously - when mak- In systems analysis usage partitioning is tities tell what they do; non-functional
ing strategic decisions. (The modifier an enlargement of the simple mathematical descriptions of entities merely tell how the
‘continually successful’ is added to remove concept of looking at the whole in terms of entities are presently implemented. Func-
from consideration the ‘one-in-a-thousand its parts or elements. To form a partition tional descriptions are verb oriented; non-
lucky speculation that results in spectacu- one should first be sure that all alternatives functional descriptions are noun oriented.
lar success and implies insight the specu- have a possibility of surfacing during the The requirement to consider all alterna-
lator probably did not have.) study. When all the generic categories tives may seem an impossible task. The
have been set forth, the partition has an secret to a solution lies in the third part of
exhaustive set of elements. Second, each our strategic definition of a partition-
SOME METHODOLOGY- WITH generic category should be distinctly differ- functional descriptions. This point will
ILLUSTRATlONS ent from the others. The main reason for become clearer with an illustration. To be
The intent of Figure 1, together with the this requirement is to remove the likelihood convincing the illustration should involve
accompanying definitions, is to present a of inefficient, redundant analysis. When a subject matter that has a large domain.
heuristic framework for what we believe the elements represent completely different Toward this end consider the consumer
constitutes comprehensive strategic analy- categories, the partition has a mutually market-an enormous entity!
sis. In the paragraphs to follow we discuss exclusive set of elements. Third, each gener-
some of the methodology available for per- To begin, note that the focal point for all
iccategoryshould bedescribed functionally.
forming the three cornerstone analyses- consumer expenditures is the household.
requirements, benefit/cost, and risk. Since Certainly all consumer expenditures are
methodology development has become SO
tThe word alternative(s) is troublesome. Strictly not restricted to some residential location,
speaking, it means offering two choices, but
extensive, we will make extensive use of but the household is the point of resource
modern usage has widened its meaning to in-
summary tables and figures. clude two or more choices. It is the more-than-
allocation decisions concerning consumer
two connotation that is used in this paper. expenditures.
Requirements Analysis
A requirements analysis, more so than
most types of analysis, must be done in an
iterative fashion. The following tasks 800
must be accomplished: F
700
l Determine what is already known 600
about the subject matter. Summarize
through the use of premises. 500
0 Organize the knowledge of the sub-
ject matter in some communicable 400
form. Basic to the process is the artful
use of partitioning.
l Make judgemental commitments con-
cerning which opportunities will be
studied in most detail.
l Write several scenarios describing the
probable environment for the most
attractive opportunities when and if
the opportunities are addressed with
products/services.
(1) Partitioning
One of the most important considera-
tions in undertaking any analysis is the
striving for completeness. Completeness
is realized when a subject matter is con-
sidered from an overall point of view.
Stated another way, completeness results
when the key relationships one must con-
sider are put into perspective. At the very
heart of modern strategic planning is the
trade-off among alternatives. If a strategic
analysis of some operational situation does
not show the decision maker what the Figure 3. Partition of Consumer Spending.
JUNE, 1973 9
Table 5. Problems in Acquisition of
Home Instruction.
JUNE, 1973 11
Lead Time
Dimension
Applicable
Methodologies
Data Compilation
*and Interpretation
Trend
l Extrapolation
. F;ye;on
. Delphi
Method
. Cross-Impact
Analysis . Scenario
Writing
Data Compilation and Interpretation: element of the partition. The degree of the following main steps in this phase of a
Wide range of general techniques. understanding, of course, will steadily de- strategic analysis:
crease as we seek to go further out in time. l Convert the requirements into solu-
Trend Extrapolation: Extrapolation of
trends as used by Ralph Lenz, tion approaches;
Benefit/Cost Analysis
Wright-Patterson Air Force Base, 0 Identify specific products/services
From a requirements analysis an opera-
Schmidt and Smith at U.S. Naval which could implement the solutions :
tional situation can be described to the
Ship Systems Command and many
point of a ranked set of requirements. The l Determine the market size and mar-
others.
next major task is to develop a product ket share as a function of product
Citation Index: Do not know of plan for filling these requirements. We use price/volume.
specific reference. The technique is
one of monitoring articles describing
technology. A graph is kept of the
rate of occurrence of articles for dis-
lFunlcfionljFun2CfionJ
/Fun3ctionl
jfunqcfian)...
tinct (new) technologies. Often times a
breakout pattern indicating that a
technology is about to be exploited Solution No.1 - - - - Approach No.1
can be detected by noting a definite
upward break in rate trend.
Solution No.2 - - - - Approach No.2
Delphi Technique: op cit.
Cross-Zmpact Analysis: Cross-impact
Solution No.3 - - - _ Approach No.3
techniques in Selwyn Enzer, Tech-
nology Assessment, Futures, Vol. 4,
No. 1, p. 30 (March 1972). r/ i ~
-- Approach No.4
Solution No.4 - ---c-
Scenario Writing:
A good example . .
would be the classic scenarios by . .
-- .
Herman Kahn, The Year 2000. Solution No.5 - .
.
The end result of a good environmental .
/
study is a refinement of the elements in the Solution No.6 - .
original partition and a more sharply de- . . .
fined operational situation. With the com- . . .
. . .
pletion of an environmental study, we
should have a high level of understanding
of what the future could hold for each Figure 9. The Methodological Approach.
JUNE, 1973 13
policy, though, would limit the range of In Figure 1 I(d) we see price directly tied ket penetration goals. If one can determine
proposed products. to experienced-determined costs. The mar- the experience factor for the product under
In this stage of strategic analysis the ket leader experiences real competition consideration, one can develop powerful
analyst is ready to make extensive use of only if he cannot deliver or his competitor IO-year sales and cost forecasts which are
the talents within his own organization as accepts great losses to gain experience. inputs to the financial model to be des-
well as the services of external consultants. Figures 11(e) and (f) show some actual cribed in the next section.
Our experience convinces us that teams are price/volume relationships for silicon tran- In our experience, most analysts fail in
often used too early-before strategic al- sistors and integrated circuits. The pricing their estimates of sales, not because they
ternatives have been developed. The early strategies were different. have not identified a need and a market,
use of high technology teams can result in a For a new product, the planner must but because they fail to consider competi-
product looking for a need rather than the postulate various experience curves, de- tion of similar products and competition
satisfying of a need based on requirements velop pricing policies and determine mar- of other approaches to fill the need.
analysis. After the products/services are
identified in detail. we can commence
analysis of the markets served.
.ii
(3) Market Size, Market Share, and
Product Price
5 300
Now we are ready for a Classical
5 C
Market Analysis. The product has been ‘Z 200 5 l-00
blocked out and the customer’s response 8 ‘; o-70
has been studied using such methods as 2 100 B o-50
u
questionnaires, market surveys, trial mar-
0
keting, etc. The competition’s market res- 0 40 80 120 160180
ponse is analysed with respect to product Accumulated Volume, Units
and price and, finally, a scenario is written Accumulated Volume, Units
showing the expected sales in units and unit
price for the particular products consi- (b)
dered.
One method used to develop long-term
price/volume scenarios is that of exper-
ience curves as recently described by the
Boston Consulting Group.5.a Figure 11
serves to illustrate the concept. The major
premise of experience curves is that costs
decrease with experience. Figure 11(a)
shows cost versus volume plotted on a
linear scale; Figure 11(b) shows the in-
formation plotted on a log-log scale. The
linear relationship of Figure 1l(a) plotted
on a log-log scale has a slope which is
characteristic of the ‘learning’ rate for a TotalAccumulated Volume TotalAccumulated Volume
product/service. For example, a 20 per
cent reduction in costs for each doubling
of total output is called an 80 per cent ex-
perience curve. An 80 per cent experience
curve is typical for many products. Figure
1l(b) notes the experience of three different
producers (A, B and C) of a product.
Producer C with four times the experience
of A has costs 64 per cent of those of A.
If C’s capacity to produce and market the
product has been correctly developed, C 2 O.lOl
100 1K 10K 1OOK 1M 1
will obtain market share and accelerate its Industry Total Accumulated Industry Total Accumulated
experience to the detriment of newcomers Volume(Thousands of Units) Volume (Millions of Units)
like A. Figures 11(c) and (d) show two
price/cost experience scenarios. In 11(c)
price was at a high level during phase (a),
price shake-out occurred during phase (b),
and price follows cost down in phase (c).
Figure 11. (a) Representation of Experience Relationships Graphically on a Linear
Under such a ‘price umbrella’, competitors Scale.
gain experience, start cutting price, pre- (b) Market Share and Costs for Three Competitors.
cipitate phase (b) to gain market share, (c) A Characteristic Pattern of Costs and Prices.
and the leader-not cutting prices soon (d) An Alternative Pattern of Costs and Pricer.
(e) Revenue Curve for Silicon Transistors during the Period from 1964 to 1968.
enough in phase (a)-loses market share (f) Price Curve for Integrated Circuits-Monthly Price Data, 1966-1966:
and often his market dominance. Annual Average Price Data, 1964-l 968.
CONSUMER ENVIRONMENT
Mobility
PERIPHERAL
ENVIRONMENT
Administration
, immediate Environment
JUNE, 1973 15
Year 0 1 2 3 4 5 6 7 6 9 10 Total 15 Total
Total 165 221 220 244 272 303 373 460 530 626 725 1349
Total 164 212 207 230 255 285 350 434 501 592 686 1173
Loans Outstanding 110 238 319 377 414 431 449 467 463 440 396 0
Total Loans Repaid 0 0 0 0 0 0 0 0 4 27 71 467
In a typical study we calculate R as a the business over an extended period of critical point the fair market ‘sell the
function of the alternative approaches and time. Further insight into the critical business’ prices are estimated. Figure 15 is
as a function of key parameters. Figure 14 ‘first 2 years’ is often required. a graphical display of the total expenses
shows the sensitivity of the internal rate of (3) Upside/ Downside Risk Analysis (operating and capital) and the possible
return on investment for a particular al- Figure 15 is an attempt to present this egress points including total salvage value
ternative as a function of variables ‘A’ ‘transient’ analysis of start up risks of the as we begin the start-up of a new venture.
and ‘B’. business. Here the analvst must first write The analysis consists of
The risk analysis just described is es- a scenario which covers the evolution of a (a) Determining critical events in time
sentially a ‘steady-state’ analysis. The typical entry into the marketplace. Key as a new system is conceived and
analysis tends to highlight the calibre of events are quantified. Finally, at each installed. The events here are:
l Start programme Time=0
0 Event 1 12 months
l Event 2 18 months
l Event 3 24 months
0 Event 4 30 months
0 Operating business Ongoing.
(b) Determining total costs accrued at
the end of each event.
(cl Determining salvage value at the
end of each event.
We have found this event-based, upside/
downside risk analysis a valuable tool for
communicating ‘risk’ to management.
If each venture alternative has a funds
flow model, an IRROI analysis with
sensitivity analysis, and a display of upside/
downside risk, the decision maker can
make action decisions with a degree of
confidence not usually established.
(4) Selecting Admissible Strategies
We now come to the trade-off stage of
strategic analysis: the selection and com-
munication of Admissible Strategies. The
role of the analyst is to provide the deci-
sion maker with a framework with which
to select those strategic alternatives which
Figure 14. Sensitivity Analysis. are best for his company. Each company
Resources Required
Capital
People/Skills
Facilities
0
Return on investment
IRROI
Operating Profit Levels
Earnings per Share
:
0
Market Factors
Market Share
Market Size
Growth Rate
Product Lifetime
0
Other Factors
Economic Environment
Technology Impact
International Situation
:
0
Figure 15. Upside/Downside Business Risk.
“
a set of resource allocations to REFERENCES
probably will establish its own approach . . .
to this step. We propose an iterative rele- which there is a long-term commitment.” (1) This report is an application of some of the
vance analysis involving the following Table 7 shows the factors that might be basic planning and control philosophy set
forth in a working paper by D. R. Ziemer and
key steps : considered. The task of the analyst is to E. L. Jones, Design for an Executive System
0 Obtain management concurrence on scale the factors for the alternatives. The (September 1967).
the basic premises of the entire task of the decision maker is to provide
the weights. (2) An Experimental Application of the Delphi
operational situation; Method to the Use of Experts, N. C. Dolkey
0 Present management with a summary The factors in Table 7 are meant only and 0. Helmer, Management Science, Vol. 9,
to be exemplary. The key requirement is to pp. 458-467 (1963).
review of the results of the require-
ments analysis, the benefit/cost analy- determine the factors that must be assessed (3) Fritz Zwicky. Discovery, Invention, Research
sis, and the risk analysis; to obtain management’s commitment to through the Morphological Approach. Mac-
specific strategicalternatives. The corporate millan, London (1969).
0 Present the most attractive alterna- objective and the business objective in (4) The creative problem solving method de-
tive strategies that evoived from the which the strategy is being developed will veloped by George M. Prince and offered to
strategic analysis; be key sources of factors and weights industry by Synectics Inc. See George M.
Prince, The Practice of Creativity. Harper &
0 Provide management a framework for to be considered. Row (1970).
ranking these alternatives; When the trade-off analysis has gone (5) Boston Consulting Group, Perspectives on
through several iterations and manage- Experience (1968).
0 Write the strategy.
ment has selected an admissible strategy(s), (6) Conley, Experience Curves as a Planning
This section will summarize some of the the analyst may have another vital role to Tool, /.EfE Spectrum, June 1970.
factors one might consider in selecting play: the preparation of the detailed
(7) Chester R. Wasson. Product Management:
strategic alternatives. At this point the strategy. If the above tasks have been Product Life Cycles and Competitive Mar-
reader should have in mind our concept performed well, this task becomes most keting Strategy. Challenge Books, St.
of a strategic plan. rewarding. n Charles, Illinois (1971).
JUNE, 1973 17