STRATEGIC MANAGEMENT ANALYSIS OUTLINE

Master of Business Adm. Program

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OUTLINE - THREE PARTS OF A STRATEGIC ANALYSIS

(INFORMATION)

1. ASSESS FIRMS INDUSTRY AND/OR MARKET

2. ASSESS FIRMS CAPABILITIES 3. ASSESS THE BUSINESS OPPORTUNITY

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PART 1 - OUTLINE -- ASSESS FIRMS INDUSTRY/MARKET (INFORMATION)

A. Determine industry/market characteristics B. Check list of characteristics. C. Porters five forces. D. Trend analysis of industry sales. E. Sources of economic forecasts. F. Sources of industry information. G.Five year forecast of industry sales.

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PART 1A - ASSESS FIRMS INDUSTRY AND/OR MARKET CHARACTERISTICS

(OUTLINE))

Determine industry requirements Resources - labor, capital, information Technology - high tech, rate of change Assess Porters five forces Assess buyer characteristics Assess supplier characteristics. Summarize as a statement of industry opportunities and threats. Using a published economic forecast, forecast industry revenues for 5 years. 7/26/2013

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PART 1B - A CHECK LIST FOR INDUSTRY ASSESSMENT

(INFORMATION)

RESOURCES: Concentration of suppliers; number of suppliers; location of suppliers; research assessments by financial analysts. TECHNOLOGY: Flexible or inflexible; engineering or skill; machine or labor intensive; barriers to entry; R&D requirements; patents; value added, rate of change. PRODUCT/SERVICE: Value density; product diversity; industry life cycle; profit levels; value chain. MARKETS: Overall size; geographic scope; number of buyers; concentration of buyers; location of buyers; number of competitors; character of competitors; role of advertising; share of advertising; market share; distribution channels. CHECK OUT:

www. virtualpet.com/industry/howto/search.htm
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PART 1C - PORTERS FIVE FORCES INDUSTRY ASSESSMENT

(REQUIRED)

1 Threat of new entrants. 2 Bargaining power of customers. 3 Threat of substitute products. 4 Bargaining power of suppliers. 5 Jockeying for position among current competitors.
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PART 1D - TEN YEAR TREND ANALYSIS OF INDUSTRY/MARKET SALES

(REQUIRED)
Health Care Expenditures
Curr. $ 1000 Trend Line

Expenditures - Current Bil. $

Grow th Rate = 10.4 %

100

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

Year
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1993

PART 1E - SOURCES OF ECONOMIC FORECASTS (INFORMATION)

Fortune Magazine - 18 month forecast every quarter. Business Week - 12 month forecast in January Forbes - 12 month forecast in January Long term forecast - project trend of 2.5 % per year. Forecast a recession within five years. Inflation When forecasting, assume that inflation will affect prices and costs equally. In other words, margins will remain constant.
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PART 1F - SOURCES OF INDUSTRY INFORMATION

(INFORMATION)

PREDICASTS F&S INDEX - Index to periodical literature organized by company name and industry (SIC) code. ABI COMPUTER SEARCH SYSTEM - Search by key words - industry name, product name, etc. Less precise than SIC code. VALUE LINE INVESTMENT SERVICE - Most industries are reviewed once every 24 months. PREDICASTS INVESTMENT SERVICE - Most industries are reviewed once every 24 months. TRADE ASSOCIATIONS
CHECK OUT:

www. virtualpet.com/industry/howto/search.htm
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SUMMARIZE INDUSTRY ANALYSIS

(REQUIRED)

Identify opportunities in the industry. Markets - future buyers Suppliers - new sources of supply Technology - future developments Identify threats in the industry Markets - new competition Suppliers - dwindling source of supply Technology - new substitute technologies Summary statement of impact on next five years and forecast revenues.
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PART 1G - GRAPH FIVE YEAR FORECAST OF INDUSTRY SALES

(REQUIRED)
U.S. HEALTH CARE EXPENDITURES (1978-1993)
10000

Expenditure-Current $:Bill.

Forecast G.R. = 11 %

1000

Health Curr. $ Reg. Line Trend Line Forecast 100

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

YEAR
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1998

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THREE PARTS OF A STRATEGIC ANALYSIS

1. ASSESS FIRMS INDUSTRY AND/OR MARKET

2. ASSESS FIRMS CAPABILITIES

3. ASSESS THE BUSINESS OPPORTUNITY

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PART 2 - OUTLINE -- ASSESS FIRMS CAPABILITIES

(OUTLINE)

A. B. C. D. E. F. G. H.

Definition of Purposes (and objectives) List of purpose areas Determine firms purposes and objectives. Develop trend analysis of firms sales. Analyze firms operating ratios. Analyze firms financial ratios. Assess firms strengths and weaknesses Forecast firms sales for five years.
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PART 2A - DEFINITION OF PURPOSES AND OBJECTIVES

(INFORMATION)

PURPOSES (REQUIRED)
Categorized general statements about firms future intent.

OBJECTIVES (WHEN AVAILABLE)

Specific statements about firms future intent. a. Statement specifies result, not activity b. Statement describes measurement of result. c. Statement defines time period for accomplishment.
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PART 2B - LIST OF KEY PURPOSE CATEGORIES

(INFORMATION)

Market standing Profitability Physical and financial resources Innovation Product/service quality and productivity Worker attitude and training Management performance and development Public responsibility
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PART 2C - DETERMINE FIRMS PURPOSES AND OBJECTIVES

(REQUIRED)

Read all written information on the firm

(INFORMATION).

Identify one or more purposes in each category. Identify one or more objectives for each purpose.(optional) Summarize as a statement of firms purposes (and objectives).

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PART 2D - FIVE YEAR TREND ANALYSIS OF FIRMS SALES

(REQUIRED)

Jones Health Care Sales Trend

Trend Line 1000 Jones Sales

Sales $

Grow th Rate = 9%

100 1988

1989

1990

1991 Year

1992

1993

1994

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PART 2E - ANALYZE FIRMS OPERATING CONDITION

(REQUIRED)

1. Return on Assets - profit / total assets 2. Return on Sales - profit / sales revenues 3. Asset Turnover - sales / total assets 4. Expenses as percent of sales - gross profit; R&D; G&A; Sales/Mkt.; other. 5. Other asset turnovers - inventory; fixed assets; acct. receivables; other. FIVE YEAR COMPARISON WITH INDUSTRY MEDIANS AND COMPETITORS
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PART 2F - ANALYZE FIRMS FINANCIAL CONDITION

(REQUIRED)

1. Debt to assets = Total debt / total assets 2. Current ratio = Current assets/ current liabilities FIVE YEAR COMPARISON WITH INDUSTRY MEDIANS AND COMPETITORS

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PART 2G - ASSESS FIRMS STRENGTHS AND WEAKNESSES

(INFORMATION)

Marketing and sales Finance Management Operations (use ratios) Research and development Quality assurance Emphasis on actual performance, not on publicity statements!
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SUMMARY OF STRENGTHS AND WEAKNESSES

(REQUIRED)

LIST OF STRENGTHS LIST OF WEAKNESSES OVERALL SUMMARY ASSESSMENT ABOUT WHAT THIS MEANS FOR FUTURE REVENUES DESCRIBE THE REALISTIC FORECAST THAT THIS ANALYSIS SUPPORTS.

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PART 2H - GRAPH FIRMS SALES FORECAST

(REQUIRED) Jones Health Care Forecast
Jones Sales 10000 Trend Line Forecast

Sales $

1000 Forecast Growth Rate = 9.0%

100

1988

1989

1990

1991

1992

1993

1994

1994

1995

1996

1997

Year
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1998

THREE PARTS OF A STRATEGIC ANALYSIS

1. ASSESS FIRMS INDUSTRY AND/OR MARKET 2. ASSESS FIRMS CAPABILITIES

3. ASSESS THE BUSINESS OPPORTUNITY

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PART 3 - OUTLINE -- ASSESS THE BUSINESS OPPORTUNITY

(INFORMATION)

A. Analyze business opportunity B. Assess firm/market match. C. Prepare a five year financial forecast.

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PART 3A - ANALYZE BUSINESS OPPORTUNITY

(INFORMATION)

Assess technical feasibility Assess competition Evaluate financial resources Evaluate product/service Determine firms position in industry Evaluate firms organizational capabilities

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PART 4B - ASSESS FIRM/MARKET MATCH

(REQUIRED)

Match firms strengths to its purposes (and objectives). Identify gaps

Do strengths match purposes? Do purposes match industry forecast? Do purposes match firm forecast? What weaknesses restrict performance? How can this firm achieve its purposes?

RECOMMENDATIONS -- Describe what is required for this firm to achieve its purposes.
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PART 4C - PREPARE A FIVE YEAR FINANCIAL FORECAST

(REQUIRED)

Purpose - to show the future of the firms business in financial terms. Begin by reviewing your five year sales forecast with dollar amounts for each year.. Produce a five year income statement showing cash flows (REQUIRED). Produce five year balance sheet, and cash flow statement. (OPTIONAL)
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THE END

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