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STRATEGIC MANAGEMENT

UNIT-2
STRATEGIC ANALYSIS

Kathmandu Don Bosco College
Strategic Analysis
Strategy analysis seeks to determine
alternative courses of action that could best
enable the firm to achieve its mission and
objectives.
The firms present strategies, objectives and
mission coupled with the external and internal
audit information provide a basis for
generating and evaluating feasible alternative
strategies.

Process of External Environment
Analysis
Scanning (Step 1)
Changes in macro environment
Changes in market
Nature of competition
Customer needs
Product offerings
Types of scanning
Concentrated
Comprehensive


Contd
Process of Environmental Scanning
Identify relavent forces in the environment
Determine sources of observation
Select scanning methods
Scan and respond to data
Monitoring (Step 2)
Forecasting (Step 3)
Assessment (step 4)
Process of Internal Environment
Analysis
Define Mission, Goals and strategies
Strength and weaknesses Analysis
Identify Unique Resources
Identify Core Competencies
Locate Strategic Advantage
Unique Resources
Core Competencies
Superior Efficiency
Superior Quality
An Overview of Components of
External Environment
External environment of strategic environment
is of two types:
Operating Environment
Customers
Suppliers
Competitors
Government
Financial Institutions
Labor Unions
Pressure Groups
Media


Contd
Remote Environment
Political-legal
Political system
Political institutions
Political philosophies
Laws
Courts of law
Law of administration
Economic
Economic system
Economic policies
Economic conditions
Globalization


Contd
Socio-Cultural
Demographics
Social institutions
Pressure groups
Social change and mobility
Cultural environment (attitudes, values, beliefs, religion
and language)
Technological
Level of technology
Technological change
Technology transfer
Research and development budget
Components of Internal
Environment
Organizational goals and policies
Organizational structure
Organizational resources
Organizational culture
Unit 3
Strategic Alternatives

Strategic Alternatives
The firms present strategies, objectives, and
mission, coupled with the external environment
and internal audit information, provide basis for
generating and evaluating feasible alternative
strategies.
Unless a desperate situation confronts the firm,
alternative strategies will likely represent
incremental steps that move the firm from its
present position to a desired future position.
Alternative strategies dont come out of nowhere,
they are derived from the firms vision, mission,
objectives, external audit, and internal audit; they
are consistent with, or build on, past strategies
that have worked well.

Strategy development tool: SWOT
Analysis
Always leave blank Strengths-S
List strengths
Weaknesses-W
List weaknesses
Opportunities-O
List opportunities
SO strategies
Use strengths to take
advantage of
opportunities
WO strategies
Overcome weaknesses
by taking advantage of
opportunities
Threats-T
List threats
ST strategies
Use strengths to avoid
threat
WT Strategies
Minimize weaknesses
and avoid threats
Contd

The strengths-weaknesses-opportunities-threats
(SWOT) matrix is an important matching tool that helps
managers develop four types of strategies: SO
(strength-opportunities) strategies, WO (weaknesses-
opportunities) strategies, ST (strength-threats)
strategies, and WT (weaknesses-threats) strategies.
SO strategies use a firms internal strengths to take
advantage of external opportunities.
WO strategies aim at improving internal weaknesses by
taking advantage of external opportunities.
ST strategies use a firms strength to avoid or reduce the
impact of external threats.
WT strategies are defensive tactics directed at reducing
internal weakness and avoiding external threats.

Contd
SWOT matrix is composed of nine cells. There are four
key factor cells, four strategy cells and one cell that is
always left blank (the upper left cell).
The four strategy cells, labeled SO, WO, ST and WT are
developed after completing four key factor cells labeled
S, W, O and T.
There are eight steps involved in constructing a SWOT
matrix
List the firms key external opportunities.
List the firms key external threats.
List the firms key internal strengths.
List the firms key internal weaknesses.
Match internal strengths with external opportunities, and
record the resultant SO strategies in the appropriate cells.

Contd
Match internal weaknesses with external opportunities, and
record the resultant WO strategies.
Match internal strength with external threats, and record
the resultant ST strategies.
Match internal weaknesses with external threats, and
record the resultant WT strategies.
Pest Analysis
PEST is concerned with forces in the external
environment.
It looks at their future impact on the organization.
PEST comprises the following forces:
P= Political-Legal forces
E= Economic forces
S= Socio-cultural forces
T= Technological forces
Pest analysis helps identifying future opportunities
and threats to the organization.
Contd
Opportunity is a favorable condition in the
environment. It enables an organization to consolidate
and strengthen its strategic position.
Threat is an unfavorable condition in the environment.
It creates risks and causes damage to the
organizations strategic position.
PEST analysis indicates what environmental
forces are affecting the business and which of
them are the most important one.
Five Forces Analysis

Rivalry
among
competing
firms
Potential
entry of new
competitors
Potential
development of
substitute
products
Bargaining
power of
suppliers
Bargaining
power of
consumers
Contd
Porters Five-Forces Model of competitive analysis is a
widely used approach for developing strategies in many
industries.
The intensity of competition among firms varies widely
across industries.
Intensity of competition is highest in lower return
industries.
For e.g. in electrical and electronics industry, collective
impact of competitive forces is so brutal that the industry
is clearly unattractive from a profit-making standpoint.
Rivalry among existing firms is severe, new rivals can
enter the industry with relative ease, and both suppliers
and customers can exercise considerable bargaining
leverage.
Contd
Rivalry Among Competing Firms
Balance among competitors
High exit barriers
Low switching costs
High fixed costs
Slow market growth
Potential Entry of New Competitors
Economies of scale
Capital requirements
Product differentiation
Access to distribution channel
Customer loyalty
Retaliation
Experience
Government actions


Contd
Potential Development of Substitute Products
Product for product substitution
Substitution of need
Generic substitution
Bargaining Power of Suppliers
Concentration of suppliers
High switching costs
Powerful brand
Fragmented buyers
Few substitutes
Forward integration

Contd
Bargaining Power of Consumers
Concentration of consumers
Large number of small suppliers
High material cost
Low cost of substitution
Backward integration
Selection of Strategic Alternatives
Grand Strategies
Stability
Expansion
Retrenchment
Combination
Market-oriented Strategies
Low Cost leadership
Product Differentiation
Market Focus

Grand Strategies
Corporate strategy is overall strategy that provides long-
term direction and scope to the organization.
It defines products, markets and functions.
It is also known as grand generic strategy.
It is concerned with managing a portfolio of businesses
and allocating resources to them.
Grand Strategy can be:
Stability
Growth (expansion)
Retrenchment

Stability strategy
This strategy is pursued in relatively stable environment.
The existing business definition is maintained.
There is no change in products, markets and functions.
The organization is the market leader.
The product is at the maturity stage in product life cycle.
Stability is aimed through
No change strategy: Current policies and operations are
continued.
Pause Strategy: Moving with caution.
Profit Strategy: Profitability is sustained.
Growth Strategy
This strategy is pursued in highly competitive and
changing environment.
New products, markets and functions are added.
The product is in the growth stage of product life cycle.
Growth is through increased market share and
production capacity.
Growth strategy is achieved through:
Growth through concentration: Specialization in one activity.
This example is fast food chains.
Growth through integration: combining activities, vertical or
horizontal

Contd
Vertical Integration: Backward or forward integration into
adjacent activities of current business. Backward is related to
inputs. Forward is related to outputs. One business feeds the
other in the same industry.
Horizontal Integration: Integration into activities which are
competitive or complementary with present activities. It entails
moving into more than one industry.
Growth through diversification: Change in products, markets
and functions. New business is started.
Diversification can be:
Related Diversification (concentric Diversification): It is through
acquisition of firms that are related in terms of technology, products
and markets for the acquiring Firm.
Unrelated Diversification (conglomerate Diversification): It is growth
through acqusition of firms that are unrelated in terms of technology,
products and markets for the acquiring firm.

Contd
Growth through cooperation: Cooperation among rival
firms e.g. mergers, acquisitions, joint venture,
strategic alliances.
Retrenchment Strategy
This strategy is pursued in threatening environment,
products, markets and functions are reduced.
The pace of activities decreases.
The product is in decline stage of product life cycle.
Cash flow is negative.
Retrenchment is aimed through reduced market share,
dropping product lines and markets, and divestment.
The aim is contraction of activities through:
Turnaround strategy: reversing a negative trend to increase
efficiency. Cost is reduced, unprofitable products are dropped,
work force is reduced, distribution outlets are trimmed.
Divesture strategy: sale of a portion of business to exit from
market. It may be to get rid of losers or to finance new
acqisitions.

Contd
Liquidation strategy: Closing down by selling assets.
Combination Strategy
This strategy is pursued in many and changing
environments.
The organizations has several Strategic Business Units
(SBUs).
It simultaneously uses combinations of stability,
expansion and retrenchment strategies to different parts
of the organization.
Old products, markets and functions are continued,
dropped or expanded.
Product life cycle are in different stages. The aim is to
improve performance.
The combination can be:
Simultaneous combination: Applied same time in different
businesses.
Sequential combination: Applied at different time in same
business.
Simultaneous and sequential: Combination of both.
Market Oriented Strategies
Low Cost Leadership Strategy
The focus of this strategy is on cost.
Low cost leadership means low overall costs.
Low cost means lower prices relative to
competitors.
It finds ways to reduce cost by reducing waste.
This strategy appeals to price sensitive buyers.
Ways of reducing cost:
Control cost drivers: drive down the costs by doing a
better job than competitors i.e. costs are reduced in
each activity segment of value chain through:
Economies of scale
Experience curve
Contd
Cost of key resources
Resource sharing
Outsourcing
Capacity utilization
First mover advantage
Integration
Revamping Value chain: costs can be reduced by
revamping value chain through:
Shifting to e-business
Direct marketing
Simplifying product design
No-frills offers
Bt pass high cost materials
Relocate facilities
Reengineering
Contd
Product differentiation strategy
This strategy focuses on differentiation.
Differentiation aims to establish uniqueness of a
brand relative to competing brands in the minds
of customers.
It is making products different from competitors
product.
It incorporates differentiating product features.
Customers perceive superior value in
differentiation.
Bases of differentiation:
Product parameters: Size, shape, design, features,
quality, performance
Contd

Services back-up: delivery, installation, repair,
trainings, availability of spare parts
Personnel : better and experienced personnel to
serve the customers
Promotion: using differentiating claims in promotion
appeals
Image: projecting organization or brand image
Drivers of Differentiation
Unique product performance
Unique product features
New technologies
Unique services
Detailed information
Market focus
The focused strategies concentrate on niche of
the market.
Niche is a narrow piece of the total market.
It is identified by dividing a market segment
into sub segments.
It consists of fairly small groups of customers
whose needs have not been well served.
The niche can be defined by:
Demographic characteristics : customers based
on age, income, occupation etc.

Contd
Geographical uniqueness: Geographic market
Specialized requirements
Special product attributes
Focused strategies aim to serve buyers better
than the competitors and can be of two types:
Focused low cost
Focused differentiation
Issues Governing the Selection of
Strategic Alternative
Suitability
Ranking
Decision Trees
Scenarios
Acceptability
Return Analysis
Risk Analysis
Stakeholder Reaction Analysis
Feasibility
Fund Flow Analysis



Contd
Break-even Analysis
Resource Deployment Analysis
Unit 4
Development of Strategies

Meaning

Process
Review Strategic elements
Vision
Mission
Objectives
Strategies
Conduct SWOT Analysis
External Environment
Internal Environment
Identify Strategic Options
Strategic options can be for:
Contd
Strategic Alternatives:
Grand Strategies: stability, expansion, retrenchment
and combination
Market-Oriented strategies: low cost leadership,
product differentiation and market focus
Direction
Protect/Build
Product development
Market development
Diversification
Methods:
Internal development

Contd
Mergers and acquisitions
Joint development and strategic alliances
Evaluate strategic options
Make strategic choice
Developing Strategies at
Functional Level
They are concerned with functions of SBUs.
They deal with operations of the organization.
They spell out specific strategies for each
function.
They follow from business strategies.
They can be:
Marketing strategies: related to adding value for
customer satisfaction.
Market development
Marketing mix related to product, price, place,
promotion.
Market segmentation to locate target markets.
Market positioning of brand in the minds of customers.

Contd
Product life cycle strategies
Price skimming or penetration
Distribution: exclusive dealership or multiple channels
Push or pull strategy for promotion
E-commerce strategy
Relationship management
Financial and Accounting Strategies: related to the best
use of financial assets to create owners wealth.
Acquisitions of financial resources-equity or debt, short term or long-
term
Cost of capital
Lease or buy fixed assets
Dividend payout: distribution of profit
Whether to go public, merge or acquire
Computerized accounting system

Contd
Human Resource Management Strategies:
related to the best use of human assets.
Acquisition of employees
Development of employees
Traditional 10-5 work day or flexible working hours for
utilization of employees
Pay for performance: bonus, profit sharing, stock
options for productivity improvements
Benefits and services
Knowledge management
Balancing work life and family life
Retention of employees


Contd
Production and Research and Development
strategies: related to product manufacture and
innovation.
Technology leader or follower
Purchasing sources
Product development: develop new products or
improve products
Mass production or customization
Basic or applied research
Budget allocation for R & D: in-house or outsourced R
& D
Collaboration with competitors
Outsourcing
Choice of technology: Hi tech or traditional

Contd
Plant capacity utilization
Quality control
Inventory management