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Environmental Analysis

Lecture 3

Strategic Group Mapping & SWOT Analysis

Strategic Group Mapping


It is a technique for displaying the different competitive positions or markets that rival firms occupy in the industry. Answers the question: Which companies are in the strongest/weakest position? The Purpose is:
To understand the pattern of competition, & To identify the closest competitors
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Strategic Group Mapping


Companies in the same strategic group means:
Have comparable product-line breadth Sell in the same price/quality range Emphasize the same distribution channel Use essentially the same attributes of product Utilize almost the same technology Offer similar services to buyers

There can be one or many strategic groups of companies in an industry


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Strategic Group Mapping Procedure


Step 1: Identify the competitive characteristics that
differentiate firms in the industry:
Price/quality range: high, medium or low range Geographic coverage: local, regional, national and/or global Degree of vertical integration: none, partial, or full Product-line breadth: wide or narrow Use of distribution channel: one, some, or many Degree of service offered: no-frills, limited, or full

Strategic Group Mapping Procedure


Step 2: Plot the firms on a two-variable map (graph) using pairs of these differentiating characteristics Step 3: Assign firms that fall in about the same strategy space to the same strategy group Step 4: Draw circle around each strategic group, making the circles proportional to the size of the groups respective share of total industry revenue

Example: Strategic Group Map of Industry


Suppliers/Distribution Channels
< 20 Y, Z 10-20 5-10 N, T, S Low Medium Overall Cost
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C, P, Q A, B, D, M, X

>5

High

Few Guidelines for SG Mapping


1. Two variables selected as axes for the map should not be highly correlated 2. The variables chosen as axes should expose big differences in how rivals position themselves to compete in the marketplace 3. The variables used for mapping does not have to be quantitative or continuous 4. The circle (proportionate to the combined sales of the firms) in the map reflects the relative size of the group 5. It is advisable to construct as many as strategic group maps as necessary, if there are more than two good competitive variables
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Use of Strategic Group Maps


To identify the close rival companies in the industry. The closer the strategic groups are to each other on the map, the stronger competitive rivalry among member firms tend to be To understand whether industry driving forces and competitive pressures favour some strategic groups and hurt others To understand whether the profit potential of different strategic groups varies due to the strengths and weaknesses in each groups market position
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SWOT Analysis
Describes the particular strengths, weaknesses, opportunities, and threats that are strategic factors. Provides a good overview of whether the company overall situation. Results not only in identification of companys core competence but also identification of opportunities that the firm is not able to take advantage.
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SWOT Analysis
The most important part of SWOT analysis is Using the 4 lists to draw conclusions about a companys overall situation Acting on the conclusions to
Better match a companys strategy to its resource strengths and market opportunities Correct the important weaknesses Defend against external threats

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Role of SWOT Analysis


S Capitalize O Invest W Shore up T Identify External Internal

The prudent treatment of a SWOT in the planning process has the power to convert weakness into strength and threat into 11 opportunities

SWOT vs TOWS
SWOT is an objective method of analyzing the situation of a particular organization. TOWS matrix is an alternative approach. Use of TOWS matrix allows the analyst:
to relate the strengths and weaknesses of an organization to the opportunities and threats for it, and provides a structure for developing a number of strategic options on the basis of each of four elements

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