SWOT Analysis

The overall evaluation of a companys strengths, weaknesses, opportunities & threats is called SWOT analysis. External Environment (Opportunity & Threat analysis) A business unit has to monitor key macro environment forces & micro environment actors.

A marketing opportunity is an area of buyer need & interest in which there is a high probability that a company can profitably satisfy need.

There are three main sources of market opportunities.

1 to supply something that is in short supply, it requires little marketing talent as the need is obvious. 2 to supply an existing product or service in a superior way. The improvements can be found by carrying consumer research. 3 to develop a new product or service

Consider the examples:

1 company can make buying process more convenient or efficient. 2 company can meet the need for more information & advice 3 company can customize a product or service that was formerly offered in a standard form. 4 company can introduce new capability 5 company may be able to deliver the product or service faster. 6 company may be able to develop the product at much lower price.

Market Opportunity Analysis (MOA) - is used to determine the attractiveness & probability of success. Opportunity matrix
Success Probability
High Low

1 Best marketing opportunities High 1 2

Attractiveness
Low 3 4

2 & 3 these opportunities should be monitored in the event that any improvement in attractiveness & success probability takes pace
4 opportunities too minor to consider

An environmental threat is a challenge posed by an unfavorable trend or development that would lead, in the absence of defensive marketing action, to lower sales or profit. Threat Matrix
Probability of occurrence
High Low

High

1 Company needs contingency plans to make changes before or during the threat 2 & 3 monitored carefully in the event that they grow more serious. 4 can be ignored

Seriousness
Low 3 4

SWOT Analysis
Strength
CONVERT M

Weakness

A
T C H CONVERT

Opportunity

Threat

Internal Environment (Strength & weakness) Analysis

Each business needs to evaluate its strength & weaknesses. It does so by looking the importance of particular strength/weakness & companys performance in that. The big question is whether the business should limit itself to those opportunities where it posses required strengths or whether it should consider opportunities where it might have to acquire or develop certain strengths

The Competitive Environment

Porters 5 Forces Framework Industry Analysis

NEW ENTRANTS

SUPPLIERS

BUYERS

RIVALRY AMONG FIRMS

SUBSTITUTES

The Tool

Analysis to assess the attractiveness of an industry based on the strengths of five competitive forces S W O T: Company specific THE FIVE FORCES: Industry specific THE FIVE FORCES: Help a decision i. To enter an industry ii. To strengthen current position iii. To exit an industry

Threat Of New Entrants

i. ii.

iii.
iv.

New entrants reduce profits When profit is far more than cost of capital, new firms will enter Entry barriers existence Fear of retaliation (eg. Price reduction) will deter new entrants

Entry Barriers Economies of scale Capital costs Switching costs Access to distribution channels

i. ii. iii. iv.

Bargaining Power Of Buyers

How Buyers Can Affect An Industry: i. Ability to force down prices ii. Bargain for higher product quality or better service iii. Play competitors against each other

Bargaining Power Of Buyers

Buyers are powerful if:
i. ii.

iii.
iv.

Buyer purchases in large proportion Buyer integrates backward Product is standard Low cost of changing supplier

Bargaining Power Of Suppliers

How They Do It i. Raise prices ii. Reduce quality

Bargaining Power Of Suppliers

A supplier group is powerful if:
i.

ii.

iii.

iv.

Supplier industry is dominated by a few, but it sells to many Product or service is unique or it has built up switching costs Substitutes are not readily available Suppliers are able to integrate forward

Threat Of Substitutes
i.

ii.

iii.

Competition is not only from new entrants but from products meeting similar needs Substitutes limit potential returns with the help of price ceilings Customers can easily switch

Rivalry Amongst Firms is related to many factors including:

i. ii. iii. iv.

Numerous Or Equally Balanced Competitors Absence Of Differentiation Low Switching Costs High Exit Barriers

OTHER CONCEPTS DEVELOPED

Co-opetition Competitive behavior that combines competition with cooperation Strategic Groups A group of firms in an industry, which are following the same or similar strategy Mobility Barriers Factors that prevent the movement of organizations from one strategic group to another

STEEP Analysis is technique used for external environmental analysis. It includes factor: Socio-cultural Technological Economic Ecological Political-legal

PESTEL Analysis Political Economic Sociocultural Technological Ecological Legal

The Internal Environment

Internal Scanning often referred to as organizational analysis, is concerned with identifying and developing an organizations resources & competencies. Resources i. are an organizations assets & are thus building block of the organization. ii. They may be tangible or intangible.

Capabilities i. refer to a corporations ability to exploit its resources. ii. They consists of business processes routines that manage the interaction among the resources to turn inputs into outputs. iii. A capability is functionally based & is resident in a particular function.

Competency is a cross-functional integration & coordination of capabilities. Core competency is a collection of competencies that crosses divisional boundaries, is widespread within the corporation, & is something that the corporation can do exceeding well.

Distinctive competency is core competency superior to that of competition.

VRIO framework to evaluate a firms competencies. Value Does it provide customer value & competitive advantage Rareness Do no other competitors possess it Imitability Is it costly for others to imitate Organization Is the firm organized to exploit the resource

Determining the sustainability of an Advantage Two characteristics determine sustainability of a firms distinctive competencies:
i. ii.

Durability Imitability

Porters value chain -

Scanning Functional Resources & Capabilities Basic Organizational Structure

i.
ii. iii. iv.

Simple structure Functional structure Divisional structure SBUs

Scanning Functional Resources & Capabilities Corporate Culture: The company way

It is the collection of beliefs, expectations, and values learned and shared by a corporations members and transmitted from one generation of employees to another.
The culture includes the dominant orientation of the company such as, R&D at HP, innovation at Google, or product quality at BMW.

Strategic Marketing Issues

i. ii.

iii.

Segmentation & positioning Marketing mix Brand & corporate reputation

Strategic Financial Issues

i. ii.

Financial leverage Capital budgeting

Strategic HRM Issues Increasing use of teams Quality of work life & human diversity

Synthesis of Internal Factors IFAS (Internal Factor Analysis Summary)

Strategy Formulation

Corporate Level Strategy

Corporate strategy deals with three key issues facing the corporation as a whole
i.

ii.

iii.

The firms overall orientation toward growth, stability or retrenchment (directional strategy) The industries or markets in which the firm competes through its products or business units (portfolio analysis) The manner in which management coordinates activities and transfer resources and cultivates capabilities among product lines & business units (parenting strategy)

Directional strategy A corporations directional strategy is composed of three general orientations (also called grand strategies):
i. ii.

iii.

Growth strategies expand the company activities Stability strategies make no change to companys corporate activities Retrenchment strategies reduce the companys level of activities

Growth Strategies
Three options are available

1 identify opportunities within current business intensive opportunities 2 identify opportunities to build or acquire businesses related to current businesses integrative 3 identify opportunities unrelated to current business diversification

Growth Strategies
Intensive Growth Integrative Growth Backward Integration Diversification Growth

Market Penetration

Product Development

Forward Integration

Synergistic Conglomerate

Market Development

Horizontal Integration

Concentric

Horizontal

Ansoff Growth Matrix (Product market Expansion Grid) Current Products New Products

Current Markets New Markets

Market Penetration Market Development

Product Development Diversification

Intensive Growth

Market Penetration Increase sales to the current customers Convert non-users into users Market Development By adding new channels of distribution expanding consumer reach By entering new market segments By entering new geographical markets Product Development Expand product market/customers mix for the existing

Integrative Growth

Backward Integration acquiring one or more suppliers Forward Integration acquiring wholesaling or retailing Horizontal Integration acquiring one or more competitors

Diversification Strategies

Concentric Adding new products having synergy with existing product line meant for new class of customers. Horizontal Adding new product which is technologically unrelated to current product line but appeals to existing customers. Conglomerate Adding new business that is unrelated to current business, technology or product-markets.

SBU Level Strategy

Porters Generic Strategies Cost Leadership

Broad Target
Appeals to broad target market, produce products in large volumes, and keep prices low

Differentiation
Offer products that have a broad appeal and also have unique features to justify higher prices

COMPETITIVE SCOPE

Focus (Cost based): Serves narrow

Narrow Target

market segment (s) and keep the prices low

Focus (Differentiation based): Targets narrow

market segment (s) and offer products that have unique appeal

Lower cost

Differentiation COMPETITIVE ADVANTAGE

Portfolio Analysis

Resource Allocation to SBUs and Strategic Models

BCG Matrix GE Multifactor Portfolio Matrix Arthur D Little Model

BCG Matrix M
A R K E T G R O W T H R A T E 20

STARS

QUESTION MARKS
(Problem Children) Large Negative Cash Flow (Usually new SBUs)

High

Modest + or Cash Flow

10

CASH COWS
Large Positive Cash Flow

DOGS
(Cash Traps) Modest + or Cash Flow

Low

0 10 High 1 Low 0.1

RELATIVE MARKET SHARE

BCGs Strategic Options

SBU Classification SBU Characteristics Strategy Dogs (Low share, low growth) Question Marks (Low share, high growth) Stars High share, high growth) Generates low profits or losses. Divest sell Consumes more management time. off, liquidate Requires lot of cash for fast growth. Continue investing in the SBU or withdraw from market. Generates large amount of cash. Competitors attack on SBU. Build / Harvest / Divest

Example Sahara Airlines

Sabeer Batia sold Hotmail to Microsoft

Build Intel invests Increase heavily in market share Pentium

Cash Cows (High share, low growth)

Generates considerable amount of cash. Enjoy economies of scale & higher profit margins

Hold / Roohafza, Harvest Vicks, Preserve Lux market share

GE Multi Factor Portfolio Matrix

High
MARKET ATTRACTIVENESS

Protect position / Invest heavily Build selectively

Invest to Build

Build selectively / Protect Limited expansion / Harvest Divest

Medium

Selectively manage for Earnings Manage for Earnings

Low

Protect and Refocus

Strong

Medium

Weak

BUSINESS STRENGTH

Arthur D. Little (ADL) Model

Stage of Industry Maturity
EMBRYONIC
DOMINANT Grow fast. Build barriers. Act offensively

GROWTH
Grow fast. Aim for cost leadership. Defend position. Act offensively Lower costs. Differentiate. Attack small firms

MATURE
Defend position. Increase the importance of cost. Lower costs. Differentiate. Focus Focus. Differentiate. Hit smaller firms Niche. Hold on. Withdraw

AGEING
Defend position. Focus. Consider withdrawal

Competitive Position

STRONG

Grow fast. Differentiate Grow fast. Differentiate

Grow with the industry. Focus Search for a niche. Attempt to catch other markets

Harvest Harvest Withdraw Withdraw

FAVOURABLE

Focus. Defend. Differentiate.

Hold on or withdraw. Niche. Aim for growth

TENABLE

WEAK

Niche or withdraw

Withdraw

Profit Impact of Market Strategy (PIMS)

Developed by Strategic Planning Institute (SPI) Maintains data about industry characteristics, competitive position, resource allocation, strategic moves and operating results The data are analyzed considering most likely changes in future and then options can be assessed regarding present strategies and other alternatives. PIMS shows strong relation between market share & profitability: high market share companies earn higher ROI. Also data shows that higher quality products tend to be more profitable than competitors. PIMS also suggests that lower costs have a positive impact on profitability.

3 Core Elements of Business Strategy

Business

Strategy

Product-market Investment Decisions

Product-market scope Investment intensity Resource allocation over business units

Functional Area Strategies

Product Price Place Promotion, etc.

Basis of Sustainable Competitive Advantage

Assets / Competencies
Synergies