STRATEGIC DECISION-MAKING AND ANALYSIS

INTRODUCTION
Effective strategic analysis, strategic decision-making and translating those decisions
into a strategy that can be communicated and planned is essential to the future
success of any organization. However, most firms become stuck in routine patterns
of analyzing strategy and making strategic decisions on the past. The business media
abounds with examples of firms that have become trapped by their pasts, lapsing
into strategic drift, often accompanied by managerial hubris and over-reach in
strategic decision-making. n a world where the rate of change is greater than ever
before, failure to analyze and expose strategic alternative to sound decision-making
practice is at best shortsighted and at worst a prescription for disaster. !ound
strategic decision-making is about analyzing the environment, appraising the firm"s
basis of competitive advantage, and making decisions about where that advantage
can be leveraged to gain sustainable advantage in the future. n this programme you
will learn how to#
focus on core tools for strategic analysis and how to use them effectively to make
strategic decisions
develop a strategy that can guide your firm into the future.
t will offer participants the chance to both examine best practice models from
other industries and also apply the techni$ues learned in their own industries
WHO SHOULD ATTEND?
%esigned for employees in all industries who are involved with the strategic
planning process for their unit or the whole organization, who want to improve their
strategic analysis and decision making skills. This programme builds well upon the
&'nderstanding !trategy (" programme but can also be taken as a stand alone
programme.
PROGRAMME OBJECTIVES ) *articipants attending the programme will#
'nderstand and apply a range of tools available for strategic analysis
+nalyze the competitive environment and your firm"s position in it
'nderstand the resources and competences involved in different bases of
competitive advantage
+nalyze the core competences and basis of competitive advantage of your firm
'nderstand and apply the tools available for developing strategic options
'nderstand the characteristics of good strategic decision making
'nderstand common traps involved in strategic decision making that lead to
failure
,ring strategic analysis and decision making together into a strategy for your firm
,roaden strategic analysis and decision making skills through considering a range
of case examples outside your industry and applying the concepts in your own firm.
Training Me!"#"$"g%
The most up to date training methodology is used to present this programme. The
programme is carefully designed to address all styles of learning and to engage
participants fully. -ectures, videos and case examples are used to introduce core
concepts and give applicants a chance to apply these concepts in a range of
industries. .ases from outside the applicant"s industry are designed to broaden the
applicant"s strategic thinking. However, there will also be opportunities to examine
how core concepts apply in your own industry. +ll lectures are supported with
discussion and powerful individual and group exercises. These exercises provide
opportunities for personal participation in real situations. %uring these exercises you
discover that you can do what you are learning. This process makes the training fun
filled, fast-paced, challenging and empowering.
PROGRAMME SUMMARY
Organizational Impact
,etter analysis of strategic issues
,etter strategic decision making
/reater understanding of organizational competences and competitive advantage
/reater flexibility in the organization
mproved translation of strategic priorities into workable strategies
Personal Impact
!harper focus on the strategic challenges and opportunities of the future
mproved analytic skills
,roader strategic thinking and strategic visioning
0ore effective decision-making skills
Enhanced understanding and communication of strategic priorities
,etter analysis of present and future operating environments
Competences Emphasized
!trategic analysis
1isionary thinking
2rganizational analysis
!trategic decision making
!trategic leadership
.reative imagination
*rioritizing strategies
.hange management
PROGRAMME OUTLINE
SEGMENT 1 - Analysing the competitie enironment and !irm positioning
ntroduction to environmental analysis tools ) *E!T-E, 3ive forces analysis,
ndustry life cycle analysis and !trategic group analysis
dentifying trends affecting an industry
dentifying the state of competition within an industry, the key competitors and
the key competitive positions
dentifying key success factors in an industry
.ase study analysis applying these concepts
+pplying these concepts to your firm
segment " - Analyzing the reso#rces and competences #nderlying
competitie adantage
ntroduction to organizational analysis tools ) 4esource auditing,
.ore competences, 1alue chain analysis
0apping how organizational resources and competences strengthen or detract
from a firm"s competitive position
.ase analysis# 'ndertaking a resource, competence and value chain analysis for
firms in different competitive positions
+pplying these concepts to your firm
Segment $ - %eeloping strategic options
ntroduction to tools for developing strategic options ) *ortfolio analysis,
*roduct50arket analysis, *rotecting current advantage
%eveloping a range of strategic options
Evaluating options and making strategic choices
Ensuring that strategic options fit the competitive environment, your firm"s
competitive position and develop sustainable competitive advantage
.ase analysis
SEGMENT & - The strategic decision ma'ing process
'nderstanding the key characteristics of effective strategic decision making
'nderstanding common traps in strategic decision making ) hubris, over-reach,
overly consensual
ntroduction to a range of tools for improving strategic decision making )
%ialectic in$uiry, %evil"s advocacy, !cenario building techni$ues
+nalyzing the strategic decision making process in your firm, business division, or
work group
%eveloping a guideline for improving decision making in your firm, business
division, or work group
SEGMENT (- P#lling strategic analysis and decision ma'ing together in a
strategy
dentifying your core business proposition
%eveloping a vision and mission statement for your core business proposition
dentifying the key strategic priorities that your firm needs to meet
%eveloping strategic ob6ectives
4eviewing the 7 day programme
RESOURCE PERSON
Kwame Bedu-Andor MA PGCE MCIPR
W!a i& &raeg%?
The American Heritage Dictionary defines strategy as "the science and art of military
command as applied to the oerall planning and cond!ct of large"scale com#at
operations$" The military connection sho!ld not #e oerloo%ed$ &n many mar%ets' it(s all"
o!t )ar among competitors$
Some te*t#oo%s define strategic management "as the set of decisions and actions that
res!lt in the form!lation and implementation of plans designed to achiee a company(s
o#+ecties$"
However, the emphasis in both definitions on planning or a plan should
bear a warning. While some businesses, such as Honda did, may find
success through a planned strategy [intended strategies], just as
many success stories have come from an unanticipated change in
course [emergent strategies] . An example of intended and emergent
strategies can be seen in the Honda minicase. !trategic planning
W!% #" 'ir(& engage in &raegi) *$anning?
They do so not to create strategies #!t to program the strategies they already hae, that
is' to ela#orate and operationali-e their conse.!ences formally$ Therefore' strategy is not
the conse.!ence of planning' #!t its starting point$
NOT Planning for Strategy, YET Strategi-ing for Planning$
Planning helps translate intended strategies into reali-ed ones$ This is planning as
programming. Programming is a management actiity that translates decisions into
specific action patterns for implementation$ The steps are to/
0$ Codify strategy 1clarify and artic!late2
3$ Ela#orate 1into s!#strategies2
4$ Conert 1s!#strategies into ro!tines' o#+ecties' #!dgets2
Condiions o! "raegi# Programming
&t is not "the one #est )ay" for all firms in all circ!mstances$ &t )or%s #est )here/
0$ Sta#ility e*ists
3$ &nd!stry is mat!re
4$ Capital intensity is high so that yo! cannot afford the ris%s associated )ith
dynamic enironments$ &f yo! cannot "see" sta#ility' then yo! "impose" it$ 15or
e*ample' "process" prod!ction t!rns o!t to #e more capital intensie than "mass"
prod!ction$2
6$ 7arge si-e
8$ Ela#orated str!ct!re " a firm that can #e decomposed to carry o!t planning$ The
#est is a highly str!ct!red one$
9$ Tightly co!pled operations' especially in the operating core
:$ Simple operations " )here the enironment and actiity m!st #e easily
comprehended$
;$ E*ternal control " )here infl!ences s!ch as goernments and head.!arters e*ert
control on s!#sidiaries' nationali-ed firms' etc$
Therefore' the "model" for this is one of
5AC&7&TAT&N< COND&T&ONS
NECESSAR= COND&T&ONS
STRATE<&C PRO<RA>>&N<
"Codifying" as mentioned a#oe is #ringing order' thro!gh planning' #y p!tting strategy
into a s!ita#le form for artic!lating to others$ This is some)hat hard to do since yo! are
going from general tho!ghts to specific directies$ Strategies themseles often lose o!t in
the translation #eca!se of #!rea!cratic necessities' s!ch as translating a rich ision into
n!m#ers in order to comm!nicate, yo! tend to diminish or lose the iidness of the
imagery$
"Ela#oration" is similar to "action planning'" )here strategy is #ro%en do)n at ario!s
leels into capital #!dgets' then action plans )ith their se.!encing?timing components$
"Conersion" means simply to conert into ro!tine operations$
All of these are contingent !pon haing ia#le strategies aaila#le 1this means the )orld
)ill hold still or is changing predicta#ly )hile the intended strategy !nfolds2' and ma%es
sense only after necessary strategic learning has occ!rred' and )hen the organi-ation
really needs codified and ela#orated strategies$ &f yo! do not really need these' yo! may
act!ally pre"empt needed fle*i#ility$
Regarding "learning'" if the ision is ro#!st' then the firm can adapt?learn$ The ision sets
the #road o!tline of a strategy' #!t leaes the details to #e )or%ed o!t$ This #road
perspectie is "deli#erate" #!t the specific position can "emerge$" &f the ision cannot
cope' then the firm may hae to go to "p!re learning'" )hich means it )ill hae to
e*periment in order to capt!re some #asic messages and then conerge #ehaiors on
them$ A spe#i!i# plan limits serio!s adaptation$ Therefore' a formal plan yet no ision
means that eery !npredicted change ma%es yo! feel li%e yo!r "s%y is falling$"
Remem#er also that formal strategic planning as a discipline and strategic planners do not
ma%e strategic decisions' #!t that people and organi-ations do$ Sometimes strategic
planning is !sed as a discipline )ithin )hich to do this or seem to do this$ SP proides a
for!m for anno!ncing' selling' negotiating' rationali-ing and legitimi-ing strategic
decisions' and it also offers means for controlling their implementation$ These roles are as
important as the more !s!ally noted role of proiding information to improe the content
of strategy$
Therefore' plans #ecome comm!nication media and deices for control$ Planners
#ecome finders of strategy 1pattern recogni-ers' )hether emergent or deli#erate2'
analysts' catalysts and een strategists 1!sing imagination2$
$ormal "raegi# Planning in a dynamic enironment 1one changing fre.!ently in an
!npredicta#le fashion2 is #asically nonsensical$
"raegi# Anal%sis is #etter at this point$ This is #asically the analysis of specific iss!es
that are to #e fed into the strategy ma%ing process on an ad hoc #asis 1e*amples incl!ding
#enchmar%ing' decision"ma%ing2$ The process is one of analysis of hard data for
managers' performing e*ternal strategic analysis' internal strategic analysis' and
inestigating intended 1proposed2 strategies$ This latter step occ!rs only after the strategy
ma%ing process$
"&OT
&n analy-ing s!ch e*amples' the strategist sho!ld pl!c% o!t S@OT$
Strengths
@ea%nesses
Opport!nities
Threats
The first t)o components 1Strengths and @ea%nesses2 generally deal )ith elements fo!nd
)ithin the company' and the last t)o 1Opport!nities and Threats2 e*amine the
enironment o!tside the company$ S@OT profiles' along )ith a corporation(s mission
and ma+or goals' ma%e !p the tools yo!(ll need to deelop and form strategies$ They are
the components of the Strategic >anagement >odel$ These game plans reflect in #road
terms ho)' )here and )hy it sho!ld compete as )ell as against )hom$ After narro)ing
do)n the alternaties and comm!nicating those ideas' implementation follo)s$
Imporan#e o! mission
@hether the s!pporting data is compiled at the same time or in some se.!ence' decisions
on strategies to p!rs!e sho!ld #e anchored #y the mission$ @itho!t some frame)or% of
)hat yo!r cl!# stands for and hopes to achiee' ho) can it co!rt potential mem#ers
1cons!mers2A
The 1inter2national head.!arters of yo!r gro!p or company pro#a#ly has a #road' grayish
o!tline of )hat yo!r organi-ation is' )ith some )iggle room to e*pand$ A #an%ing firm is
a financial instit!tion in its mission statement' a food and cigarette man!fact!ring
conglomerate is a m!ltinational cons!mer goods proider' a Sae the Bay gro!p is an
enironmental )atchdog$ The mission defines the !ni.!e p!rpose that ma%es the
company different from others of its type$
Top"leel managers often ma%e the strategic decisions and deelop the mission that
dries the corporation$ These decision"ma%ers may consist of the #oard of directors' the
chief e*ec!tie officer and top administratie officials$
This is not to say that #!siness !nit managers or line managers can(t ma%e strategic
decisions$ &n fact' they generally are inoled in the process to the e*tent of proiding
#!siness !nit and operational data !sed to deelop and s!pport an o#taina#le corporate
strategy$
Once the !m#rella strategy is set' these lo)er"leel managers effect #!siness o#+ecties
and operating efficiencies that fall )ithin the shado) of that !m#rella$ Comm!nication of
the corporate mission' strategies and capa#ilities thro!gho!t the )or%force is imperatie$
Traditionally' the top"leel strategies )ere aimed fie years into the f!t!re' and the time
span of strategies or tactics for each step do)n in management gro!p gre) shorter$ No)'
some #!sinesspeople .!estion the )isdom of trying to pro+ect from today(s )orld )hat
the company )ill loo% li%e in fie years$ The )orld may #e changing too .!ic%ly for s!ch
long"term istas' partic!larly in rapidly deeloping ind!stries and serices or in areas in
)hich goernment reg!lation is #eing added or remoed$
@o!ld yo! tr!st yo!rself to deelop a strategy for >icrosoft &nc$ today that yo! #eliee
)o!ld #e alid fie years from no)A Can yo! see the dilemma electric !tilities
1traditionally a monopoly2 face as priate #!sinesses enter their mar%ets and force them
into #ecoming competitieA
The strategy selected receies its first test after implementation$ Competitors may react'
and the firm may hae to eal!ate its strategy in terms of the ne) "playing field$"
5!nctional" and #!siness !nit"leel plans and directies also m!st #e monitored to ens!re
they follo) the strategic ision$ 5eed#ac% is al)ays important$ Remem#er' this is a
dynamic system$ The strategic decisions )ere made at a fi*ed point in time' #!t their
implementation occ!rs in real time' in an !ncertain f!t!re$
Crii#isms o! !ormal planning s%sems
As s!ggested #efore' not eeryone agrees on one #est form of the strategic management
process$ The model to fit a company(s a#ilities to the demands of the enironment' !sing
S@OT' rose o!t of the Harard B!siness School d!ring the 0C9Ds$ Research into the
!sef!lness of formal planning has fo!nd mi*ed res!lts' and history has sho)n ma+or
missteps #y corporations that acted on e*tensie strategic planning' #!t read the tea
leaes of the f!t!re )rong$
Tom Peters and Ro#ert @aterman' a!thors of In Search of Excellence, .!estion the al!e
of formal planning in strategic decision ma%ing$ And Henry >int-#erg of >c<ill
Uniersity proposes that emergent strategies may #e as s!ccessf!l as intended strategies
1remem#er the Honda caseA2$
C$E$ Prahalad of the Uniersity of >ichigan and <ary Hamel of 7ondon B!siness School
say the strategic fit model of planning foc!ses too m!ch on c!rrent reso!rces and
enironment and not eno!gh on f!t!re opport!nities$ They prefer a strategic intent model'
the setting of am#itio!s goals that force a company to stretch #eyond its c!rrent a#ilities'
)ith a foc!s on finding )ays to deelop the capa#ility to achiee those goals$ Their
model is still hinged' ho)eer' on the mission statement and the S@OT analysis of the
strategic fit model$
No magic #!llet has #een fo!nd that )ill prod!ce s!ccessf!l strategies eery time$
The external environment and competitive advantage
In#ludes'
@hat does the e*ternal enironment consist ofA
@hat is competitie adantageA
=o!r assignment
&(a does (e e)ernal en*ironmen #onsis o!+
The firm(s e*ternal enironment consists of three main sectors/ the Remote Enironment'
the &nd!stry Enironment' and the Operating Enironment$ All of these enironmental
sectors affect the firm(s operations #oth on an international and domestic leel$
The Remote Enironment comprises fie factors that are not infl!enced #y a single firm$
The main factors are/ economic' social' political' technological' and ecological$ These
factors m!st #e considered #y the firm )hen )or%ing )ith the mar%et$
The &nd!stry Enironment is made !p of the entry #arriers' s!pplier po)er' #!yer po)er'
s!#stit!te aaila#ility' and competitie rialry$ These contending forces are of the greatest
importance to the firm in strategy form!lation$
&n dealing )ith the threat of entry there are si* ma+or #arriers/ economies of scale'
prod!ct differentiation' capital re.!irements' cost disadantages independent of si-e'
access of distri#!tion channels' and goernment policies$ These can #e oercome or dealt
)ith indiid!ally' #!t some firms are not a#le to handle them and fail$
A s!pplier #ecomes po)erf!l )hen it p!rchases in large .!antities' the prod!cts
p!rchased are not differentiated' the prod!cts p!rchased represent a significant cost of
their prod!ct' the prod!ct does not sae the #!yer money' or the #!yer poses a credi#le
threat of #ac%)ard integration$
A #!yer #ecomes po)erf!l if it is concentrated or p!rchases in large ol!me' the prod!ct
p!rchased is standard or !ndifferentiated' the prod!ct p!rchased represents a significant
portion of the cost' it earns lo) profits' .!ality is not a factor' the prod!ct p!rchased does
not sae the #!yer money' or the #!yer poses a credi#le threat of integrating #ac%)ard$
S!#stit!te prod!cts #ecome a pro#lem if a firm cannot differentiate the prod!ct or serice
in some )ay 1i$e$ cost or .!ality2$
Foc%eying for position #y competitors #ecomes intense )hen competitors are n!mero!s'
ind!stry gro)th is slo)' prod!ct or serice lac%s differentiation' fi*ed costs are high or
the prod!ct is perisha#le' capacity is a!gmented in large increments' e*it #arriers are
high' and?or the rials are dierse in strategies' origins' and "personalities$"
The Operating Enironment is also called the competitie or tas% enironment$ This
sector of the e*ternal enironment deals closely )ith competitors' creditors' c!stomers'
la#or' and s!ppliers$ &n assessing the competitie position of the firm' the follo)ing
criteria are !s!ally dealt )ith/ >ar%et share' #readth of prod!ct line' effectieness of
sales distri#!tion' proprietary and %ey"acco!nt adantages' price competitieness'
adertising promotion effectieness' location and age of facility' capacity and
prod!ctiity' e*perience' ra) material costs' financial position' relatie prod!ct .!ality'
RGD adantages?position' cali#er of personnel' and general images$
@hen determining c!stomer profiles a firm !ses the follo)ing types of information/
<eographic' demographic' psychographic' and #!yer #ehaior$ Relationships )ith
s!ppliers are important to a firm$
The firm relies on s!ppliers for financial s!pport' serices' materials' e.!ipment'
handling special re.!ests' .!ic% deliery' li#eral credit terms' and #ro%en"lot orders$
Creditors are another ia#le mem#er of the operational enironment #eca!se the si-e and
dollar amo!nts that the firm needs may re.!ire it to deal on credit$
There are some necessary considerations )ith the firm(s creditors/ @ill they accept the
firm(s stoc% as collateral' is there a perceied accepta#le payment record' strong )or%ing
capital' loan terms that are compara#le to others' and are the creditors a#le to e*tend a
large eno!gh line of credit$
&n the area of h!man reso!rces the firm(s a#ility to o#tain needed personnel is affected #y
three factors/ rep!tation' employment rates' and aaila#ility of people )ith the needed
s%ills$
&(a is #ompeii*e ad*anage+
Competitie adantage is a company(s a#ility to o!tperform its competitors$
Competitie adantage can #e achieed thro!gh lo) cost and differentiation$ A company
is said to hae achieed competitie adantage )hen its profit rate is higher than the
aerage for its ind!stry$ The profit rate is #ased on ret!rn of sales 1ROS2 or ret!rn of
assets 1ROA2$
The most #asic determinant of a firm(s profit rate is the gross profit margin$ There are
three reasons )hy a firm(s gross profit margin may #e higher/ the !nit price is higher' !nit
cost is lo)er' or it has #oth a higher price and a lo)er !nit cost$ @hen a firm charges a
premi!m price or differentiates its prod!ct' it is !sing generic #!siness"leel strategies'
according to >ichael Porter$
The #!ilding #loc%s of competitie adantage are efficiency' .!ality' innoation' and
c!stomer responsieness$ These #!ilding #loc%s are generic in that they proide fo!r
#asic )ays to lo)er cost and achiee differentiation$ Any firm can adopt these no matter
)hat ind!stry it is in or )hat prod!ct or serice it proides$
Efficiency is #ased on the cost of inp!ts re.!ired to prod!ce a gien o!tp!t$ The more
efficient a firm' the lo)er the cost of its inp!ts re.!ired to prod!ce a gien o!tp!t$
Efficiency helps a firm attain a lo)"cost competitie adantage$ Employee prod!ctiity
can #e the %ey to efficiency$
The impact of high prod!ct .!ality on competitie adantage is the creation of a #rand
name rep!tation' greater efficiency and' th!s' lo)er costs$ This enhanced rep!tation
allo)s the firm to charge a higher price$ At the same time the costs are do)n so profits
are m!ch higher' th!s a higher competitie adantage$ H!ality has #ecome imperatie for
s!rial in some firms$
&nnoation is defined as anything ne) or noel a#o!t a firm(s operation or prod!ct$
&nnoation gies a firm something !ni.!e$ @hen a firm is the pioneer in its ind!stry it
can charge a higher price #eca!se of a lac% of competition$ 7ater' )hen there is
competition' ne)comers m!st deal )ith the pioneer(s rep!tation$
To achiee c!stomer responsieness a firm m!st delier e*actly )hat the c!stomer )ants
)hen the c!stomer )ants it$ A firm m!st do eerything it can to identify and satisfy
c!stomer needs$ Steps ta%en to improe .!ality and efficiency are consistent )ith the
goal of high c!stomer responsieness$ There may #e a need to c!stomi-e goods and
serices to meet the demands of indiid!al c!stomers$ C!stomer response time has
#ecome a #ig factor in increasing c!stomer responsieness$ Other areas that aid in
achieing higher c!stomer responsieness are s!perior design' s!perior serice' and
s!perior after"sales serice and s!pport$
Distinctie competencies come from t)o so!rces/ reso!rces and capa#ilities$ These
so!rces are #oth tangi#le and intangi#le$ To achiee distinctie competency' a firm(s
reso!rces m!st #e #oth !ni.!e and al!a#le$ A company(s capa#ilities refer to its s%ills at
coordinating reso!rces and p!tting them to prod!ctie !se$ A company needs to deelop
strategies that #!ild on e*isting reso!rces and capa#ilities as )ell as #!ild additional
reso!rces and capa#ilities$
The d!ra#ility of a firm(s competitie adantage depends on three factors/ the height of
#arriers to imitation' capa#ility of competitors' and dynamism of the ind!stry$ Barriers to
imitation are the factors that ma%e it diffic!lt for a competitor to copy a firm(s distinctie
competencies$ The ma+or determinant of the capa#ility of a competitor is its prior
strategic commitments$ A dynamic ind!stry changes rapidly' th!s it has a high rate of
prod!ct innoation$
Companies fail for three related reasons/ inertia' prior strategic commitments' and the
&car!s Parado*$ The inertia arg!ment is that firms find it diffic!lt to change their
strategies and str!ct!res to adapt to changing competitie conditions$ Prior strategic
commitments not only limit a firm(s a#ility to imitate its competitors #!t may also p!t it
at a competitie disadantage$ The &car!s Parado* occ!rs )hen a firm #ecomes so
da--led #y its early s!ccess that its #eliees more of the same effort is the )ay to f!t!re
s!ccess$
To aoid fail!re a firm m!st foc!s on the #!ilding #loc%s of competitie adantage$ A
firm m!st identify the #est ind!strial practice and adopt it$ The #est )ay to determine the
#est ind!strial practice is thro!gh #enchmar%ing$ 5inally a firm m!st oercome inertia to
s!rie$
Honda mini-case
Honda >otor Co$ )ished to enter the motorcycle mar%et in the United States$ The
Fapanese e*ec!ties isited 7os Angeles in 0C8C to esta#lish a s!#sidiary here' e*pecting
to foc!s their mar%eting on the sales of f!ll"si-e 38Dcc and 48Dcc #i%es to motorcycle
enth!siasts$ They shied a)ay from p!shing the less po)erf!l 8Dcc Honda C!# model'
)hich )as pop!lar in Fapan$
This )as Honda(s intended strategy' or planned strategy$
B!t a f!nny thing happened on the )ay to earning profits$ Sales of the more l!*!rio!s
#i%es in America )ere sl!ggish' and many of the #i%es s!ffered mechanical deficiencies$
At the same time' the Fapanese e*ec!ties on errands )ere motoring aro!nd 7A on their
little Honda C!#s$ One day' a call came in from a #!yer from Sears' Roe#!c% and Co$
)ho sa) a mar%et for the 8Dcc #i%es and )anted Sears to #e a#le to offer them for sale$
This s!ggestion ran co!nter to the motorcycle company(s plans' and e*ec!ties felt sales
of the C!#s might affect the image Honda )anted to portray to motorcyclists$ Eent!ally'
#eca!se the larger #i%es )eren(t selling )ell and )ere plag!ed )ith pro#lems' Honda
agreed to sell the C!#s and mar%et its name to Americans as affiliated )ith a motor#i%e
for first"time #!yers$
This emergent strategy )as one Honda had considered #!t tossed aside as )rong for its
entry into the mar%et$ Along the )ay' the company tested a ne) means of distri#!tion ""
general retailers instead of specialty motorcycle shops$
@ithin fie years of Honda(s entry in the mar%et' one of eery t)o motorcycles sold in
the United States carried its imprint$
mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
&(a is sraeg%+
The American Heritage Dictionary defines strategy as "the science and art of military
command as applied to the oerall planning and cond!ct of large"scale com#at
operations$" The military connection sho!ld not #e oerloo%ed$ &n many mar%ets' it(s all"
o!t )ar among competitors$
Some te*t#oo%s define strategic management "as the set of decisions and actions that
res!lt in the form!lation and implementation of plans designed to achiee a company(s
o#+ecties$"
Ho)eer' the emphasis in #oth definitions on planning or a plan sho!ld #ear a )arning$
@hile some #!sinesses' s!ch as ,onda did' may find s!ccess thro!gh a planned strategy
Iintended strategiesJ' +!st as many s!ccess stories hae come from an !nanticipated
change in co!rse Iemergent strategiesJ $ An e*ample of intended and emergent strategies
can #e seen in the Honda mini"case$
A Manager-s Guide $or E*aluaing Compeii*e Anal%sis Te#(ni.ues
The efficient selection of appropriate techni.!es for a partic!lar sit!ation depends on a
three"phase process of a)areness and choice/
K 5irst' )hat releant techni.!es are aaila#le and ho) do they relate to one anotherA
K Second' )hat is the foc!s and scope of the competitie arena of interestA
K Third' )hat constraints on time and other reso!rces limit the e*tent of analyses that can
#e !nderta%enA
&n order to assist and apply competitie analysis techni.!es' John Prescott and John
Grant deeloped a reference g!ide consisting in part of profiles descri#ing ario!s
competitie analysis techni.!es$
The !tili-ation profiles array a dierse set of 30 techni.!es and eal!ate them along 00
important dimensions$
The techni.!es descri#ed #elo) are se.!enced #eginning )ith #road ind!stry"leel
techni.!es and moing to narro)er f!nctional area techni.!es$
Polii#al and #ounr% ris/ anal%sis assesses the types 1asset' operational' profita#ility'
personnel2 and e*tent of ris%s from operating in foreign co!ntries$
Indusr% s#enarios deelop detailed' internally consistent descriptions of )hat ario!s
f!t!re str!ct!res of the ind!stry may #e li%e$
T(e e#onomiss- model o! indusr% ara#i*eness analy-es the fie #asic forces
1#argaining po)er of s!ppliers and c!stomers' threat of s!#stit!te prod!cts' threat of
entry' and ind!stry rialry2 driing ind!stry competition$
BCG indusr% mari) identifies the attractieness of an ind!stry #ased on the n!m#er of
potential so!rces for achieing a competitie adantage and the si-e of the adantage that
a leading #!siness can achiee$
Indusr% segmenaion identifies discrete poc%ets of competition )ithin an ind!stry$ The
#ases of segment identification are often prod!ct ariety' #!yer characteristics' channels
of distri#!tion' and geography$
PIM" is an ongoing data #ase of the Strategic Planning &nstit!te )hich collects data
descri#ing #!siness !nit(s operating actiities' their ind!stries and competitors' their
prod!cts and c!stomers$ The p!rpose is to assist planning efforts of the participating
#!sinesses$
A e#(nologi#al assessmen deelops an !nderstanding of the technological relationships
and changes occ!rring in an ind!stry$
Mulipoin #ompeiion anal%sis e*plores the implications of a sit!ation in )hich
diersified firms compete against each other in seeral mar%ets$
Crii#al su##ess !a#or anal%sis identifies the fe) areas in )hich a #!siness m!st do
ade.!ately in order to #!y s!ccessf!l$
A sraegi# group anal%sis identifies gro!ps of #!siness )hich follo) similar strategies'
hae similar administratie systems' and tend to #e affected #y and respond to
competitie moes and e*ternal eents in similar )ays$
A *alue #(ain anal%sis and field maps identify the costs' operating characteristics' and
interrelationships of a #!siness(s primary actiities 1that is' in#o!nd logistics' operations'
o!t#o!nd logistics' mar%eting and sales' serice2 and s!pporting actiities 1that is' firm
infrastr!ct!re' h!man reso!rce management' technological deelopment' proc!rement2$
E)perien#e #ur*es sho) the costs of prod!cing a prod!ct 1serice2 decrease in a reg!lar
manner as the e*perience of prod!cing it increases$ The decrease in costs occ!rs oer the
total life of a prod!ct$
"a/e(older anal%sis and assumpion sur!a#ing and esing identify and e*amine any
indiid!al or gro!p goals that affect or are affected #y the reali-ation of the #!sinesses(
goals$
Mar/e signaling is any action #y a competitor that proides a direct or indirect
indication of its intensions' moties' goals' or internal sit!ation$
Por!olio anal%sis locates a corporation(s #!sinesses along dimensions of ind!stry
attractieness and competitie position to help managers to ma%e reso!rce allocation
decisions and to eal!ate f!t!re cash flo)s and profita#ility potential$
"reng(s and wea/nesses anal%sis identifies adantages and deficiencies in reso!rces'
s%ills' and capa#ilities for a #!siness relatie to its competitors$
"%nerg% anal%sis e*amines tangi#le 1ra) material' prod!ction' distri#!tion2 and
intangi#le 1management %no)"ho)' rep!tation2 #enefits of shared actiities among
#!siness !nits$
$inan#ial saemen anal%sis assesses #oth the short"term health and long"term financial
reso!rces of a firm$
0alue-1ased planning eal!ate strategies and strategic moes in the light of their
pro#a#le stoc% mar%et effects and financing implications$ 1&t does not refer to managerial
al!es in this !sage2$
Managemen pro!iles e*amine the goals' #ac%gro!nds' and personalities of the
indiid!als ma%ing strategic decision in a competing firm or instit!tion$
Re*erse engineering is p!rchasing and dismantling a competitor(s prod!ct to identify
ho) it )as designed and constr!cted so that costs and .!ality can #e estimated$
This description of techni.!es' eal!ation dimensions' and information types sho!ld
proide managers )ith helpf!l g!idance in ma%ing competitie analyses$
Por!olio Te#(ni.ues
&n this chapter' & shall disc!ss a seeral portfolio techni.!es to help managers )ith one of
the most challenging aspects of the strategic management process/ siing prioriies and
pro*iding a 1asis !or resour#e allo#aion$
Ho)eer' #asic to !nderstanding the significance of portfolio approach is analysis of the
concept of the prod!ct of life cycle' the e*perience c!re and the Porter C!re$
Produ#2mar/e2indusr% 3i!e C%#les
The prod!ct life cycle is #asic to !nderstanding the significance the portfolio approaches$
The concept has #een aro!nd for so long and is so )idely !sed that it is diffic!lt to trace
its originator$
The prod!ct life cycle holds that prod!cts and mar%ets and entire ind!stries deelop'
gro) rapidly' mat!re' sat!rate' and decline in a some)hat predicta#le fashion$ &f sales are
plotted as a f!nction of time' this predicta#le pattern is a la-y"S curve$ The traditional
stages in an ind!stry(s life cycle are sho)n in Figure 4-1$
&n the inrodu#ion phase' the o!tp!t ind!stry 1prod!cts or serices2 is initially offered to
the c!stomers' and sales are slo)ly #!ilt !p as more c!stomers #ecome a)are of prod!ct$
At this stage in the ind!stry(s deelopment' choice of technology is often not yet settled$
After a certain critical mass of demand has #een esta#lished' sales ta%e off in an
e*ponential gro)th rate as increasingly large n!m#ers of ne) c!stomers demand the
prod!ct for the first time' the ind!stry enters the grow( sage.
At this stage' most #!yers are still first"time p!rchasers of the ind!stry(s o!tp!ts$ Oer
time' gro)th of the ind!stry #egins to slo) as mar%ed demand approaches sat!ration$
5e)er first"time #!yers remain, most p!rchase are no) for replacement p!rposes$ @hen
the mar%et demand for the ind!stry?s o!tp!ts is completely sat!rated' the mauri% stage
has #een reached$
As technology ma%es the prod!ct o#solete' or as s!#stit!te prod!cts arrie' sales decline$
This de#line stage is often !shered in )hen cons!mers #egin to t!rn to the prod!cts or
serices of s!#stit!te ind!stries$
There are pro#lems )ith !sing the 7ife Cycle Concept as a precise strategic decision
ma%ing tool$ &t is almost impossi#le to predict ho) long a certain phase of the life cycle
)ill last or %no) the height of the c!re 1!nit sold2$ Th!s' the concept(s !se as a
forecasting tool is ery limited$
Ho)eer' the prod!ct life cycle capt!res the dynamics of prod!ct of prod!ction and
mar%et eol!tion and can #e !sed for generating strategic alternaties' specifically in the
follo)ing )ays/
-to s!ggest appropriate areas of f!nctional area emphasis #y stages of the cycle,
-to s!ggest appropriate strategy alternatie,
-to time strategy changes,
-to asses the corporate #!siness !nits to ens!re that deeloping prod!cts are introd!ced as
others pass thro!gh gro)th to mat!rity$
Figure 4-2 depicts fo!r general stages of prod!ct?mar%et eol!tion and the typical
changes in f!nctional capa#ilities often associated )ith #!siness s!ccess at each stage$
The important o#seration of the life cycle is that one of the critical s!ccess factors in this
in the e*tent to )hich the prod!ct can gain and maintain a large mar%et share$ This later
#ecame of central importance to portfolio analysis$
3earning Cur*es
t is )hen the prod!ct life cycle is p!t together )ith the learning c!re that inferences are
dra)n )hich hae ma+or strategic implications$
The learning #ur*e 1also %no) as an e)perien#e #ur*e2 can often play role is
determining a firm(s long"r!n s!ccess of fail!re and therefore also lays an important role
in competitie strategy$
The learning c!re )as adapted from the historical o#seration that indiid!als
performing repetitie tas%s e*hi#it an improement in performance as the tas% is repeated
a n!m#er times$
Empirical st!dies of the phenomenon yielded three concl!sions on )hich the c!rrent
theory and practice is #ased/
4 The time re.!ired to perform a tas% red!ce as the tas% is repeated$ P!t another )ay'
#!siness organi-ations' li%e indiid!als' learn from repetition and this learning )or%s to
ma%e prod!ction more efficient 1Haes and !heel"right 0C;62
4 The amo!nt of improement decreases as more !nits are prod!ced$
4 The rate of improements has s!fficient consistency to allo) its !se as a prediction
tool$
The learning c!re phenomena affects aerage cost in a )ay similar to that for any
technological adance that improes prod!ctiity efficiency$ Both inole a do)n)ard
shift in the long"r!n aerage cost c!re at all leels o!tp!t$
That is' learning thro!gh prod!ction e*perience permits the firm to prod!ce o!tp!t more
efficiently at each and eery o!tp!t leel$ &ncreased la#or' management' and material
prod!ctiity are associated )ith learning"c!re effects$
he e*perience c!re sho)s that the cost of doing a repetitie tas% decreases #y a fi*ed
percentage each time the total acc!m!lated ol!me of prod!ction 1in !nits2 do!#les
15ig!re 6"42$ 5or e*ample' the total cost might drop from 0DD )hen the total prod!ction
)as 0D !nits' to ;D 1L 0DD * D$;D2 )hen it increased to 3D !nits' and to 96 1L ;D * D$;;2
)hen it reached 6D !nits$ &n the hori-ontal a*is is the acc!m!lated ol!me of prod!ction
1in !nits2' and in the ertical a*is )e hae the deflated direct cost per !nit 1the act!al cost
corrected for inflation2$ Eery time the acc!m!lated ol!me of prod!ction do!#les' the
cost per !nit decreases to ;DM of the preio!s leel$
This relationship #et)een the acc!m!lated ol!me of prod!ction and the deflated direct
cost can #e e*pressed in a log"log graph as a straight line' )hich is easier to )or% )ith$
The acc!m!lated ol!me of prod!ction represents the total n!m#er of !nits deliered
since the ery #eginning of the prod!ction actiity' and it sho!ld not #e conf!sed )ith the
prod!ction rate' )hich corresponds to the n!m#er of !nits deliered in a stated period$
Typical learning c!re slopes are CD percent' ;8 percent' and ;D percent$ Ta#le 6"0 sho)s
the costs for c!m!latie ol!me and different learning percentages$
The cost predicted #y the e*perience c!re effect can #e o#tained from a simple negatie
e*ponential relationship of the follo)ing type/
)here/
&n the ;DM c!re' the constant (a( can #e o#tained #y recogni-ed that do!#ling the
prod!ction red!ces the cost to ;DM of its initial al!e$ This corresponds to introd!cing
the al!es$in the e*pression/ The res!lting sol!tion is a L D$433
Other al!es of this constant for different slopes of the e*perience c!re can #e fig!re$
5or e*ample' the man!fact!ring of integrated circ!its approaches a :DM slope' air
conditioners sho) a ;DM slope' and primarily magnesi!m e*hi#its CDM slope' cement
man!fact!ring :DM slope' po)er tools ;DM' and ind!strial tr!c% CDM slope$
The act!al significance of the e*perience effects for a gien ind!stry depends not only on
its inherent slope' #!t also on the speed at )hich e*perience acc!m!lates' meas!red #y
the rate of gro)th in the mar%et$
The potential for cost red!ction is greatest in ind!stries )ith string e*perience effects and
fast gro)ing mar%ets' li%e the semi"cond!ctor and comp!ter ind!stries in recent years$
The e*perience c!re proides important insights for strategic planning' partic!larly of
pricing decisions$ There are at least t)o different pricing strategies #ased on the
e*perience c!re/
4 A firm can follo) a short"r!n profit pricing strategy' in )hich the firm reaps large
profits #y %eeping its prices high )hile its marginal cost of prod!ction declines )ith
increased ol!me$
This is sho)n as Period A in the left of Figure 4-#$ &f led too long' s!ch a strategy
enco!rages competitors to enter the mar%et' )hich may res!lt in a steep price decline or a
competitie sha%eo!t$
This is sho)n as Period $ in the left part of Figure 4-#$ As a res!lt of the competition'
profit margins remain thin in Period %$
4 The firm may follo) a #arrier pricing strategy in )hich it aggressiely lo)ers prices as
its costs decline )ith increased c!m!latie ol!me$ S!ch lo)ered prices act as a #arrier
to mar%et entry and %eep the firm(s mar%et share high" another strategic implications$
Altho!gh firm(s profits margin may #e modest' #!t long"term profits tend #e to relatiely
sta#le$ S!ch a pricing strategy is sho)n in the right half of Figure 4-#$
The most important factors for a systematic decrease in cost )ith acc!m!lated ol!me
are/
4 3earning$ &n repeating a tas% oer and oer' a person deelops s%ills allo) him to do
the )or% more efficiently$
4 "pe#iali5aion and Redesign o! 3a1or Tas/s$ The increased ol!me leads to a
diision of la#or that allo)s for speciali-ation and standardi-ation #oth contri#!ting to
improed prod!ctiity$
4 Produ# and Pro#ess Impro*emens$ As ol!me increases' many opport!nities open
!p to improe the prod!ct and process and there#y achiee higher prod!ctiity and cost
red!ctions$
4 Me(ods and "%sems Raionali5aion$ Opport!nities increase for improing the
performance of a firm #y introd!cing more !p"to"date technology for handling operation$
Also' adopting a policy of standardi-ation allo)s coordination of different actiities in
the ario!s steps of the al!e"added chain$
4 E#onomies o! "#ale$ Economies of scale can affect nearly eery f!nction' and many
technological factors com#ine to prod!ce the do)n)ard trend of the cost"c!re as
ol!me increases$ The dominant factors are/
- &mproed technological processes for high ol!me prod!ction,
- The reso!rces that can #e profita#ility !sed together only in large operations,
- The possi#ility of integrating man!fact!ring processes for the ario!s #!siness actiities
of ery large firms operating in sta#le enironments,
- The sharing of reso!rces' mainly those managed at the corporate leel' that is possi#le
for diersified firms )ith #!sinesses in related prod!ct mar%ets$
4 Organi5aional 6une-up7"$ A s!#tle res!lt of e*perience is the "t!ne"!p" achieed #y
the organi-ation after a long history of prod!ction' )hich is reflected in technological
%no)"ho) and )ell deeloped formal systems that proide g!idelines for smooth
relationships among indiid!als responsi#le for different tas%s in the prod!ction process$
The learning c!re concept is !sef!l for a ariety of managerial decisions' partic!larly in
t!rn pricing decisions and prod!ction strategies$ Th!s' the learning c!re has significant
strategies implication
T(e Porer Cur*e
&ichael Porter has s!ggested three generic competitie strategies/ #os leaders(ip7
di!!ereniaion and !o#us sraeg% 1see Part 12$ Each strategy is designed to sec!re a
long"term s!staina#le adantage in a competitie mar%et' and each attempts to p!rs!e
that goal in .!ite distinctie )ays$
The +!stification for this positioning can #e !nderstood after recogni-ing the '-sha(e
effect that is o#sered in the #ehaio!r of profita#ility of firms competing in some
ind!strial sectors$
This concept s!ggests a n!m#er of possi#le relationships #et)een mar%et share and
profita#ility$ According to the '-sha(ed curve depicted' a company can attain a relatiely
high ret!rn on inestment 1)*I2 #y going after the leading mar%et share in its ind!stry$
&f the firm cannot achiee a high a leel of sales' t)o alternaties are open/ 182 one is to
choose !ni.!e differentiation' so the firm can en+oy a price"premi!m #eca!se of the
special characters of its prod!cts' 192 the other is to foc!sing on a speciali-ed #!t
profita#le niche )ithin the ind!stry$
The )orst sit!ation is the lo)er end of the '-curve )ith no cost adantage and no
distinctie al!e of offer$
"raegi# Anal%sis A T(e Corporae 3e*el
5or m!lti"ind!stry and m!ltiprod!ct?mar%et firms' strategic analysis #egins at the
corporate leel$ 7arge companies are often inoled in many different %inds of #!sinesses
and sell prod!cts in many different co!ntries$
The ario!s #!sinesses in the portfolio are called sraegi# 1usiness unis :"B;s<$ The
strategic #!siness !nit is the smallest identifia#le #!siness of the company' )hich p!rs!es
a s!#strategy' and is inoled in an identifia#le #!siness or ind!stry$
The adantage of m!lti#!siness organi-ations is that they can transfer cash from #!siness
!nits that are highly profita#le #!t hae lo) gro)th potential to other !nits that hae high
gro)th and high profit potential$ Therefore' the strategists for a m!ltiply"SBU firm
attempt also to achiee the ans)ers to three #asic in any strategic sit!ation .!estions/
0$ Ho) attractie is the gro!p of #!sinesses the company is inA
3$ Ass!ming the company stic%s )ith its present line!p of #!sinesses' ho) good is
its performance o!tloo% in the years aheadA
4$ &f the preio!s t)o ans)ers are not satisfactory' )hat sho!ld the company do in
the )ays of getting o!t of some e*isting #!sinesses' strengthening the positions of
remaining #!sinesses' and getting into ne) #!sinesses to #oost the performance
prospects of its #!siness portfolioA
Ho)eer' corporate strategy' in contrast to #!siness"!nit strategy' applies to different
leels of organi-ation' and it differs in content$ >oreoer' m!lti"ind!stry companies
re.!ire different analytical treatment than single"prod!ct companies$
Those companies need to deelop a por!olio of ario!s #!sinesses in order to ass!re
corporate gro)th and proide cash flo)$The proced!re for eal!ating the strategy of a
diersified company and deciding )hat corporate strategy moes to ma%e ne*t consists of
eight ste(s/
0$ &dentifying the present corporate strategy$
3$ Analy-ing the ma%e!p of the company(s #!siness portfolio" !s!ally #y
constr!cting one or more #!siness portfolio matri*es$
4$ Comparing the long"term attractieness of each ind!stry represented in the
company(s #!siness portfolio$
6$ Comparing the competitie strength for each of the company(s !nit$
8$ Determining ho) )ell the #!siness !nits hae performed in comparison to each
other in years past and ho) they ran% in terms of prospects for the f!t!re$
9$ Assessing each #!siness !nits compati#ility )ith corporate strategy and
determining the al!e of any strategic"fit relationship among e*isting #!siness
!nits$
:$ Ran%ing the #!siness !nits in term of priority for ne) capital inestment and
deeloping a general strategy direction for each #!siness !nit"gro) and #!ild'
hold and maintain' oerha!l and reposition' or harest?diest$
;$ Choosing strategic moes to improe oerall corporate performance " ac.!iring
ne) #!sinesses and?or coordinating the actiities of related #!siness !nits in )ays
)hich prod!ce a 2 + 2 , - type of corporate " leel competitie adantage$ These
.!estions and actiities center aro!nd por!olio anal%sis.
Portfolio analysis originally )as deeloped as method for personal and instit!tional
inesting in sec!rities$
The #asic concept is to hold a ".alanced" portfolio of inestments so as to red!ce ris%
and promote a steady and een stream of earnings in prospero!s' aerage' and do)n
economic times$ The same general thin%ing and approach hae #een )idely adapted to
the strategic planning and management tas%s )ithin companies$
The ".usiness (ortfolio" concept proides a s!perior approach for deeloping the
differentiated strategic #!siness o#+ecties )hich are necessary for any company to ma%e
the most of its opport!nities$
&n a m!ltidiisional company' a good portfolio has seeral dimensions$ 5o!r are al)ays
significant/
0$ gro)th and profita#ility of the #!siness"!nits considered separately,
3$ synergy among the !nits,
4$ ris% and profit #alance,
6$ cash"flo) #alance$
Among the ario!s approaches of the #!siness portfolio analysis' the most pop!lar seem
to #e the gro)th"share matri*' the ind!stry attractieness"#!siness strength matri*'
and the life"cycle approach$
Por!olio Managemen $ramewor/s
The most pop!lar analytical techni.!e inoles constr!cting a 1usiness por!olio
mari)$ A #!siness portfolio matri* is a t)o"dimensional graphical portrait of the
comparatie strategic position of different #!sinesses$
>atri* can #e constr!cted !sing any pair of strategically releant aria#les s!ch as/
ind!stry gro)th rate' mar%et share' long"term ind!stry attractieness' competitie
strength' and stage of prod!ct?mar%et eol!tion$
There are seeral ma+or types of portfolio matrices$ Some of these are/ the $oston
%onsulting Grou( .usiness (ortfolio /atrix, the General Electric .usiness Screen, the
(roduct0/ar1et0industr evolution (ortfolio /atrix, or S2!2*232 (ortfolio fra/e"or12
Original Bcg Matrix
The Boson Consuling Group translates differentials in !nit cost as a res!lt of the
e*perience c!re into differences in relatie mar%et share$ The original BCG concept is
ill!strated #y the matri* sho)n in Figure 4-4 and Figure 4-5$
&t )as deeloped in 0C9: #y the Boston Cons!lting <ro!p 1BC<2' a firm speciali-es in
strategic planing$ Originated #y 6lan J2 7a1on of $%G and !illia/ !2 !o//ac1 of
&ead %or(oration' the frame)or% has since #een ela#orated !pon #y $arr Hedle, a
director of $%G2
Recognition that some firms hae m!ltiple prod!cts of arying strength' the concept of a
matri* portrays the strength of the ario!s prod!cts or actiities$ The mar%et(s rate of
gro)th is indicated on the ertical a*is' and the firm(s share of the mar%et is indicated on
the hori-ontal a*is$
Each of the circles represents a #!siness !nit$ The si-e of the circle reflects each prod!ct
!nit(s ann!al sales' the hori-ontal position of the circle indicates its mar%et share' and its
ertical position depicts the gro)th rate depicts the gro)th rate of the mar%et in )hich its
competes$
Using this frame)or%' management can categori-e each of its different #!sinesses as
stars, 8uestion /ar1s, cash co"s, or dogs' depending !pon each #!siness !nit(s relatie
mar%et share and the gro)th rate of its mar%et$
4 T(e Cas( Cows$ These #!sinesses 1in the lo)er left corner of the matri*2 are so!rces
of cash for the organi-ation$ Cash flo) can #e !sed to gro) other prod!cts$
4 T(e "ars$ The Stars are the #!sinesses in the !pper"left corner of the matri*$ They are
highly attractie #!sinesses 1ones )ith high mar%et gro)th2' and they hae strong
competitie positions 1high relatie mar%et share2$ Those prod!cts co!ld !se some of the
cash generated from the "Cash Co)s" as inestments in order to gro)$
4 T(e =uesion Mar/s$ The H!estion >ar% 1in the !pper right .!adrant2 needs caref!l
scr!tiny to see )hich )ay it )ill go$ Sometimes "H!estion >ar%s" are diested' and
sometimes they are heaily inested in and transformed into "Stars"$
4 T(e >ogs$ These #!sinesses 1in the lo)er right .!adrant2 are clearly the great losers'
!nattractie and )ea%$ Typically' "Dogs" are diested or li.!idated$
T(e Mari) =uani!ied
&n this chart' gro)th rate and relatie competitie position are plotted on contin!o!s
scales$ Each circle in the display represents a single #!siness or #!siness segment'
appropriately defined$
To coney an impression of the relatie significance of each #!siness' si-e is indicated #y
the area of the circle' )hich can #e made proportional to either t!rnoer or assets
employed$
Relatie competitie position is plotted on a logarithmic scale' in order to #e consistent
)ith the e*perience c!re effect' )hich implies that profit margin or rate of cash
generation differences #et)een competitors )ill tend to #e related to the ratio of their
relatie competitie positions 1mar%et shares2$
A linear a*is is !sed for gro)th' for )hich the most generally !sef!l meas!re is volu/e
gro)th of the #!siness concerned' as in general rates of cash !se sho!ld #e directly
proportional to gro)th$ The lines diiding the portfolio in fo!r .!adrants are ineita#ly
some)hat ar#itrary$
As one of the $%G &atrix9s original p!rposes )as to help firms decide )hich #!sinesses
sho!ld gro) and )hich #!sinesses sho!ld e*it' the matri* has #een !sed in corporate
strategic decisions$
Ge Business Screen
Another and more comple* .usiness (ortfolio fra/e"or1 )as deeloped #y General
Electric )ith the help of &c:inse and %o/(an' a cons!lting firm$ There are nine cells
in the GE $usiness Screen$
The t)o composite al!es for %o/(etitive Position and Industr 6ttractiveness are the
plotted to locate that #!siness(s position in the matri*$ On it' #oth ind!stry attractieness
and competitie position are composite meas!res determined thro!gh an analysis and
)eighting of a ariety s!#factors' incl!ding rate and mar%et share$ Some of the criteria
!sed to determine ind!stry attractieness and #!siness strength are sho)n in 3a.le 4-;2
Calc!lation of a score for Industr 6ttractiveness per prod!ct or strategic #!siness !nit is
a fie"step process/
4 $irs' select the criteria !sed to eal!ate the ind!stry$ Some of the criteria !sed to
determine ind!stry attractieness and #!siness strength are sho)n in 3a.le 4-;$
4 "e#ond' )eight each criterion in accordance )ith the strategic decision ma%ers(
+!dgment of the importance of the criterion to the firm(s o#+ecties$
4 T(ird' rate the ind!stry on each of the criteria selected in the first step' !s!ally )ith a
scale ranging from 0 to 8$
4 $our(' m!ltiply the )eights from the second step #y the ratings from the third step to
achiee a )eighted score per criterion$
4 $i!(' s!m the )eighted scores to find a total attractieness score for the ind!stry$ The
area of each circle is proportional to the si-e of the ind!stry' and the si-e of the pie slice
)ithin each circle reflects the #!siness(s mar%et share$
The follo)ing steps o!tline a methodology for !sing the ind!stry attractieness"#!siness
strength matri*/
4 "ep 8' >e!iniion o! #rii#al inernal and e)ernal !a#ors$ The internal factors are
those )hich are controlla#le #y the firm$ The are mainly the f!nctional actiities that can
#e deployed #y #!siness !nits to s!cceed against competition$ The critical e*ternal
factors' that are essentially !ncontrolla#le #y the firm' are #asic characteristics of the
ind!stry and competitie str!ct!re in )hich the #!siness operates and a host of other
factors' s!ch as socio" political' economic' legislatie' reg!latory' and demographic
factors$
4 "ep 9' Assessmen o! e)ernal !a#ors$ Once e*ternal factors are identified' )e hae
to determine each contri#!tes to the attractieness of the ind!stry to )hich the #!siness
#elongs each factor is grated according to a fie " point scale/
--E*tremely !nattractie
->ildly !nattractie
E Een attractie
? >iddle Attractie
?? E*tremely attractie
&n the .!antitatie approach a )eighted aerage is comp!ted on the #asis of assigned
)eight and ratings for each factor$ Calc!lation of a score for Industr 6ttractiveness per
prod!ct or strategic #!siness !nit is a fie" step process$
First' select the criteria !sed to eal!ate the ind!stry$ Some of the criteria !sed to
determine ind!stry attractieness and #!siness strength are sho)n in 3a.le 4-;$
Second' )eight each criterion in accordance )ith the strategic decision ma%ers( +!dgment
of the importance of the criterion to the firm(s o#+ecties$
3hird' rate the ind!stry on each of the criteria selected in the first step' !s!ally )ith a
scale ranging from 0 to 8$
Fourth' m!ltiply the )eights from the second step #y the ratings from the third step to
achiee a )eighted score per criterion$
Fifth' s!m the )eighted scores to find a total attractieness score for the ind!stry$
4 "ep @' Assessmen o! inernal !a#ors. Again a fie"point scale is !sed 1Figure 4-112$
The fie points of the scale correspond to/
--Seere competitie disadantage'
->ild competitie standing'
E E.!al competitie standing'
? >ild competitie adantage' and
?? <reat competitie adantage$
$usiness Strength0%o/(etitive Position is mathematically comp!ted in a similar fashion
to the one descri#ed in Step 3$
4 "ep A' Posiioning o! (e Business in (e ara#i*eness-sreng( mari)$ &n the
gro)th"share matri* approach pop!lari-ed #y the Boston Cons!lting <ro!p 1BC<2 a
different proced!re is !sed$ 5or e*ample Hofer and Schendel !se a graphical display in
)hich the areas of the circles are proportional to the si-es of the ario!s ind!stries and
the #!siness(s c!rrent mar%et share in that ind!stry is represented #y a shaded pie"shaped
)edge$
Corporae-le*el "raegies
>anagement can o#tain an oerall ie) of the corporate portfolio #y placing the present
an desired position of all #!siness !nits on the matri*$ Figure 4-1; ill!strates the general
corporate"leel strategies aaila#le to an organi-ation$
<enerally' )hen a #!siness !nit is high on ind!stry attractieness and #!siness strengths'
the nat!ral corporate"leel strategy is to inest heaily and per!se a gro)th strategy$
@hen attractieness and #!siness strengths are lo)' the strategy is normally to harest or
diest$
4 "ep B' $ore#asing o! rends !or ea#( e)ernal !a#or$ Seeral techni.!es for
forecasting e*ternal factor )ill #e descri#ed in %ha(ter #$
4 "ep C' >e*eloping (e desired posiion !or ea#( inernal !a#ors$ This means
determining )hat moes need to #e made )ithin each controlla#le factor to res!lt in the
desired competitie position$
4 "ep D' >esired posiioning o! ea#( 1usiness in (e ara#i*eness-sreng( mari)$
After forecasting ind!stry attractieness and the deelopment of the #!siness( strength'
graphically representing the proper positioning of a #!siness in the attractie" strength
matri* may appear simple$ &n practice' Steps 9 and : are carried o!t sim!ltaneo!sly$
4 "ep E' $ormulaion o! sraegies !or ea#( 1usiness$ The analysis cond!cted so far
has proided !s )ith all the elements necessary for o!tlining the strategy to #e p!rs!ed
for deeloping each #!siness$
Produ#-mar/e E*oluion Mari)
The <E B!siness Screen is not )itho!t controersy$ Some o#seres arg!e that there is too
m!ch s!#+ectiity in the constr!ction of the matri*$
According to Hofer and Schendel' "T(e Prin#ipal di!!i#ul% wi( GE Business "#reen
is (a i does no depi# as a!!e#i*el% a i mig( (e posiions o! new 1usinesses (a
are Fus saring o grow in new indusries.
In su#( insan#es7 i ma% 1e pre!era1le o use a !i!een-#ell mari) in w(i#(
1usinesses are ploed in erms o! (eir #ompeii*e posiion and (eir sage o!
produ#2mar/e e*oluion"$ Th!s' Hofer deeloped the Product0&ar1et Evolution
Portfolio &atrix, or <ife %cle &atrix$
Seeral !sef!l ideas concerning the strategic alternaties aaila#le to each #!siness !nit
emerge from an analysis of Figure 4-142
-Business uni A )o!ld to #e a deeloping )inner$ &ts relatiely large share of the mar%et
com#ined )ith its #eing at the deelopment stage of prod!ct" mar%et eol!tion and its
potential for #eing in a strong competitie position ma%e it a good candidate for receiing
more corporate reso!rces$
-Business uni B is some)hat similar to A$ Ho)eer' it has a relatiely small share of the
mar%et gien its strong competitie position$ A strategy )o!ld hae to #e deeloped to
oercome this lo) mar%et share in order to +!stify more inestments$
-Business uni C might #e classified as a potential loser$ A strategy m!st #e deeloped to
oercome the lo) mar%et share and )ea% competitie position in order to +!stify f!t!re
inestments$
-Business uni > is in a sha%eo!t period' has a relatiely large share of the mar%et' and is
in a relatiely strong position$ &nestment sho!ld #e made to maintain that position$
Business unis E and $ are cash co"s and sho!ld #e !sed for cash generation$
-Business uni G appears to #e a dog$ &t sho!ld #e managed to generate cash in the short
r!n' if possi#le, ho)eer' the long"r!n strategy )ill more the li%ely #e diestment or
li.!idation$
&t has #een s!ggested that most portfolios are ariations of one of three ideal types/
gro"th, (rofit, .alanced$
T(e Tows Mari) ' A Con#epual Model
The TO&" Mari)' proposed #y Hein= !eihrich' has a )ider scope and has different
emphases than the ones descri#ed a#oe$ &t does not replace either the B!siness Portfolio
>atri*' The <E B!siness Screen' or other matri*es' #!t its is proposed as a concept!al
frame)or% for a systematic analysis that facilities matching the e*ternal threats and
opport!nities )ith the internal )ea%nesses and strengths of the organi-ation$
The TO@S >atri* indicates fo!r concept!ally distinct alternatie strategies' tactics and
actions$ The process of strategy form!lation and the TO&" analysis is sho)n in Figure
4-1# in )hich (T( stands for threats' (O( for opport!nities' (&( for )ea%nesses and ("( for
strengths$
This process incl!des seen steps/
- Step 0' deals )ith some #asic .!estions pertaining to the internal and e*ternal
enironments 1the %ind of #!siness' geographic domain' competitie sit!ation' top
management orientation2$
- "ep 9' concerns primarily the present sit!ation in respect e*ternal enironment factors
1social' political' demographic' prod!ct technology' mar%et and competition2$
- "ep @' deals )ith f!t!re sit!ation in respect to the e*ternal enironment 1forecast'
predictions and assessment of the f!t!re2$
- "ep A' concerns actiities to deelop alternaties$
- "ep B' deals )it actiities necessary to deelop strategies' tactics and more specific
actions in order to achiee the enterprise(s p!rpose and oerall o#+ecties$
- "ep C' concerns consistency of these decisions )ith the other steps in the strategy
form!lation process$
- "ep D' deals )ith prepare contingency plans$
The analysis starts )ith the e)ernal en*ironmen$ The e*ternal threats sho!ld #e listed
in #o* "T" in Figure 14' and opport!nities sho!ld #e sho)n in #o* (G($ Threats and
opport!nities may #e fo!nd in different areas' s!ch as economic' social' political and
demographic factors' prod!cts and serices' technology' mar%ets' and competition$
"&OT ANA3Y"I"
Organi-ational strategies are the means thro!gh )hich companies accomplish their
missions and goals$ S!ccessf!l strategies address fo!r elements of the setting )ithin
)hich the company operates/ 102 the company(s strengths' 132 its )ea%nesses' 142 the
opport!nities in its competitie enironment' and 162 the threats in its competitie
enironment$ This set of fo!r elementsNstrengths' )ea%nesses' opport!nities' and threats
N)hen !sed #y a firm to gain competitie adantage' is often referred to as a S@OT
analysis$ S@OT )as deeloped #y Een Andre)s in the early 0C:Ds$ An assessment of
strengths and )ea%nesses occ!rs as a part of organi-ational analysis, that is' it is an a!dit
of the company(s internal )or%ings' )hich are relatiely easier to control than o!tside
factors$ Conersely' e*amining opport!nities and threats is a part of enironmental
analysisNthe company m!st loo% o!tside of the organi-ation to determine opport!nities
and threats' oer )hich it has lesser controlAndre)s(s original conception of the strategy
model that preceded the S@OT as%ed fo!r #asic .!estions a#o!t a company and its
enironment/ 102 @hat can )e doA 132 @hat do )e )ant to doA 142 @hat might )e doA
and 162 @hat do others e*pect !s to doA
The ans)ers to these .!estions proide the inp!t for an effectie strategic management
process$ @hile Andre)s( original conception of this analysis has #een deeloped and
changed to the more streamlined S@OT analysis that )e %no) today' his )or% is the
fo!ndation of this actiity$
Strengths' @ea%nesses'opport!nities' and Threats
Strengths' in the S@OT analysis' are a company(s capa#ilities and reso!rces that allo) it
to engage in actiities to generate economic al!e and perhaps competitie adantage$ A
company(s strengths may #e in its a#ility to create !ni.!e prod!cts' to proide high"leel
c!stomer serice' or to hae a presence in m!ltiple retail mar%ets$ Strengths may also #e
things s!ch as the company(s c!lt!re' its staffing and training' or the .!ality of its
managers$ @hateer capa#ility a company has can #e regarded as strength$
A company(s )ea%nesses are a lac% of reso!rces or capa#ilities that can preent it from
generating economic al!e or gaining a competitie adantage if !sed to enact the
company(s strategy$ There are many e*amples of organi-ational )ea%nesses$ 5or
e*ample' a firm may hae a large' #!rea!cratic str!ct!re that limits its a#ility to compete
)ith smaller' more dynamic companies$ Another )ea%ness may occ!r if a company has
higher la#or costs than a competitor )ho can hae similar prod!ctiity from a lo)er la#or
cost$ The characteristics of an organi-ation that can #e strength' as listed a#oe' can also
#e a )ea%ness if the company does not do them )ell$
$ Opport!nities proide the organi-ation )ith a chance to improe its performance and its
competitie adantage$ Some opport!nities may #e anticipated' others arise !ne*pectedly$
Opport!nities may arise )hen there are niches for ne) prod!cts or serices' or )hen
these prod!cts and serices can #e offered at different times and in different locations$
5or instance' the increased !se of the &nternet has proided n!mero!s opport!nities for
companies to e*pand their prod!ct sales$
Threats can #e an indiid!al' gro!p' or organi-ation o!tside the company that aims to
red!ce the leel of the company(s performance$ Eery company faces threats in its
enironment$ Often the more s!ccessf!l companies hae stronger threats' #eca!se there is
a desire on the part of other companies to ta%e some of that s!ccess for their o)n$ Threats
may come from ne) prod!cts or serices from other companies that aim to ta%e a)ay a
company(s competitie adantage$ Threats may also come from goernment reg!lation or
een cons!mer gro!ps$
A strong company strategy that sho)s ho) to gain competitie adantage sho!ld address
all fo!r elements of the S@OT analysis$ &t sho!ld help the organi-ation determine ho) to
!se its strengths to ta%e adantage of opport!nities and ne!trali-e threats$ 5inally' a
strong strategy sho!ld help an organi-ation aoid or fi* its )ea%nesses$ &f a company can
deelop a strategy that ma%es !se of the information from S@OT analysis' it is more
li%ely to hae high leels of performance$
Nearly eery company can #enefit from S@OT analysis$ 7arger organi-ations may hae
strategic"planning proced!res in place that incorporate S@OT analysis' #!t smaller firms'
partic!larly entreprene!rial firms may hae to start the analysis from scratch$
Additionally' depending on the si-e or the degree of diersification of the company' it
may #e necessary to cond!ct more than one S@OT analysis$ &f the company has a )ide
ariety of prod!cts and serices' partic!larly if it operates in different mar%ets' one
S@OT analysis )ill not capt!re all of the releant strengths' )ea%nesses' opport!nities'
and threats that e*ist across the span of the company(s operations$
7imitations of S)ot Analysis
One ma+or pro#lem )ith the S@OT analysis is that )hile it emphasi-es the importance of
the fo!r elements associated )ith the organi-ational and enironmental analysis' it does
not address ho) the company can identify the elements for their o)n company$ >any
organi-ational e*ec!ties may not #e a#le to determine )hat these elements are' and the
S@OT frame)or% proides no g!idance$ 5or e*ample' )hat if a strength identified #y
the company is not tr!ly a strengthA @hile a company might #eliee its c!stomer serice
is strong' they may #e !na)are of pro#lems )ith employees or the capa#ilities of other
companies to proide a higher leel of c!stomer serice$ @ea%nesses are often easier to
determine' #!t typically after it is too late to create a ne) strategy to offset them$ A
company may also hae diffic!lty identifying opport!nities$ Depending on the
organi-ation' )hat may seem li%e an opport!nity to some' may appear to #e a threat to
others$ Opport!nities may #e easy to oerloo% or may #e identified long after they can #e
e*ploited$ Similarly' a company may hae diffic!lty anticipating possi#le threats in order
to effectiely aoid them$
@hile the S@OT frame)or% does not proide managers )ith the g!idance to identify
strengths' )ea%nesses' opport!nities' and threats' it does tell managers )hat .!estions to
as% d!ring the strategy deelopment process' een if it does not proide the ans)ers$
>anagers %no) to as% and to determine a strategy that )ill ta%e adantage of a
company(s strengths' minimi-e its )ea%nesses' e*ploit opport!nities' or ne!trali-e threats$
Some e*perts arg!e that ma%ing strategic choices for the firm is less important than
as%ing the right .!estions in choosing the strategy$ A company may mista%enly sole a
pro#lem #y proiding the correct ans)er to the )rong .!estion$
Using S)ot Analysis to Deelop organi-ational Strategy
S@OT analysis is +!st the first step in deeloping and implementing an effectie
organi-ational strategy$ After a thoro!gh S@OT analysis' the ne*t step is to ran% the
strengths' )ea%nesses' opport!nities' and threats and to doc!ment the criteria for ran%ing$
The company m!st then determine its strategic fit gien its internal capa#ilities and
e*ternal enironment in a t)o"#y"t)o grid 1see 5ig!re 02$ This fit' as determined in the
grid' )ill indicate )hat strategic changes need to #e made$ The .!adrants in this grid are
as follo)s/
as follo)s/
$igure 8
>uadrant 1Ninternal strengths matched )ith e*ternal opport!nities,
>uadrant 2Ninternal )ea%nesses relatie to e*ternal opport!nities,
>uadrant ;Ninternal strengths matched )ith e*ternal threats, and
>uadrant 4Ninternal )ea%nesses relatie to e*ternal threats$
>uadrant 1 lists the strategies associated )ith a match #et)een the company(s strengths
and its perceied e*ternal opport!nities$ &t represents the #est fit #et)een the company(s
reso!rces and the options aaila#le in the e*ternal mar%et$ A strategy from this .!adrant
)o!ld #e to protect the company(s strengths #y shoring !p reso!rces and e*tending
competitie adantage$ &f a strategy in this .!adrant can additionally #olster )ea%nesses
in other areas' s!ch as in H!adrant 3' this )o!ld #e adantageo!s$
>uadrant 2 lists the strategies associated )ith a match #et)een the company(s
)ea%nesses )ith e*ternal opport!nities$ Strategies in this .!adrant )o!ld address the
choice of either improing !pon )ea%nesses to t!rn them into strengths' or allo)ing
competitors to ta%e adantage of opport!nities in the mar%etplace$
>uadrant ; matches the company(s strengths and e*ternal threats$ Strategies in this
.!adrant may aim to transform e*ternal threats into opport!nities #y changing the
company(s competitie position thro!gh !se of its reso!rces or strengths$ Another
strategic option in this .!adrant is for the company to maintain a defensie strategy to
foc!s on more promising opport!nities in other .!adrants$
>uadrant 4 matches a comppany(s )ea%nesses and the threats in the enironment$ These
are the )orst possi#le scenarios for an organi-ation$ Ho)eer' #eca!se of the competitie
nat!re of the mar%etplace' any company is li%ely to hae information in this .!adrant$
Strategies in this .!adrant may inole !sing reso!rces in other .!adrants to e*ploit
opport!nities to the point that other threats are minimi-ed$ Additionally' some iss!es may
#e moed o!t of this .!adrant #y other)ise ne!trali-ing the threat or #y #olstering a
perceied )ea%ness$
Once a strategy is decided on in each .!adrant for the iss!es facing the company' these
strategies re.!ire fre.!ent monitoring and periodic !pdates$ An organi-ation is #est
sered #y proactiely determining strategies to address iss!es #efore they #ecome crises$
An e*ample of ho) a firm can deelop strategies !sing these .!adrants is as follo)s$
<eneric Corporation prod!ces high".!ality, high"priced specialty %itchen items in a
catalog and in stores and is %no)n for their e*cellent c!stomer serice$ This strength has
#een a#le to offset its ma+or )ea%nesses' )hich are haing fe) stores and no c!rrent
capa#ilities for &nternet sales$ &ts ma+or opport!nities come from the e*plosion of &nternet
shopping' and its threats are other more high"profile competitors' operating primarily on
the &nternet' and the concerns of identity theft in &nternet sales that many c!stomers hae$
>atching <eneric(s strengths to its opport!nities 1H!adrant 02' the firm may choose to
enhance its &nternet site to allo) online p!rchases' still proiding its e*cellent 36"ho!r
telephone c!stomer serice$ &deally' this strategy )ill offset the )ea%ness of not haing
an &nternet presence' )hich addresses the concerns of H!adrant 3$ Additionally' #y
#olstering the strength of e*cellent c!stomer serice #y applying it to the online shopping
site' the company may #e a#le to alleiate c!stomer concerns a#o!t identity theft
1H!adrant 42$ A strategy for H!adrant 6' )hich matches the company(s )ea%nesses and
threats' is that <eneric may consider selling its online #!siness to a competitor$ Certainly'
the H!adrant 6 strategy is the least preferred' #!t a proactie strategy that plans for
managing s!ch a sit!ation is faored oer a crisis sit!ation in )hich the company is
forced to sell )ith no planning$
A S@OT analysis is a first' #!t critical' step in deeloping an organi-ational strategy$ By
e*amining the company(s internal capa#ilitiesNits strengths and )ea%nesses and its
e*ternal enironmentNopport!nities and threats' it helps to create strategies that can
proactiely contend )ith organi-ational challenges$
Strategic Planning Tools, Strategy 5orm!lation
One (elp!ul sraegi# deelopment tool entails S@OT analysis' )hich identifies the
strengths' )ea%nesses' opport!nities' and threats facing a company$
Ho)eer' a ma+or shortcoming of this method inoles its foc!s on the company(s
internal enironment at the e*pense of its e*ternal sit!ation$ S!#se.!ent to the S@OT
model' organi-ations sho!ld cond!ct a TO@S analysis' a proced!re that foc!ses more on
the e*ternal enironment$ Altho!gh the acronym is simply S@OT reersed' TO@S
analysis ta%es a different approach to lin%ing a company(s internal strengths and
)ea%nesses )ith its e*ternal opport!nities and threats$ This approach allo)s a #!siness to
clearly identify and eal!ate the options it co!ld p!rs!e$
To perform a proper TO@S analysis' the company m!st first cond!ct a S@OT analysis to
identify its internal strengths and )ea%nesses and e*ternal opport!nities and threats$ The
rest of the proced!re inoles diiding and lin%ing the appropriate classifications into
fo!r categories/
>a*i">a*i
>a*i">ini
>ini">a*i
>ini">ini
Creating a TO@S matri* is an easy and is!ally helpf!l )ay to aid in this process$
6Ma)i-Ma)i6 "raeg%
Under the >a*i">a*i classification' an organi-ation identifies the appropriate strengths it
can !se to ta%e adantage of its opport!nities$ The firm needs to disting!ish and list the
strengths that co!ld aid in the ma*imi-ation of each one of its listed opport!nities$ 5or
e*ample' possi#le strengths that co!ld help a company penetrate a ne) mar%et co!ld
incl!de high"#rand recognition' high"#rand loyalty' large leels of research and
deelopment spending' and s!perior c!stomer serice$
6Ma)i-Mini6 "raeg%
The >a*i">ini category identifies the strengths the company can e*ploit to minimi-e its
e*ternal threats$ 5or instance' a potential threat to a firm co!ld #e the loss of mar%et share
to a ne) competitor entering the mar%et$ One )ay the firm co!ld protect its position
inoles deeloping a mar%eting campaign emphasi-ing its s!perior c!stomer serice or
its competitor(s inferior c!stomer serice$
6Mini-Ma)i6 "raeg%
@ith the >ini">a*i strategy' a company )ants to !se its e*ternal opport!nities to
minimi-e its internal )ea%nesses$ To ill!strate' consider a company that faces rising la#or
costs in its home co!ntry$ Sim!ltaneo!sly' it has identified an attractie opport!nity to
o!tso!rce some of its operations to another co!ntry )here the cost of la#or is far cheaper$
This o!tso!rcing prospect red!ces the company(s threat of rising la#or e*penses$
6Mini-Mini6 "raeg%
>ini">ini strategies attempt to minimi-e the company(s )ea%nesses and preent e*ternal
threats$ This section matches the firm(s threats and )ea%nesses in order for the company
to recogni-e the potential sit!ations that co!ld harm its operations$ Once these possi#le
conditions are reali-ed' the company can conceie of )ays to protect its #!siness$ 5or
e*ample' a firm can enter into a strategic alliance or merge )ith one of its competitors to
protect its operations from a rial firm$ >oreoer' the options to )ithdra) from a mar%et
or s!spend operations are al)ays present$
Business "raeg%
&(en Business "raegies $ail
It ta1es great courage to ac1no"ledge failure2 $ut "hen our .usiness strateg isn9t
"or1ing, the .est thing ou can do is ad/it failure and ta1e a fresh loo1 at a ne"
a((roach2
&t ta%es great co!rage to ac%no)ledge fail!re$
1article contin!es #elo)2
B!t )hen yo!r #!siness strategy isn(t )or%ing' crossing yo!r fingers and hoping for a
t!rnaro!nd )on(t improe the sit!ation$ Sometimes the #est strategy is to stop and ta%e a
fresh loo% at a ne) approach$
Een the most )ell"crafted #!siness strategy can(t g!arantee s!ccess in the mar%etplace$
B!t !nfort!nately' )hen a strategy fails to achiee its stated goals some #!siness o)ners
resist ma%ing ad+!stments !ntil it(s too late$ &n an eer"changing #!siness enironment'
yo! can(t afford to set anything in stone O incl!ding yo!r #!siness strategy$ &f yo!r
#!siness strategy is failing to delier the goods' here are some common"sense tips to help
yo! get #ac% on trac%$
"#(edule Regular E*aluaions
&f yo!r strategy is fla)ed' yo! need to %no) a#o!t it as soon as possi#le$ B!t that(s not
going to happen !nless yo! sched!le eal!ations at reg!lar interals$ Each eal!ation
sho!ld #e #ased on .!antitatie #enchmar%s and sho!ld incl!de m!ltiple perspecties
from )ithin the #!siness$
Be Realisi#
@hen it comes to #!siness strategies' the line #et)een optimism and fantasy is easily
#l!rred$ At times' the temptation to ma%e decisions #ased on a #est"case scenario can #e
oer)helming$ B!t since yo! can(t afford to )ear rose"colored lenses )hen yo!r strategy
isn(t )or%ing' yo! need to intentionally in+ect a strong dose of realism into yo!r
assessment$
"a% $le)i1le
>any #!siness o)ners deelop a strong attachment to their #!siness strategy$ After all'
the reason they adopted in the first place )as #eca!se they tho!ght it offered their #est
chance for gro)th and profita#ility$ B!t the #ottom line doesn(t lie' so )hen yo!r strategy
fails to prod!ce the res!lts yo! had hoped it )o!ld achiee' it(s time to c!t the cord'
accept yo!r losses' and moe on to a more effectie strategy O een if that means setting
aside a strategy that appeals to yo! personally$
"a% Tuned o (e Mar/epla#e
B!sinesses don(t e*ist in a ac!!m$ Sometimes #!siness strategies fail simply #eca!se the
mar%etplace itself has changed$ &f yo! loc% yo!rself in a room and attempt to ad+!st yo!r
strategy )itho!t ta%ing into acco!nt conditions in the mar%etplace' yo!r ne) strategy )ill
#e doomed from the start$ &nstead' #egin the process #y gathering data a#o!t the
mar%etplace 1incl!ding the c!rrent competitie enironment2 and create yo!r ne)
strategy accordingly$
Ge Creai*e
&f yo! find yo!rself faced )ith the prospect of creating an entirely ne) #!siness strategy'
don(t #e afraid to get creatie$ A strategy that is restricted to the confines of past strategies
)ill #e limited in its a#ility to achiee ne) res!lts$ The s%y(s the limit' so gather a team'
p!t on yo!r thin%ing caps' and start thin%ing o!tside the #o*$
"ee/ Ouside Perspe#i*es
7astly' it(s important to solicit o!tside perspecties in assessing the effectieness of yo!r
c!rrent #!siness strategy and deising a ne) strategy to meet the c!rrent demands of the
mar%etplace$ Since #!siness o)ners are often too close to the sit!ation to see the #ig
pict!re' the more perspecties yo! can garner the #etter$
Business "raeg%

Indusr% Anal%sis
3he 1e to defining a .usiness strateg is doing a thorough industr analsis and figuring
out "here the o((ortunities are2 Here9s ho" to conduct an industr analsis in a "a that
"ill hel( ou define the .est .usiness strateg2
Effectie #!siness strategies aren(t created in a ac!!m$
1article contin!es #elo)2
=o! need to #e informed a#o!t the mar%etplace and %eenly a)are of )here the
opport!nities lie$ B!t to do that' yo!(ll need to %no) ho) to cond!ct an ind!stry analysis$
Here(s ho) to get started $ $ $
&t(s a simple fact of #!siness that some ind!stries are ripe for profit and some aren(t$
S!ccessf!l entreprene!rs are masters at analy-ing ind!stries and mar%ets to identify gaps
)aiting to #e filled #y their company(s prod!cts or serices$ Altho!gh the tas% of ind!stry
analysis can seem da!nting' yo! can learn a lot #y foc!sing yo!r attention on the iss!es
and areas faored #y professional analysts$
Barriers o Enr%
Barriers to entry are factors that ma%e it diffic!lt for ne) #!sinesses to enter a partic!lar
ind!stry$ These #arriers often consist of things li%e significant loyalty to e*isting #rands'
high fi*ed costs' or restrictions imposed on ne) entrants$ &f yo!r #!siness is already
esta#lished in the ind!stry' then #arriers can )or% to yo!r #enefit #y limiting the n!m#er
of competitors$ B!t if yo! aren(t already esta#lished' an ind!stry teeming )ith #arriers to
entry can ma%e yo!r +o# a long' !phill slog O at #est$
"uppliers
&n some ind!stries' s!ppliers possess eno!gh po)er to impact the entire ind!stry$ 5or
e*ample' if there are fe) s!ppliers in the ind!stry and the cost to s)itch from one
s!pplier to another is s!#stantial' yo! co!ld r!n into pro#lems trying to conince #!yers
to s)itch to yo!r prod!ct$ Also' if e*isting s!ppliers hae a high profit margin on their
prod!cts' they can create diffic!lties for ne) #!sinesses #y slashing prices to drie
competitors o!t$
Bu%ers
<enerally' the more #!yers that e*ist in a gien ind!stry the #etter$ &f the ind!stry
s!ries on the #!siness of a select fe) #!yers' yo!r company co!ld #e forced into the
!ncomforta#le position of rolling the dice on a dimin!tie client pool' and the loss of +!st
one client co!ld send yo!r company into crisis mode$ Ho)eer' an ind!stry )ith a large
c!stomer #ase that is acc!stomed to s)itching s!ppliers )ith relatie ease may #e a
perfect candidate for yo!r prod!cts$
Ease o! "u1siuion
&nd!stries in )hich #!yers can easily change s!ppliers are attractie to ne) entrants$ B!t
maintaining yo!r ind!stry position can #e a challenge' especially if all prod!cts are
similar and it is easy to transition #et)een s!ppliers$ To maintain yo!r position' yo! )ill
need to find a )ay to differentiate yo!r prod!ct from the competition$ &f the ind!stry
doesn(t lend itself to differentiation' yo! sho!ld consider the s!#stit!tion factor into yo!r
oerall gro)th strategy$
Compeii*e Ri*alr%
5inally' yo!r ind!stry analysis needs to consider the leel of competition that c!rrently
e*ists in the ind!stry$ >any ind!stries possess no clear leader' #!t are instead
characteri-ed #y a highly competitie mi* of similarly si-ed #!sinesses$ &n these
ind!stries' the fierce leel of competition limits profita#ility as companies +ostle to gain
an edge$ Sometimes these ind!stries hae een mat!red to the point of sat!ration'
restricting gro)th to c!stomers that can #e stolen from the competition$ Altho!gh it(s not
impossi#le to achiee gro)th in a highly"competitie ind!stry' the leel of competitie
rialry is something that needs to #e ta%en into acco!nt$
$eed1a#/ Conrols' Anal%5ing "raegi# >e#isions
Feed.ac1 is an essential /eans for co/(anies to evaluate the effectiveness of their
strategic decisions2 3hrough the use of .udgets, ratio analsis, audits, and o.?ectives,
co/(anies are a.le to /easure the (erfor/ance of /anage/ent, de(art/ents, and0or
individual .usiness units2
After implementing a strategic decision' management needs a )ay to +!dge its
performance$
Typically this inoles the comparison of the firm(s c!rrent financial performance against
its financial performances from past .!arters or years$ 5eed#ac% controls incl!de the
information !sed #y the manager to alter their plans and strategies$ @hile n!mero!s types
of feed#ac% controls e*ist' fo!r are the most common/ #!dgets' ratio analysis' a!dits' and
o#+ecties and goals$
Budges
B!dgets allo) !pper management to monitor the e*penses and profits of an indiid!al
department or prod!ct gro!p$
Eal!ations )ill #e #ased on the ariations of the reen!e and e*pense acco!nts' and
management sho!ld inestigate any disparity #eyond reasona#le e*pectations$ Not only
sho!ld they in.!ire a#o!t rising e*penses' #!t rising profits as )ell$ Once the so!rce for
the increased profits is discoered' this %no)ledge might #e transfera#le to other prod!cts
or serices$ The so!rce for increased e*penses needs to #e discoered so the company can
alter their operations accordingly$
Companies need to create a process' ho)eer' to eal!ate #!dgets )itho!t disco!raging
management from inesting in research and deelopment' training' and #eneficial capital
e.!ipment$ >anagement sho!ld not #e p!nished for ma%ing long"term inestments that
are ital to the f!t!re s!ccess of the firm$ Adding #ac% these inestments' or the creation
of separate acco!nts' )ill proide a more ade.!ate comparison to past years$
Raio Anal%sis
Ret!rn on inestment' ret!rn on e.!ity' de#t"to"e.!ity ratios' li.!idity ratios' and other
financial ratios offer relia#le meas!rements of company and indiid!al department
performance$
F!st li%e #!dgets' long"term inestments sho!ld #e added #ac% to aoid short"term
orientations #y management$ 5irms need to #e caref!l )hen !sing financial ratios to
eal!ate performance #eca!se they may not #e !sef!l for certain company str!ct!res$ 5or
instance' related diersified firms create cost efficiencies and competitie adantages #y
creating synergies #et)een their prod!cts$ Basing a re)ard system on ret!rn on
inestment fig!res enco!rages competition #et)een #!siness !nits$ Cooperation rarely
arises among competitors' and decreases the pro#a#ility of creating necessary synergies$
On the other hand' financial ratios are appropriate for !nrelated diersified firms to +!dge
the performance of indiid!al #!siness !nits and their managers$ These firms are not
concerned )ith creating synergies #eca!se their prod!cts and serices !s!ally lac%
commonality$ Therefore' separating and eal!ating indiid!al #!siness !nits is an
ade.!ate process for ga!ging manager performance$
Audis
A!dits allo) a company to meas!re its operations #ased on certain g!idelines to incl!de
financial' social' and c!stomer eal!ations$
5inancial a!dits foc!s on the acco!nting systems of the firm to ens!re their compliance
)ith generally accepted acco!nting principles and goernment reg!lations$ @ith the
gro)ing e*pectations #y cons!mers for socially responsi#le companies' a!dits regarding
a firm(s ethical #ehaior and charita#le contri#!tions are common$ C!stomer s!reys can
#e considered c!stomer serice a!dits' and proide the company )ith al!a#le feed#ac%
a#o!t cons!mers( perception of the firm$
Targe O1Fe#ions and Goals
Certain operating goals for indiid!al #!siness !nits and departments gie managers a
target for )hich to strie$ These goals' ho)eer' need to properly motiate managers and
employees$ &f the goals and o#+ecties are so high that they are ie)ed as !nattaina#le'
employees )ill not een try to meet them$ &f they are set too lo)' the a#ilities of
employees are not #eing ma*imi-ed #y the firm$