THEME 7:
STRATEGIC DIAGNOSIS
• SWOT analysis.
• Portfolio management.
– BCG matrix.
– Sallenave matrixes.
– GE-McKinsey matrix.
STRATEGIC MANAGEMENT
1.-WHERE AM I NOW?
2.-WHERE DO I WANT TO GO?
Your future depends on many
things, but MOSTLY ON YOU.
Wherever an opportunity exists there is
usually a threat and vice versa:
WHERE AM I NOW?: current state analysis.
The best tool for doing this is:
THE SWOT ANALYSIS THE SWOT SWOT ANALYSIS S
STRENGTHS WWEAKNESSES OOPPORTUNITIES TTHREATS
WHAT IS GOOD/ GOING WELL
WHAT IS BAD/ NEEDS IMPROVEMENT
WHAT OPPORTUNITIES ARE THERE?
WHAT DANGERS/PROBLEMS LIE AHEAD?
INTERNAL FACTORSthat create or destroy value. As a result of value chain and resources & capabilities analysis.
Using internal assessments and external benchmarking.
EXTERNAL FACTORSthat create or destroy value. As a result of PEST and Porter’s competitive forces analysis.
SWOT ANALYSIS can be used:
• As the first stage of a planning exercise or project.
• When things are going well, because it shakes you
out of complacency and shows new opportunities.
• When things are going badly, as it helps to
re-direct your efforts and put things into perspective.
• On an ongoing periodic basis to review
SWOT ANALYSIS IN ACTION.
The process follows a number of steps:
• Define the situation you want to look at.
• Brainstorm and write down all the strengths, weaknesses,
opportunities and threats that occur to you.
• Review the list, make additions, changes.
• Define broad areas for action in priority order.
• Identify steps to be taking in each broad area, with
timescales.
• Discuss the SWOT with al least one other person.
• Set a review date to go back to step 1 and look at the whole
process again. Review at least annually.
FACTORS IN A SWOT ANALYSIS
THREATS:
-A new competitor in your own home market. -Price war.
-Competitor has a new, innovative substitute product or service.
-New regulations.
-Increased trade barriers.
OPPORTUNITIES:
-Developing market (China, the Internet). -Mergers, joint ventures or strategic alliances. -Moving into new attractive market segments. -A new international market.
-Loosening of regulations .
-Removal of international trade barriers.
WEAKNESSES:
-Lack of marketing expertise.
-Undifferentiated products and service (i.e. in relation to your competitors).
-Location of your company.
-Competitors have superior access to distribution channels.
-Poor quality of goods or services. -Damaged reputation.
STRENGTHS:
-Marketing expertise.
-Exclusive access to natural resources. -Patents.
-New, innovative product or service. -Location of your business.
-Cost advantage through proprietary know-how. -Quality processes and procedures.
CONFRONTATION MATRIX
WEAKNESSES
CHALLENGES &
ACTIONS
STRENGTHS
THREATS
OPPORTUNITIES
CONFRONTATION MATRIX
Defensive strategy
Adjust strategy
WEAKNESSES
Reactive strategy
Offensive strategy
STRENGTHS
THREATS
OPPORTUNITIES
CONFRONTATION MATRIX.
Example:
DEFENSIVE STRATEGY: T2, W1, W3: Investment in new productive facilities for existing products.
ADJUST STRATEGY: O1, W1: Investment in new productive facilities for the new product.
WEAKNESSES:
W1: Obsolete facilities. W2: Low staff qualification. W3: Noncompetitive prices.
REACTIVE STRATEGY:
T3, S1: Precise fulfillment of the new regulations.
T2, S2: Excellence in customer service.
OFFENSIVE STRATEGY: O2, S1, S3: Intense brand
promotion towards large retailers and end customers.
STRENGTHS:
S1:Financial strength. S2:Loyal and reliable customer base.
S3:Good factory and warehouses locations.
THREATS:
T1:Existing products consumption is declining. T2:An important competitor has arisen.
T3:New regulations from the European Union.
OPPORTUNITIES:
O1:Strong demand of a new product.
O2: Possibility of selling through large retailers.
SWOT ANALYSIS:
The SMART test for actions
All actions should be:
•
S
pecific,
•
M
easurable,
•
A
chievable,
•
R
elevant, and
•
T
imed.
BCG MATRIX:
A portfolio management
tool based on product life cycle theory.
FOUR CATEGORIES OF SBU’S
DOGS (low growth, low market share): -Avoid and minimize the number of Dogs in a company.
-Watch out for expensive ‘rescue plans’.
-Dogs must deliver cash, otherwise they must be liquidated.
CASH COWS (low growth, high market share): -Profits and cash generation should be high.
Because of the low growth, investments which are needed should be low.
-Cash Cows are often the stars of yesterday and they are the foundation of a company.
QUESTION MARKS (high growth, low market share):
-Question Marks have the worst cash
characteristics of all, because they have high cash demands and generate low returns, because of their low market share.
-If the market share remains unchanged, Question Marks will simply absorb great amounts of cash. -Either invest heavily, or sell off, or invest nothing and generate any cash that you can. Increase market share or deliver cash.
STARS (high growth, high market share): -Stars use large amounts of cash. Stars are leaders in the business; this is why they should also
generate large amounts of cash.
-Stars are frequently roughly in balance on net cash flow. However, any attempt should be made to hold your market share in Stars, because the
TO SUM UP…
Cows
: steady sources of cash flow.
Dogs
: very little cash flow with little prospect of
growth.
Question marks
: risks, very negative cash flows.
Stars
: goods in expanding markets, but very little cash
flows.
THE AIM IS
• to keep the cows,
• sell the dogs to finance the question marks
• and work to turn the stars into cows
BCG MATRIX
BENEFITS:• If a company is able to use the experience curve to its advantage, it should be able to manufacture and sell new products at a price that is low enough to get early market share leadership. Once it becomes a star, it is destined to be profitable.
• BCG model is helpful for managers to evaluate balance in the firm’s current portfolio of Stars, Cash Cows, Question Marks and Dogs.
• BCG method is applicable to large companies that seek volume and experience effects. • The model is simple and easy to understand. • It provides a base for management to decide
and prepare for future actions.
LIMITATIONS:
• It neglects the effects of synergy between business units.
• High market share is not the only success factor. • Market growth is not the only indicator for
attractiveness of a market.
• Sometimes Dogs can earn even more cash as Cash Cows.
• The problems of getting data on the market share and market growth.
• There is no clear definition of what constitutes a "market".
• A high market share does not necessarily lead to profitability all the time.
• The model uses only two dimensions: market share and growth rate. This may tempt
management to emphasize a particular product, or to divest prematurely.
• A business with a low market share can be profitable too.
-Luxury cars. -Jewellery.
-Hypermarkets. -Fashion.
-Hotel business.
-Publishing. -Newspapers.
McKinsey-GE matrix
-It is a later and more
advanced form of the
BCG matrix.
-SBUs are portrayed as a
circle.
-The size of the circles
represent the Market Size.
-The size of the pies
represent the Market
Share of the SBU's.
-Arrows represent the
direction and the
McKinsey-GE matrix
TYPICAL EXTERNAL FACTORS
THAT AFFECT
MARKET
ATTRACTIVENESS
:
-
Market size.
-
Market growth rate.
-
Market profitability.
-
Pricing trends.
-
Competitive intensity / rivalry.
-
Overall risk of returns in the industry.
-
Entry barriers.
-
Opportunity to differentiate products
and services.
-
Demand variability.
-
Segmentation.
-
Distribution structure.
-
Technology development
TYPICAL INTERNAL FACTORS THAT AFFECT
COMPETITIVE STRENGTH
OF A
STRATEGIC BUSINESS UNIT:
•
Strength of assets and competencies.
•
Relative brand strength (marketing).
•
Market share.
•
Market share growth.
•
Customer loyalty.
•
Relative cost position (cost structure compared
with competitors).
•
Relative profit margins (compared to competitors).
•
Distribution strength and production capacity.
•
Record of technological or other innovation.
•
Quality.
•
Access to financial and other investment resources.
•
Management strength
McKinsey-GE matrix
1
1 22 44
3
3 55 77
6
S
O
U
T
H
9
2
Relative Market Share
Market
Growth
Rate
Market
Growth
Rate
Size = Sales of the Business
Size = Net Assets
1
1
10%
10%
M
G
R
R M S
HUELVA CORPORATION, PLC
1
1.5
COMPETITIVE STRENGTH
MARKET
ATTRAC-TIVENESS
L
M
H
P
R
O
F
I
T
S
(%)
PROFIT / INVESTMENT MATRIX
+
+
-R O I
ROI / ROS MATRIX
COMERCIAL EFFICACY MATRIX
ROS=ROMxME
1
1
2
2
3
