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Strategic Analysis
is: ‘… the process of conducting
research on the business
environment within which an
organisation operates and on the
organisation itself, in order to
formulate strategy.’
BNET Business Dictionary
2
Strategic Analysis
‘… a theoretically informed understanding of the
environment in which an organisation is operating,
together with an understanding of the organisation’s
interaction with its environment in order to improve
organisational efficiency and effectiveness by
increasing the organisation’s capacity to deploy and
redeploy its resources intelligently.’
Professor Les Worrall, Wolverhampton Business School
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Strategic Analysis
Definitions of strategic analysis often differ,
but the following attributes are commonly
associated with it:
1. Identification and evaluation of data
relevant to strategy formulation.
2. Definition of the external and internal
environment to be analysed.
3. A range of analytical methods that can
be employed in the analysis.
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Issues to Consider for Strategic Analysis
• Strategy evolves over a period of time: It involves study of possible
implications of small routine decisions taken over a extended period of
time and these decisions must be balanced.
• Balance: Strategic analysis involves workable balance between diverse and
conflicting considerations. For example matching internal potential of firm
with environmental opportunities. Constraint forces vary in nature, degree,
magnitude, and importance. These factors can be managed to certain
extent.
• Risk: As competitive markets grows, liberalization, globalization,
technological advancements, inter country relations pose risks at varying
degree. Thus strategic analysis should identify potential imbalance / risk
and assess their consequences.
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Strategic Risk Analysis
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Situational Risk Analysis
• Product Situation – My current products
• Competitive Situation – Analyze the main competitors
• Distribution Situation – Review your distribution system
• Environmental Factors – Analyze the external and internal environment
• Opportunity and Issues Analysis – SWOT analysis
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Frame Work of Strategic Analysis
External Analysis
Customer Analysis
Competitors Analysis
Market Analysis
Environmental Analysis (PEST)
Internal Analysis
Performance Analysis
Determinates Analysis (Past and
Current Strategies, Capabilities
and Constraints)
Opportunities, Threats,
Trends, and Strategic
Uncertainties
Strategic
Strengths, Weaknesses,
Problems, Constraints, and
Weaknesses
Strategy Identification and Selection
Identify Strategic Alternatives (Functional Area,
Assets, Synergies)
Select Strategy
Implement Operating Plan
Review strategy
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Methods of Industry and Competitive Analysis
Industry and Competitive analysis aims at developing insight into several
issues like industry traits, intensity of competition, drivers of industry
change, market position, and strategy of rival companies, industry profit
outlook etc. It is thus thinking strategically about investing into some
company. The issues to look into are:
• Dominant Economic Features of Industry
• Nature and Strength of Competition
• Triggers of Change
• Identify the Companies that are in Strongest / Weakest Positions
• Likely Strategic Moves of Rivals
• Key factors of Competitive Success
• Prospects and Financial Attractiveness of Industry
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Dominant Economic Features of the Industry
• Market size and growth rate/stage in life cycle
• Scope of competitive rivalry
• Number of competitors and relative sizes
• Prevalence of backward/forward integration
• Entry/exit barriers
• Nature and pace of technological change
• Product and customer characteristics
• Scale economies and experience curve effects
• Capacity utilization and capital requirements
• Industry profitability
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Nature and Strength of Competition
• Moderate
• Fierce
• Cutthroat
• Best Price
• Product Quality
• Product Reliability (washer and
dryers, PC’s)
• Service Quickness and Reliability
(Fast foods, online shopping)
• Product Features and
Performance (Cars, cameras)
• Brand Reputation (Beer, soft
drinks)
• Cooperation with Suppliers
• Cooperation with Customers
• Cooperation with other
Competitors
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Triggers of Change
• Industries change because forces are driving industry participants to
alter their actions. Driving forces are the major underlying causes of
changing industry and competitive conditions.
• Identify those forces likely to exert greatest influence over next 1 – 3
years, Usually no more than 3 – 4 factors qualify as real drivers of
change, Assess impact. What difference will the forces make –
favorable / unfavorable?
• Internet and e-commerce opportunities (Increasing globalization of industry)
• Changes in long-term industry growth rate
• Changes in who buys the product and how they use it
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Triggers of Change
• Product innovation – Technological
change/process innovation
• Marketing innovation
• Entry or exit of major firms
• Diffusion of technical knowledge and
Changes in cost and efficiency
• Market shift from standardized to
differentiated products (or vice versa)
• Regulatory policies / government legislation
/ Changing societal concerns, attitudes, and
lifestyles
• Changes in degree of uncertainty and risk
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Identifying Company’s Strongest / Weakest
Points
• One technique for revealing the different competitive positions of industry
rivals is strategic group mapping. A strategic group consists of those rivals
with similar competitive approaches in an industry.
• Firms in same strategic group have two or more competitive characteristics
in common
• Sell in same price/quality range
• Cover same geographic areas
• Be vertically integrated to same degree
• Have comparable product line breadth
• Emphasize same types of distribution Channels
• Offer buyers similar services
• Use identical technological approaches
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Procedure for Constructing a Strategic Group
Map
STEP 1: Identify
competitive
characteristics that
differentiate firms
in an industry from
one another
STEP 2: Plot firms
on a two-variable
map using pairs of
these
differentiating
characteristics
STEP 3: Assign
firms that fall in
about the same
strategy space to
same strategic
group
STEP 4: Draw circles
around each group,
making circles
proportional to size
of group’s respective
share of total
industry sales
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Guidelines for Strategic Group Maps
• Variables selected as axes should not be highly correlated, and should
expose big differences in how rivals compete.
• Variables do not have to be either quantitative or continuous.
• Drawing sizes of circles proportional to combined sales of firms in
each strategic group allows map to reflect relative sizes of each
strategic group.
• If more than two good competitive variables can be used, several
maps can be drawn.
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Likely Strategic Moves of Rivals
A firm’s own best strategic moves are affected by
• Current strategies of competitors
• Future actions of competitors
Profiling key rivals involves gathering competitive
intelligence about their
• Current strategies
• Most recent moves
• Resource strengths and weaknesses
• Announced plans
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Predicting Rivals’ Next Moves Involves
• Analyzing their current competitive positions.
• Examining public pronouncements about what it will take to be
successful in industry.
• Gathering information from grapevine about current activities and
potential changes.
• Studying past actions and leadership.
• Determining who has flexibility to make major strategic changes and
who is locked into pursuing same basic strategy.
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Key Factors of Competitive Success
Competitive elements most affecting every
industry member’s ability to prosper
• Specific strategy elements.
• Product attributes.
• Resources.
• Competencies.
• Competitive capabilities.
Competitive Success Factor spell the difference
ence
between
• Profit and loss.
• Competitive success or failure.
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SUCCESS FACTORS
Technologyrelated
Scientific research expertise; Product / service innovation capability; Expertise in a given
technology; Capability to use internet to conduct various business activities
Manufacturingrelated
Low-cost production efficiency; Quality of manufacture; High use of fixed assets; Low cost
plant locations; High labour productivity; Lo-cost product design; Flexibility to make a
range of products / services
Distributionrelated
Strong Network of wholesale distributors / dealers; Gaining ample space in retailer shelves;
Having company-owned retail outlets; Low distribution costs; Fast delivery
Marketingrelated
Fast, accurate technical assistance; Courteous customer service; Accurate filling of orders;
Breadth of product line; Merchandising skills; Attractive styling; Customer guarantees;
Clever advertising
Skills-related
Superior workforce talent; Quality control know-how; Design expertise; Expertise in a
particular technology; Ability to develop innovative products / services; Ability to get new
products to market quickly
Organizational
capability
Superior information systems; Ability to respond quickly to shifting market conditions;
Superior ability to employ Internet to conduct business; More experience & managerial
know-how
Other types
Favourable image / reputation with buyers / customers; Overall low-cost; Convenient
locations; Pleasant, courteous employees; Access to financial capital; Pleasant protection
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Prospects of Financial Attractiveness of
Industry
Things to Consider
• Industry’s market size and growth potential
• Whether competitive conditions are conducive to
• Rising/falling industry profitability
• Will competitive forces become stronger or weaker
• Whether industry will be favorably or unfavorably
• Impacted by driving forces
• Potential for entry/exit of major firms
• Stability/dependability of demand
• Severity of problems facing industry as a whole
• Degree of risk and uncertainty in industry’s future
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Set of Strategies
• Functional Level Strategy – Directed at improving effectiveness of
operations like marketing, finance etc.
• Business Level Strategy – Business overall competitive theme, including
cost leadership, differentiation, focusing on particular segment etc.
• Global Level Strategy – How to expand operations outside home country
and global competitive advantage.
• Corporate Level Strategy – Which business should we be in and how to
maximize profitability in long run.
• The organizational performance in market is influenced by:
• Organizations correct market position,
• The nature of environmental opportunities and threats
• Organizational resource capability to capitalize on situations
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SWOT
analysis
War
gaming
Early
warning
scans
PEST
analysis
Analytical
methods
Value
chain
analysis
Porter’s
five forces
analysis
Four
corner’s
analysis
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Application of tools
There are a number of important considerations to be aware of when using analytical
tools:
1. The tool must help to answer the question that the organisation has asked.
2. The expected benefit of using the tool needs to be defined and it must be actionable.
The more clearly the tool has been defined, the more likely the analysis will be
successful.
3. Many tools benefit from input and collaboration with other people, functions or even
organisations. There should be sufficient time for collaboration and advance warning
given so that people can accommodate the analysis.
4. Proper use of analytical tools may be time consuming. It is important to ensure that
key stakeholders, for example, the board, senior directors and company departments
are aware of this. Otherwise they may not be able to provide the necessary
commitment to complete the analysis.
The aim of the analytical tool is to sharpen the focus of the analysis and to ensure a
methodical, balanced approach.
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SWOT Analysis
Generation of Series of Strategic Alternatives
• Strength is inherent capability of an organization helps to gain
strategic advantage over competitors
• Weakness is inherent limitation or constrain of an organization which
creates strategic disadvantage
• Opportunity is favourable condition which enables organization to
strengthen its position
• Threats is an unfavourable condition which results into risk, damage
to organization.
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SWOT Analysis
Strengths
Opportunities
• What does your organisation do better than
others?
• What are your unique selling points?
• What do you competitors and customers in
your market perceive as your strengths?
• What is your organisations competitive edge?
• What political, economic, social-cultural, or
technology (PEST) changes are taking place
that could be favourable to you?
• Where are there currently gaps in the market
or unfulfilled demand?
• What new innovation could your organisation
bring to the market?
Weakness
Threats
• What do other organisations do better than
you?
• What elements of your business add little or
no value?
• What do competitors and customers in your
market perceive as your weakness?
• What political, economic, social-cultural, or
technology (PEST) changes are taking place
that could be unfavourable to you?
• What restraints to you face?
• What is your competition doing that could
negatively impact you?
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SWOT Visual Presentation
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Tips when using SWOT
• Only specific, verifiable statements are used.
• Internal and external factors are prioritised so that time is spent
concentrating on the most significant factors. This should include a risk
assessment to ensure that high risk or high impact threats and
opportunities are clearly identified and are dealt with in priority order.
• Issues identified are retained for later in the strategy formation process.
• The analysis is pitched at the project or business activity level rather than
at a total company level, which may be less actionable.
• It is not used in exclusivity. No one tool is likely to be completely
comprehensive, so a mixture of option-generating tools should be used.
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Significance of SWOT Analysis
• Provides Logical Framework for handling issues having bearing on business
situation, generation of alternative strategies and choice of strategy.
• Presents Comparative Account of both internal and external
environmental factors in structured from do develop a suitable pattern of
relationships.
• Guides Strategist in Strategy Identification where he can think of overall
position of the organization and thus identify the major purpose of the
strategy under focus.
• Helps in crafting Business Models that will allow company to gain a
competitive advantage in its industry sector. This leads to increased
profitability, and maximizes company’s survival turbulent environment.
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PEST analysis
• Political factors. These include government regulations such as
employment laws, environmental regulations and tax policy. Other political
factors are trade restrictions and political stability.
• Economic factors. These affect the cost of capital and purchasing power of
an organisation. Economic factors include economic growth, interest rates,
inflation and currency exchange rates.
• Social factors. These impact on the consumer’s need and the potential
market size for an organisation’s goods and services. Social factors include
population growth, age demographics and attitudes towards health.
• Technological factors. These influence barriers to entry, make or buy
decision and investment in innovation, such as automation, investment
incentives and the rate of technological change.
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PEST Visual Presentation
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Porter’s five forces
• Porter’s five forces of competitive position analysis was developed in
1979 by Michael E. Porter of Harvard Business School as a simple
framework for assessing and evaluating the competitive strength and
position of a business organisation.
• Supplier power.
• Buyer power.
• Competitive rivalry.
• Threat of substitution.
• Threat of new entry.
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Porter’s five forces
1. Supplier power. An assessment of how easy it is for suppliers to
drive up prices. This is driven by:
• the number of suppliers of each essential input.
• the uniqueness of their product or service.
• the relative size and strength of the supplier.
• the cost of switching from one supplier to another.
2. Buyer power. An assessment of how easy it is for buyers to drive
prices down. This is driven by:
• the number of buyers in the market.
• the importance of each individual buyer to the organization.
• the cost to the buyer of switching from one supplier to another.
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Porter’s five forces
3. Competitive rivalry. The key driver is the number and capability of
competitors in the market. Many competitors, offering undifferentiated
products and services, will reduce market attractiveness.
4. Threat of substitution. Where close substitute products exist in a
market, it increases the likelihood of customers switching to alternatives
in response to price increases. This reduces both the power of suppliers
and the attractiveness of the market.
5. Threat of new entry. Profitable markets attract new entrants, which
erodes profitability. Unless incumbents have strong and durable barriers
to entry, for example, patents, economies of scale, capital requirements
or government policies, then profitability will decline to a competitive
rate.
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Porter’s Five Forces Visual Presentation
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Four corner’s analysis
The model can be used to:
• develop a profile of the likely strategy changes a competitor might
make and how successful they may be.
• determine each competitor’s probable response to the range of
feasible strategic moves other competitors might make.
• determine each competitor’s probable reaction to the range of
industry shifts and environmental changes that may occur.
The ‘four corners’ refers to four diagnostic components that are
essential to competitor analysis: future goals; current strategy;
assumptions; and capabilities.
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Four corner’s analysis
Understanding the following four components can help predict how a
competitor may respond to a given situation.
• Motivation – drivers. Analysing a competitor’s goals assists in
understanding whether they are satisfied with their current performance
and market position. This helps predict how they might react to external
forces and how likely it is that they will change strategy.
• Motivation – management assumptions. The perceptions and
assumptions that a competitor has about itself, the industry and other
companies will influence its strategic decisions. Analysing these
assumptions can help identify the competitor’s biases and blind spots.
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Four corner’s analysis
• Actions – strategy. A company’s strategy determines how a competitor
competes in the market. However, there can be a difference between
‘intended strategy’ (the strategy as stated in annual reports, interviews and
public statements) and the ‘realised strategy’ (the strategy that the
company is following in practice, as evidenced by acquisitions, capital
expenditure and new product development). Where the current strategy is
yielding satisfactory results, it is reasonable to assume that an organisation
will continue to compete in the same way as it currently does.
• Actions – capabilities. The drivers, assumptions and strategy of an
organisation will determine the nature, likelihood and timing of a
competitor’s actions. However, an organisation’s capabilities will determine
its ability to initiate or respond to external forces.
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Value chain analysis
• Before making a strategic decision, it is important
to understand how activities within the
organisation create value for customers. One way
to do this is to conduct a value chain analysis.
• Value chain analysis is based on the principle that
organisations exist to create value for their
customers.
• In the analysis, the organisation’s activities are
divided into separate sets of activities that add
value. The organisation can more effectively
evaluate its internal capabilities by identifying
and examining each of these activities. Each value
adding activity is considered to be a source of
competitive advantage.
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Value chain analysis
The three steps for conducting a value chain analysis are:
1. Separate the organisation’s operations into primary and support
activities.
• Primary activities are those that physically create a product, as
well as market the product, deliver the product to the customer
and provide after-sales support. Support activities are those that
facilitate the primary activities.
2. Allocate cost to each activity.
• Activity cost information provides managers with valuable insight
into the internal capabilities of an organisation.
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Value chain analysis
3. Identify the activities that are critical to customer’s satisfaction and
market success.
• There are three important considerations in evaluating the role of each
activity in the value chain.
• Company mission. This influences the choice of activities an organisation undertakes.
• Industry type. The nature of the industry influences the relative importance of activities.
• Value system. This includes the value chains of an organisation’s upstream and
downstream partners in providing products to end customers.
Value chain analysis is a comprehensive technique for analysing an
organisation’s source of competitive advantage.
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Early warning systems
The purpose of strategic early warning systems is to detect or predict
strategically important events as early as possible. They are often used
to identify the first scene of attack from a competitor or to assess the
likelihood of a given scenario becoming reality.
The seven key components of an early warning system are:
1. Market definition. A clear definition of the scope of the arena to be
scrutinised. For example, is the arena a particular geographical
region, brand or market?
2. Open systems. An ability to capture a wide range of information on
relevant competitors.
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Early warning systems
3. Filtering. Information that has been collected on the arena needs to
be filtered according to significance. Expert interpretation is
required in order to identify particular events that signify strategic
moves or shifts.
4. Predictive intelligence. Using knowledge of the forces driving a
competitor to predict which direction they are likely to take. One
technique is to build likely scenarios and actively seek the signals
that confirm the scenario. The predictions need to be assessed for
their probability of occurring and potential impact.
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Early warning systems
5. Communicating intelligence. Ensuring that the right people in an
organisation receive regular briefing on key signals.
6. Contingency planning. Events that have a high potential impact or
probability of occurring may merit contingency plans, for example,
a change of strategy or mitigating actions.
7. A cyclical process. The process of scrutinising information for new
warning signals should never stop. While the emphasis is on
emerging threats and opportunities, the process should be flexible
enough to tackle unexpected shorter term developments too.
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War Gaming
War games are a useful technique for
identifying competitive vulnerabilities and
misguided internal assumptions about
competitors’ strategies.
Simulations of competitive scenarios are used
to explore the implications of changes in
strategy in a ‘no risk’ environment. They also
encourage new ways of thinking about the
competitive context. War games are often
particularly useful for organisations facing
critical strategic decisions.
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War Gaming
A typical business war game has the following characteristics:
• an off-site venue
• senior managers representing a cross-functional mix of participants
• two to three full days’ duration
• four or more teams of between four to eight people each. Each team
represents either the sponsoring company or one of its competitors
• preparation time in which each team receives a dossier describing the
company they are representing, and its strengths and weaknesses
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War Gaming
It also has the following characteristics.
• A structure where games comprise several ‘moves’ or decision
rounds. Each move consists of a fixed, predetermined amount of time
ranging from a couple of months to several years. During each move,
teams make and carry out strategic decisions. After each move,
teams assess their positions relative to other teams.
• A ‘control team’ of facilitators who serve as the board of directors.
They ensure that strategic plans are acceptable and legal. They also
facilitate the debrief, in which participants review the merit of each
strategy.
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