Strategy Formulation: Situation Analysis and Business Strategy

MPRBA-302 31st January 2013 Adapted from: Thomas L Wheelen & J. David Hunger

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Leben Johnson

Situational Analysis
SWOT analysis:
Internal
Strengths Weaknesses

External
Opportunities Threats

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Situational Analysis
SWOT Analysis Criticism:
Lengthy list No weights to reflect priorities Uses ambitious words and phrases No data to validate factors It requires only a single level of analysis No logical link to strategy implementation

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Situational Analysis
Strategic Factors Analysis Summary (SFAS)
- External Factors (EFAS)
- Opportunities - Threats Internal Factors (IFAS) - Strengths - Weakness

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Strategic Factor Analysis Summary (SFAS)

1 Strategic Factors
SHORT

Duration
INTERMEDIATE

Weight

LONG

(Select the most important opportunities/threats from EFAS, Table 3.4 and the most important strengths and weaknesses from IFAS, Table 4.2)

Rating

Weighted Score

Comments

Total Score

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Strategic Factor Analysis Summary (SFAS): Maytag as Example

Duration
INTERMEDIATE

Strategic Factors
SHORT

Weight
.10 .10 .10 .15 .10 .10 .10 .15 .10

LONG

(Select the most important opportunities/threats from EFAS, Table 3.4 and the most important strengths and weaknesses from IFAS, Table 4.2) S1 S3 Quality Maytag culture (S) Hoovers international orientation (S)

Rating
5 3 2 2 4 5 2 3 2

Weighted Score
.50 .30 .20 .30 .40 .50 .20 .45 .20

Comments
Quality key to success Name recognition High debt Only in N.A., U.K., and Australia

X X X

W3 Financial position (W) W4 Global positioning (W)

O1 Economic integration of
European Community (O) O2 Demographics favor quality (O) O5 Trend to super stores (O + T) T3 T5 Whirlpool and Electrolux (T) Japanese appliance companies (T) X X X X X X Acquisition of Hoover

Maytag quality
Weak in this channel Dominate industry Asian presence

Total Score

1.00

3.05

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Situational Analysis
Niche:
A need in the marketplace that is currently unsatisfied.

Goal for the Corporation

Find a favorable niche
An extremely favorable niche

Strategic window
Unique market opportunity available for a limited time

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TOWS Matrix

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Strategic Sweet Spot

Competition Offerings Customers Needs

CC

Companys Capabilities

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Business Strategies
Business Strategy:
Focuses on improving the competitive position of a companys or business units products or services within the specific industry or market segment that the firm serves.

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Porters Competitive Strategies

Competitive Strategy:
Low cost? Differentiation? Compete head to head in large market? Focus on niche?

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Porters Competitive Strategies

Generic Competitive Strategies:
Lower cost strategy
Design, produce, market more efficiently than competitors

Differentiation strategy
Unique and superior value in terms of product quality, features, service

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Porters Competitive Strategies

Competitive Advantage:
Determined by Competitive Scope
Breadth of the companys target market

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Porters Generic Competitive Strategies

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Porters Competitive Strategies

Cost Leadership:
Low-cost competitive strategy Aimed at broad mass market Aggressive construction of efficientscale facilities Cost reductions Cost minimization
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Porters Competitive Strategies

Differentiation:
Broad mass market Unique product or service Charge premiums Lower customer sensitivity to price

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Porters Competitive Strategies

Cost focus:
Low cost competitive strategy Focus on particular buyer group or market Niche focused Seek cost advantage in target market

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Porters Competitive Strategies

Differentiation focus:
Focus on particular group or geographic market Seek differentiation in targeted market segment Serve special needs of narrow target market
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Porters Competitive Strategies

Stuck in the middle:

No competitive advantage Below-average performance

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Risks of Generic Competitive Strategies

Risks of Cost Leadership Cost leadership is not sustained: Competitors imitate. Technology changes. Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: Competitors imitate. Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: Structure erodes. Demand disappears. Broadly targeted competitors overwhelm the segment: The segments differences from other segments narrow. The advantages of a broad line increase. New focusers subsegment the industry.

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Competitive Strategy
Industry Structure:
Fragmented Industry
Many small and medium-sized local companies compete for small shares of total market
Focus strategies predominate

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Competitive Strategy

Industry Structure:
Consolidated industry
Mature industry dominated by a few large companies
Cost Leadership or Differentiation predominate

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Dimensions of Quality
Performance Features Reliability Conformance Durability Serviceability Aesthetics Perceived Quality

Dimensions Quality

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Competitive Strategy
Strategic rollup:
Quickly consolidate fragmented industry Money from venture capital Entrepreneur acquires hundreds of owner-operated firms Creates large firm with economies of scale
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Competitive Strategy
Strategic rollup:
Differ from Conventional M&As
Large number of firms Owner-operated firms Goal to reinvent entire industry

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Competitive Tactics
Tactic:
Specific operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put into action.
Timing tactics Market location tactics

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Competitive Tactics
Timing Tactics:
First mover (pioneer)
Reputation as industry leader High profits Sets standards for subsequent products in the industry

Late mover
Able to imitate technological advances of others
Keeps R&D costs down Keeps risks down
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Competitive Tactics
Market Location Tactics:
Offensive Tactics
Frontal assault Flanking maneuver Bypass attack Encirclement Guerrilla warfare

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Competitive Tactics
Market Location Tactics:
Defensive Tactics
Raise structural barriers Increase expected retaliation Lower the inducement for attack

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Competitive Tactics
Raise structural barriers
Offer a full line of products in every market segment to close off competition. Block channel access by signing exclusive agreements with distributors. Raise buyer switching cost by offering low-cost training to users. Increase scale of economies to reduce unit cost. Foreclose alternative technology through patenting and licensing. Limit outside access to facilities and personnel. Tie up suppliers by obtaining exclusive contracts or purchasing key locations. Avoid suppliers that also serve competitors. Encourage Govt. to raise barriers, such as safety and pollution standards.

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Cooperative Strategies
Cooperative Strategies:
Collusion
Active cooperation of firms to reduce output and raise prices
Explicit Tacit

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Cooperative Strategies
Cooperative Strategies:
Strategic Alliance:
Partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial.

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Cooperative Strategies
Obtain technology

Access to markets

Strategic Alliance

Reduce financial risk

Reduce political risk Achieve competitive advantage

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Continuum of Strategic Alliances

Mutual Service Consortia Joint Venture Licensing Arrangement Value-Chain Partnership

Weak and Distant

Strong and Close

Source: Suggested by R. M. Kanter, Collaborative Advantage: The Art of Alliances, Harvard Business Review (July-August 1994), pp. 96108.

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