Business Strategy Lecture 4

8/3/2019 Business Strategy Lecture 4

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Management Accounting Business Strategy


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Strategic Planning Model

Reassess anddevelop the

Organizationsmission andobjectives

Reassess anddevelop the

Organizationsmission andobjectives

Formulatestrategies

Formulatestrategies

Implementstrategies

Implementstrategies

Evaluateresults

Evaluateresults

Analyzethe

environment

Analyzethe

environment

IdentifyOpportunities

And

threats


And

threats

Analyzethe

Organizationsresources

Analyzethe


IdentifyStrengths

andweaknesses

IdentifyStrengths

andweaknesses

Identify theOrganizationsCurrent vision

mission,Objectives, and

Strategies

Identify theOrganizationsCurrent vision

mission,Objectives, and

Strategies

What is Strategy ?


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Wh

at doweWant toBecome ?

Intellectual thoughts aboutfuture Vision

Reassess anddevelop the Organizations

mission and objectives



Formulatestrategies

Formulatestrategies

Implementstrategies

Implementstrategies

Evaluateresults

Evaluateresults

Analyzethe

environment

Analyzethe

environment


Andthreats


Andthreats

Analyzethe


Analyzethe


IdentifyStrengths

andweaknesses

IdentifyStrengths

andweaknesses

Identify the OrganizationsCurrent vision mission,

Objectives, and Strategies



Vision


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What is ourBusiness ? Reason for existence Mission





Formulatestrategies

Formulatestrategies

Implementstrategies

Implementstrategies

Evaluateresults

Evaluateresults

Analyze

theenvironment

Analyze

theenvironment


Andthreats


Andthreats

Analyzethe


Analyzethe


IdentifyStrengths

andweaknesses

IdentifyStrengths

andweaknesses





Mission


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Reassessanddevelop the Organizations




Formulatestrategies

Formulatestrategies

Implementstrategies

Implementstrategies

Evaluateresults

Evaluateresults

Analyzethe

environment

Analyzethe

environment


Andthreats


Andthreats

Analyzethe


Analyzethe


IdentifyStrengths

andweaknesses

IdentifyStrengths

andweaknesses





Micro /Indirect /

TaskEnvironment

Micro /Indirect /

TaskEnvironment

Macro / Direct /General

Environment


Environment

Porteranalysis

Porteranalysis

PESTELanalysis

PESTELanalysis

Threats

Threats

Opportunities

Opportunities

Analyze the external environment

Analysis of MacroEnvironment

PESTEL

Industry analysis

5 Forces Model

Life-Cycle Model


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Industry Sector

Competitors,Industry size andCharacteristics,

Related Industries

Raw Materials

SectorSuppliers,

Manufacturers,Real Estate

HumanResources

SectorLabor Market, Employment

Agencies, Universities, TrainingSchools, Employees in Other

Companies, Unionization

Financial Resources Sector

Stock Markets, Banks,

Savings and Loans,

Private InvestorsMarketSector

Customers, Clients,Potential Users of

Products and Services

TechnologySector

Techniques ofProduction, Science,

Research Centers,Automation, New

Materials

Economic

Conditions Sector

Recession, UnemploymentRate, Inflation rate, Rate of

Investment, Economics,Growth

Government Sector

City, State, Federal Laws andRegulations, Taxes, Services,

Court System, PoliticalProcesses

Socio-Cultural sector

Age,Values, Beliefs, Education,Religion, Work Ethic, Urban vs.

Rural, Birth Rate

ORGANIZATION

DOMAIN

Task Environment

MacroEnvironment


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Strategic Planning ModelExternal environment analysis

What it is?

Finite list of opportunitiesFinite list of thetasKey variables that has

actionable response

What it is not?

long list of factorsthat influence the business

lead to non actins Lead to no strategy


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A continuous process which includes:A continuous process which includes:Involvement of all levels

Collection of information

Forwarding of information

Assimilation and evaluation

Identifying key O/T

Prioritization of O/T

Finalization of key external factors O/T

Important to achieveImportant to achieve

Communication

MeasurableMeasurable

Applicable to all competitorsApplicable to all competitors

HierarchalHierarchal


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A continuous process which includes:A continuous process which includes:

Scanning: Identifying early signals of environmental

changes and trends

Monitoring: Detecting meaning through ongoing

observations of environmental changes and trends

Forecasting: Developing projections of anticipated

outcomes based on monitored changes and trends

Assessing: Determining the timing and importance ofenvironmental changes and trends for firms strategies

and their management


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1. Determine which questions you are trying to answer.

1. What do you want to know?

2. Why do you need to know it?

2. Determine the Scope and Scale of the Analysis.

1. What is the appropriate level of analysis?

2. What trends do you need to investigate?

3. What segments are involved?

4. How would classify the issues?

5. How important are they to the firm?


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3. Determine information needs

1. What types and amounts of information are needed?

2. Where is that information located?

3. How can you get the required information?

4. How can we get the data to the people that need it?

4. Understanding the Data

1. What do the data mean?

2. How might the data benefit the firm?

3. What threats do the data represent?

4. How can you use the data to your firms advantage?


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FormulatestrategiesFormulatestrategies

Implementstrategies

Implementstrategies

Evaluateresults

Evaluateresults

Analyzethe

environment

Analyzethe

environment


Andthreats


Andthreats

Analyzethe


Analyzethe


IdentifyStrengths

andweaknesses

IdentifyStrengths

andweaknesses





Macro /Direct /

TaskEnvironment

Macro /Direct /

TaskEnvironment


Environment


Environment

PorteranalysisPorter

analysis

PESTELanalysisPESTELanalysis

ThreatsThreats

OpportunitiesOpportunities


External Strategic management auditEnvironmental scanningIndustry analysisExternal auditNon controllable factors

External Strategic management auditEnvironmental scanningIndustry analysisExternal auditNon controllable factors

Dunkin BrandsDunkin Brands


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Analyze the external environment Macro


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Strategic Planning ModelMega Environment - PESTEL

PoliticalFactors affecting an organizationGovernment Policies

Stability and tenure of governmentPressure groupsGovernments planned strategy

Questions for assessment How does a change in the political

situation affect an organization ? Who will win the next election ?

What are the political views of thatparty ?

Economic Tech

nological

Legal

PESTEL Political

Social

Environmental

EconomicFactors affecting an organization GDP

Taxes Exchange rates Unemployment Trade factors and tariffs Monopolistic practices Interest rates Money supply Business cycles

Questions for assessment Is the economy towards a recession

or a boom? How are the current economic

conditions affecting the organization ? Are there any changes expected in the

economic conditions and will they

have an impact on the organization ?


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Social, Cultural, demographicFactors affecting an organizationPopulation growthPopulation profile and education levelsAge and health of the populationDisposable income levelsIncome distributionLife style changesAttitude to work and leisureconsumerism

Social trends

Questions for assessment What socio-cultural factors are

affecting the organization ? Will change in these factors have an

impact on the organization ?

TechnologicalFactors affecting an organizationRate of change and new developments in

technologyPatents grantedDiffusion of technologyGovernment spending of researchIndustry focus on technologyNew discoveries and developmentRates of obsolescence

Questions for assessment How is technology changing ? Has the technology we are using become

obsolete?How have changes in technology affected

market conditions and marketplaces ?

Economic Tech

nological

Legal

PESTEL Political

Social

Environmental

Mega Environment - PESTEL


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Environment

Factors affecting an organization

TrendsPenalties for abuseCompetitive advantageEnvironmental protection lawsWaste deposalEnergy consumption

Questions for assessment

What are the current rules and regulationsaffecting the organization ?

What are the environmental standardspublished by the government ?

Is the organization complying with these rules ? Are there any alternatives for carrying out

the organizations activities ?

Legal, governmental

Factors affecting an organization

Employment lawBusiness health and safety law, company lawMarketing lawsMonopolies / restraint of lawNational versus international lawsTaxation policy

Questions for assessment

What expected or possible changes mightthere be in laws and regulations ?

What impact could such changes haveno the organization ?

Economic Tech

nological

Legal

PESTEL Political

Social

Environmental

Mega Environment - PESTEL


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Strategic Planning ModelAnalyzing the external environment


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External factor evaluation (EFE) matrix

Strategic Planning ModelAnalyzing the external environment- Macro

Key Aspects of PESTEL Analysis

Not just a list of influences Need to understand key drivers of change

Combined effect of some of the factors likely to bemost important


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Strategic Planning ModelAnalyzing the external environment - Macro


Issues Priority Matrix

Identify likely trends:

Societal and task environments

Strategic environmental issues

Assess probability of trends occurring

Low to High

Ascertain likely impact of trends on the corporation

Low to High


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Strategic Planning ModelAnalyzing the external environment Macro


Issues Priority Matrix

High

Priority

High

Priority

High

Priority

Medium

Priority

Medium

Priority

Medium

Priority

Probable Impact on Corporation

Low

Priority

Low

Priority

Low

Priority

LowMediumHigh

Low

Medium

High

ProbabilityofOccurrence


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Key external factors

Opportunities Wight Rating Weighted score

Country is going 8% annually inpopulation

0.20 3 0.6

Demand for going to cinema isgrowing 10% annually

0.10 1 0.1

Income of citizens is growing 5%annually

0.20 2 0.4

Threats Wight Rating Weighted score

Taxes are increasing 25% this year 0.25 3 0.75Local religious groups object tomovies

0.15 1 0.15

Demand for rented movies increasedby 15% this year

0.10 2 0.2

1.00 2.2




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Process

Steps Wight Rating Weighted score

List 15 to 20 factors (O/T) 0.20 3 0.6

Assign weight from 0.00 t0 1

- Importance of factor in industry

- Compare successful/unsuccessful competitors

0.10 1 0.1

Assign a rating from 1 to 4

(how effectively current strategy respond to factor)

4 = response is superior, 3 = response is above average

2 = response is average, 1 = response is poor

0.20 2 0.4

Threats Wight Rating Weighted scoreMultiply the rate with weight to get the weightedscore

0.25 3 0.75

Local religious groups object to movies 0.15 1 0.15

Demand for rented movies increased by 15% this year 0.10 2 0.2

4 = best,

2.5 = average,

1 = bad 2.2




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FormulatestrategiesFormulatestrategies

Implementstrategies

Implementstrategies

Evaluateresults

Evaluateresults

Analyzethe

environment

Analyzethe

environment


Andthreats


Andthreats

Analyzethe


Analyzethe


IdentifyStrengths

andweaknesses

IdentifyStrengths

andweaknesses





Macro /Direct /

TaskEnvironment

Macro /Direct /

TaskEnvironment


Environment


Environment

PorteranalysisPorter

analysis

PESTELanalysisPESTELanalysis

ThreatsThreats

OpportunitiesOpportunities


Analysis of Macro Environment PESTEL

Task analysis

Industry analysis

5 Forces Model

Life-Cycle Model


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Strategic Planning ModelExternal environment analysis Micro

Industry analysis - 5 Forces Model includes:

Identification of rivals

SW

OT of rivals

Capabilities of rivals

Strategies of rivals


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Industry analysis / Competitive analysis - 5 Forces ModelOutput of analysis / what is required

Majors competitors is strengths

Major competitors weaknessMajor competitors objectives and strategies?Major competitors most likely respond to PESTELMajor competitors vs. our Company StrategiesOur strategies vs. successful counter attack by our major competitorsOur products or services position relative to major competitors

Extent new firms enter and old firms leaving this industryKey factors in our present competitive position in this industryChange in sales and profit rankings of major competitors over recent yearsReason for change in rakingNature of supplier and distributor relationships in this industryExtent substitute products or services be a threat to competitors


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Industry analysis / Competitive analysis - 5 Forces Model

Problems in analysis

One competitor, different divisions&different industries

non availability of division based information

Non availability information of private companies


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Competitive Intelligence program

Corporate espionage

Hiring top executive from rival firmsHacking of information

Competitive intelligence program

Understanding of industry and competitorsAnalyses of competitorsMoves of competitorsStrategy formulation

Misperceptions

Cost

Against law

unethical


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Competitive Intelligence program

Characteristics of successful CIPFlexibility

UsefulnessTimelinesCross functional cooperation

Responsibilities of CI UnitPlanning

Collection of dataAnalyses of dataDissemination of intelligenceResearching special issues

Information to relevant quarters only

Unethical practices

Bribe

Wiretapping

Hacking


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Competitors

The firms that offer similar products and services in same market

Market commonality: number and

significance of markets that a

firm competes in with rivals

Geographic

Product area

Segments

Resource similarity: the extent to

which the type and amount of

firms internal resources are

comparable to rivals

Competitive advantage

Value chain analysis

Industry: The group of firms producing products that are close substitutes

for each other Michael Porter Competitive Strategy


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Competitors




Generic Competition

Form Competition

Industry Competition

Brand Competition


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Competitors




Generic competitione.g. Honda against Silver Sea Cruise for thesame consumer dollars

Form competitione.g. Toyota against manufacturers of othervehicles that provide the same service such as Yamaha (motorcycle)

Industry competitione.g. Honda against Mercedes, Lexus etc whomake the same products or class of products (different prices)

Brand competitione.g. Honda against Toyota, Nissan etc. who offersimilar products and service to the same customers at similar prices


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Strategic Planning ModelAnalyze the external environment Micro

Framework for the analysis

INDUSTRY ANALYSIS

General features / basic

conditions of the industryIndustry Environment

Industry structure

Industry attractiveness

Industry performance

Industry PracticesIndustry trends / the future

of the industry

COMPETITION ANALYSIS

Five force shaping

competition in the industry

Profiling of competitors

Firms competitive position

in the industry


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Framework for the analysis

THE INDUSTRY

ENVIRONMENT

Suppliers Competitors Customers

Social structure

The national/The national/internationalinternational

economyeconomy

TechnologyTechnology

GovernmentGovernment& Politics& Politics

The naturalThe naturalenvironmentenvironment

DemographicDemographicstructurestructure

Social structureSocial structure

The Industry Environment lies at the core of the Macro Environment.

The Macro Environment impacts the firm through its effect on the IndustryEnvironment.


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Identify Sector Identity Industry Conduct Porter analysis


Type of Sector Industries

Public sector organization Electricity sector, educational institutions run bygovernment

Private sector Textile sector operated by private organizations

Primary sector Mining and farming

Secondary sector Manufacturing

Service sector Insurance organizations


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Why to identify first ?

Parker Pens are very smart elegant pens, generally priced slightly expensively. The question is,who is Parker Pens competition ? At first glance, many would say any other pen companieseg Sheaffer Pens, Cross Pens orWaterman pens all well known brands. Actually when analysis wascarried out, It was discovered that most purchases of pens were not for personal use, but forgiving as gifts to other people. Hence actually, Parker Pens competition were not just the branded

pen companies, but chocolates, gift vouchers, CDs, DVDs etc are all considered competition.

Identificationhighlights competitive forces



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Framework for the industry analysis

INDUSTRY

ANALYSIS

INDUSTRYSTRUCTURE

No. of players

Total market size

Relative share

of the players

Nature of competition

: Monopoly, oligopoly,

Perfect competition

Differentiation

practiced by various

players

Barriers in the industry

- Entry Barriers

- Mobility Barriers

- Exit Barriers

INDUSTRY PRACTICES

D

istribution Pricing

Promotion

methods of selling

service/field

support

R&D

Legal tactics

EMERGINGTRENDS

Product life cycle

Rate of growth

Changes in buyer needs

Innovations in

products/ processes

Entry & exit of firms

Changes in regulatory

environment governing

the industry


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Framework for the porters analysis

PORTERSFI

VE

FORCESA

NALYSIS

COMPETITION ANALYSIS

Identify the key aspects/elements of each competitive force thatimpact the firm

Evaluate how strong and important each element is for the firm

Decide whether the collective strength of the elements is worth

the firm entering or staying in the industry

What are the strengths and weaknesses of competitors inrelation to the competitive forces?

Can competitive strategy influence competitive forces

process


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PORTERS FIVE FORCES ANALYSIS IDENTIFICATION


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Porters analysis

Competition is Everything!!!Competition is Everything!!!

Most powerful force

More competitors high intensity of rivalry

IDENTIFICATION RIVALRY AMONGCOMPETING

FIR

MS


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Porters analysis

Conditions that cause high rivalry among competing firms

IDENTIFICATION RIVALRY AMONGCOMPETING

FIR

MS

High number of competing firms

Similar size of firms competingSimilar capability of firms competingFalling demand for the industrys

productsFalling product/service prices in the

industry

When consumers can switchbrands easily

When barriers to leaving themarket are high

When barriers to entering the

market are high

When fixed costs are high among

firms competingWhen the product is perishableWhen rivals have excess capacityWhen consumer demand is fallingWhen rivals have excess inventoryWhen rivals sell similar

products/servicesWhen mergers are commonin the industry


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Factors of high rivalryBalanced competitorsMature marketExist barriersVariety of products

/product differentiationAggressive response from

competitorsDiversity of competitorsExcess capacityCost conditions

Competitive Rivalry


Analyze the external environment Micro

Factors - measures to handleBuyers' incentivesIntensified marketingIntensified productionLowering prices

differentiation

Competitive Rivalry


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Porters analysis IDENTIFICATION POTENTIAL ENTRYOF NEWCO

MPETITORS


Barrier to entryEconomies of scaleHigh startup costsLimited access to channelsPatent agreementsUnique skillsCustomer loyaltyIn-depth experienceProduct differentiation

Government legislation

Potential entry of newcompetitors

Factors - measures to handleLowering pricesExtending warrantiesAdding featuresOffering financing specials

Competitors actions to enterHigh qualityLower prices

Huge marketing

Potential entry of newcompetitors


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Forms of substitutions

Product for product substitutionSubstitution of need

Generic substitution

Threat of new Substitutes

Strategic Planning ModelTask Environment PorterAnalysis

Factors measures tohandleBuyers propensity

to substitute Relative prices & performance of

substitutes Switching costs

Competitors actions to enterLower pricesReduce switching costs

Threat of new Substitutes


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FactorsConcentration of suppliersHigh switching cost of consumerForward integration opportunity

Knowledge of product differentiation

Bargaining power of suppliers


Factors measures tohandleBackward integrationFavorable termsPartnerships

Reduce inventoryAvailability of next generationEnhanced qualityCost saving

Bargaining power of suppliers


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FactorsConcentration of buyersLow switching cost for buyersBetter information levelProduct differentiation availabilityProducts of different qualitiesImportant to sellerFalling demandStandard product

Bargaining power of buyers


Competitors actionsExtended warrantiesSpecial services

Bargaining power of buyers


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Neutralizing The Five Competitive ForcesForce

Entry

Rivalry

Substitutes

Buyers

Suppliers

Method for Neutralizing Force

Erecting barriers (isolatingmechanisms) create & exploit economies ofscale, aggressive deterrence, design in switching

costs, etc.

Compete on non price dimensions:cost leadership, differentiation, cooperation, etc.

Improve attractiveness compared tosubstitutes: better service, more features, etc..

Reduce buyer uniqueness: forwardintegrate, differentiate product, new customers, etc..

Reduce supplier uniqueness: backwardintegrate, obtain minority position, second source, etc..



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Competitor I /Us Competitor I

Critical successfactors

Weight Rating Score Rating Score

Product quality 0.50 1 0.5 1 0.5

Financial position 0.30 4 1.2 3 0.9

Market share 0.20 3 0.6 2 0.4

1.0 2.3 1.8

Competitive profile matrix (CPM)

Critical success factorsInternalExternalweightsWeight has same

meaning like EFE

Rating criteria 4 = major strength 3 = minor strength 2 = minor weakness 1 = major weakness

Rating criteria 4 = major strength 3 = minor strength 2 = minor weakness 1 = major weakness


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Strategic Planning ModelExternal environment Micro

or.com

arkets

sources for gathering information

http://marketwatch.multexinvestor.com

http://moneycentral.msn.comhttp://finance.yahoo.comwww.clearstation.comhttp://us.etrade.com/e/t/invest/marketswww.hoovers.com

Report structure

Current Environment

Industry TrendsHow the Industry OperatesKey Industry Ratios and

StatisticsHow to Analyze a Company

Glossary of Industry TermsAdditional Industry InformatioReferencesComparative Company

Financial Analysis


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Questions ?


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Thank You

Business Strategy Lecture 4

Documents

Transcript of Business Strategy Lecture 4