Situational analysis, Business strategy and BCG matrix
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Transcript of Situational analysis, Business strategy and BCG matrix
Situational Analysis, Business Strategy & Boston Consulting Group
MatrixPresented By Pinak Paul, Tanuja
Mallick, Jyoti Dudeja, Ayushi SinglaPresented to : Professor Sarin
Situational AnalysisSituational Analysis : Array of methodologies
for analyzing internal and external environment of a business. It helps in :Understanding target marketFormulating marketing strategiesIndustry analysisFirms capabilitiesProactive decision making
Methods for Analysis :5Cs analysis:
Company AnalysisCompetitors CustomersCollaboratorsClimate
Porter five forces analysis :Threat of new entrantsThreat of substitutesBargaining power of customersBargaining power of suppliersCompetitive rivalry within industries
5Cs Analysis of Strategic Management
FIVE C’S
CUSTOMERCOMPANY
CLIMATE
COLLABORATORS
COMPETITORS
5C’s of Strategic Management
COMPANY :-What are the products/ services provided by
the company?What is the image of the company in market?Does your company have the right technical
expertise?Determine the strength, weakness,
opportunities, threats of your business…
CUSTOMER :- Are they consumers or businesses? What are their needs? Will they switch to the competition, if the
company increases its price? What are their preferences for company's
product quality, reliability and performance? what will they be buying over the next two
years? what will the next generation of customers
need from the company?
COMPETITORS:- Check who competes with your company in
meeting the customer’s needs. How much market share do they hold?What are their products exactly? What are their strengths and weaknesses?What are their strategic advantages?
COLLABORATORS:- Determine if there is any outside source that
can help the company such as : distributors suppliers alliances
CLIMATE:-
Some forces are difficult to predict. Determine if there are any limitations due toPolitical issues :- legal problems, trade regulations, taxation etc Economic concerns :- growth rate, labor costs, and business cycle stage
etcSocial impacts :- demographics, education, and culture etc
This is also known as “PEST” analysis.
Porter Five Forces Analysis
Porter Five Forces Analysis
The Porter models involves scanning the environment for threats from competitors and identifying problems early on in order to minimize threats imposed by competitors.
This model can apply for any type of business, from small to larger sized businesses.
History Porter five forces analysis is a framework for
industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979.
It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability.
Purpose
The purpose of the Porter's five forces model is to help businesses compare and analyze their profitability and position with the industry against indirect and direct competition.
Porter Five Forces The threat of new entrant
Bargaining power of buyers
Threat of substitute product of services
Bargaining powers of suppliers
Rival among existing competitors
Threat of New Entrants The existence of barriers to
entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily.
Economies of product differences
Brand equity
Switching costs or sunk costs
Capital requirements
Access to distribution
Customer loyalty to established brands
Absolute cost
Industry profitability
Bargaining Power of BuyersThe bargaining power of customers is also described
as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.
Buyer concentration to firm concentration ratio
Degree of dependency upon existing channels of distribution
Bargaining leverage, particularly in industries with high fixed costs
Buyer switching costs relative to firm switching costs
Buyer information availability
Availability of existing substitute products
Buyer price sensitivity
Differential advantage (uniqueness) of industry products
Threat of Substitutes products or Services
Buyer propensity to substitute
Relative price performance of substitute
Buyer switching costs
Perceived level of product differentiation
Number of substitute products available in the market
Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product.
Substandard product
Quality depreciation
Bargaining Power of Suppliers
The bargaining power of suppliers is also described as the market of inputs.
Suppliers of raw materials, components, labour, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes.
Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources.
Supplier switching costs relative to firm switching costs
Degree of differentiation of inputs
Impact of inputs on cost or differentiation
Presence of substitute inputs
Strength of distribution channel
Supplier concentration to firm concentration ratio
Employee solidarity (e.g. labour unions)
Supplier competition - ability to forward vertically integrate and cut out the BUYER
Ex.: If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from him.
Intensity of Competitive Rivalry
For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.
Sustainable competitive advantage through innovation
Competition between online and offline companies
Level of advertising expense
Powerful competitive strategy
Flexibility through customization, volume and variety
COMPETITIVE ANALYSIS OF TATA NANO USING PORTER FIVE FORCES ANALYSIS
Business StrategyThe Art, Science and craft of decision
making
Business Strategy
Corporate Culture
Corporate Culture The beliefs and values shared by people who
work in an organization
how people behave with each other
how people behave with customers/ clients
how people view their relationship with stakeholders
people’s responses to energy use, community
involvement, absence, work, ethic , etc
how the organization behaves to its employees – training, professional development etc
Corporate CultureMay be reflected in :-
attitude and behaviour of the leadership
attitude to the role of individuals in the workplace – open plan offices , team based working etc
logo of the organization
the image it presents to the outside world
Nike
What corporate culture do you think the following businesses have managed to develop ?
Strategic Planning
Strategic Planning- First stage of strategic
planning may involve:
future thinking : thinking about what
the business might need to do 10-20 yrs ahead.
Strategic intent : thinking about key
strategic themes that will inform decision making.
Taking time to think & reflect may be more important than many businesses allow time for…..!!!
Strategic PlanningThe vision :
communicating to all staff where the organization is going and where it intends to be in future
allows the firm to set goals
Aims and objectives : Aim– long term target Objectives – the way in which you are going
to achieve the aim.
Analysis
SWOTStrengths - identifying existing organisational
strengths
Weaknesses – identifying existing organisational weaknesses
Opportunities – what market opportunities might there be for the organisation to exploit.
Threats – where might the threats to the future comes from ?
PEST
POLITICAL :- local ,national and international political developments – how will they affect the organisation and in what ways.
ECONOMICAL :- what are the main economic issues – both nationally and internationally that might affect the organisation ?
SOCIAL:- what are the developing social trends that may impact on how the organization operates and what will they mean for future planning?
TECHONOGICAL:- changing technology can impact on competitive advantage very quickly !!!
Evaluation
EvaluationData from sales,
profit etc used to evaluate
the progress & success of the strategy and to inform of changes to strategy.
Information from a wide variety of sources can help to measure & inform the
impact & direction of strategy…
Boston Consulting Group Matrix
Boston Consulting Group Matrix
BCG matrix was created by Bruce Henderson for the Boston Consulting Group in 1970. How’s it helpful ?
Helps corporations analyzing their product lines or business units.
Optimum allocation of resources
Serves as an analytical tool for :Brand marketing
Product management
Strategic management
Portfolio analysis
Understanding BCG Matrix
BCG Matrix revolves around two topics :•Market growth
•Market Share
Market ShareMarket share signifies the percentage of total
market being serviced by a company.
Relative Market Share (RMS) :Business unit sales this year
Leading rival sales this year
RMS indicates cash generation, higher the share more cash generation.
Brands share 20 %, competitors share 40 %, ratio of share 1 : 2
RMS signifies :ProfitBrand positioning (relative) Future direction Expected effective marketing strategies Cost advantage ( lead on experience curve)
Market Growth RateMarket growth rate is used as an indicative
measure of a market’s attractiveness.
MGR :Individual sales this year – individual sales last
year Individual sales last year
Growing market requires huge investment for increased activity : cash consumption.
Market growth signifies :ExpansionOpportunity Brand position than just cash flowFuture potential : market maturity Growth analysis Market strength
BCG Growth – Share Matrix It is a portfolio planning model which
classifies company’s business units into four categories :Stars Question marksCash cowsDogs
It is primarily based on the combinations of market share and market growth relative to the next best competitor.
STARS High growth rate, High market share
Stars are leaders in business
Require heavy investment to remain in large marketshare
Leads to large amount of cash consumption and cash generation
Attempts should be made to hold the marketshare otherwise the Star will become the next cash flow
CASH COWSLow growth, high market shareThey are foundation of the company and
often the stars of yesterday
They generate more cash than required
They extract the profits by investing as little as possible
They are located in an industry that is mature, not growing or declining.
DOGSlow growth, low market shareDogs are the cash traps
Dogs lack potential to bring in much cash
Number of dogs in an enterprise should be minimized
Business is situated at a declining stage
Question MarkHigh growth, low market shareMost businesses start of as question marks
They will absorb great amount of cash if the market share remains unchanged
Questions marks have the potential to become star and eventually cash cow but can also become a dog
Investment should be high for question marks
Example : Apple Inc.(2011)
Apple is renowned worldwide for its product innovation and investment in R & D.
Products include I phone, I pod, I tune music store, Mac OS X, Mac mini, Mac software, Apple Macs,5th generation I pod, etc.
Figures for FY ending Dec 2011Apple products Growth rate(%) Market share(%)
I phone 48 28
I pod (star) 28 60
Apple I tunes 7.6 82
Mac OS X 31.7 0.09
Mac Software 32 0.01
Apple Macs -- --
LimitationsBCG Matrix uses only two dimensions and
overlooks many other factors.
The framework assumes that each business unit is independent of the others.
The matrix depends heavily upon the breadth of the definition of the market.
Problems of getting data on market share and market growth.
High market share does not mean profits all the time.Business with low market share can be profitable too