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BUSINESS STRATEGY MKT3002

Module 3 Strategic analysis

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BUSINESS STRATEGY MKT3002

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    1. BUSINESS STRATEGY MKT3002 / 51110 LECTURE THREE: Topic 3: Strategic analysis

    2. Module 3 Strategic analysis Analysing the environment Learning outcomes Describe the components of the external environment within which an organisation operates Carry out a full PEST analysis Appropriately conduct a Porters 5 forces analysis to assess industry attractiveness Explain the significance of segmentation in strategic planning Undertake a competitor analysis; and Undertake a directional policy matrix to consider the portfolio of a business

    3. Key words and concepts Environmental uncertainty PEST analysis Environmental drivers of change Porters diamond Scenario planning Five forces analysis Life-cycle model Exit barriers

    4. Key words and concepts Strategic group analysis Market segmentation analysis Perceived value Market attractiveness Directional policy matrix

    5. Introduction The external analysis may be viewed as a process which: Identifies trends and future events, opportunities and threats and strategic uncertainties; Analyses the impacts of these on organisations; and Ultimately suggests ways or strategies to cope with such impacts. Aaker 1999

    6. Steps in the environmental analysis

    7. Differences between external & internal environments External environment: The management has no control over most of its components. React to the changes in the environment. Internal environment: The management has varying degree of influence of its components. Seeks to change the environmental influence itself.

    8. Understanding the nature of the environment Environmental uncertainty increases the more that environmental conditions are dynamic or the more they are complex. Environmental conditions: Simple / static conditions Dynamic conditions Complex situations

    9. Auditing environmental influences

    10. PEST analysis It involves identifying factors that influence the organisation. These factors include: Political / legal (eg. Taxation policy, foreign trade regulations, government stability) Economic (eg. unemployment, disposable income) Sociocultural (eg. Lifestyle change, levels of education) Technological (eg. Government spending on research, speed of technology transfer)

    11. Porters diamond Porters Diamond: suggests that there are inherent reasons why some nations are more competitive than others and why some industries within nations are more competitive than others.

    12. Environmental drivers of change

    13. Scenario planning builds plausible views of different possible futures for an organisation based on grouping of key environmental influences and drivers of change about which there is a high level of uncertainty. Limited number of logically consistent. Examine strategic options against the scenarios. Implications of scenarios.

    14. External factor evaluation matrix (EFE) The EFE matrix allows strategies to summarise and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. David 2001, p. 113

    15. External factor evaluation matrix (EFE) (Cont) Steps in developing the EFE matrix: Identify a list of KEY external factors (critical success factors). Assign a weight to each factor, ranging from 0 (not important) to 1.0 (very important). Assign a 1-4 rating to each critical success factor to indicate how effectively the firms current strategies respond to the factor. (1 = response is poor, 4 = response is extremely good) Multiply each factors weight by its rating to determine a weighted score. Sum the weighted scores. Average total weighted score is 2.5.

    16. External factor evaluation matrix (EFE) (Cont)

    17. Competitive profile matrix (CPM) The CPM identifies a firms major competitors and their particular strengths and weaknesses in relation to a sample firms strategic position. David 2001, p. 115 Key success factors (KSFs) Technology related Distribution related Marketing related Skills related Organisational capability Other types of KSFs

    18. Competitive profile matrix (CPM) (Cont)

    19. The competitive environment: Five forces analysis Five forces analysis is a means of identifying the forces which affect the level of competition in an industry. Johnson & Scholes 1999, p.115.

    20. Porters Five forces industry analysis

    21. Competitive rivalry

    22. Competitive rivalry (Cont) Other forces that affect competitive rivalry: Competitors balance; Market growth rates; Global customers; High fixed costs; Extra capacity; Differentiation; Acquisition of weaker companies; and High exit barriers.

    23. Identifying the organisations competitive position Strategic group analysis Market segmentation Perceived value (customer ) Boston consulting group matrix (BCG) Market attractiveness & business strength Competitor analysis

    24. 1. Strategic group analysis aims to identify organisations with similar strategic characteristics, following similar strategies or competing on similar bases. David 2001, p. 127

    25. 2. Market segmentation seeks to identify similarities and differences between groups of customers or users. David 2001, p. 129

    26. 3. Analysing perceived value by customers The development of competitive strategy needs to be based on a good understanding of dimensions of strategy valued most by customers. This can be achieved through: Identify the relevant market segments. Identify the characteristics of the product/service that customers value most. Rate the importance of these dimensions. Identify the relative strengths of competitors. Review organisations competitive strategy.

    27. 4. The BCG

    28. 5. Market attractiveness and business strength Directional policy matrix It seeks to position SBUs according to: (a) how attractive is the relevant market in which they are operating, and (b) the competitive strength of the SBU in that market.

    29. 6. Competitor analysis

    30. Environmental analysis in practice Simplify the complexity. Selective attention. Prototypes. Contribute to collective know-how. Threats rather than opportunities. Difficulty in building up an overall strategic view of the environment.

    31. Lecture 3 review Strategic analysis Understanding the nature of the environment Audit environmental influences Identify key competitive forces Identify competitive position Identify key opportunities and threats Environmental analysis in practice

    32. Next week lecture Module 4: Resources, competencies, strategic capability. (Study book: Module 4 - Text Chapter 4)

    33. Next weeks tutorial Prepare by going over the case questions at end of module Read article from BRW 23/07/99 Grooving in a new Mood p 84 7 Do a porters five forces analysis Will environmental changes affect the way the retail music stores look like in the future? If you were to invest money in a business, would you consider a music retailer?

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