THEME 7:
STRATEGIC DIAGNOSIS
• SWOT analysis.
• Portfolio management.
– BCG matrix.
– Sallenave matrixes.
– GE-McKinsey matrix.
© Alfonso VARGAS SÁNCHEZ
1
STRATEGIC MANAGEMENT
1.-WHERE AM I NOW?
3.-WHAT DO I NEED TO DO NOW TO GET THERE?
2.-WHERE DO I WANT TO GO?
2
Your future depends on many
things, but MOSTLY ON YOU.
Wherever an opportunity exists there is
usually a threat and vice versa:
PROBLEMS ARE OPPORTUNITIES.
3
WHERE AM I NOW?: current state analysis.
The best tool for doing this is:
THE
THE
SWOT
SWOT
ANALYSIS
ANALYSIS
STRENGTHS
WEAKNESSES
OPPORTUNITIES
T HREATS
WHAT IS GOOD/
GOING WELL
WHAT IS BAD/
NEEDS IMPROVEMENT
WHAT OPPORTUNITIES
ARE THERE?
WHAT DANGERS/PROBLEMS
LIE AHEAD?
INTERNAL FACTORS that create or destroy value.
EXTERNAL FACTORS that create or destroy value.
As a result of value chain and resources & capabilities
analysis.
As a result of PEST and Porter’s competitive forces
analysis.
Using internal assessments and external benchmarking.
4
SWOT ANALYSIS can be used:
• As the first stage of a planning exercise or project.
• When things are going well, because it shakes you
out of complacency and shows new opportunities.
• When things are going badly, as it helps to redirect your efforts and put things into perspective.
• On an ongoing periodic basis to review
performance improvement.
5
SWOT ANALYSIS IN ACTION.
The process follows a number of steps:
• Define the situation you want to look at.
• Brainstorm and write down all the strengths, weaknesses,
opportunities and threats that occur to you.
• Review the list, make additions, changes.
• Define broad areas for action in priority order.
• Identify steps to be taking in each broad area, with
timescales.
• Discuss the SWOT with al least one other person.
• Set a review date to go back to step 1 and look at the whole
process again. Review at least annually.
6
FACTORS IN A SWOT ANALYSIS
STRENGTHS:
-Marketing expertise.
-Exclusive access to natural resources.
-Patents.
-New, innovative product or service.
-Location of your business.
-Cost advantage through proprietary know-how.
-Quality processes and procedures.
-Strong brand or reputation.
WEAKNESSES:
-Lack of marketing expertise.
-Undifferentiated products and service (i.e. in
relation to your competitors).
-Location of your company.
-Competitors have superior access to distribution
channels.
-Poor quality of goods or services.
-Damaged reputation.
OPPORTUNITIES:
-Developing market (China, the Internet).
-Mergers, joint ventures or strategic alliances.
-Moving into new attractive market segments.
-A new international market.
-Loosening of regulations .
-Removal of international trade barriers.
-A market that is led by a weak competitor.
THREATS:
-A new competitor in your own home market.
-Price war.
-Competitor has a new, innovative substitute
product or service.
-New regulations.
-Increased trade barriers.
-A potential new taxation on your product or
service.
7
CONFRONTATION MATRIX
ANALYSIS
OPPORTUNITIES
THREATS
STRENGTHS
CHALLENGES &
ACTIONS
WEAKNESSES
8
CONFRONTATION MATRIX
ANALYSIS
OPPORTUNITIES
THREATS
STRENGTHS
Offensive strategy
Reactive strategy
WEAKNESSES
Adjust strategy
Defensive strategy
9
CONFRONTATION MATRIX.
Example:
OPPORTUNITIES:
O1:Strong demand of a new
product.
O2: Possibility of selling through
large retailers.
THREATS:
T1:Existing products
consumption is declining.
T2:An important competitor
has arisen.
T3:New regulations from the
European Union.
STRENGTHS:
S1:Financial strength.
S2:Loyal and reliable
customer base.
S3:Good factory and
warehouses locations.
OFFENSIVE STRATEGY:
O2, S1, S3: Intense brand
promotion towards large retailers
and end customers.
REACTIVE STRATEGY:
T3, S1: Precise fulfillment of the
new regulations.
T2, S2: Excellence in customer
service.
WEAKNESSES:
W1: Obsolete facilities.
W2: Low staff qualification.
W3: Noncompetitive prices.
ADJUST STRATEGY:
O1, W1: Investment in new
productive facilities for the new
product.
DEFENSIVE STRATEGY:
T2, W1, W3: Investment in new
productive facilities for existing
products.
ANALYSIS
10
SWOT ANALYSIS:
The SMART test for actions
All actions should be:
• Specific,
• Measurable,
• Achievable,
• Relevant, and
• Timed.
11
PORTFOLIO MANAGEMENT
12
BCG MATRIX: A portfolio management
tool based on product life cycle theory.
13
14
FOUR CATEGORIES OF SBU’S
STARS (high growth, high market share):
-Stars use large amounts of cash. Stars are leaders
in the business; this is why they should also
generate large amounts of cash.
-Stars are frequently roughly in balance on net cash
flow. However, any attempt should be made to
hold your market share in Stars, because the
rewards will be Cash Cows if market share is kept.
QUESTION MARKS (high growth, low market
share):
-Question Marks have the worst cash
characteristics of all, because they have high cash
demands and generate low returns, because of their
low market share.
-If the market share remains unchanged, Question
Marks will simply absorb great amounts of cash.
-Either invest heavily, or sell off, or invest nothing
and generate any cash that you can. Increase
market share or deliver cash.
CASH COWS (low growth, high market share):
-Profits and cash generation should be high.
Because of the low growth, investments which are
needed should be low.
-Cash Cows are often the stars of yesterday and
they are the foundation of a company.
DOGS (low growth, low market share):
-Avoid and minimize the number of Dogs in a
company.
-Watch out for expensive ‘rescue plans’.
-Dogs must deliver cash, otherwise they must be
liquidated.
15
TO SUM UP…
Cows: steady sources of cash flow.
Dogs: very little cash flow with little prospect of
growth.
Question marks: risks, very negative cash flows.
Stars: goods in expanding markets, but very little cash
flows.
16
17
18
19
20
THE AIM IS
• to keep the cows,
• sell the dogs to finance the question marks
• and work to turn the stars into cows
• before the cows you have turn into dogs.
21
EXAMPLES
22
BCG MATRIX
BENEFITS:
•
If a company is able to use the experience
curve to its advantage, it should be able to
manufacture and sell new products at a price
that is low enough to get early market share
leadership. Once it becomes a star, it is
destined to be profitable.
•
BCG model is helpful for managers to
evaluate balance in the firm’s current
portfolio of Stars, Cash Cows, Question
Marks and Dogs.
•
BCG method is applicable to large companies
that seek volume and experience effects.
•
The model is simple and easy to understand.
•
It provides a base for management to decide
and prepare for future actions.
LIMITATIONS:
•
It neglects the effects of synergy between
business units.
•
High market share is not the only success factor.
•
Market growth is not the only indicator for
attractiveness of a market.
•
Sometimes Dogs can earn even more cash as
Cash Cows.
•
The problems of getting data on the market share
and market growth.
•
There is no clear definition of what constitutes a
"market".
•
A high market share does not necessarily lead to
profitability all the time.
•
The model uses only two dimensions: market
share and growth rate. This may tempt
management to emphasize a particular product, or
to divest prematurely.
•
A business with a low market share can be
profitable too.
•
The model neglects small competitors that have
fast growing market shares.
23
-Fashion.
-Luxury cars.
-Jewellery.
-Hotel business.
-Publishing.
-Newspapers.
-Hypermarkets.
24
McKinsey-GE matrix
-It is a later and more
advanced form of the
BCG matrix.
-SBUs are portrayed as a
circle.
-The size of the circles
represent the Market Size.
-The size of the pies
represent the Market
Share of the SBU's.
-Arrows represent the
direction and the
movement of the SBU's in
the future.
25
McKinsey-GE matrix
TYPICAL EXTERNAL FACTORS
THAT AFFECT MARKET
ATTRACTIVENESS:
- Market size.
Market growth rate.
- Market profitability.
- Pricing trends.
- Competitive intensity / rivalry.
- Overall risk of returns in the industry.
- Entry barriers.
- Opportunity to differentiate products
and services.
- Demand variability.
- Segmentation.
- Distribution structure.
- Technology development
TYPICAL INTERNAL FACTORS THAT AFFECT
COMPETITIVE STRENGTH OF A
STRATEGIC BUSINESS UNIT:
• Strength of assets and competencies.
• Relative brand strength (marketing).
• Market share.
• Market share growth.
• Customer loyalty.
• Relative cost position (cost structure compared
with competitors).
• Relative profit margins (compared to competitors).
• Distribution strength and production capacity.
• Record of technological or other innovation.
• Quality.
• Access to financial and other investment resources.
• Management strength
26
McKinsey-GE matrix
1
2
4
3
5
7
6
8
9
27
McKinsey-GE matrix
28
McKinsey-GE matrix
29
McKinsey-GE matrix
The UK retail market
30
Size = Sales of the Business
1
Market
Growth
S
O
Rate
10%
U
Relative Market Share
T
Size = Net Assets
1
H
9
Market
2
Growth
Rate
10%
Relative Market Share
31
HUELVA CORPORATION, PLC
1.5
M
G
R
RMS
1
32
COMPETITIVE STRENGTH
H
M
L
H
MARKET
ATTRACTIVENESS
M
L
BANESO INDUSTRIAL CORPORATION (BIC)
33
PROFIT / INVESTMENT MATRIX
P
R
O
+
F
I
-
T
S
(%)
INVESTMENT (%)
34
ROI / ROS MATRIX
R
O
ROI = ROS x ROT
I
35
COMERCIAL EFFICACY MATRIX
1
ROS=ROMxME
2
3
4
MARKETING EFFORT
36
“Imagination rules the world.”
(Napoleon)
37