Strategic Thinking and
Analysis
Learning objectives
• To discuss the concept and background of strategy thinking and
strategy analysis;
• To discuss the strategy analysis framework in business, and;
• To formulate different strategic analyses based on the company’s
needs in gaining competitive advantage.
Strategic Thinking
• Defined as a mental or thinking process applied by an individual in the
context of achieving a goal or set of goals in a game or other endeavor.
As a cognitive activity, it produces thought.
• Involves the generation and application of unique business insights
and opportunities intended to create competitive advantage for a
firm or organization.
• Includes finding and developing a strategic foresight capacity for an
organization, by exploring all possible organizational futures, and
challenging conventional thinking to foster decision making today.
Comparison between Strategic Thinking and
Strategic Planning
Strategic Analysis
• “Developing a theoretically informed understanding of the
environment in which an organization is operating, together with an
understanding of the organization's interaction with its environment
in order to improve organizational efficiency and effectiveness by
increasing the organization's capacity to deploy and redeploy its
resources intelligently”.
Strategic Analysis
• The two most important situational considerations are:
• Industry and Competitive Conditions
• Company’s own competitive capabilities, resources, internal strength,
weakness, and market position.
• Understanding companies’ environment (both internal and external)
will create a winning strategy or else company will lose its
competitive advantage and companies' performance will be affected.
Strategic Analysis Issues
• Time: Evolution of strategies depends over time. Possible implications
of small routine decisions taken are involved and balanced decisions
should be made.
• Balance: Strategic analysis involves workable balance between diverse
and conflicting considerations, such as balancing internal firm’s
potentials with external opportunities.
• Risk: Competition, globalization, liberalization, technological
advancement and internationalization pose risks at a certain degree,
and firms should identify potential risks and assess its consequences.
Strategic Risk
Analysis
Situational
Analysis
Framework
of Strategic
Analysis
Industry and Competitive Analysis
• Industry and Competitive analysis aims at developing insight into several
issues like industry traits, intensity of competition, drivers of industry
change, market position, and strategy of rival companies, industry profit
outlook etc. It is thus thinking strategically about investing into some
company.
• The issues to investigate are:
• Dominant Economic Features of Industry
• Nature and Strength of Competition
• Triggers of Change
• Identify the Companies that are in Strongest / Weakest Positions
• Likely Strategic Moves of Rivals
• Key factors of Competitive Success
• Prospects and Financial Attractiveness of Industry
Key Success
Factors
SWOT Analysis
• Generation of Series of Strategic Alternatives
• Strength is inherent capability of an organization helps to gain strategic
advantage over competitors
• Weakness is inherent limitation or constrain of an organization which creates
strategic disadvantage
• Opportunity is favorable condition which enables organization to strengthen
its position
• Threats is an unfavorable condition which results into risk, damage to
organization.
SWOT
Analysis
Significance of SWOT Analysis
• Provides Logical Framework for handling issues having bearing on business
situation, generation of alternative strategies and choice of strategy.
• P re s e nt s C o m p a rat i ve A c c o u nt o f b o t h i nte r n a l a n d ex te r n a l
environmental factors in structured from do develop a suitable pattern of
relationships.
• Guides Strategist in Strategy Identification where he can think of overall
position of the organization and thus identify the major purpose of the
strategy under focus.
• Helps in crafting Business Models that will allow company to gain a
competitive advantage in its industry sector. This leads to increased
profitability and maximizes company’s survival turbulent environment.
Set of Strategies
• Levels of strategies:
• Functional Level - Directed at improving effectiveness of operations like marketing,
finance etc..
• Business Level - Business overall competitive theme, including cost leadership,
differentiation, focusing on particular segment etc.
• Global Level - How to expand operations outside home country and global
competitive advantage.
• Corporate Level - Which business should we be in and how to maximize profitability
in long run.
• Organizational performance is influenced by:
• Organizations’ current market position
• Nature of environmental opportunities and threats
• Organizational resource capability to capitalize on situations
TOWS
Matrix: By
Heinz
Weihrich
Portfolio Analysis
• Portfolio analysis has been devised to help associations bridge the gap
between strategy formulation and strategy implementation.
• Portfolio analysis is a systematic way to analyze the products and services
that make up an association's business portfolio.
• Portfolio analysis helps you decide which of these products and services
should be emphasized and which should be phased out, based on objective
criteria.
• Portfolio analysis should be regarded as a disciplined and organized way of
thinking about asset allocation. It is only a subjective tool, however, and is
not a substitute for the ultimate professional judgment of the responsible
decision-makers.
Strategic Business Unit (SBU)
• Adaptation of the divisional structure whereby various divisions or parts of
divisions are grouped together based on some common strategic elements,
usually linked to distinct product/market differences.
• Basically, known as profit centers, focused on a set of products and are
responsible for each decision/strategy to be taken for that set of products.
• Characteristics:
• It is a single business or collection of related businesses that can be planned separately from
the rest of the company
• It has its own set of competitors
• It has a manager who is responsible for strategic planning and profit performance and who
controls most of the factors affecting profit
• The purpose of identifying the company s strategic business units is to develop
separate strategic and assign appropriate funding and helps the development of
business level strategies since these may need to vary from one SBU to another
Experience Curve
• It is like a learning cur ve which
explains the efficiency increases
gained by workers through repetitive
productive work.
• Unit costs decline as firms
accumulates experience in terms of
cumulative volume of production.
Costs characteristically decline by 20-
30% in real terms each time
accumulated experience doubles.
This means that when inflation is
factored out, costs should always
decline. The decline is fast if growth is
fast and slow if growth is slow.
Product Life Cycle
• Main stages of product life cycle:
• Introduction – researching, developing and then
launching the product, slow sales growth. Expansion is
feasible alternative
• Growth – when sales are increasing at their fastest rate
and there is rapid market acceptance. Expansion is
feasible alternative
• Maturity – sales are near their highest, but the rate of
growth is slowing down, e.g. new competitors in market
or saturation. Source of cash for investment
• Decline – final stage of the cycle, when sales begin to
fall or there is sharp downward drift. Selective
Harvesting, Retrenchment
Boston Consulting Group (BCG) Matrix
• The BCG Matrix is based on product life cycle theory that can be used to
determine what priorities should be given in product portfolio of a
business unit.
• According to this technique, businesses or products are classified as low or
high performers depending upon their market growth rate and relative
market share.
• Market share is the percentage of total market that is being serviced by
your company measured either in revenue terms or unit volume terms.
• Relative Market Share = Business Unit Sales this Year / Leading Rival Sales this Year
• Market growth is used as a measure of market attractiveness
• MGR = Individual Sales this Year – Individual Sales Last Year / Individual Sales Last
Year
Boston Consulting
Group (BCG) Matrix
• Stars (High Growth – High
Market Share)
• Question Marks (High
Growth–Low Market Share)
• COWS – (Low Growth – High
Market Share)
• DOGS – (Low Growth – Low
Market Share)
Ansoff Product Market
Growth Matrix
• The Ansoff Growth matrix is a tool that
helps businesses decide their product
and market growth strategy.
• Sometimes called the Product/Market
Expansion Grid, the Ansoff Matrix
shows four ways that businesses can
g ro w, a n d i t c a n h e l p yo u t h i n k
through the risks associated with each
option.
• Ansoff ’s product/market growth
matrix sug gests that a business’
attempts to grow depend on whether
it markets new or existing products in
new or existing markets.
ADL Matrix
• The ADL Matrix from Arthur D. Little is a
portfolio management method that is based
on product life cycle thinking. The ADL
approach forms a two-dimensional matrix
based on stage of industry maturity
(Embryonic, Growth, Mature, and Aging) and
firms' competitive position as Dominant,
St rong , Favo ra b l e , Te n a b l e a n d We a k ) ,
environmental assessment and business
strength assessment.
• This assessment of the industry life cycle stage
of each business is made based on:
• Business market share
• Investment
• Profitability and cashflow.
ADL Matrix: The Competitive Position
• Dominant: This is a comparatively rare and typically short-lived. In many cases is
either to a monopoly or a strong and protected technology leadership.
• Strong: Market share is strong and stable, regardless of competitors. The firm has
a considerable degree of freedom over its choice of strategies and is often able to
act without its market position being unduly threatened by its competitors.
• Favorable: Business line enjoys competitive advantages in certain segments of
market. However, there are many rivals, and no clear leader among stronger
rivals. Results in the market leaders a reasonable degree of freedom.
• Tenable: Position in overall market is small or niche, either geographical or
defined by product. Competitors are getting stronger.
• Weak: Continuous loss of market share. Business line is too small to maintain
profitability.
ADL Matrix: Industry Maturity Stage
• Embryonic: Introduction stage characterized by rapid market growth
and very little competition.
• Growth: Market continues to strengthen and sales increase.
• Mature: Market is stable, there's a well-established customer base
and a lot of competition.
• Aging: Demand decreases, and companies start to abandoning the
market
General Electric
(GE) Matrix
• GE Matrix or McKinsey Matrix is
a strategic tool for portfolio
analysis. It is like the BCG Matrix
and the GE / McKinsey Matrix is
an extension of the BCG Matrix -
multifactor portfolio analysis
tool.
End of Presentation
