THEME 7: STRATEGIC DIAGNOSIS

Transcription

1 THEME 7: STRATEGIC DIAGNOSIS SWOT analysis. Portfolio management. BCG matrix. Sallenave matrixes. GE-McKinsey matrix. Alfonso VARGAS SÁNCHEZ 1

2 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

3 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

4 WHERE AM I NOW?: current state analysis. The best tool for doing this is: THE THE SWOT SWOT ANALYSIS ANALYSIS STRENGTHS WEAKNESSES OPPORTUNITIES THREATS 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. As a result of value chain and resources & capabilities analysis. Using internal assessments and external benchmarking. EXTERNAL FACTORS that create or destroy value. As a result of PEST and Porter s competitive forces analysis. 4

5 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

6 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

7 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. 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. 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. 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

8 CONFRONTATION MATRIX ANALYSIS OPPORTUNITIES THREATS STRENGTHS CHALLENGES & ACTIONS WEAKNESSES 8

9 CONFRONTATION MATRIX ANALYSIS OPPORTUNITIES THREATS STRENGTHS Offensive strategy Reactive strategy WEAKNESSES Adjust strategy Defensive strategy 9

10 CONFRONTATION MATRIX. Example: ANALYSIS STRENGTHS: S1:Financial strength. S2:Loyal and reliable customer base. S3:Good factory and warehouses locations. WEAKNESSES: W1: Obsolete facilities. W2: Low staff qualification. W3: Noncompetitive prices. OPPORTUNITIES: O1:Strong demand of a new product. O2: Possibility of selling through large retailers. OFFENSIVE STRATEGY: O2, S1, S3: Intense brand promotion towards large retailers and end customers. ADJUST STRATEGY: O1, W1: Investment in new productive facilities for the new product. THREATS: T1:Existing products consumption is declining. T2:An important competitor has arisen. T3:New regulations from the European Union. REACTIVE STRATEGY: T3, S1: Precise fulfillment of the new regulations. T2, S2: Excellence in customer service. DEFENSIVE STRATEGY: T2, W1, W3: Investment in new productive facilities for existing products. 10

11 SWOT ANALYSIS: The SMART test for actions All actions should be: Specific, Measurable, Achievable, Relevant, and Timed. 11

12 PORTFOLIO MANAGEMENT 12

13 BCG MATRIX: A portfolio management tool based on product life cycle theory. 13

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15 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. 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. 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. 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

16 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

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21 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

22 EXAMPLES 22

23 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

24 -Fashion. -Luxury cars. -Jewellery. -Hotel business. -Publishing. -Newspapers. -Hypermarkets. 24

25 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

26 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

27 McKinsey-GE matrix

28 McKinsey-GE matrix 28

29 McKinsey-GE matrix 29

30 McKinsey-GE matrix The UK retail market 30

31 1 Size = Sales of the Business S O U T H % 10% Market Growth Rate Relative Market Share Size = Net Assets 1 Market Growth Rate Relative Market Share 31

32 HUELVA CORPORATION, PLC 1.5 M G R R M S 1 32

33 COMPETITIVE STRENGTH H M L H MARKET ATTRAC- TIVENESS M L BANESO INDUSTRIAL CORPORATION (BIC) 33

34 PROFIT / INVESTMENT MATRIX P R O F I T S (%) + - INVESTMENT (%) 34

35 ROI / ROS MATRIX R O I ROI = ROS x ROT 35

36 COMERCIAL EFFICACY MATRIX 1 ROS=ROMxME MARKETING EFFORT 36

37 Imagination rules the world. (Napoleon) 37