A Generic Approach to Strategic Management

Creating and Presenting Strategic Plans

Part 3

Characteristic CommentMarket size ($) The larger the better

Growth Rate (%) The higher the better (AOTBE)

Life CycleDevelopment, Growth, Maturity,

DeclineMaturity and Decline great if

high RMSCustomer ConcentrationCustomers accounting for 50% of

salesGood up to captivity

Competitor ConcentrationTop 4 have 70% + Great if you are in top 4

Average purchase Amount ($) Larger the betterStability Stable or will it transform

Each Market Addressed

Characteristic Comment

Sales (€) The larger the better

Market share (%) The larger the betterMarket share largest competitor

(%) The lower the better

RMS The larger the better

RPQ The larger the better

Relative price The larger the better

New Prods/Sales (%) The larger the better

R&D/Sales (%) The larger the better

Nature of competition The more benign the better

Competitive Position

Characteristic Comment

Leadership Visionary

Leadership style Autocratic to consensual

Culture Taylor to Mayo

Communication Vertically and horizontally

Training/Employee Increasing?

Training/Sales Increasing?

Labour Turnover Lowest

Absenteeism Lowest

Leadership

Characteristic Comment

Plant and Equipment Parsimony

Sales/Total Assets Should increase

Number of employees Parsimony

Sales/Employees Should increase

Capacity utilisation The higher the better

Degree of integration Check

This is o

ften the killer

Asset Utilisation

Year 2013 2014 ScoreInformation about its competitive positionSales (£Mn) 9.15 10.12Market Share (%) 10 10Market Share Largest Competitor (%) 15 17RMS BCG 0.67 0.59Relative Quality (%) Inferior InferiorPrice Relative to Competition (%) 112 112New Product/Sales (%) 5 5R&D/Sales (%) 0 0Marketing/Sales (%) 0.5 0.5Competition Aggressive Aggressiv

eInformation about how it uses its assetsPlant and Equipment (£k) 1,200 1,500Sales/Total Assets 7.62 6.75Number of Employees 45 52Sales/Employees (£k) 203 195Capacity Utilisation (%) 80 80Degree of Integration (%) High HighInformation about leadership and behaviourLeadership skill Good GoodLabour Turnover (%) 0 0Information about its marketsMarket size (£Mn) 90 102Volume growth rate (%) 12.5 12.5No. of Immediate Customers accounting for 50% of Sales

150 140

% of Market held by 4 largest Companies

45 50

Typical Purchase Amount (£k) 30 33Life cycle of product in market Mature Mature% Employees in Trade Unions Nil NilProfitabilityROCE (%) 50 48

Case study: Company X

Question: What is your assessment of this company and would you invest in it ?

ML

A

48Is this good?

C

Invest

Conclusion on Company X

The Cardinal Point The strategy CaveatsCompetitive position

Firms with the highest market shares ought to have the highest returns.

Build market share provided the long term benefit outweighs the short-term cost.

Competitors’ responses

Firms with the highest RMSs ought to have the highest returns.

Build market share provided the long term benefit outweighs the short-term cost.

Competitors’ responses

Firms with the highest relative quality ought to have the highest returns.

Build relative quality None: superior quality generally pays..

The most innovative firms will only achieve superior returns if they already enjoy strong strategic positions

Build RPQ and RMS before significant efforts in innovation

None

Control of patents & markets Build products and services which are unique and can be kept proprietary

Uniqueness is key

Asset utilization

Firms with the lowest levels of investment intensity ought to have the highest returns

Be very frugal about new capital investment.

II is number one killer of profits. Spend warily.

Firms with most liquid assets tend to be more profitable

Be wary of locking the firm into fixed assets which may become investment intensive

Technology is a fixed assets which may grow insidiously and destroy profitability.

Firms with the highest levels of productivity ought to have the highest returns

Increase productivity. Productivity should be in real terms, i.e. net of inflation.

Firms with the highest levels of capacity utilization ought to have the highest returns

Increase capacity utilization In static markets where share growth is expensive, this may require the reduction of capacity.

Vertical integration Increase value added. Not when it leads to II.Leadership and behaviour

Respected and visionary The more so the better Difficult to judge precisely.

People The more connected the better. Difficult to judge precisely.

Labour turnover The lower the better. Always true.Markets addressedFirms with the highest growth in their served markets ought to have the highest returns.

Seek growth segments. Not necessarily: check other features of growth segments.

Firms serving the most concentrated markets ought to have the highest returns

Address markets which are most concentrated and encourage concentration

All other things being equal

Firms with the simplest logistics ought to have the highest returns.

Simplify logistics, especially number of customers and order size.

Becoming too dependent and a small number of customers

The less powerful the customers the better. Seek out customers who do not exert power

Less powerful customers may not have appropriate scale.

Firms with the lowest levels of unionization ought to have the highest returns.

Seek to encourage non rigid cost push influences

Outside control of firm.

A Summary of the Strategy Compass

The End