Situational Analysis, Business Strategy & Boston Consulting Group

MatrixPresented By Pinak Paul, Tanuja

Mallick, Jyoti Dudeja, Ayushi SinglaPresented to : Professor Sarin

Situational AnalysisSituational Analysis : Array of methodologies

for analyzing internal and external environment of a business. It helps in :Understanding target marketFormulating marketing strategiesIndustry analysisFirms capabilitiesProactive decision making

Methods for Analysis :5Cs analysis:

Company AnalysisCompetitors CustomersCollaboratorsClimate

Porter five forces analysis :Threat of new entrantsThreat of substitutesBargaining power of customersBargaining power of suppliersCompetitive rivalry within industries

5Cs Analysis of Strategic Management

FIVE C’S

CUSTOMERCOMPANY

CLIMATE

COLLABORATORS

COMPETITORS

5C’s of Strategic Management

COMPANY :-What are the products/ services provided by

the company?What is the image of the company in market?Does your company have the right technical

expertise?Determine the strength, weakness,

opportunities, threats of your business…

CUSTOMER :- Are they consumers or businesses? What are their needs? Will they switch  to the competition, if the

company increases its price? What are their preferences for company's

product quality, reliability and performance?  what will they be buying over the next two

years? what will the next generation of customers

need from the company? 

COMPETITORS:- Check who competes with your company in

meeting the customer’s needs. How much market share do they hold?What are their products exactly? What are their strengths and weaknesses?What are their strategic advantages?

COLLABORATORS:-  Determine if there is any outside source that

can help the company such as : distributors suppliers alliances  

CLIMATE:-

Some forces are difficult to predict. Determine if there are any limitations due toPolitical issues :- legal problems, trade regulations, taxation etc Economic concerns :- growth rate, labor costs, and business cycle stage

etcSocial impacts :- demographics, education, and culture etc

 This is also known as “PEST” analysis.   

Porter Five Forces Analysis

Porter Five Forces Analysis

The Porter models involves scanning the environment for threats from competitors and identifying problems early on in order to minimize threats imposed by competitors.

This model can apply for any type of business, from small to larger sized businesses.

History Porter five forces analysis is a framework for

industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979.

It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability.

Purpose

The purpose of the Porter's five forces model is to help businesses compare and analyze their profitability and position with the industry against indirect and direct competition.

Porter Five Forces The threat of new entrant

Bargaining power of buyers

Threat of substitute product of services

Bargaining powers of suppliers

Rival among existing competitors

Threat of New Entrants The existence of barriers to

entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily.

Economies of product differences

Brand equity

Switching costs or sunk costs

Capital requirements

Access to distribution

Customer loyalty to established brands

Absolute cost

Industry profitability

Bargaining Power of BuyersThe bargaining power of customers is also described

as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.

Buyer concentration to firm concentration ratio

Degree of dependency upon existing channels of distribution

Bargaining leverage, particularly in industries with high fixed costs

Buyer switching costs relative to firm switching costs

Buyer information availability

Availability of existing substitute products

Buyer price sensitivity

Differential advantage (uniqueness) of industry products

Threat of Substitutes products or Services

Buyer propensity to substitute

Relative price performance of substitute

Buyer switching costs

Perceived level of product differentiation

Number of substitute products available in the market

Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product.

Substandard product

Quality depreciation

Bargaining Power of Suppliers

The bargaining power of suppliers is also described as the market of inputs.

Suppliers of raw materials, components, labour, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes.

Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources.

Supplier switching costs relative to firm switching costs

Degree of differentiation of inputs

Impact of inputs on cost or differentiation

Presence of substitute inputs

Strength of distribution channel

Supplier concentration to firm concentration ratio

Employee solidarity (e.g. labour unions)

Supplier competition - ability to forward vertically integrate and cut out the BUYER

Ex.: If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from him.

Intensity of Competitive Rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

Sustainable competitive advantage through innovation

Competition between online and offline companies

Level of advertising expense

Powerful competitive strategy

Flexibility through customization, volume and variety

COMPETITIVE ANALYSIS OF TATA NANO USING PORTER FIVE FORCES ANALYSIS

Business StrategyThe Art, Science and craft of decision

making

Business Strategy

Corporate Culture

Corporate Culture The beliefs and values shared by people who

work in an organization

how people behave with each other

how people behave with customers/ clients

how people view their relationship with stakeholders

people’s responses to energy use, community

involvement, absence, work, ethic , etc

how the organization behaves to its employees – training, professional development etc

Corporate CultureMay be reflected in :-

attitude and behaviour of the leadership

attitude to the role of individuals in the workplace – open plan offices , team based working etc

logo of the organization

the image it presents to the outside world

Nike

What corporate culture do you think the following businesses have managed to develop ?

Strategic Planning

Strategic Planning- First stage of strategic

planning may involve:

future thinking : thinking about what

the business might need to do 10-20 yrs ahead.

Strategic intent : thinking about key

strategic themes that will inform decision making.

Taking time to think & reflect may be more important than many businesses allow time for…..!!!

Strategic PlanningThe vision :

communicating to all staff where the organization is going and where it intends to be in future

allows the firm to set goals

Aims and objectives : Aim– long term target Objectives – the way in which you are going

to achieve the aim.

Analysis

SWOTStrengths - identifying existing organisational

strengths

Weaknesses – identifying existing organisational weaknesses

Opportunities – what market opportunities might there be for the organisation to exploit.

Threats – where might the threats to the future comes from ?

PEST

POLITICAL :- local ,national and international political developments – how will they affect the organisation and in what ways.

ECONOMICAL :- what are the main economic issues – both nationally and internationally that might affect the organisation ?

SOCIAL:- what are the developing social trends that may impact on how the organization operates and what will they mean for future planning?

TECHONOGICAL:- changing technology can impact on competitive advantage very quickly !!!

Evaluation

EvaluationData from sales,

profit etc used to evaluate

the progress & success of the strategy and to inform of changes to strategy.

Information from a wide variety of sources can help to measure & inform the

impact & direction of strategy…

Boston Consulting Group Matrix

Boston Consulting Group Matrix

BCG matrix was created by Bruce Henderson for the Boston Consulting Group in 1970. How’s it helpful ?

Helps corporations analyzing their product lines or business units.

Optimum allocation of resources

Serves as an analytical tool for :Brand marketing

Product management

Strategic management

Portfolio analysis

Understanding BCG Matrix

BCG Matrix revolves around two topics :•Market growth

•Market Share

Market ShareMarket share signifies the percentage of total

market being serviced by a company.

Relative Market Share (RMS) :Business unit sales this year

Leading rival sales this year

RMS indicates cash generation, higher the share more cash generation.

Brands share 20 %, competitors share 40 %, ratio of share 1 : 2

RMS signifies :ProfitBrand positioning (relative) Future direction Expected effective marketing strategies Cost advantage ( lead on experience curve)

Market Growth RateMarket growth rate is used as an indicative

measure of a market’s attractiveness.

MGR :Individual sales this year – individual sales last

year Individual sales last year

Growing market requires huge investment for increased activity : cash consumption.

Market growth signifies :ExpansionOpportunity Brand position than just cash flowFuture potential : market maturity Growth analysis Market strength

BCG Growth – Share Matrix It is a portfolio planning model which

classifies company’s business units into four categories :Stars Question marksCash cowsDogs

It is primarily based on the combinations of market share and market growth relative to the next best competitor.

STARS High growth rate, High market share

Stars are leaders in business

Require heavy investment to remain in large marketshare

Leads to large amount of cash consumption and cash generation

Attempts should be made to hold the marketshare otherwise the Star will become the next cash flow

CASH COWSLow growth, high market shareThey are foundation of the company and

often the stars of yesterday

They generate more cash than required

They extract the profits by investing as little as possible

They are located in an industry that is mature, not growing or declining.

DOGSlow growth, low market shareDogs are the cash traps

Dogs lack potential to bring in much cash

Number of dogs in an enterprise should be minimized

Business is situated at a declining stage

Question MarkHigh growth, low market shareMost businesses start of as question marks

They will absorb great amount of cash if the market share remains unchanged

Questions marks have the potential to become star and eventually cash cow but can also become a dog

Investment should be high for question marks

Example : Apple Inc.(2011)

Apple is renowned worldwide for its product innovation and investment in R & D.

Products include I phone, I pod, I tune music store, Mac OS X, Mac mini, Mac software, Apple Macs,5th generation I pod, etc.

Figures for FY ending Dec 2011Apple products Growth rate(%) Market share(%)

I phone 48 28

I pod (star) 28 60

Apple I tunes 7.6 82

Mac OS X 31.7 0.09

Mac Software 32 0.01

Apple Macs -- --

LimitationsBCG Matrix uses only two dimensions and

overlooks many other factors.

The framework assumes that each business unit is independent of the others.

The matrix depends heavily upon the breadth of the definition of the market.

Problems of getting data on market share and market growth.

High market share does not mean profits all the time.Business with low market share can be profitable too