Basics of major strategic (and analytic) tools

List of content

Introduction

External Analysis
1.1 Markets
1.1.2. McKinsey/GE Growth Share Matrix
1.2 Customer needs
1.3 Industry structure
1.3.1 Porter’s five Forces
1.3.2 Value Chain Analysis
1.4.Product structure
1.4.1Product breakdown
1.4.2. Product structure views

Internal Analysis
2.1. Resource Audit
2.2. Core Competence Analysis
2.3. Performance Analysis
2.4 Portfolio Analysis
2.5 SWOT Analysis

Bibliography:

List of Figures:

Figure 1: McKinsey/GE Growth Share Matrix

Figure 2: Customer Development Process according to Kotler

Figure 3: Porters Five Forces

Figure4: Primary Activities of a Company

Figure 5: Secondary Activities of a Company

Figure 7: Different product structure views

Figure 8: Performance Analyses

Figure 9: The BCG Portfolio Matrix

Figure 10: SWOT Analyses

“Goals should emerge from the strategy of an organization.”¹

1. Introduction

Both economic and legal basic conditions force organizations to act efficiently in fulfilling corporate requirements. Factors influencing corporate requirements are fiscal, epidemiological, demographic and technical developments. Time and product quality can be additional objectives². Thus, any organization inevitably interacts with its environment. To achieve desired corporate goals, a strategic master plan that evaluates significant key figures is laid out and implemented by the organization’s management team³.

Every strategic discussion begins with an audit that systematically reviews the current efficacy of a business situation in its entirety. Typical questions include the following: “How well does the corporate strategy work for the specific company as a whole, and for its individual business units?”, “Does the strategy gather information and opinions appropriately, and does it help implement strategic measures that win support and, ultimately, result in growth?”, “Does it fail in certain areas?”, “If yes, what are the reasons?”

A strategic analysis comprises the following components:

1. An External Analysis of markets, customer needs; industry structure and product structure.

1.1 Markets

1.1.2. McKinsey/GE Growth Share Matrix

In contrast, the diagram below illustrates some constituents of market attractiveness and competitive strength according to the “McKinsey/GE Growth Share Matrix”. In comparison to the BCG matrix, two elements are replaced – “market attractiveness” replaces “market growth” and “competitive strength” replaces “market share”. Key figures for market attractiveness are:

- Market size,
- Market growth,
- Market profitability,
- Pricing trends,
- Intensity of competition,
- Overall risk of returns in the specific field of business, and
- Unique characteristic for products and services as well as for secondary distribution structure.

Key figures that define competitive strength are:

- Mastery of competencies,
- Brand strength,
- Market share,
- Customer loyalty,
- Costs (e.g. cost structure compared to competitors),
- Distribution strength and Innovative potential.

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Figure 1: McKinsey/GE Growth Share Matrix (source: Tutor2u, 2008)

1.2 Customer needs

Globalisation, market saturation and the change in fundamental market competition forced companies to change their marketing strategy. The ultimate change and goal for successful companies is to satisfy their current and future customers. “The job is not to find the right customers for your products, but the right products for your customers”⁴.

Initially every customer has needs. Defining them as key factors for success is one of the greatest challenges of entering new markets and developing products.

Some of the greatest scientists in psychology had great impact on the field of marketing such as Maslow (Hierarchy Of Needs), Hertzberg (Motivation-Hygiene Theory), and Kano (Taxonomy Of Needs), leading to a variety of schemes defining customer needs as noted by Kotler. Identifying those needs is one of the greatest challenges when entering new markets and developing products. In general customer needs are not linked to specific products; they depend on the variety of goods in the context of differing circumstances, the customer's preferences, situation, time, and geography. A key point is the hierarchical nature of the needs⁵.

Key success factors (KSF's) are those competitive factors that affect an industry members' ability to prosper in the marketplace to the greatest extent. To be successful, companies must design a customer-driven Marketing Strategy. Building Customer Value, Satisfaction and Loyalty are prime goals to be achieved. The concept of “Customer perceived value” (CPV) is defined as the difference between the future customer’s evaluation of all gain and the costs of an offering and the perceived alternatives. The concept of building customer loyalty involves the aspect of delivering high CPV. Total customer satisfaction is a feeling of pleasure resulting from a sufficient product or service performance.

Customer satisfaction measurement indeed is the act of obtaining qualitative and quantitative determinants which indicate the extent to which client expectations are being met. Such information can be gained systematically and should be collected continuously. CRM means segment specific supervision and handling of customers in marketing and service. This will lead to develop stronger bonds with customers and maximize their loyalty. Therefore customer satisfaction does have a positive effect on an organization’s profitability, it determines the bottom line.

To be successful, companies must design a customer-driven Marketing Strategy: Who should be served as a segment or Who‘s the customer? What are the wants and demands? The company has to choose a value proposition: Value proposition is the set of benefits or values a company promises to deliver to consumers to satisfy their needs.

Organizations must consider and satisfy the needs and wants to build up loyalty and significant retention. Basically we have to understand the dynamics of customer development to enable us to define new market strategies. Whatever a customer wants today may not be what he or she wants tomorrow.

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Figure 2: Customer Development Process according to Kotler

1.3 Industry structure

1.3.1 Porter’s five Forces

Well known popular model for industry analysis,

In the early 1980`s Michael E. Porter developed the model of Five Competitive Forces⁶ that nowadays become a very important management tool for assessment of an organizations industry structure and the strategic processes within.

The basic theory is that a corporate strategy should meet the opportunities and threats in the organizations external environment. Porter’s model is based on the insight, competitive strategy should base on and understanding of variety industry structures and the way they change⁷.

Porter has identified five competitive forces that shape every industry and every market. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porter’s model supports analysis of driving forces in an industry. Based on this data management can decide how to influence or to change particular characteristics of their industry⁸.

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¹ See: Luecke (2004), p. 4.

² See: Tutor2u (2008)

³ See: Luecke (2004), p. 4.

⁴ See: Kotler, P. and Keller K.L., 2006. Marketing Management.

⁵ See: Maslow 1987

⁶ See: Porter ME, Competitive Strategy: Techniques for Analyzing Industries and Competitors

⁷ See: Porter ME, The Five Competitive Forces, that shape strategy, Harvard Business Review, 2008

⁸ See: http://www.themanager.org/Models/p5f.htm