Strategic Management

Strategic Fit

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-1

SWOT Analysis
Internal
S1 S2 S3 S4 S5 W1 W2 W3 W4 W5 O6 (customer) T1 T2 T3

External

O1 O2 (supplier position) O3

T7

Potential Strategic Ideas (S2, S3, S4) - Basis for core competency, core capability S5 - doesnt contribute W5 - No problem
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-2

T1, T2 - Big threats T3, T7 - Not major problems (W1, W2, W3, W4) - Need to be addressed

SWOT Summary

Threats

Confront External Environment Exploit

Opportunities

Avoid

Search

Strengths

Weaknesses

Internal Factors
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-3

SWOT Analysis
R&D, high tech Deep pockets STRENGTHS (Internal) Infrastructure Luxury car/ truck dominance Infrastructure/ small cars Distribution network Joint Ventures Lead times WEAKNESSES (Internal) Differentiated models Platform madness Productivity, efficiency, costs Bureaucracy/ leadership Incentive system Vertical integration Worldwide presence Expansion Buy U.S. Leverage tech. and financial know-how Better segmentation Cloning Saturn Coopetition Competition Labour unrest Brand loyalty disappearance Perception, quality, reliability, durability Consumer social awareness Rising costs Supplier backlash
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-4

OPPORTUNITIES (External)

THREATS (External)

SWOT Analysis - Wal-Mart

STRENGTHS (Internal) Meets change proactively Leadership Distribution Centres Standardization of stores Use of technology Corporate culture Participation of associates Financial strength Supplier support and networking Inventory control and distribution OPPORTUNITIES (External) Buy American strategy Backward expansion Catalog Shopping Product packaging Expanding store format Potential technology for home shopping

WEAKNESSES (Internal) Low margins High cost of distribution High cost of travel for executives High dependency on technology Non personalized purchasing Dependency on Sams leadership

THREATS (External) Economic environment Many discount businesses Competition from other discounters Cable home shopping

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-5

SWOT Analysis: Pros and Cons

Pros
It is a powerful tool to evaluate and prioritize the factors of the company It provides a good framework for reviewing strategy, position and direction It offers a systematic approach of introspection into both positive and negative concerns It enables proactive thinking, It provides direction and serve as a basis for the development of marketing plans It helps to set the organizational goals and objectives

Cons
It has a tendency to oversimplify the situation by classifying the companys environmental factors into categories in which they may not always fit. It does not generate a companys strategy. It can be very subjective. It often represents a view particular to a specific point in time. It is a starting point for strategy development.

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-6

Tech-Check
(Based on SPACE Analysis)

High

Acquire Capability

Grow/Protect Capability
Wal-Mart

Technology Potential Outsource Capability Low Low Company Capability High Maintain Capability

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

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SWOT Analysis - Wal-Mart

Threats Competition Bad economy

Confront External Factors

backward Associates expansion Sam standardized stores

Avoid

Potential expansion

Exploit

Search

distribution technology Opportunities Strengths

corporate culture Weaknesses

Internal Factors
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-8

SWOT Analysis - AECL CANDU

Threats 3rd world poor risks Safety concerns

Confront External Factors

Fossil fuel pollution CANDU design PU burn Size

Avoid

Exploit
safety record Opportunities Strengths

Search

Weaknesses

Internal Factors
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-9

Growth Vector Analysis

w ie Ne ateg Str
Product Alternatives
Present Products
Market penetration

Improved Products
Product variants; imitations

New Products
Product line extension

Existing Market

Discount City
Aggressive promotion

Sam Wholesale Club

Market segmentation, product differentiation Vertical diversification

Market Options

Expanding Market

S uper Centre Hypermart USA

Market development

Product Testing
Market extension Conglomerate diversification

New Market

Vendor Store

Video Shopping

Separate VAN Group

ing ies ist eg Ex rat St

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-10

Growth Vector Analysis - AECL Product Alternatives

Present Products
Market penetration

Improved Products
Product variants; imitations

New Products
Product line extension

Market Options

Existing Market

CANDU 6 SPEL
Aggressive promotion

CANDU 3 large CANDU

Market segmentation, product differentiation Vertical diversification

Expanding Market

Short-term waste mgt

Market development

Mac Store 4:1 Ratio niche Refurbishment

Market extension

Long-term waste mgt

Conglomerate diversification

PU Burn - US

PU Burn - Russia

PU Burn - Intl

New Market

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-11

Growth Vector Analysis

Core Automotive Sector

Product Alternatives
Present Products
Market penetration

Improved Products
Product variants; imitations

New Products
Product line extension

Market Options

Existing Market

Current (in-house) product lines - GM 10 lines - comm. vehicles

New reengineered products (Saturn)

- imported products to fill gaps - sport utility - hi performance

Expanding Market

Aggressive promotion

Market segmentation, product differentiation

Vertical diversification

- specialty products: - heavy truck, industrial - urban commuter - electric vehicle

Market development Market extension Conglomerate diversification

New Market

- Developing countries (Asia, E. Europe, etc.)

- electric vehicles - ATV - power boats - light aircraft

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-12

Growth Vector Analysis

Electronics Sector

Product Alternatives
Present Products
Market penetration

Improved Products
Product variants; imitations

New Products
Product line extension

Market Options

Existing Market

GM-Hughes automotive electronics GM-Hughes aerospace (not considered)

Advanced automotive instrumentation and display systems (HUD)

Expanding Market

Aggressive promotion

Market segmentation, product differentiation

Vertical diversification

Specialty Stores

New Market

Market development

Market extension

Conglomerate diversification

Remote instrumentation and data collection

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-13

Growth Vector Analysis

Financial Services Sector

Product Alternatives
Present Products
Market penetration

Improved Products
Product variants; imitations

New Products
Product line extension

Market Options

Existing Market

GMAC new car financing

Bundled services (warranty extension, maint. Plan, vehicle replacement

Auto insurance at point of sale (GM dealership only)

Expanding Market

Aggressive promotion

Market segmentation, product differentiation

Vertical diversification

New car financing (through any dealership)

New Market

- fleet services (lease and Maint.) - new car leasing (separate storefront)
Market extension

Auto insurance (separate storefront)

Market development

Conglomerate diversification

- general capital equip. leasing - general insurance

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-14

Growth Vector Analysis - Newbridge

Product Alternatives
Market Penetration Product Variation Product Expansion

Market Options

Existing Market

Electronic switches (private)

Multiplexers (voice & data)

Multiplexers (voice, data, video)

Expanding Market

Public (telco)

T1, F1 Link Network Management

Hybrid (Private & public)

ATM LAN

New Market Present Products Improved Products New Products

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-15

Growth Vector Analysis: Pros and Cons

Pros
It provides a systematic evaluation of the market, competitive conditions, and market growth It reviews the different product alternatives available to a company in relation to its market options It shows potential areas where core competencies can be mapped into generic strategies It helps to establish strategy according to marketing trend It can be used as a roadmap to formulate strategies and plans of action

Cons
It does not give any indication on whether the company is doing better or worse It does not provide any comparison between the company and its competitors It assumes that the company is indeed growing and then ignores some strategic alternatives related to downsizing or withdrawal from some areas of business

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-16

Directional Policy Matrix

Diversification
Company Capability
High

Market Segmentation

Wal-Mart
Normal

Market Leadership; Innovation

Phased Withdrawal; Merger Divestment

Maintain Position; Expansion; Market Product Penetration Differentiation Imitation; Phased Withdrawal
Average

Low

Cash Generation
Attractive

Unattractive

Market Potential
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-17

PIMS- Based Evaluation of AECLs CANDU Reactor

Checklist 1. Market Share 2. Relative Market Share 3. Product Quality 4. Market Growth 5. Vertical Integration 6. New Product Activity 7. R&D/Sales Ratio 8. Marketing/Sales Ratio 9. Productivity 10. Capacity Utilization 11. Investment/Sales Ratio 12. Inventory Level Low Low Low Low Low Low Low Low Low Low Low Low

Ratings Medium Medium Medium Medium Medium Medium Medium Medium Medium Medium Medium Medium High High High High High High High High High High High High

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-18

BCG Growth Share Matrix

High Industry Growth Rate

(Cash use)

???
? ?
$

Low Low Relative Market Share

(Cash Generation)
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-19

High

McKinseys Industry Attractiveness - Company Strengths Analysis

High

Wal-Mart

Strength of Company

Invest, Grow

Maintain position Concentrate on segment

Divest, Withdraw
Low Low High

Industry Attractiveness
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-20

SPACE
Factors determining environmental stability:
Technological changes Rate of inflation Demand variability Price range of competing products Barriers to entry into market Competitive pressure/rivalry Price elasticity of demand Pressure from substitute products Many High Large Wide Few High Elastic High 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 Few Low Small Narrow Many Low Inelastic Low

Average - 6 = 2.5 - 6 = -3.5

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-21

SPACE
Factors determining financial strength:
Return on investment Leverage Liquidity Capital required vs available Cash flow Ease of exit from market Risk involved in business Inventory turnover Economies of scale and experience Low Unbalanced Unbalanced High Low Difficult Much Slow Low 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 High Balanced Solid Low High Easy Little Fast High

Average = 4.2

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-22

SPACE
Factors determining industry strength:
Growth potential Profit potential Financial stability Technological know-how Resource utilization Capital intensity Ease of entry into market Productivity, capacity utilization Other: Manufacturers bargaining power Low Low Low Simple Inefficient Low Easy Low Low 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 High High High Complex Efficient High Difficult High High

0 1 2 3 4 5 6

Average = 3.8

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-23

SPACE
Factors determining competitive advantage:
Market share Product quality Product life cycle Product replacement cycle Customer loyalty Competition capacity utilization Technological know-how Vertical integration Other: Speed of new product introductions Small Inferior Late Variable Low Low Low Low Slow 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 Large Superior Early Fixed High High High High Fast

0 1 2 3 4 5 6

Average - 6 = 3.8 - 6 = -2.2

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-24

SPACE (Wal-Mart)
Financial Strength 4.2 Conservative (Focus)
(0.7, 1.6)

Aggressive (Cost Leader)

Competitive Advantage

-2.2

3.8

Industry Strength

Defensive -3.5

Competitive (Differentiation)

Environmental Stability
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-25

SPACE Consequences
Aggressive (Cost Leadership) concentric diversification concentration vertical integration WIDEN COMPANY! Competitive (Differentiation) concentric merger conglomerate merger turnaround NARROW MARKET! Conservative (Focus) Status Quo Diversification for competitive skills acquisition Diversification to use cash flow financial portfolio basis WIDEN MARKET! Defensive liquidation retrenchment divestment NARROW COMPANY!
Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-26

SPACE: Pros and Cons

Pros
It summarizes a large number of strategic issues on a few dimensions. It clearly shows the current strategic position of the company It clearly shows the direction or type of strategy the company need to go. It is a high accuracy representation.

Cons
It is based on a survey which could appear as a lack of objectivity It may not be applicable to all kind of sectors. It can be totally misleading if factors were wrongfully weighted It requires intensive information and extensive inputs.

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-27

Choice of Generic Strategy

Strong

Unique (Differentiated)
Market Position

Cost Leader (Dominance)

Wal-Mart

Niche (Focus)
Weak Focused (Protected)

Defensive (Survival)

Strategic Outlook

Growth (Competitive)

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

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Strategic Options and Generic Strategies

Status Quo FS Conglomerate Diversification Wal-Mart Concentric Diversification

Focus

Overall Cost Leadership

Aggressive

Concentration Vertical Integration

Diversification Conservative CA Divestment

Defensive
Gamesmanship

IS Concentric Differentiation Merger Competitive Conglomerate Merger

Liquidation ES Retrenchment

Turnaround

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

5-29

SPACE changes along the curve

Zone of uncertainty

Conservative Aggressive

Cost Leadership main street Niche tornado

Focus bowling alley

2 1

Late Market Behaviour - dominant players are aggressive - rest are competitive

Aggressive Leader

Competitive Market Follower

1: Exit Strategy 1,2: Exit and Disappear (dog) 3: Exit to other markets

Prod Diff chasm

Copyright by Authors Tom Koplyay and David Goldsmith July 1998 5-30

Strategic Profile: Design Factors

Sustainability Uniqueness Value Added Enhancement Flexibility Stability Fit Performance Consistency Stretch

Copyright by Authors Tom Koplyay and David Goldsmith July 1998

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