essential strategy models
TRANSCRIPT
SWOT analysis
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Strengths Weaknesses
Opportunities Threats
Summarise the firms Strengths, Weaknesses, Opportunities and Threats
Strengths and Weaknesses are typically internal to the firm and describe the current reality
Opportunities and Threats typically arise from factors in the firms competitive environment and may exist already or have the potential to occur in the future.
Strengths and Opportunities should be leveraged, Weaknesses and Threats should be mitigated.
A SWOT is a useful tool to summarise the insights gained from using other models.
McKinsey 7-S analysis
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Describe and analyse strengths and weaknesses in terms of: the “hardware”
◦ Strategy: alignment, implementation, communication, planning vs opportunism, rigour, depth, transformative vs incremental
◦ Structure: committees, governance, depth, breadth, collaboration,
◦ Systems: IT, operational, finance, HR, etc. level of rigour
the “software” ◦ Style: culture, leadership, managerial
versus transformational ◦ Staff: selection, reward, autonomy,
empowerment ◦ Skills: ability, training, experience ◦ Shared Values: alignment, positive
or negative, hard minds vs soft hearts
Consider applying this lens to each process in the Value Chain
Structure
Systems
Style
Staff
Skills
Strategy
Shared
Values
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Insights from a 7-S analysis can be summarised as Strengths or Weaknesses in a SWOT analysis
Porter’s 5 Forces analysis
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Analyse the competitive forces in the industry
Sample issues to consider:
Bargaining power of suppliers
◦ Extracting a higher margin
◦ Forward integrating
Bargaining power of buyers / distributors
◦ Price sensitivity
◦ Backward integration
◦ Switching costs
Threat of new entrants
◦ Industry profitability
◦ Barriers to entry
Threat of substitutes
◦ Disruptive change
◦ Perceived level of differentiation
Rivalry
◦ Concentration & stability
◦ Industry growth rates
Threat of
Substitutes
Bargaining
Power of
Suppliers
Bargaining
Power of
Buyers
Threat of New
Entrants
Rivalry
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Insights from a 5 Forces analysis can be summarised as Opportunities or Threats in a SWOT analysis
PEST analysis
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Political Economic
Social Technological
Identify environmental trends in the competitive environment:
Political: Changes in the political, regulatory, legal and special interest groups sphere.
Economic: Macro-economic trends such as interest rates, equity markets, inflation / purchasing power and disposable income; and micro-economic trends such as supply, demand and elasticity.
Social: and socio-economic trends such as health, longevity, family and living patterns, behaviour and fashions.
Technological: trends in product development, procurement, manufacturing, distribution and customer engagement.
The model is sometimes extended as PESTLE to include:
Legal: as a separate sphere
Environmental: an increasing consideration in many industries
Insights from a PEST analysis can be summarised as Opportunities or Threats in a SWOT analysis
Business Model Canvas
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KP Which Key Partners does the firm rely on, and for what?
KA What Key Activities must the firm perform?
VP What Value Proposition does the firm offer to solve its customers’ problems or satisfy their needs?
CS What Customer Segments does the firm target?
KR What Key Resources does the firm need?
CR What kinds of Customer Relationships does the firm have?
CH Through which CHannels does the firm deliver its products and services?
C$ What is the Cost structure of the firm?
R$ What is the Revenue structure of the firm?
Firms extract value from the markets in which they compete by integrating the 9 elements of their business model.
Target Operating Model
Identify the People, Processes and Technology required to deliver each value add in the Value Chain
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Activity System
A subset of Southwest Airlines’ activity system
Key strategic activities are mutually reinforcing
Individual activities are easy for competitors to copy; the whole system is harder to copy = sustainable competitive advantage
Focused – will not appeal to all passengers; not trying to be the best at everything
Specific – regarding what is done and what is not done
Differentiated – no other airline pursues the same strategy
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Limited
passenger
service
Frequent
Reliable
Departures
High
Aircraft
utilisation
Very low
ticket
prices
Short-haul
point-point
2ndary
airports
Lean
productive
ground
crews
No meals
No seat
assigns
No bag
transfer
No
connec-
tions
15 min
turn-
around
737s only
High
compen-
sation
Flexible
union
contracts
“low cost
airline”
Competitive Strategy is about being different. It means deliberately choosing a set of activities to deliver a unique mix of value.
Michael E. Porter, 1998
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Customer segmentation
Kaplan and Norton, 1996
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Some managers object to choosing targeted customer segments; they have never seen a customer they didn't like, and want to be able to satisfy all customers' preferences. But this approach runs the risk of doing nothing well for anybody. The essence of strategy is not just choosing what to do, it also requires choosing what not to do.
Segment Value Proposition Objectives Measures Targets Products
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Strategy Canvas
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A sample Strategy Canvas for Southwest Airlines
A Strategy Canvas is a visual representation of how a firm differentiates its value proposition(s) from those of its competitors:
Identify the factors which your customers consider important.
Chart how well your competitors/substitutes perform against each category.
A Strategy Canvas can be used to understand an existing value proposition, or to identify a new opportunity. Individual canvases can be produced for different target customer segments.
BCG Matrix
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For multi-line portfolios, map market growth against market share
Interpretation:
◦ Invest in Stars – they are the source of future profitability
◦ Improve efficiencies in Cash Cows – they are funding the investment in your Stars
◦ Decide whether you can turn Question Marks into Stars or not
◦ Exit Dogs – unless there are cross-line synergies (e.g. loss leaders); remember that all costs are variable in the long term
Variations: e.g. Bubble size for profit contribution
Market scope definition is key
Portfolio analysis can be performed for different products, services, customer segments, geographic markets, channels, brands, etc.
Cash Cows Stars
Dogs Question Marks
Mark
et
Share
Hig
h
Low
Market Growth Low High
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A Balanced Scorecard
Define measureable outcomes
Answer 4 simple questions using SMART objectives
For a mutual, replace shareholders with customers and regulators. For business units, treat the parent as the shareholder.
Define measures and targets
Aim for between 16 and 24 measurable outcomes (in total)
Aim for a balance between the four questions – don’t let one aspect of the strategy dominate the others
You get what you measure. If you can’t measure it, you can’t manage it.
Don’t confuse balanced scorecard metrics with benchmarking – strategy is non-comparable
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To succeed financially,
how should we appear to
our shareholders?
To achieve our vision, how should we
appear to our customers?
To satisfy our customers and shareholders, what business
processes must we excel
at?
To achieve our vision, how
will we sustain our ability to
learn and improve?
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Chris C Fox Consulting Limited is registered in England and Wales as a Private Limited Company: Company Number 6939359. Registered Office: Unit 4 Vista Place, Coy Pond Business Park, Ingworth Road, Poole BH12 1JY
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For a confidential discussion, contact
Chris C Fox Consulting Limited
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