strategic controlling

Day 3 “Strategic controlling” Mag. Philipp Gaggl, BA Vietnam University of Commerce Hanoi, 10.4. – 14.4.2013

www.pwc.at/sustainability

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IV - Tools and instruments for strategic control - external Sector analysis – Porter five forces

The origins of the sector structure analysis are from Michael Porter from the year 1999, where he describes five distinctive forces of a sector which define the attractiveness of this. The strength of these forces defines the profitability. A sector is defined as a group of companies that have similar products or product groups and are replaceable with each other in the customers view (substitution).

The five forces according to Porter are:

• potential and new competitors

• consumers

• substitution products

• suppliers

• existing competitors of the sector

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April 2013 strategic controlling, Philipp Gaggl, Hanoi

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The following graph shows the five forces model:

competitor in the same industry

customers suppliers

new competitors / market entrants

product substitutes

threatening market position

negotiation power

threat through substitution

negotiation power

These forces influence the structure of a sector and have implications on the strategic decision making.

rivalry among competitors

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Potential new competitors or market entrants face the challenge of market entry barriers. Thus these need to be analyzed to understand the threat of new competitors.


Scale effects: Large companies often have cost advantages (learning curve principle). Often established companies in a market are able to benefit from economies of scale whereas new market entrants often start small.

Product differentiation: A high product differentiation means a high awareness of the product or service brand in the market and a high customer loyalty. Often market entrants need to build this trust in their products with huge investments.

Capital demand: The more capital intensive an industry sector is the more difficult it is for new entrants to cope with the high investments needed. This is often the case for marketing or research and development.

Switching costs: These are the costs which are realized when switching the supplier. Such as training costs for new machines or additional equipment needed. If switching costs are high the new competitor needs to be convincing the customer through better prices and value.

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Potential new competitors or market entrants face the challenge of market entry barriers. Thus these need to be analyzed to understand the threat of new competitors.


Access to sales channels: A new entrant needs to make sure its product can be distributed accordingly in the market. Often existing distribution channels are used by the present players in the market and new ways of distribution need to be found.

Cost advantages: Often established players have various cost advantages versus new competitors. Some examples are: licenses on product technologies, access to raw materials, optimized positioning of production and distribution, government subsidies, effects of the learning curve model or policy advantages.

Government regulation: Sometimes governments regulate how many players can be active in a s certain sector. Thus presenting a substantial market entry barrier.

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The dimensions of competition within the industry sector are in center of the five forces model.

Amount of competitors: The more companies are active in an industry the less attractive its gets for the single company due to the high competitive pressure.

Sector growth: The slower the overall growth of the sector, the more the single company needs to ensure its own growth potential. This is mostly done through expanding the market share which hurts the competitor.

Fixed costs or storage costs: The higher the fixed costs the more pressure is put on the capacity efficiency of the production. The amount of fixed costs versus the value generation is thus a key criteria of profitability. This also applies to costs for storage.

Product differentiation: The lower the product differentiation from competitive products, the more likely the customer decision is based on the price and service. A low product differentiation in a sector is decreasing the sector attractiveness.


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The dimensions of competition within the industry sector are in center of the five forces model.

Capacity improvement: The better the company is able to increase its capacities, the more the supply-demand equation in a sector is influenced.

Heterogeneity of competitions: The more heterogenic (=different) the competitors in a sector are, the higher is the chance of conflict due to lack of sector overarching agreements or rules of play. An example of a homogenous sector would be the oil sector with its oil cartel, where the rules of play are agreed upon in the whole sector.

Strategic investments: The more a company invests strategically it means it is also willing to accept losses. This can destroy existing market prices and threaten a whole sector.

Exit barriers: Often market exit barriers are forcing companies to stay within a sector. The higher the market exit barriers the more unattractive the sector becomes. Examples are the high investments taken in the existing sector, which hold back from moving to another one, or the lack of finances to enter a new market and be innovative. The steel industry or coal industry in Germany are examples.


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These are products of competitors that can substitute the own products and services on the market. The same services and functionality is offered.

The more attractive the price-value equation of the product substitute, the more the earnings potential in the sector is limited.

Substitution threat increases by:

• increased attractiveness of existing product substitutes

• offensive marketing for substitutes

• low or no ability to defend against product substitution (e.g. patenting technology)

• new technological developments of the competitor that improve the value of the product

product substitutes

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The negotiating power of customers can lead to lower prices, high quality demanded or improved services expected.

A customer group has strong negotiation power if it fulfills following conditions:

Concentration of the customer group: The customer group is highly concentrated and has a substantial market power. Example is a buying association, where competing customers, negotiate for the same buying conditions versus their suppliers to reduce costs. Often a high dependency on a certain customer group also leads to strong negotiating power for this.

Relevance of the customer group: If the products bought by a specific group mark a substantial cost factor for their calculation, they are likely to enter fierce price negotiations.

Product standardization: If products are highly standardized it is likely that the purchasers tries to play the suppliers off against each other, as they all can deliver the same products.

Switching costs: If the switching costs for the customer are low, or the supply costs for switching the supply are high, then the customer loyalty is low and the dependency of the supplier on its customers is high.

customers

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The negotiating power of customers can lead to lower prices, high quality demanded or improved services expected.

Earnings for each customer group: If the earning margins are low for a specific customer group its means tat the customer effectively negotiates the prices to a low level with the supplier.

Integration of the customer group: If the customer group is a substantial part of the companies production process (e.g. outsourced packaging), the negotiation power is high, as the company depends highly on the customer.

Relevance of the product for the customer: If the relevance of the product is low for the customer, than there is little incentive in paying large prices for it. It is easy for the customer to switch to a new product or even abandon its entirely. (e.g. food supplier for a furniture resellers restaurant)

Information available to the customer: If the customer has substantial information e.g. on the demand, market prices or costs of production, the stronger becomes its negotiating power.

.

customers

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A strong negotiation power of suppliers reduces the sector attractiveness. The negotiating power depends on following factors:

Supplier concentration: Concentration of the supplier group is higher than the one of the client.

Competitive advantage: If the supplier has a high competitive advantage versus other suppliers, the negotiating power is high.

Dependency on the supplied products: If the customer depends strongly on the products supplied it is hard to switch and also to negotiate prices, if this fact is known to the supplier.

Switching costs: If costs of switching to another supplier and its products are high, then it is harder to negotiate due to the high dependency and the costs involved when switching.

suppliers

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Structure and functionality: A sector structure analysis aims at identifying the specific market forces and their strengths.

The following process is undertaken when doing so:

1. Analysis of market entry barriers: It is key to identify and analyze all market entry barriers in the sector. The higher the barriers the more attractive it becomes.

Example of assessing market entry barriers from the perspective of an established player:

Entry barriers low low-medium medium medium high high

product differentiation X

switching costs X

access to sales channels X

access to raw material X

relevance of learning curve effect

X

This market has a medium to high attractiveness.

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2. Rivalry between competitors: As well as entry as exit barriers increase the competitive rivalry between companies in a sector. This is due to the fact that the profitability is influenced by the strength of the entry and exit barriers. Following graphs highlights this relation and the evaluation:

Entry barriers

Exit barriers

low high

low low, stable revenues low, unstable revenues

high high, stable revenues high, unstable revenues

Exit barriers high high-medium medium low medium low

fix costs of exit

legal restrictions X

Competitive rivalry X

number of similar competitors

X

capacity improvement X

The lower the exit barriers and rivalry the more attractive the market becomes.

This market has a medium attractiveness.

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3. Analysis of threat through substitution: Products in the market which are able to substitute ones own products are analyzed.

As before the criteria of substitution are defined and analyzed. Following graph highlights this:

market attractiveness

substitute products

low attractiveness

low-medium attractiveness

medium medium high

high

availability of similar products

high X low

switching costs for customers

low X high

aggressiveness of competitors marketing

offensive X defensive

price-value relationship

high X low

new technological developments

strong X weak

This market has an overall low attractiveness.

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4. Analysis of the customers negotiating power: As in the analysis before certain criteria to measure the negotiating power of customers are used to analyze this. The level of the indicator is then lined to the sector attractiveness.


customer negotiating power

low attractiveness


medium medium high

high

concentration of customers

high X low

availability of substitutes

high X low

switching costs for the customer

low X high

relevance of the product for the customer

low X high

information available high X low

This market has a medium to medium-high attractiveness.

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5. Analysis of the supplier negotiating power: A general rule sows that the high the supply volume and dependency of the customer, the stronger the negotiating power. This is especially true for strategic products which are key to the production process.

Following graph highlight this:


supplier negotiating power

low attractiveness


medium medium high

high

number of key suppliers

few X many

availability of substitutes

low X high

switching costs for supplier

low X high

relevance of the customer for the supplier

low X high

This market has a low-medium attractiveness.

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Summarizing the market attractiveness of all five forces for our example, e get following picture:


customers suppliers


product substitutes

medium-high

medium

low

low-medium

The overall market attractiveness regarding all five forces is low to medium.

medium

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Practical implementation:

The main goal of the five forces analysis is to determine the competitive positioning of the own company in an industry sector. Specific competitive strategies an be derived from this position:

• Overall cost leadership

• High differentiation

• Concentration on product advantages

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IV - Tools and instruments for strategic control - external Sector analysis – Porter five forces – IT industry

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IV - Tools and instruments for strategic control - external Sector analysis – Porter five forces – airline industry

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IV - Tools and instruments for strategic control - external Sector analysis – Porter five forces – hotel industry

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IV - Tools and instruments for strategic control - external

Group work:

• Select a company of your choice (e.g your own)

• Describe all 5 market forces in bullet points

• Assess roughly the market attractiveness for each force and the market in general

Time: 15 min

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IV - Tools and instruments for strategic control - external Client satisfaction analysis – Kano model

The client satisfaction analysis highlights to what extend the customer sees its expectations fulfilled by the offered products or services. The customer thus applies quantitative factors such as price of the product and qualitative factors such as value seen in the product.

Several influence factors determine the expectation of the customer:

• personal demand

• extend of experience with the product so far

• direct information e.g. through marketing or personal sales conversation on the offered product value

• indirect information of the product e.g. through discussions with friends and other peers

The value of satisfied customers:

The key goal of a company is to sell its products and services to customers. If customers are satisfied with a product their brand loyalty likely increases and they are recommending it to others. At the same time price increases or cross-selling approaches are likely seen less critical.

Studies show that satisfied customers communicate their satisfaction to three other peers over time. Unsatisfied customers however communicate their dissatisfaction to ten or more peers.

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These positive or negative customer experiences thus have consequences for a companies market positioning. Often companies offer complaint services, after sales services or free return policies to ensure negative customer satisfaction is not spreading.

The goals of a client satisfaction analysis:

• highlight areas for improvement for a customer focused company strategy

• assess the satisfaction of ones own customers versus the ones of the competition

• understand the evolution of the customer satisfaction over time

• identify specific criteria and indicators for customer satisfaction

Conducting a customer satisfaction analysis:

It is crucial to measure the client satisfaction in regular time frames, as only then it is possible to understand the general trend and if activities taken have an impact.

There are five basic steps of a client satisfaction analysis as shown in the graph:

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defining the target group

develop understanding for

client problems

develop measurement tools

conduct client satisfaction

analysis

analysis, interpretation and

development of activities

• current customers

• inactive customers

• lost customers

• complaint analysis

• focus group interviews

• problem analysis

• customers of competition

• sales points to customer

• critical incident technique

• client process analysis

• leas-user analysis

• product level

• service level

• relationship level

• personal interviews

• telephone interviews

• written questionnaires

• online assessment

• satisfaction index

• competitive comparison

• satisfaction portfolio

• activities planning

1

2

3

4

5

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defining the target group

1 Not only own customers but also those of the competitor can be in focus of the target grouping. A target group is defining a group of customers with similar demands.

When developing an understanding for customer problems usually three groups can be seen:

Basic expectations towards the product: these are minimal functionalities or value of a product which does not increase the customer satisfaction if offered by strongly decrease it if not available.

Performance of a product: this is the relative performance of ones product versus the ones of the competitor. If a competitive product has a better performance customers switch.

Excitement effect of a product: if a product is able to excite and cause emotional positive reactions while in use this is not necessarily expected and thus increases customer satisfaction.


client problems

2

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The following graph is often used to show the interplay of these three aspects and the levels of customer satisfaction.

The Kano-model:


client problems

2

time

over fulfilled expectations

under fulfilled expectations

satisfied customer

dissatisfied customer

basic needs (expected, if not offered negative effect)

performance needs

delightment (if not offered no negative consequence)

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Over time delightful satisfaction becomes another basic need: develop understanding for

client problems

2

time

over fulfilled expectations

under fulfilled expectations

satisfied customer

dissatisfied customer

basic needs

performance needs

delighters

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Following questions could be in focus of a client problem:

• What is the customer associating when using a product?

• Which experience, positive and negative , does the customer have using the product?

• Which aspects are in focus of the buying decision of the customer?

• What would the customer improve at the product?


client problems

2

develop measurement tools

3 To develop a measurement instrument the most common technique is the one of the critical incident technique. It is a qualitative tool to assess lasting customer impressions of a product or service. Extreme experiences, positive and negative, with the product are collected and analyzed. The weighting of key performance indicators plays a crucial role in measuring the customer satisfaction.

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To conduct the customer satisfaction, data is derived through the following tools: interviews, questionnaires, observation, direct customer feedback etc.

The analysis needs to be done in regular intervals to see the development over time.

At the last phase of analyzing and interpreting the data, the importance of the key indicators used to assess the satisfaction is analyzed. This leads to a picture highlighting the strengths and weaknesses of the own customer satisfaction. If the satisfaction with the competitors products is analyzed too a gap analysis towards the competition is also provided.

This leads to enough information for strategic activities and decisions.

conduct client satisfaction

analysis

4

analysis, interpretation and


5

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Example of a competitor client satisfaction analysis: analysis, interpretation and


5

weighting factor

worse than competitor

better than competitor

-2 -1 0 1 2 total value

cr

ite

ria

relevant

guarantee 10 X -20

personal service

8 X -8

customer service

6 X -6

less relevant

quality 4 X 0

durability 2 X 4

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IV - Tools and instruments for strategic control - external Kano model – example food sector

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IV - Tools and instruments for strategic control - external Kano model – example restaurant

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These customer satisfaction analysis are used to develop customer value strategies. Also information is provided on

• potential for cost reduction in the customer complaint service

• improvement of recommendation management

• highlighting cross-selling potential

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IV - Tools and instruments for strategic control - external

Group work:

• Form 2 teams in each group – one represents the seller one the customer

• Agree on one existing product or service (e.g. mobile phone, tourism trip etc.)

• The sales group describes the basic functionalities, performance aspects and possible excitement factors of the product

• Then the customer group discusses with the seller group when they are dissatisfied / satisfied and expectations are fulfilled or under fulfilled

• Which real life examples do you know and how do they perform

Time: 15 min

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IV - Tools and instruments for strategic control - internal

Internal:

value chain, life cycle, learning curve, company culture

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IV - Tools and instruments for strategic control – internal Value chain analysis – Michael Porter

Steps of the value chain analysis are:

1. Map out all relevant and stable/regular processes in the organization that create client value (interviews and analysis of processes support this, core processes in focus)

2. Understand the client value generated at each element of value generation

(value is generated for the client in each step, identification of clients for each step)

3. Understand the relevant costs at each element of value generation (cost drivers for each process step, total costs for each process step, comparison to competitor costs)

4. Understand the technological level of each value generating activity (technologies that can lower costs or improve efficiency)

5. Highlight activities critical for success and areas of differentiation potential from the competition (value generated per activity versus relative competitive position per activity)

6. Develop specific recommendations for action (horizontal or vertical integration, outsourcing)

Key value: Identify key aspects in the steps of the value chain to improve the company´s competitive position

“If the customer does not realize or reward change, it is useless for our competitive positioning.”

Kerth/Pütmann 2005

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Assumption is that all value generating activities can be segmented in primary and subsequent secondary processes and activities.

Approach is that the value generation for the client

source produce

inbound logistics (e.g inventory)

operations (e.g. production, packaging)

outbound logistics (e.g. inventory management, delivery)

marketing & sales (e.g. pricing, sales channel, advertisement)

sell

Infrastructure (e.g. leaderhsip, finance management)

Human resource management (e.g. HR planning, development)

Technology (e.g. R&D, IT systems)

Procurement (e.g. raw materials, energy, assets)

service (e.g. installation, maintenance, after sales)

primary activities

supporting activities

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Exemplary cost-analysis for each value process:

operations outbound logistics marketing & sales service

raw material

production set up transport show room time delivery

Furniture company

X

IKEA

• High costs

• Low costs

• Low volume

• High costs

• Intensive • High

costs

• By air • High

costs

• City center

• High rent

• Small inventory

• Long

• Air / truck

• High costs

• High volume

• Low costs

• Self by client

• No costs

• Self by client

• No or low costs

• Outskirts • Low rent

• Large inventory

• Short

• By client • No costs

inbound logistics

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Horizontal versus vertical integration

operations outbound logistics marketing & sales

raw material

production assembly shipping retail

car company

inbound logistics

horizontal = full value chain

vertical = one aspect

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IV - Tools and instruments for strategic control – internal Michael Porter – example healthcare

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IV - Tools and instruments for strategic control – internal Michael Porter – example justice department

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IV - Tools and instruments for strategic control – internal

Team work:

• Analyze your own or another company through the Porter matrix

• What are the respective primary and supportive processes?

• What are examples for a horizontal and vertical value chain?

Time: 15 min

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IV - Tools and instruments for strategic control – internal Experience curve

Developed at the end of 60s by the Boston Consulting Group, the experience curve model shall support the decision making on long term cost development. Key insight is that there is a relation between the products unit costs and the cumulated production volume. The product costs per product unit will decrease with a constant quota of 20 – 30 % once there is enough experience producing the product. There seems to be a learning effect in production which lowers the product costs.

Key reasons for decreasing unit costs:

1. Statistical effects of scale Such as fix costs reduction, economies of scale (larger production plants)

2. Dynamic scale effects Such as learning curve effects, technological improvements, economization measures

Key insights / value:

• The relative cost position of a company depends on the cumulated output quantity in relation to the competition

• producers of high cumulated output quantities are in competitive advantage to low output competitors

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Key insights / value:

Relative cost position:

• The relative cost position of a company depends on the cumulated output quantity in relation to the competition

• producers of high cumulated output quantities are in competitive advantage to low output competitors

Strategic cost advantage:

• If a company is able to increase the output quantity faster than the competition, a cost advantage is the result

• It is in discussion if this leads to a market leadership strategy (most market share as highest output quantity is relevant)

Key goals:

• To define the cost decreasing factor (% of cost digression) after doubling the output quantity

• Inform about future expected cost digression

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unit costs

production volume

US$ 13

US$ 19

US$ 30

10.000 20.000 40.000

low volume = high costs

double volume = reduced costs

quatruple volume = low costs

-30 %

-30 %

+ 100% + 100%

60.000

US$ ?

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Process of developing an experience curve:

1. Rate of doubling: Evaluation of the product output over time and assessment of the output doubling cycles (how often can the product output be doubled = value n) e.g. the product output can start in year 2013 with 10.000 pieces (value X 0) and reach in year 2014 40.000 pieces (value X n) Following formula applies:

This means that there are exactly two doubling cycles of the production in the regarded time period.

2. Learning rate: After the given time period it is possible to calculate the learning rate with the information on how strong unit costs reduced. If we know that our starting costs have been US$ 30 at a production of 10.000 pieces and US$ 13 at a production of 40.000 pieces we calculate the learning rate as following:

This translates into a learning factor of 66% per doubling of the production volume.

269,0

38,1

)2ln(

)000.10

000.40ln(

)2ln(

)0

ln(

X

Xn

n

66,0433,030

1322 n

Co

CnL

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3. Digression factor: With the cost digression factor it is possible to highlight the cost digression over the watched time frame per product unit. It is necessary to know the learning rate (L) to calculate the digression factor (d). The lower ln function value 2 is not the rate of doubling cycles but means that doubling of the production is factored in Following formula applies:

This means a digression rate of 0,6. This factor is used to calculate future costs per produced unit.

4. The cost function: This function calculates the expected costs at a given level of product output. Thus from the learning rate and using the digression factor the further reduction in product costs can be assessed. Following formula applies:

6,069,0

42,0

)2ln(

)66,0ln(

)2ln(

)ln(

Ld

1344,0*30000.10

000.40*30*

6,0

d

Xo

XnCoCn

1034,0*30000.10

000.60*30*

6,0

d

Xo

XnCoCn

This translates into a cost of US$13 for 40.000 pieces of output and US$10 for 60.000.

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unit costs

production volume

US$ 13

US$ 19

10.000 20.000 40.000 60.000

The following graph shows the actual costs and the calculated cost potential:

actual unit costs

unit cost potential

unused potential

used potential

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5. Percentage value of costs per product unit: The rate of reduction in the product price in % is calculated by the a value. Following formula applies:

This translates into a reduction of unit costs of 34% when doubling the production volume.

Each product type and business unit can have a different rate of cost reduction.

Once the cost curve is known often the logarithmic function is used to highlight better the cost digression. The curve becomes a tangent. The steeper the curve the more cost effects. Examples are:

34,066,011 La

1

0,1

100 1.000 10.000 units

price industrial plastics - UK

75 % digression

40

10

0,2 1 3 bill. units

log function bottle caps - Germany

82 % digression

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IV - Tools and instruments for strategic control – internal Experience curve – example PV sector

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IV - Tools and instruments for strategic control – internal Experience curve – example Japan vs US

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Team work:

• Think of examples where experience in a sector leads to reduced costs

• In which products/services do you recognize in your organization this effect?

Time: 10 min

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Practical use and relevance:

It has to be noted that the calculated cost digression does not guarantee for this to happen, it simply shows the digression potential.

It is also possible to highlight areas of competitive advantage, which needs to be recognized by strategic controlling and realized through operational activities.

The concept does not only apply to industrial production but also to other areas of products such as life-insurances.

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IV - Tools and instruments for strategic control – internal Product life cycle

Each product and service delivered by a company is following a life cycle evolution.

In specific aspects as product related sales, earnings, turnover etc. change over time.

The life cycle analysis as a dynamic tool highlights the phases of the development of a product life over time.

Key value:

• Visualization of the product success over time

• Understand in which phase of its life cycle the product is

• Understand the composition regarding the life cycle phases of a whole product portfolio

• Understand which activities need to be taken to increase avoid the decline of a product life cycle

• Early warnings on strategic product gaps

• Strategic decisions are taken on basis of the life cycle status of products

Looking at portfolios of products the life cycle status is correlated with the competitive positioning and attractiveness of a product on the market.

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introduction growth maturity decline

revenue

earnings

Low quantities

High marketing

costs

Low market

profile

Starting losses

Growing market

recognition

Entrant of

competitors

Growing earnings

Fight for market

share

Slowing growth

Sinking prices

Sinking earnings Declining

earnings and

sales

Phase out of

the product

sales /

earnings

time

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Steps of a product life cycle:

• Introduction phase: Products are new to the market and mainly unknown. The revenues and turnover is low, but costs for product development, marketing, distribution etc. are high. Key goal in this phase is to increase the profile of a product in the market and create a unique market positioning.

• Growth phase: In this phase the product (or brand) is more and more known in the market by the customers, sales increase subsequently and the revenues and earnings grow. Competition starts to increase (e.g. by copying the product, positioning its own products etc.), and increases pressure on the pricing of the product. Key goal in this phase is to increase the value and diversification of the product.

• Maturity phase: This is the phase where the sales reach its height. The earnings however start to decrease due to the beginning saturation of the market with the product and the competitive pressure. Key goal in this phase to keep profitability of the product and the market share up.

• Decline (degeneration) phase: The end of the product life cycle is signaled through declining sales, due to changed customer demand, high price pressure and low margins. The end of this phase is the elimination of the product or re-innovation to prolonged the last phase of the life cycle or start a new one (e.g. new follow up product). Such a product is called a “reborn cash cow”.

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There are three steps to develop a product life cycle:

1. Data collection:

- Define the aggregation level of the product life cycle analysis and respective information and data needed to assess the phase positioning

- Measurement and collection of respective data e.g. sales, turnover, costs, prices, cash flow, contribution margin, earnings per product type

- Correction of data of external effects e.g. seasonal influences on product sales, currency conversion changes, inflation etc.

2. Defining phase boundaries in the life cycle:

- Indicators signaling the start and end of a phase

- S-shape and size of the product life cycle

- Specific key milestones that indicate the change to the next phase

- Mathematical method to define the change of phases (e.g. change in growth rate)

- Graphic method to define the change of phases (e.g. growth phase ends when earnings decline)

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3. Development of activities: Once all products in scope are introduced to the life cycle concept and it is clear in which life cycle phase the products are, specific activities to improve the products can be derived

Phase/aspect introduction growth maturity Decline

Sales low strong growth slow growth declining

Earnings low maximum declining low or none

Cash-flow negative low high low

Clients innovative mass market mass market follower

Competition few more many few

Phase/activities

Main strategy expand market increase market penetration

defend market position

secure productivity

Marketing high high declining low

Focus on being recognized establishing brand brand loyalty efficiency

Distribution selective intensive intensive selective

Pricing high low very low increasing

Product basic model improved model differentiated efficient

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revenue

earnings

sales /

earnings

time

life cycle product A life cycle product B

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IV - Tools and instruments for strategic control - external Portfolio analysis / BCG matrix

The relation between the BCG matrix and the product life cycle:


revenue

earnings

time

sales /

earnings

Portfolio type

Product strategy

Investment strategy

question mark star cash cow dog

support or exit

hold and build skim exit

new investment or de-invest

growth investment

replacement or economization

de-investment

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Team work:

• Choose a company

• Select one product category

• Analyze the product life cycle of it

• Develop strategic recommendations for the product

Time: 15 min

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IV - Tools and instruments for strategic control – internal Company culture analysis

The company culture is the sum of all values, norms and positions in a company, which influence decision making and actions. It is regarded as the DNA of a company, which is core to all employees and the management and acts as a guiding principle and instills identity. There are many typologies of company cultures. Some are represented in the following:

Ansoff typology:

Ansoff sees only one indicator for the company culture which I the time perspective. Which then has five types of cultures.

„leave all like it is“

dislike of risks status oriented

introvert

„go with the flow“

risk minimizing

reactive

„plan ahead“

operational risks

anticipating

„be where it happens“

risk- and

opportunity aware

exploring

„invest in the future“

strategic risks

creative extrovert

past present near future known future unknown future

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Deal and Kennedy model:

Deal and Kennedy show two indicators to evaluate the culture typology:

• the risk dimension of the business

• the feedback speed about the success of the selected company strategy

Following matrix shows this relation:

risk profile

low high

feedback speed

fast confirming culture

work-hard play hard values: turnover and safety

speculative culture

tough-guy culture values: risk and reward

slow process culture

processes in focus values: continuity and avoiding mistakes

investment and risk culture

bet-your-company culture values: experience and activity

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Schein culture levels:

1995 Schein developed the theory of several levels of visible and invisible cultural signs of a company.

There are following three levels:

Artifacts: These signs are seen in marketing, communication, sales negotiations, also specific decisions and activities taken, or physical aspects such as architecture of offices, dress codes, car policy.

Values and norms: Conscious and unconscious aspects of a company culture such as behavior guidelines, company principles, ethical standards etc.

Basic assumptions and premises: These are shared thought and behavioral patterns of employees. The are not consciously realized.

artifacts symbols

visible behavior

values and norms preferences

behavior guideline

basic assumptions convictions

attitudes

visible

in-visible

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Denison and Mishra typologies:

1995 Denison and Mishra analyzed many case studies of company cultures and see two indicators which differentiate a company culture

• readiness to change

• visible company orientation

Again this can be highlighted in a matrix format:

readiness to change

low high

company orientation

external mission

strategic focus on goals and vision

adaptability

readiness to change, focus on clients, learning organization

internal consistency

core values in focus, alignment of coordination and integration

involvement

participation, team orientation, development of skills

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Conducting a company culture analysis:

Although there are many ways in interpreting and representing a company culture analysis as the different models show, there in most cases following process followed.

1. Data assessment of the company culture: The start of each culture analysis is to get data and information about the company culture. Tools to do so are: interviews with employees, questionnaires, observation, workshops, project groups on culture etc.

With these data sets the criteria for the company culture assessment are defined and values provided.

The tool of a cultural radar has proven useful highlighting the assessment results.

cultural quadrant e.g. mission

consistency involvement

adaptability

Cultural radar based on Denison, Mishra - simplified low high

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2. Data analysis:

On basis of the assessed data each indicator for each cultural segment is given a value in the culture radar. e.g high characteristic of an indicator means a level more to the outside of the radar. A low characteristic is shown by a level close to the center of the radar.

An example is:

mission

consistency involvement

adaptability

low high

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IV - Tools and instruments for strategic control – internal Company culture analysis A more simplified version of the company culture assessment is the pi-polar evaluation.

For all culture relevant indicators one low and one high characteristic is defined e.g. team oriented vs. lone wolf. On a list with the most relevant and indicative indicators the employees and the management can assess their own cultural behavior or the culture of the whole company.

An example is:

characteristic level A -2 -1 0 1 2 characteristic level B

team oriented X lone wolf

participation focused X autocratic

flat hierarchy X hierarchy pyramid

clear company values X unclear values

innovative X past oriented

today desired

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3. Derive activities and decisions:

Once the overall culture is assessed and the levels of each indicator are highlighted, an ideal company culture as a goal for further development is defined. Once this ideal target state is defined, it becomes clear in which aspects of the company culture decisions and activities need to be made. It is thus important to allocate specific target values for each indicator which need to be tracked through regular cultural analysis over time.


The company culture analysis defines the strengths and improvement areas of a company culture and also lets the employees participate in the development of the desired target state.

It also is a tool to assess if the cultural element are there for a new strategic orientation e.g. ability to change, team work, changing to flat hierarchies etc.

It also highlights what aspects of culture development went wrong in the past and can be worked on.

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Team work:

• Choose your own organization

• Conduct a short culture analysis on the characteristics according to the pi-polar methodology

• Select characteristics (pole extremes), the desired state, and today's state

• Highlight the areas where action is needed

Time: 15 min

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strategic controlling

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