strategic frameworks - ready reckoner.pdf
TRANSCRIPT
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Breakthrough Model
The Breakthrough model focuses attention on most substantial opportunities for creating
value for customers and shareholders.
Used for transformational review of basis of competition strategy, products,
marketing/sales
External
Internal
Industry Company
Trends in the
economic
environment in
which the markets
exist
Best practices
across this and
similar industries
Market/product
strategy and basis
for competition
Capabilities of the companys
people, processes,
technology, systems and
structure
1
2
3
4
Market/Product
Repositioning
Industry
Transformation
Enterprise
Alignment
Best Practice
Performance
Approach
When creating a Breakthrough model, the
following criteria should be considered:
Summarize all opportunities to improve
business performance from other analyses
Categorize them into four groups:
Enterprise alignment
Best practice performance
Market/product repositioning
Industry transformation
Determine approximate economic value
of each type of strategy
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5 Forces Analysis
The Five Forces Analysis evaluates the attractiveness of an industry. Relevant for assessing entry into new markets, products, expansion OR for evaluating future
view of portfolio
SUPPLIERS
Bargaining power of suppliers is greater if:
The supply industry is dominated by a
few companies or is more concentrated
than the buying industry
The supply product is differentiated or
there are high switching costs
There are few substitutes
The buying industry is not an important
customer of the supply industry The supply industry poses a credible
threat of forward integration
BUYERS
Bargaining power of customers is greater if:
The customer group is concentrated or
buys in large volume
Products purchased are undifferentiated
Products purchased represent a significant
portion of the customer's cost
Customers earn low profits, creating
incentive to lower purchasing costs
The product purchased is unimportant tothe quality of the customer's product
Switching costs are low
Customer group poses a credible threat of
backward integration
POTENTIAL ENTRANTS
Entry barriers are high if there are:
Economies of scale
Product differentiation
Capital requirements
Limited access to distribution channels
Restrictive government policies Potential retaliatory reaction of incumbents
SUBSTITUTES
Threat of substitutes is high if:
There is an abundance of products or services that serve the
same function The price-performance tradeoff of substitutes is attractive
INDUSTRY COMPETITORS
Rivalry is intense if:
Competitors are numerous or roughly equal in power
or size
Industry growth is slow
There are high fixed costs or the product is perishable
The product lacks differentiation or switching costs Capacity is augmented in large increments
Exit barriers are high
Rivals are diverse in strategies, origins, and
"personalities"
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Example Assess entry of a Financial Services company into Life Insurance
SUPPLIERS
Bargaining power of suppliers is greater if:
The supply industry is dominated by afew companies or is more concentrated
than the buying industry
The supply product is differentiated or
there are high switching costs
There are few substitutes
The buying industry is not an important
customer of the supply industry
The supply industry poses a credible
threat of forward integration
BUYERS
Bargaining power of customers is greater if:
The customer group is concentrated orbuys in large volume
Products purchased are undifferentiated
Products purchased represent a significant
portion of the customer's cost
Customers earn low profits, creating
incentive to lower purchasing costs
The product purchased is unimportant to
the quality of the customer's product
Switching costs are low
Customer group poses a credible threat of
backward integration
POTENTIAL ENTRANTS
Entry barriers are high if there are:
Economies of scale
Product differentiation
Capital requirements
Limited access to distribution channels
Restrictive government policies
Potential retaliatory reaction of incumbents
SUBSTITUTES
Threat of substitutes is high if:
There is an abundance of products or services that serve the
same function
The price-performance tradeoff of substitutes is attractive
INDUSTRY COMPETITORS
Rivalry is intense if:
Competitors are numerous or roughly equal in power
or size
Industry growth is slow
There are high fixed costs or the product is perishable
The product lacks differentiation or switching costs
Capacity is augmented in large increments
Exit barriers are high
Rivals are diverse in strategies, origins, and
"personalities"
POTENTIAL ENTRANTS
High Entry Barriers
Need economies of scale
Little product differentiation
Very High Capital requirements
High cost distribution channels
Buyers
Low bargaining power
Individual buyers
Low annual spend for customers
High switching costs
High impact potential
SubstitutesLow Threat
No alternative to life insurance
Suppliers
Medium bargaining power
Dominated by a few big companies
No product differentiation but High
switching costs
Competitors
Rivalry is intense
Industry dominated by big 6
High fixed costs. Op costs
No product differentiation
Very high exit barriers
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5 Forces
Approach
Five Forces analysis utilizes a four step approach and is applied as a starting point for
understanding a markets attractiveness:
Step 1: Collect data
Step 2: Evaluate strength of key forces, including: Buyers
Suppliers
Substitutes
Competitors
Potential entrants
Step 3: Qualitatively assign a high, medium or low score to each key force
Step 4: Assess the overall effect of the forces on industry attractiveness and strategic
implications
This tool fails in the case of disruptive changes to business models
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Product portfolio BCG growth share
matrix
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Issue Trees/Maps Impact of alternatives
An Issue Tree/Issue Map typically begins with a broad question and defines the sequence ofkey issues (phrased as yes or no choices) that will support a specific answer.
Backed by relevant analysis at key decision points, this is a very strong tool for evaluating
options and presenting choices to management
Will likely movements
in prices and demand
allow Client to achieve
reasonable profitability
if it carries on as
presently?
Is client prepared
to wait for this?
Can client achieve
reasonable
profitability by
better sales andmarketing efforts?
Carry on as
presently
Improve sales andmarketing effective-
ness by selectingtarget segments and
refocusing efforts
Define and implementprofit improvement
programs Define and implement
reinvestment program
Analysis
Analysis
Analysis
Analysis
Analysis
Analysis
Action
Dress up
for sale
Develop
harveststrategy
Yes
No
Is client worth
more to others
than to its
parents?
Yes
No
Would major
investment provide
client with reasonable
profitability?
Yes
No
Can client
achieve
reasonable
profitability by
reducing its
costs?
Go to A
Yes
No
Yes
No
Yes
No
A
2
1
3
4
5
6
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Example
Answers to Each
Find another basis for
competing, i.e., value not
cost
14
The modernized Client
Name
10
Can Client Name
economically develop and
lead the introduction of
this S3 technology
7
Will current state-of-the-art
technology be replaced,
putting Client Name at a
disadvantage with a modern
plant?
6
Will modernization be forced on
Client Name as a ticket to play
the game?
5
Can Client Name
economically
leapfrog competition
in production
technology?
2
Would further
integration
economically develop a
sustainable low-cost
position?
1
Over the next 12-18 months,
can Client economically
become the low-cost
producer through
optimization of the current
plant?
13
Build strength through
capacity
12
Niche/milk
11
Change the game
15
Aggressive leadership in
technology
16
Leadership exploitation
17
Build strength through
integration
18
The excellent
manufacturing company
Find the market segments
that are not cost-sensitive
Modernize all plants as quickly as
possible
Expand capacity to a point that
maximizes profit
Minimize any current
modernization; participate in
S3 development; lead
introduction
Minimize current
modernization; be aware and
flexible to convert when
appropriate
Integrate backward and forward to
an extreme
Make cost management/
productivity a way of life
9
Can Client Name change
the game (i.e., compete
on something other than
cost?)
8
Will capacity expansion be
required to economically
develop the cost leadership
position?
4
Are external factors
likely to foreclose on
this cost position?
3
Is this position
sustainable?Yes
No
NoNo
No
No
No
No
No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
This study was to assist management at a diversified parent co. develop a vision for the future of its heritage business - a paperboard
subsidiary. While returns had been attractive in this subsidiary, management was questioning whether further investment was advisable.
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Strategic alignment -Core Competency
Models Core Competency Analysis provides a practical and systematic process to identify a
companys core competencies and assess key competitive advantages.
Very useful for assessing unique strengths of a company and alignment of key resources
(capital, skills, technology, operations) to support these while seeking partnerships or
outsourcing opportunities for execution of other areas
Marketing
Example: McDonalds
Customer
Refill Support
Sales/
Distribution
Other
Customer Service
Critical Strategic Capabilities (SC) -The capabilities in which a company is aleader. These capabilities are the source of competitive advantage.
Critical Enabling Capabilities (EC) -The capabilities in which a
company is competitively equivalent to other market leaders.
These capabilities are often the source of a barrier to entry.
Strategic/
Financial Planning
Technology
Development
Product
Development
Mfg/Joint
Venture
Core Competence (CC) - A competence which delivers a sustainable competitive
advantage in current markets, provides access to a wide variety of markets, and makes
a significant contribution to the perceived customer benefits of the end product.
Primary Capabilities (PC) - Minimum functional and
technical requirements necessary to participate.
COMPETENCIES MODEL - FRAMEWORK
Fast, affordable,
fun, family diningexperience
Marketing and brand mgmt.
Training
Franchise mgmt.
Product innovation
BigMac recipe
High quality, low price product
sourcing
Efficient operation
Hamburger preparation
Menu selection
Essentiallyabout"catching up"
Givesuniqueadvantage
Hard tocopy
Easy tocopy
"Capabilities"
"CoreCompetencies"
StrategicRequirement
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Extension to Core Competency Model - The specialized enterprise :
Seeks performance excellence in all four types of business components
Support
Component
Strategic
Component
Manage to meet the
needs of strategic
components
Example:Risk Management
Invest and expand to
gain component
advantages
Example:Product Ideation
Use multiple specialists
that have a low cost of
entry and service
Example:
Payroll
Ensure that partners
meet critical business
requirements
Example:
Call Center
External
Specialization
Non-Differentiating Differentiating
Internal
Specialization
Utility
Component
Partner
Component
By choosing to focus and invest in
the truly strategic components,
the specialized enterprise
supports the business by
leveraging industry networks ofbest-in-class specialists
THE STRATGEIC COMPONENT
THAT DRIVES AN ENTERPRISE
ALSO DRIVES ITS DECISIONS ON IT
ENABLERS
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As they mature, firms will internally focus on strategic
components by leveraging more external components
Initial Business Specialized Enterprise
Support Strategic
Utility Partner
Support Strategic
Utility Partner
External
Specialization
Non-Differentiating Differentiating
Internal
Specialization
External
Specialization
Non-Differentiating Differentiating
Internal
Specialization
Firms should evaluate component performance to determine where the greatest value is achieved
The decline in transaction costs increases the number of opportunities for external specialization
Simultaneously, external specialists build scale and further expand their absolute advantage
HLL, DELL Brand
Management &
Distribution
Apple, Cisco Product
Design
Pfizer, 3M Research &
New Product Launch
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Example CC specialist
Product
development
Marketing and
Sales
Underwriting and
Fulfillment
Customer
Servicing
Revenue
Enhancement
Delinquency
Management
Primary Issuing
Functions
Support
Capabilities
Organization structure
Technology Infrastructure
Gap Analysis and
Product design
Business Case
Development
Piloting andRefinement
Target SegmentIdentification
Product Rollout
Campaign
Execution
Segmentation and
Targeting
Sales Planning andForecasting
Communication
Design
Distribution and
Monitoring
Underwriting
Decision
Credit Limit
Assignment
Card Creation andDispatch
InformationVerification
Card Activation
Statement
Generation
Payment
Processing
Query Resolution
TransactionProcessing
Grievance
Redressal
Targeted Loyalty
Programs
Usage/ Revolving
Incentives
Product Cross-sell
Credit Line and
APR Mgmt
Risk Profiling
Proactive Risk
Strategies
RecoveryMechanism
Payment Follow-up
Legal RecoursePotential for Outsourcing
Maintain in-house
Key activities
Compliance
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When and when not to vertically integrate?
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Experience Curve Models
The Experience Curve forecasts future trends in cost/labor and determines the relative cost
position of various competitors. The tool quantifies cost savings, theoretically achieved
through experience gained in conducting a process.
Relevant for traditional/brick and mortar companies to assess near term positioning.
EXPERIENCE CURVE FOR WIDGETS - PROJECTIONS
50
40
30
20
10200 400 600 800 1000 2000 4000
Unit Volume (Thousands)
Unit Cost
($) 1974
1975
1976
19771978
1979 19801981
19821983
1984
Slope 20%
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Generic competitive strategiesSelection matrix
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Generic competitive strategiesWhat will be the impact on the firm?
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Scenario Envisioning
Scenario Envisioning is a powerful approach for companies in industries that are experiencing rapid discontinuous change
where the futurecannot be extrapolated from the past and present. Scenario Envisioning fulfills the key needs for formulating strategy in a rapid discontinuous
change environment.
Approach
Innovative hypothesis about the future, based on extensive expert industry knowledge and research are formulated for study and review. The scenario
team converts these theories of logical futures - ones that diverge from the past and present trends - into a set of distinctly different scenarios.
Develop Future Industry Scenarios
Step 1 Define the broad future industry and market context within which the scenarios will be developed. For example, the
banking industry, the broader context may be financial services or even personal information services.
Step 2 Identify the paramount forces that will shape this industry and market context. For example, what consumer,
regulatory, social, legal and technological changes can or could exert the most powerful influence on your industry?
How do these interact on a global basis? Which of these is the most uncertain?
Step 3 Identify the boundary parameters - the full range of uncertainty - of the paramount forces. For example, if regulation
is one of the paramount forces, could the industry be intensively regulated or completely deregulated?
Step 4 Develop logical but innovative hypotheses that explain how the most powerful and uncertain forces could interact.
For example, will a major segment of the banking industry evolve into an on-line personal with building industry,
fostered by deregulation and increasing consumer technological capability?
Step 5 Create a set of scenarios that show how a few key unpredictable forces with the highest impact could interact.
Using a matrix model, the interaction of two or more unpredictable conditions results in a number of distinct
possibilities. The goal is to cover a comprehensive spectrum of market conditions.
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The 7S Framework Analyzing an organization
Strategy
Critical Success
Factors (CSFs)
Capabilities/Skills
Processes/
Systems
Staff Culture/Style Structure
Key factors needed by the company to
effectively implement the strategy
A coherent statement of actions aimed at gaining
a sustainable advantage over competition
Capabilities possessed by the organization as a whole as
distinct from those of individuals; some companies
perform extraordinary feats with ordinary people
The process and
procedures
through which
things get done
from day-to-day
and the systems
that facilitate
them
The people in the
organization
considered in terms
of corporate
demographics, not
individual
personalities
The way managers
collectively behave
with respect to use
of time, attention
and symbolic actions
The organization
chart and
accompanying
baggage that
show who reports
to whom and how
tasks are divided
up and integrated
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7S
Approach
STEP DATA REQUIRED SOURCE(S)
1. Document
mission/shared vision
2. Document strategy
3. Evaluate key skills andcapabilities
4. Evaluate support levers,
decision
processes/systems, staff,
culture/style and
structure
Mission Statement
Business plans
Annual strategic plans
Organization charts
Training manuals
Position descriptions
Budgeting process documentation
Performance measures
Company documents
Interviews with key
executives and staff
When To Apply
When it is necessary to evaluate the building blocks of an organization that serve to support its mission and allow it to execute its
strategies. Information for this analysis is difficult to obtain in some areas without extensively interviewing company personnel. The model
as a simple description of the status quo; it should move the analysis forward to identify areas in which the organizational building blocks
are not supporting the strategy.