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Файл:Strategic analysis and planning. Textbook
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• effective advertising;
• skills in implementing product innovations;
• reliable, professional management;
• efficient production facilities.
Examples of possible weaknesses of an organization:
• lack of a clear strategy;
• outdated production facilities;
• low profitability;
• lack of required skills and professionalism;
• presence of operations management problems;
• lag in R&D;
• too narrow product line;
• unfavorable or insufficiently strong image;
• weak sales channels;
• high unit cost of production compared to competitors.
Examples of features:
• servicing additional consumer groups;
• entering a new market or segment;
• expansion of the product line to meet more customer needs;
• related diversification (concern);
• vertical integration (the company owns the entire chain: suppliers — company —
dealer network);
• falling trade barriers protecting attractive international markets;
• complacency and complacency of competitors;
• increase in market growth rates.
Examples of threats:
• entry of a powerful competitor into the market;
• growth in sales of substitute goods;
• decrease in market growth rates;
• adverse changes in currency exchange rates;
• protectionist measures taken by foreign governments to protect their own
producers;
• economic downturn;
• changes in consumer tastes and preferences;
• unfavorable demographic changes.
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2. At the next stage, opportunities and threats to the organization are ranked by
applying the positioning method, which involves constructing a opportunities matrix
(table 6) and a threats matrix (table 7).
Table 6
Opportunities Matrix
The Impact of Opportunities on the Organization
Strong influence
Moderate
influence
Low impact
High probability
Field HS
Field HM
Field HL
Average probability
Field AS
Field AM
Field AL
Low probability
Field LS
Field LM
Field LL
Table 7
Threats Matrix
Impact of threats on the organization
Destruction
Critical
condition
Severe
condition
Minor bruises
High
probability
Field HD
Field HC
Field HS
Field HM
Average
probability
Field AD
Field AC
Field AS
Field AM
Low
probability
Field LD
Field LC
Field LS
Field LM
Opportunities hitting the margins HS, HM, AS, are of great importance for the
organization, they must be used. Opportunities hitting the margins AL, LM, LL,
practically not worthy of attention. Other threats are taken into account at the discretion
of the organization's management.
Those threats that fall into the fields HD, HC, AD, pose a very great danger to
the organization and require immediate and mandatory elimination; after this, the
threats that entered the fields must be eliminated HS, AC, LD.
3. Then the SWOT matrix is compiled (table 8). When sections intersect, 4 fields
are formed. In each field, the analyst must consider all possible pairwise combinations
and highlight those that should be taken into account when developing the
organization's behavioral strategy.
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Table 8
SWOT Matrix
Possibilities
1.
2.
3.
.
.
.
Threats
1.
2.
3.
.
.
.
Strengths
1.
2.
3.
.
.
.
Field
PO
(power and opportunity)
Field
FT
(forces and threats)
Weaknesses
1.
2.
3.
.
.
.
Field
WO
(weakness and opportunity)
Field
WT
(weakness and threats)
In relation to selected pairs from different fields, the corresponding types of
strategies are developed:
• Field PO — using the organization's strengths to get the most out of existing
opportunities;
• Field FT — due to the emerging opportunities, an attempt to overcome the
organization’s weaknesses;
• Field WO — use of the organization's strength to eliminate threats;
• Field WT — an attempt to simultaneously get rid of the weakness of the
organization and prevent the threat hanging over it.
When developing strategies, you should remember that opportunities and threats
can turn into their opposites. Thus, an unused opportunity can become a threat if a
competitor exploits it. Or, conversely, a successfully prevented threat can create an
additional strength for the organization if competitors have not eliminated this threat.
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4.2. SPACE ANALYSIS METHOD
The basis of the method is the construction of a detailed matrix with four scales for
assessing groups of internal and external factors. Groups of internal factors: factors of
industrial attractivness (IS) and factors of financial strenght (FS). Groups of external factors:
factors of environmental stability (ES) and factors of competitive advantages (CA).
The procedure for constructing a matrix is reduced to the following steps:
1. The characteristics of the given factors are assessed on a scale from 0 to 6.
Moreover, for groups of factors of stability of the situation and competitive advantages:
1 point is the maximum manifestation of the factor, and 6 points is the minimum
manifestation of the factor; for groups of factors of industrial potential and financial
potential: 0 points characterizes the absence of manifestation of the factor, 1 point —
the minimum manifestation of the factor, and 6 points — the maximum manifestation
of the factor (table 9).
Table 9
Factors of the strategic position of the enterprise
Factors
Scale (0–6)
Organization
Factors of environmental stability — ES (total)
Technological changes
1 — few changes,
6 — a lot of changes
Inflation rate
1 — low, 6 — high
Demand variability
1 — small, 6 — significant
Price range of competing products
1 — small,
6 — significant
Barriers to market access
1 — small number,
6 — a lot
Competitive pressure
1 — weak, 6 — strong
Price elasticity
1 — low, 6 — high
Factors of competitive advantage — CA (total)
Market share
1 — large, 6 — small
Product quality
1 — high, 6 — low
Product life cycle
1 — initial, 6 — final
Product replacement cycle
1 — fixed,
6 — replaceable
Customer loyalty
1 — strong, 6 — weak
Capacity utilization by competitors
1 — large, 6 — small
Vertical integration
1 — high, 6 — low
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Factors
Scale (0–6)
Organization
Factors of industrial attractiveness — IS (total)
Growth potential
1 — small, 6 — large
Profit potential
1 — small, 6 — large
Financial stability
1 — low, 6 — high
Technology level
1 — low, 6 — high
Resource utilization rate
1 — ineffective,
6 — effective
Capital intensity
1 — large, 6 — small
Ease of market access
1 — easy, 6 — hard
Capacity performance
1 — low, 6 — high
Financial strenght potential — FS (total)
Profit on investment
1 — low, 6 — high
Financial dependence
1 — high, 6 — low
Liquidity
1 — high, 6 — low
Required / available potential
1 — large, 6 — small
Flow of funds
1 — weak, 6 — strong
Ease of leaving the market
1 — small, 6 — large
Enterprise risk
1 — large, 6 — small
2. Based on the obtained assessments, the arithmetic mean value of the
assessment is derived for each of the four groups of analyzed factors.
3. The average values for each of the four groups of factors are displayed in the
coordinates of the SPACE matrix, connected by lines and forming a quadrilateral with
unequal sides. The side furthest from the center shows the vector of the organization’s
development (see fig. 4).
4. Based on the generated SPACE analysis matrix, the state of the organization
is determined from the possible 4 options (see fig. 5):
• if the side furthest from the coordinate center is FS — IS, then the organization
is in an aggressive strategic state (position);
• if the party is the most distant IS — ES, then the organization is in a competitive
strategic state (position);
• if the side in the quadrant is furthest away CA — FS, then the organization is
in a conservative strategic state (position);
• if the side in the quadrant is furthest away CA — ES, then the organization is
in a defensive strategic state (position).
5. The strategic state (position) of the organization is characterized and a list of
mechanisms for its implementation is formed.
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An aggressive strategic state (position) is a state that is typical in an attractive
industry with little uncertainty in the situation. The organization receives competitive
advantages, which can maintain and increase with the help of financial potential. The
threats are insignificant, so it is necessary to concentrate on ensuring interests. The
mechanisms for implementing this state are aimed at expanding production and sales;
a new price war with competitors; development of new market sectors; brand
promotion.
A competitive strategic state (position) is a state characteristic of an attractive
industry. The organization gains competitive advantages in a relatively unstable
environment. The critical factor is financial potential. Threats must be countered,
associated with loss of funding. Main mechanisms: search for financial resources;
development of sales networks.
Fig. 4. SPACE analysis matrix for competitive
strategic state (regulations) of the organization
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Fig. 5. Graphical representation of various strategic states (positions)
A conservative strategic state (position) is a state usually observed in stable
markets with low growth rates. In this case, efforts are concentrated on financial
stabilization. The most important factor is the competitiveness of the product. Basic
mechanisms: reducing costs while increasing the quality of goods; reduction of
production and entry into more promising markets.
A defensive strategic state (position) is a state that arises in a situation where an
organization operates in an attractive industry, but lacks the competitiveness of its
products and financial resources. Mechanisms of strategy: special attention to
mechanisms for parrying threats; leaving the market.
4.3. METHOD FOR COMPLETING AN ORGANIZATION PROFILE
This method is convenient to use for compiling a profile separately of the
macroenvironment, the immediate environment and the internal environment of the
organization. Individual factors of the external and internal environment are entered
into the environmental profile table (table 10).
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Table 10
Organizational Environment Profile
Environmental factors
Industry
Importance
(points)
Impact
on the organization
(points)
Final score
Macro environment
1. …….
2. …….
…….
Immediate environment
1. …….
2. …….
…….
Internal environment
1. …….
2. …….
…….
Each of the factors is given in an expert manner:
• assessment of importance for the industry on a scale: 3 — strong value, 2 —
moderate value, 1 — weak value;
• assessment of its influence on the organization on a scale: 3 — strong influence,
2 — moderate influence, 1 — weak influence, 0 — no influence.
Next, the importance scores are multiplied by the impact scores, and each factor
receives a final score. In accordance with the final scores, a ranked list of factors
influencing the organization is compiled.
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5. METHODS OF ANALYSIS OF A PORTFOLIO
OF STRATEGIES A DIVERSIFIED ORGANIZATION
5.1. BUSINESS PORTFOLIO OF THE ORGANIZATION
Very rarely does an organization produce one type of product, i.e., is engaged in
one area of business. It usually operates in different areas of business and its production
program includes several types of goods, which may or may not be related to each
other.
The business portfolio (portfolio SBU) of an organization is everything that the
organization produces.
Possible options for the organization to produce various goods:
1. Products related to each other (related diversification; for example, caramel,
chocolates, chocolate bars).
2. Basic and additional products (for example, the main products of the printing
house are books, additional products are products from waste: serpentine for Christmas
trees, paper toys, calendars, etc.).
3. Goods connected by one technological chain (vertical integration; for
example, extracted raw materials — metal — metal products).
4. Products that are absolutely unrelated to each other (unrelated diversification).
5.2. FORMATION OF AN ECONOMIC PORTFOLIO
OF A DIVERSIFIED ORGANIZATION
Diversified organization — an organization that includes a set of strategic
business units (SBU).
The business portfolio of a diversified organization must be balanced, that is, the
correct combination of business areas that need capital to ensure growth must be
ensured with business areas that have some excess capital.
Before choosing the optimal strategy for an organization, it is necessary to
analyze its business portfolio (carry out portfolio analysis).
Portfolio analysis allows you to: determine areas of business in which
investments should be directed; distribute resources among business areas; make
decisions on diversification of production in order to reduce risk and obtaining a
synergy effect.
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5.3. MATRIX METHOD OF PORTFOLIO ANALYSIS
The matrix method of portfolio analysis consists of constructing twodimensional matrices with the help of which strategic business units (business areas,
products) can be compared with each other according to such criteria as sales growth
rates, relative competitive position, life cycle stage, market share, attractiveness of the
industry, etc.
Types of matrix methods of portfolio analysis:
1. BCG (Boston Consulting Group) matrix.
2. General Electric industry attractiveness matrix, or McKinsey matrix.
3. Hofer — Schendel industry life cycle matrix, or Arthur D. Little matrix.
4. “Product / market” matrix by I. Ansoff.
5. Consumer matrix (market map).
Boston Consulting Group Matrix (BCG)
This matrix is depicted in the form of a rectangle located in the coordinate axes.
The OX axis shows the relative market shares of strategic business units (products,
business areas), i.e. the ratio of market shares SBU to market shares of leading industry
organizations (leading competitors); along the OY axis — the growth rate of the market
(industry) in percentage.
SBU are depicted in the form of circles (bubbles), the radius of which is
proportional to the shares of these business areas in the organization’s business
portfolio. Inside the circles, it is possible to identify segments corresponding to the cost
of sales (shaded area) and profit from sales (highlighted area).
The matrix consists of 4 quadrants. The OX axis is divided into 2 zones: the zone
of high relative market share SBU (0.5 < X < 1) and a zone of low relative market share
(0 < X < 0.5). The OY axis is also divided into 2 zones: a zone of high market growth
(10 % < Y < 20 %) and a zone of low market growth (0 % < Y < 10 %).
Business areas that fall into the upper left square are called “problem children,”
those in the lower left are called “dogs,” those in the lower right are “cash cows,” and
those in the upper right are “stars.”
Fig. 6 shows an example of this matrix for a hypothetical portfolio.
The BCG matrix is based on a life cycle model. At each stage of the life cycle,
the cash flows and profit of the enterprise change: negative profit (loss) is replaced by
positive profit, and then by its gradual decrease.
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