DIAGNOSIS
Purpose of Diagnosis
To develop understanding plus a set of
critical issues
– Usually problems or threats, sometimes
opportunities
– Small number - to provide focus
– Issues that should be central and vital to top
management
– Both short- and long-range considerations
– Framed as issues, rather than solutions
Diagnosis Overview
Current mission, strategic objectives, &
strategies
Performance
Scan & analyze external environment
– Task (Competitive) environment
– Societal (General) environment
Scan & analyze internal environment
– Need to break up into manageable pieces
– Two main ways:
Value chain analysis
Functional area analysis
Critical success factors
S.W.O.T. table
Set of “Critical Issues”
Scan & Analyze
External Environment
Have to be selective and smart in
scanning
Competitive Environment
– Porter’s 5-force model of the industry
competitive environment
General Environment
– Technological
– Political-legal
– Economic
– Social-cultural
Stakeholders (within above and others)
"Awareness of the environment is not a
special project to be undertaken only
when warning of change becomes
deafening.“
(Kenneth R. Andrews)
"It is not the strongest of the species
that survive, nor the most intelligent,
but the ones most responsive to
change.“
(Charles Darwin)
The key point is that an organization needs to be in tune
with its often turbulent external environment
Since there is so much happening in the external
universe, we have to be selective and smart in scanning:
• "Things are always different -- the art is figuring out
which differences matter." (Laszlo Birinyi)
• For a given industry (sometimes is country, industry,
company-specific), certain aspects of the external
environment tend to be more important and should
receive primary attention
• It helps to scan initially fairly quickly, then zoom in on
areas where something of importance seems to be
happening
Key Strategic Questions
What are the industry's dominant features, especially
economic ones?
What is competition like and how strong are each of the
competitive forces?
What is causing the industry's competitive structure and
business environment to change?
Who are the major competitors and what are their
relative competitive strengths?
What strategic moves are rivals likely to make next?
What are the key factors for competitive success?
Is the industry attractive and what are the prospects for
above-average profitability?
Porter’s 5-Force Model
Rivalry Among Existing Firms
Potential New Entrants
Substitute Products or Services
Bargaining Power of Suppliers
Bargaining Power of Buyers
General Environment
Although usually only a few factors and
trends are important, it is important to
identify them
Is useful to think of four main aspects of
the general environment
– Technological
– Political-Legal
– Economic
– Social-Cultural
Stakeholder Analysis
What is a stakeholder?
We need to be selective, consider MAJOR
stakeholders:
– Power
– Interest
Identify topic (usually a change) for analysis
Identify major stakeholders
Determine their degree of support or opposition
to the action or change
Assess the balance of support
If not sufficient, work on changing
– Decrease larger opposing forces
– Increase supporting forces
Ideas re how to do this?
Where We Are
Diagnosis overview
Scan & analyze external environment
Scan & analyze internal ◄
– Mission, objectives, strategies, performance
– Functional areas:
Financial
Marketing
Production/operations
Technology
Organizational
Mission, Objectives, Strategies
Identify and evaluate
– Consistent
– Current
– Appropriate
– Implemented well
– Effective (performance vs. objectives)
Internal Diagnosis
In either value chain or functional area analysis:
– Subdivide organization into several segments
– For each, identify what is being done, how
well it is being done, strengths and
weaknesses
– Examine linkages and potential synergies
among various value chains & their segments,
and/or among functional areas
– Look for opportunities to improve and create
sustainable competitive advantages
Value chain and functional area analysis
differ primarily in the way of subdividing
the organization (to aid analysis)
Value Chain
Functional Areas
Inbound logistics
Operations
Outbound logistics
Production/operations
Marketing & sales
Service
Marketing
Human resource mgt.
Infrastructure
Procurement
Organizational
Financial
Technology
Technology
Financial
Financial Diagnosis
Do not need exotic skills for our purposes
Do need to do more than generate
numbers and comment on trends
...need to
EVALUATE & DRAW CONCLUSIONS
Analyze Historical
Have initial data (balance sheets & income
statements for several years)
Need to develop conclusions about
financial health of organization
– Are there significant strengths or
weaknesses?
– Implications for strategy formulation &
implementation?
How can we get from data to conclusions?
Calculate some financial ratios
Analyze trends
Compare with other companies or industry
Develop and state conclusions
– Overall financial condition
– Specifics, especially problems
Also Look at Future
Primarily to estimate needs and potential
sources of strategic funds
Can get perspective even from a simple
forecast model
Could use Index of Sustainable Growth
What are major sources of additional
financing?
Marketing Functional Area
Marketing Diagnosis
Four P’s:
– Product
– Price
– Place
– Promotion
Product portfolio analysis
Marketing Growth Options
Existing
Product Expanded
New
Existing
Market
Expanded New
Positioning & Competitive Strategy
Competitive Advantage
Lower cost Differentiation
Competitive Broad
Scope
Narrow
Price
leadership
Differentiation
Price focus Differentiation
Focus
Learning About a Model
A model is a tool, something to help you do
some aspect of strategic management
WHAT does the model help you do?
What FACTORS or variables does it consider?
HOW do you use the model?
Limitations, etc.
 Note that a picture of the model is less important
Product Life Cycle
Production/Operations
Production/Operations
Often neglected
Much of COGS here
Also large effects on competitive
position
Key Strategic Decision Variables
Locations & capacities of facilities
Planning of output (what, where, when,
cycles, continuous/intermittent...?)
Flexibility (economies of scope)
Efficiency
Labor/capital intensity (operating leverage)
Inventory levels (raw, WIP, finished goods)
Quality
Experience Curve
Typical Price/Cost Pattern
Technology
Technology (R&D)
Tie to technology developments in external
scan
Note successive S-curves (product
performance vs. R&D expenditures)
Key to competitiveness is when to shift
resources to different technology
Major Strategic Variables
Technology strategy
– Technology position
– How we obtained & maintain position
Buy or build
Funding levels
Basic/applied, product/process
Application
Technology transfer
Trends, threats, what competitors are doing
Organizational
Key Organizational Factors
Top management resources
BOD situation
Employee (labor) relations
Structure (change needed?)
Reward systems
Culture
Information systems
Human resources systems...
Key Success Factors
In any industry there are certain key
variables that significantly affect
competitive positions
Vary by industry
Vary with life cycle of an industry
For example, technology early in PC
industry, now price (cost efficiency)
Finish Diagnosis
SWOT table (list)
Critical Issues
– Central & vital, typically 2-4
– Usually problems or threats, sometimes
opportunities
– Both short- and long-range considerations
– Framed as issues, rather than solutions