Strategic Position: Involves External
Environmental Analysis & Internal
Environmental Analysis
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Strategy is moving from where you are to
where you want to be
First need to find out where you are –
establishing the Strategic Position
In order to do that, we will look at techniques
that help us with:
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External Environmental Analysis
Internal Environmental (Resource) Analysis
Preview: Strategic Issue
Analysis
-Financial
Analysis (Ratio Analysis)
-Gap Analysis
-PLC
-BCG Matrix
-GE Matrix
-SWOT Analysis
-TOWS Matrix
Basic Financial Ratios
Firm’s ability to meet
its short-term
obligations
Ratios
Liquidity ratios
Current ratio
Quick
(or acid-test)
ratio
Basic Financial Ratios
•
Extent of debt
financing
Ratios
Leverage ratios
Debt-to-total-assets
Debt-to-equity
Long-term debt-to-equity
Times-interest earned
Basic Financial Ratios
•
Effective use of firm’s
resources
Ratios
Inventory-turnover
Activity ratios
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Basic Financial Ratios
•
Effectiveness shown
by returns on sales
and investment
Ratios
Profitability ratios
Gross profit margin
Operating profit margin
Net profit margin
Return on total assets (ROA)
Basic Financial Ratios
•
Effectiveness shown
by returns on sales
and investment
Ratios
Profitability ratios
(continued)
Return on stockholders’ equity
(ROE)
Earnings per share
Price-earnings ratio
Basic Financial Ratios
•
Firm’s ability to
maintain economic
position
Ratios
Growth ratios
Sales
Net income
Earnings per share
Dividends per share
Gap Analysis
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The difference between where you want to be
and where you are
For example: the likely profit contribution from
current business activities & shareholder
expectations
Gives an idea how to bridge the gap
Strategic Implications of PLC
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Embryonic (or introduction): sale rises slowly
as customers try new product. Need to
spend more (say on advertising) than
earnings
Growth: Product is successful and growth
accelerates. Experience curve effect lowers
costs. Need to keep spending on promotion
Strategic Implications of PLC (Contd)
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Shakeout: imitators come in, and weaker similar
products leave
Maturity: market saturation and sales stop rising.
The product (if still in the market) starts paying off,
and profits rise further
Decline: Technical advancement brings new
products. There is a decline. Need to spend
minimal money and strategy of harvest
The BCG Matrix
Industry Growth Rate
High
Low
High
Low
Relative Market Share
The BCG Matrix
Stars
Industry Growth Rate
High
Low
High
Low
Relative Market Share
The BCG Matrix
Stars
Industry Growth Rate
High
?? ? ?
Question Marks
Low
High
Low
Relative Market Share
The BCG Matrix
Industry Growth Rate
High
Low
Stars
?? ? ?
Question Marks
Cash Cows
High
Low
Relative Market Share
The BCG Matrix
Industry Growth Rate
High
Low
Stars
?? ? ?
Question Marks
Dogs
Cash Cows
High
Low
Relative Market Share
Reviewing the Corporate
Portfolio (Continued)
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Strategic Implications
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Cash Surplus from Cash Cows Used to
Support Question Marks and Stars
Question Marks Divested
Exit Industry Where SBU is a Dog
Firm with Insufficient Cash Cows, Stars,
or Question Marks Should Consider
Acquisitions and Divestments
Reviewing the Corporate
Portfolio (Continued)
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Limitations of BCG Matrix
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Simplistic
Connection Between Relative Market Share
and Cost Savings Not Straightforward
High Market Share in a Low-Growth
Industry Does Not Necessarily Create a
Cash Cow
Reviewing the Corporate
Portfolio (Continued)
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Limitations of BCG Matrix
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Simplistic
Connection Between Relative Market Share
and Cost Savings Not Straightforward
High Market Share in a Low-Growth
Industry Does Not Necessarily Create a
Cash Cow
Fails to Pay Attention to the Source of
Value Creation from Diversification
The McKinsey Matrix (GE Matrix)
Industry Attractiveness
Competitive Position
Good
Medium
Poor
High
Winner
Winner
Question
Mark
Medium
Winner
Average
Business
Loser
Profit
Producer
Loser
Loser
Low
SWOT Analysis
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Strengths
Weaknesses
Opportunities
Strengths
List the S & W within the organisation, & O & T that
face the organisation
The important ones to be highlighted for
consideration
These important S, W, O & T can be represented as
shown in the following slide
SWOT Representation
Strengths
Weaknesses
Opportunities
Threats
TOWS Matrix
Strengths (S)
Weaknesses (W)
List 5 – 10 internal
strengths here
List 5 – 10 internal
weaknesses here
Opportunities (O)
SO Strategies
WO Strategies
List 5 – 10 external
opportunities here
Generate strategies here
that use strengths to take
advantage of opportunities
Generate strategies here
that take advantage of
opportunities by
overcoming weaknesses
Threats (T)
ST Strategies
WT Strategies
List 5 – 10 external
threats here
Generate strategies here
that use strengths to
avoid threats
Generate strategies here
that minimize weaknesses
and avoid threats
INTERNAL
FACTORS
(IFAS)
EXTERNAL
FACTORS
(EFAS)