Business Strategies or
How to Analyze a Case
Dr. K. Kwong
MGMT 497
How to Analyze a Case
 Mission/Vision & Objectives
 Industry Analysis
 S.W.O.T. Analysis
 Current Strategy
 Recommendations
MISSION Defined
Answers the question:
“What business are we in?” or
“Why do we exist?”
--Customer Needs: What is being satisfied?
--Customer Groups: Who is being satisfied?
Vision Statements
 Future-oriented; transformative
 Mission = what is; vision = what will be
 Companies may have mission or vision or
both
MISSION Defined
Costco:
“To continually provide our members with
quality goods and services at the lowest
possible prices”
OBJECTIVES
= a desired future state that a company
attempts to realize.
Should be:
- precise & measurable
- addressing important issues
- challenging but realistic
- set for a specific time period
- consistent with each other
Types of Objectives
 Financial
 Profitability
 Revenue growth
 Long-term shareholder value
 Customer
 Product/service attributes; relationship; image
 Internal Process
 Operations, customers, innovation
 Corporate social responsibility
 Learning & growth
 Human, information, & organization resources
EXTERNAL ENVIRONMENT
ANALYSIS
 A. Macro Environment and Trends (Actual and
Perceived)
 B. Industry Environment Analysis

B1. Generic Analysis
Main Economic and Business Characteristics of the
Industry
Identify Factors that are Crucial to Competitive Success in
the Industry
Major Issues and Conditions Facing the Industry

B2. Michael Porter’s Five Forces Analysis
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Evaluate External Opportunities and Threats to the
Company’s Growth:
 Macroeconomic Factors

Product sales depend on the general demand and cost conditions. Adverse
changes in macroeconomic conditions (e.g., interest rates, unemployment
rates, currency rates, and fuel and commodity prices) can threaten the
profitability of an industry.
 Demographic Factors

Changing customer demographics (e.g., aging population, changing gender
composition, changing racial and ethnic composition, and higher education
levels) can spur new growth opportunities for some businesses but present
threats to other businesses.
 Social Factors

Social changes (e.g., growing health consciousness, increasing
environmental awareness, rising number of single-parent or two-working
adult families with kids, and rapid growth in internet users) can also create
opportunities and threats.
Evaluate External Opportunities and Threats to the
Company’s Growth:
 Technological Factors

Technology changes (e.g., advances in materials engineering, information
technology, and wireless communications) can present opportunities and
create threats. They can make established products obsolescent
overnight, but they can also create new products and processes.
 Political and Legal Factors

Changes in political and legal factors (e.g., deregulation, antitrust, tort
reform, and government regulation changes) can open up new opportunities
and create threats as well.
 Global Environment

Changes in international markets (e.g., exchange rates, free trade
agreements and globalization of businesses) can create new growth
opportunities for some industries but also open up other industries to
greater international competition. Changes in geopolitics can also have
significant economic and business implications for an industry.
Industry Analysis:
Porter’s 5 Competitive Forces
Purpose: understand why some industries have
higher profit margins & what factors can
change long-run industry profitability.
 Risk of New Entry
 Rivalry Among Established Firms
 Bargaining Power of Buyers
 Bargaining Power of Suppliers
 Threat of Substitute Products
ENTRY
Barriers
 Brand Loyalty
 Absolute Cost Advantages



patents
access to raw materials
superior production techniques
 Economies of Scale
 Government Regulation
Factors Affecting Intensity of
RIVALRY
 Competitive Structure


number of firms
relative market share
 Demand conditions


growth
decline
 Exit barriers
Factors Affecting BARGAINING
POWER
 Number of firms in buyer vs. supplier
industries
 Quantity or % of total orders
 Switching costs
 Standardization vs. specialization of input
 Threat of vertical integration
SUBSTITUTES
= products from OTHER industries that serve
consumers’ needs in a way that is similar to
those being served by your industry.
Example: coffee vs. tea vs. soft drinks
NOTE: Substitutes are very difficult to monitor,
because they can involve technological
changes in industries that did not pose any
threat in the past.
INTERNAL ENVIRONMENT
ANALYSIS
A. Identify the Key Elements of the Corporate Culture
B.Assess Strengths and Weaknesses
(within specific areas of operations):
Marketing
Operations Management
Research and Development (R&D)
Human Resource Management (HRM)
Finance/Accounting
C. Financial Ratio Analysis:
Liquidity Ratios, Activity/Efficiency Ratios, Leverage Ratios,
and Profitability Ratios
Corporate Culture
= Collection of beliefs, expectations, and values
learned and shared by members and
transmitted from one generation of
employees to another.
= Collective mental programming.
Functions of Corporate Culture
 Conveys a sense of identity
 Generates employee commitment
 Adds to organizational stability
 Serves as a frame of reference
Identifying Resource Strengths
and Competitive Capabilities
 A strength is something a firm does well or an
attribute that enhances its competitiveness

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Valuable skills, competencies, or capabilities
Valuable physical assets
Valuable human assets
Valuable organizational assets
Valuable intangible assets
Important competitive capabilities

Resource strengths and competitive
capabilities are competitive assets!
Identifying Resource Weaknesses
and Competitive Deficiencies
 A weakness is something a firm lacks, does
poorly, or a condition placing it at a
disadvantage
 Resource weaknesses relate to

Inferior or unproven skills,
expertise, or intellectual capital

Missing capabilities in key areas
Resource weaknesses and deficiencies
are competitive liabilities!
Identifying a Company’s
Market Opportunities
 Opportunities most relevant to a
company are those offering
◦
Good match with its financial and
organizational resource capabilities
◦
Best prospects for profitable
long-term growth
◦
Potential for competitive advantage
Identifying External Threats
 Emergence of cheaper/better technologies
 Introduction of better products by rivals
 Entry of lower-cost foreign competitors
 Onerous regulations
 Rise in interest rates
 Potential of a hostile takeover
 Unfavorable demographic shifts
 Adverse shifts in foreign exchange rates
 Political upheaval in a country
Strategy levels
Corporate-level
Top Management
(define the overall
scope & direction
of the company)
Business-level
(secure competitive
advantage for each
business unit)
Business Unit #1
Business Unit #2
Business Unit #3
R&D,
Manufacturing,
Marketing & Sales,
Logistics,
Human Resources
Procurement,
Marketing & Sales,
Manufacturing,
Information Systems,
Human Resources
R&D,
Marketing & Sales,
Finance,
Information Systems,
Human Resources
Functional
(secure effective &
efficient operations
in each area)
Issues addressed by corporate strategies
 Scope of operations
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Which product or service markets should the company compete in?
Which geographic markets should the company serve?
 Extent and type of diversification

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How broad should the corporate portfolio of businesses be?
Should related or unrelated diversification be pursued?
Are there new businesses the company should enter?
Are there existing businesses the company should terminate or divest?
 Organizational structure and integration


How should the company be structured?
How much should the company integrate its various lines or units of
business?
 Deployment of resources


How should the company allocate resources among business units?
Which business units will be stressed?
Corporate portfolio strategy
Boston Consulting
Group (BCG) Matrix:
Market Growth
Market Share
High
Low
High
STARS
QUESTION MARKS
Low
CASH COWS
DOGS
This guides decisions on which business to expand, maintain or exit:
 STARS are businesses with a high market share in a fast-growing market. They
can generate significant cash flows but may also need a lot of resources to
sustain their growth.
 QUESTION MARKS are businesses with little market share but a high
growth potential. These businesses are cash users and can be risky.
 CASH COWS are businesses that have a high market share in a slow-growth
market. They generate dependable cash flows to fund business units with better
growth. Invest just to maintain their market positions.
 DOGS are businesses with a low market share in a slow-growth market. Such
businesses can still be profitable but the company will not invest in them any
further and may even consider selling them.
Corporate directional (grand) strategies
 Growth strategies
 Type: Concentration vs. diversification
 Level: Vertical integration vs. horizontal integration
 Geographic Location: International growth vs. domestic growth
 Stability strategies
 Pause, digest, and consolidate after rapid growth or some turbulent events
 Retrenchment strategies
 Turnaround through cost cutting, downsizing, divestment, or spin-off
 Bankruptcy and restructuring
 Liquidation (last resort)
Corporate growth strategies
Vertical Integration
Horizontal Integration
Concentration
Forward or Backward
Corporate
Growth
International
Global or Multi-domestic
Diversification
Related or Unrelated
Concentration strategy
 Focusing on expanding the company’s primary lines of business
Examples: Merck, Walgreen, Cisco, Starbucks, UPS
 Potential benefits of concentration

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Allows the company to specialize in and master one business
No dilution of management’s attention – the management can focus on what the
company knows and does best
 Drawbacks of concentration

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The current industry may become mature and even decline
The industry conditions can be too unstable
Too much dependence on a single industry makes the company vulnerable to
risks of product obsolescence (due to changes in, e.g., technology or consumer
preferences)
Miss the opportunity to leverage resources and capabilities to other businesses
Horizontal integration strategy
 Seeking ownership or increased control over competitors
Examples: Oracle, Unitedhealth
 Potential benefits of horizontal integration

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Gain scale economies in production
Cost savings from economics of scope by combining similar operations
(e.g., production, sales and marketing, and distribution) of different
companies and reducing duplication of resources
Create value through product bundling, total solution and cross selling
Reduce the threat from substitutes
Increase market power over suppliers and buyers
May help increase market penetration and/or expand market coverage
geographically
 Drawbacks of horizontal integration


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Not easy to integrate operations of companies with different cultures
Synergies may fail to realize
Reduction in competition can generate antitrust issues
Vertical integration strategy
 Seeking ownership or increased control over distributors (forward integration)
or over suppliers (backward integration)
Examples: Exxon Mobil, General Motors
 Potential benefits of backward integration

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Lower transaction (purchasing) costs and capture additional profits from
expanded operations
Have better control over the supply of inputs
Reduce the bargaining power of suppliers
 Potential benefits of forward integration
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Lower transaction (selling) costs and capture additional profits
Have better control over the distribution of products and services
Reduce the bargaining power of distributors/buyers
 Drawbacks of vertical integration

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Product costs can actually rise if best-cost external suppliers are not used
Business remains susceptible to industry fluctuations and cycles
May face risks with growing maturity of the industry
Increase bureaucratic costs
Related (concentric) diversification strategy
 Diversify into related businesses under some coherent strategic theme
Examples: Johnson & Johnson, Pepsico, JP Morgan
 Potential benefits of related diversification
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Cross-business sharing of expertise, capabilities and technology
Exploit economics of scope and capture synergy benefits from combining similar
operations (e.g., manufacturing, sales and marketing, distribution, R&D,
information systems, and managerial support) of different businesses
Enable collaboration to develop new strengths and create mew competitive
capabilities (including new products and new services)
Leverage use of a company’s brand name
Increase market power
 Drawbacks of related diversification


Possible difficulties in integrating the operations of businesses with different
cultures
Strategic fits may be overestimated
Unrelated (conglomerate) diversification strategy
 Diversifying into unrelated businesses with no unifying strategic theme (this is more
finance-driven and less strategy-driven)
Examples: General Electric, 3M, Honeywell, United Technologies, Samsung
 Potential benefits of unrelated diversification



Spreading business risks over a wider variety of industries
Promote efficient allocation of internal capital by allowing capital to be allocated
toward industries with best profit prospects
Purchase any businesses with undervalued assets and turn them around
 Drawbacks of unrelated diversification


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Difficult to manage and excel in unrelated businesses
Dilution of management’s attention often leads to underperformance of some
lines of business
Lack of strategic fits that can be leveraged into competitive advantage
Implementation of growth strategies
Options
Pros
Mergers &
Acquisitions
 Quick to obtain proven
Strategic Alliances
& Partnerships
 Quick entry to a market
 Bypass barriers to entry
 Less capital investment
 Allow risk sharing
 Combine strengths &
expertise & market positions
 Bypass barriers to entry
 Increase market power
 Economies of scale
Cons
 Takeover premium
 Excessive borrowing
 Integration difficulties
 Overestimate synergy
 Possible antitrust problems
 Potential conflicts in cultures
and management personalities
 No full management control
capabilities of two companies
Internal
Development
 Capture all the value
created
 Encourage innovation
 Full management control
 Can take a long time
 High development costs with
uncertain outcomes
 Lack of needed technical
expertise and know-how
International growth strategy
 Ways to enter foreign markets

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Exporting
Licensing or franchising
Joint venture
Direct investment
These alternative options vary in their degree of speed, control, and risk, as well
as the required level of investment and market knowledge.
 Types of cross-border market differences

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Differences in consumer tastes and preferences
Differences in buying habits
Differences in infrastructure and distribution channels
Differences in government regulations
Potential benefits from international growth
Gain access to new
markets with attractive
growth
Get access to
valuable natural
resources
and raw materials
Enable
cost reduction
Capitalize on
resource strengths
and competencies
Diversify
business risks across a
wider market base
Basic strategic alternatives for international growth
High
Global
Strategy
Transnational
Strategy
Cost
Pressures
Multi-domestic
Strategy
Low
Low
High
Pressures for Local Responsiveness
Global strategy for international growth
(Think Global, Act Global)
 It deemphasizes national differences, having products standardized across
national markets. This works best when buyer tastes and preferences are
similar across countries or can be standardized through marketing efforts.
Examples: Coca-Cola, MacDonald’s, Sony, Panasonic, Boeing
 Benefits of the Global strategy
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Standardization enables the company to exploit economies of scale in
manufacturing and marketing, thus lowering product costs
Allow transfers of the company’s competencies across national markets
Permit resource sharing and coordinated strategic moves across countries
Faster and less costly product development by focusing on global brands
Successful global brands can enhance the company’s bargaining power
over distributors
 Drawbacks of the Global strategy

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Highly centralized control and so low responsiveness to local markets
Ignored the local needs can limit market penetration and may allow other
locally responsive competitors to capture market share
Developing new global brands can take a long time and a lot of capital
Transnational strategy for international growth
(Think global, Act local)
 It embraces national differences, with products mass-customized to address local
preferences in an efficient, semi-standardized manner. This can be effective when
there are relatively high needs for local responsiveness as well as appreciable benefits
to be realized from standardization.
Examples: KFC, Otis Elevator
 Benefits of the transnational strategy
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Offer Benefits of both local responsiveness and global integration
Enables the transfer and sharing of resources and capabilities across borders
Provides the benefits of flexible coordination
 Drawbacks of the transnational strategy

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More complex and harder to implement
Conflicting goals may be difficult to reconcile and require trade-offs
Implementation more costly and time-consuming
Multi-domestic strategy for international growth
(Think local, Act local)
 It embraces national differences, with products customized for local markets. This can
be effective when buyer tastes and preferences differ vastly across countries.
Examples: Toyota, Philips Electronics, Procter & Gamble
 Benefits of the multi-domestic strategy


Less centralized control and so high local responsiveness
Customization offers product differentiation
 Drawbacks of the multi-domestic strategy



Poses problems of transferring competencies across borders
Higher costs due to tailored products and duplication across countries
Slower and more costly product development
Generic business-level strategies (positioning)
Sources of Competitive Advantage
Competitive
Scope
Broad
Narrow
Low Cost
Uniqueness
Cost Leadership
Differentiation
Focus (Segmentation)
Positioning the company based on strategic strength and strategic scope:
 Cost leadership
 Differentiation
 Focus (Segmentation)
Cost leadership strategy
 This strategy underscores the company’s strength in efficiency
Example: Wal-Mart
 To be successful, the cost leadership strategy requires:
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Relatively standardized products
Products serve needs of buyers in the broadest market segment
Strong price competition with highly price-sensitive buyers
Constant tight control of production costs and overhead costs
Mass production to achieve economies of scale
Efficient manufacturing processes
Superior operating efficiency that is hard for competitors to match
 Risks



Loss of cost advantage due to, e.g., imitation or technological advances of
competitors
Too fixated on reducing costs and ignoring buyers’ needs
Customer preferences change toward more differentiated products
Differentiation strategy
 This strategy underlines the company’s strength in offering unique products
Examples: Apple Inc., Harley-Davidson, Walt Disney
 To be successful, the differentiation strategy requires:

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Perceived uniqueness in product attributes
Customers have low price sensitivity and are willing to pay a premium price
Strong R&D and fast-paced product innovation
Superior product engineering
Strong marketing skills to sustain a distinct brand image and maintain
customer loyalty
Constant review of market trends
 Risks





Prices are too high to be justified by the product’s differentiated features
Over-differentiating such that product attributes exceed buyers’ needs
Loss of differentiation due to imitation by competitors
Customer tastes can change toward more standardized products
May overlook cost control efforts, which can still be important
Focus (segmentation) strategy
 To gain a competitive advantage by meeting the specialized needs of a narrow
market segment
Examples: Porsche AG (focused differentiation)
Credit unions and community banks (focused cost)
 To be successful, the focus strategy requires:


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The industry has many market segments, creating focusing opportunities
Ability to identify right niche markets that are less vulnerable to substitutes or
where competition is weakest
Few other rivals are focusing on the same target market
High degree of product customization
Strong customer loyalty
Relevant factors that support a cost leadership or differentiation strategy
 Risks


The broad-market leader may find effective ways to serve the target market
The market segment may become appealing enough to attract other rivals,
depressing the profitability in serving the already small market segment
Generic Competitive Strategies
 Broad Low-Cost leadership

Striving to be the overall low-cost provider in industry
 Broad Differentiation

Striving to build customer loyalty by differentiating one’s product offerings from
rivals’ products
 Focus Strategy Based on Low Cost

Targeting on a narrow market segment, out-competing rivals on basis of lower
cost
 Focus Strategy Based on Differentiation


Pursuing a market niche (especially one that has been neglected by others in the
industry) by offering a specific group of customers a product or service
customized to their needs
Best Cost

Striving to build customer loyalty by incorporating upscale attributes at lower
costs or under pricing rivals whose products have similar upscale features
(Lexus)
Functional strategies
 These aim to secure effective and efficient operations within specific functional areas
so that they support business-level and corporate-level strategies:
 Marketing & Sales
Decide on product choices, pricing, distribution, promotion, and customer
service
 Financial management
Deal with capital acquisition, capital allocation, dividend policy, investment, and
cash flow management
 Production & operations management
Address choices about where and how product will be manufactured, technology
to be used, management of resources, purchasing, quality control, inventory
control, and relations with suppliers
 R&D
Process development and product development
 Information systems
Deal with office automation, decision support, and operational support
 Human resources management
Deal with work flow control, pay and incentives, recruiting, orientation, training,
staffing, and labor relations
What Strategic Issues
Merit Managerial Attention?
 Based on results of both industry and
competitive analysis and an evaluation of a
company’s competitiveness, what items
should be
on a company’s “worry list”?
A “good” strategy must address “what to do”
about each and every strategic issue!
Identifying the Strategic Issues:
Some Possibilities
 How to stave off market challenges from new foreign

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




competitors?
How to combat price discounting of rivals?
How to reduce a company’s high costs?
How to sustain a company’s present growth
in light of slowing buyer demand?
Whether to expand a company’s product line?
Whether to acquire a rival firm?
Whether to expand into foreign markets rapidly or
cautiously?
What to do about aging demographics of a company’s
customer base?
RECOMMENDATIONS
Shift from Analysis--->Synthesis
 Is a fundamental shift in strategy required or
not?
 How do your recommendations line up with
your SWOT analysis?
 Is this a feasible, creative solution that is
supported by your analysis?