Strategic Analysis and

Choice
Models and Techniques
Topic Four
Introduction
• An organization may have alternatives when it comes to which
strategy to go with over a given period of time.
• The issue is not just to say “ Lets go with strategy A” or “Lets go with
strategy B”
• Organization need to conduct analysis based on the available
alternatives strategies, then they should decide which strategy to go
with
• The key issue is to Analyze and Choice even if you have single strategy
Models and Techniques
These are combinations of tools that help organization in the process of
analysis and choice of the strategy
Forecasting Models
Basically , these models helps organization to analyze the strategies
making future projections and estimates of the strategy impacts.
They can be grouped into two
I. Qualitative Models
II. Quantitative Models
Financial models
 They analyze and evaluate strategies by using financial data or under
the financial perspective.
 These models look on how the strategies will have an impact on the
financial resources
 The chosen or selected strategy will be the one that have good
financial implications to the organization
Examples of financial models
include
• Break even analysis , budget model, Ratio analysis etc.
Porters five forces model
• Porter's Five Forces of Competitive Position Analysis were developed
in 1979 by Michael E Porter of Harvard Business School as a simple
framework for assessing and evaluating the competitive strength and
position of a business organisation.
• This theory is based on the concept that there are five forces that
determine the competitive intensity and attractiveness of a market.
Porter’s five forces help to identify where power lies in a business
situation. This is useful both in understanding the strength of an
organisation’s current competitive position, and the strength of a
position that an organisation may look to move into.
Applicability of the Model
• Strategic analysts often use Porter’s five forces to understand whether
new products or services are potentially profitable. By understanding
where power lies, the theory can also be used to identify areas of
strength, to improve weaknesses and to avoid mistakes.
• Also organization use it to achieve competitive position
Five forces include
1. Supplier power. An assessment of how easy it is for suppliers to drive
up prices. This is driven by the: number of suppliers of each essential
input; uniqueness of their product or service; relative size and
strength of the supplier; and cost of switching from one supplier to
another.

2. Buyer power. An assessment of how easy it is for buyers to drive prices

down. This is driven by the: number of buyers in the market; importance
of each individual buyer to the organization; and cost to the buyer of
switching from one supplier to another. If a business has just a few
powerful buyers, they are often able to dictate terms.
Five forces cont…
3. Competitive rivalry. The main driver is the number and capability of
competitors in the market. Many competitors, offering undifferentiated
products and services, will reduce market attractiveness.

4. Threat of substitution. Where close substitute products exist in a

market, it increases the likelihood of customers switching to
alternatives in response to price increases. This reduces both the power
of suppliers and the attractiveness of the market
Porter Five forces cont….
5. Threat of new entry. Profitable markets attract new entrants, which
erodes profitability. Unless incumbents have strong and durable
barriers to entry, for example, patents, economies of scale, capital
requirements or government policies, then profitability will decline to a
competitive rate.
Reading assignment
What are the weaknesses of Porter five forces model?
 Threat of
New
Entrants

Bargaining
Competitive Threat of
Power of Rivalry Substitutes
Suppliers

Bargaining
Power of
Buyers
• Five forces analysis helps organizations to understand the factors
affecting profitability in a specific industry, and can help to inform
decisions relating to: whether to enter a specific industry; whether to
increase capacity in a specific industry; and developing competitive
strategies
 Actions to take / Dos Actions to Avoid / Don'ts
 Use this model where there are at  Avoid using the model for an
least three competitors in the individual firm; it is designed for use
market on an industry basis
 Consider the impact that
government has or may have on
the industry
 Consider the industry lifecycle
stage – earlier stages will be more
turbulent
 Consider the dynamic/changing
characteristics of the industry
Product life cycle
• Experience Curve
 The product life cycle

The Product Life Cycle is based upon the biological life cycle.

For example, a seed is planted (introduction); it begins to

sprout (growth); it shoots out leaves and puts down roots as
it becomes an adult (maturity); after a long period as an
adult the plant begins to shrink and die out (decline).

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 Growth
Competitors are attracted into the market
with very similar offerings.
Products become more profitable and
companies form alliances, joint ventures and
take each other over.
Advertising spend is high and focuses upon
building brand. Market share tends to stabilise.
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Maturity
Those products that survive the earlier stages tend to spend
longest in this phase. Sales grow at a decreasing rate and
then stabilise.

Producers attempt to differentiate products and brands are

key to this. Price wars and intense competition occur.

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At this point the market reaches saturation.
Producers begin to leave the market due to poor
margins.

Promotion becomes more widespread and use a

greater variety of media.

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 Decline
At this point there is a downturn in the
market. For example more innovative products
are introduced or consumer tastes have
changed.
There is intense price-cutting and many more
products are withdrawn from the market.
Profits can be improved by reducing
marketing spend and cost cutting.
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 In theory it's the same for a product.
After a period of development it is
introduced or launched into the market;
it gains more and more customers as it
grows; eventually the market stabilises
and the product becomes mature;

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 then after a period of time the product
is overtaken by development and the
introduction of superior competitors, it
goes into decline and is eventually
withdrawn.

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 However, most products fail in the
introduction phase.

Others have very cyclical maturity

phases where declines see the product
promoted to regain customers.

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BCG Matrix

• The BCG matrix is a tool that can be used to determine what priorities should be
given in the product portfolio of a business unit. It has 2 dimensions; market
share and market growth. The basic idea behind it is that the bigger the market
share a product has or the faster the product’s market grows the better it is for
the company. Placing products in the BCG matrix results in 4 categories in a
portfolio of a company.
• Boston Consulting Group’s growth/share matrix has become one of the most
widely used approaches that facilitate corporate strategic analysis of likely
“generators” and optimum “users” of corporate resources. Each of the
company’s businesses is positioned in the matrix in accordance with its market
growth rate and relative competitive position.
• Market growth rate refers to the projected rate of sales growth for
the market that a particular business caters to. It is usually measured
as the percentage increase in sales in a market or unit volume over
the two most recent years. Market growth rate indicates relative
attractiveness of the markets each of the businesses serves in a
portfolio of businesses.
• Relative competitive position means the ratio of a business’s market
share divided by the market share of the largest competitor in that
market and provides a basis for comparing the relative strengths of
different businesses in the portfolio.
Stars
• They are growing rapidly and are the best long-run opportunities in
terms of growth and profitability in the firm’s portfolio. They are
leaders in their business and generate large amount of cash. They
require substantial investment to maintain and expand their
dominant position in a growing market.
• Use large amounts of cash and are leaders in the business so they
should also generate large amounts of cash.
• Frequently roughly in balance on net cash flow. However if needed
any attempt should be made to hold share, because the rewards will
be a cash cow if market share is kept
Cash Cows

• Cash cows are low-growth, high market-share products or divisions.

Because of their high market share, they have low costs and generate
cash. Since growth is slow, reinvestment costs are low. Cash cows
provide funds for overhead, dividends, and investment for the rest of
the firm and are in excess of their needs.
• Therefore, these businesses serve as a source of corporate resources for
deployment elsewhere (to stars and question marks) and are managed
to maintain their strong market share while efficiently generating excess
They are the foundation of the firm, and stability is the appropriate
strategy for them.
Dogs:

• Such businesses are defined as those in which the growth rate is slow
and the relative market share is low compared to the leading
competitors. Because of their low market share these businesses are
often expected to have a higher cost structure than industry leaders.
• It is difficult and extremely expensive for them to gain share in a
mature market. Divestment or rapid harvesting is the recommended
strategies for such weak businesses. Often these low capital intensity
businesses can be fruitful cash generators.
Dogs cont….
• i. Avoid and minimize the number of dogs in a company.
• ii. Beware of expensive ‘turn around plans’.
• iii. Deliver cash, otherwise liquidate
• Question Marks (= high growth, low market share)
Question marks
• Question marks are high-growth, low-market-share products or
divisions. Their conditions are the worst, for their cash needs are high,
but cash generation is low. Such businesses are seen to indicate
opportunity. They need to gain share by generating additional market
share and hence lower cost via experience gains, while the growth
rate in the industry is high.
• The primary objective of such businesses should be to gain share
rather than maximize short-term profitability. So question marks
should be converted into stars, then later into cash cows. This strategy
will lead to a cash drain in the short run but positive flow in the long
run. The other option is divestment
• BCG matrix makes two major contributions to corporate strategic
choice:
• The assignment of a specific role or mission for each business unit.
• The integration of multiple business units into a total corporate
strategy.
Competitive Advantage and
Competitive Strategies
• What Is a Competitive Advantage?
• Competitive advantage refers to factors that allow a company to
produce goods or services better or more cheaply than its rivals.
These factors allow the productive entity to generate more sales or
superior margins compared to its market rivals. Competitive
advantages are attributed to a variety of factors including cost
structure, branding, the quality of product offerings, the
distribution network, intellectual property, and customer service.
Competitive advantage cont….
Competitive advantages can be broken down into comparative
advantages and differential advantages.
• Comparative advantage is a company's ability to produce something
more efficiently than a rival, which leads to greater profit margins.
• A differential advantage is when a company's products are seen as
both unique and of higher quality, relative to those of a competitor.
How to increase their competitive advantage?

• Lasting competitive advantages tend to be things competitors cannot

easily replicate or imitate. Warren Buffet calls sustainable competitive
advantages, which businesses can figuratively dig around themselves
to entrench competitive advantages. This can include strengthening
one's brand, raising barriers to new entrants (such as through
regulations), and the defense of intellectual property.
What competitive advantage can
offer?
• A competitive advantage is an attribute that enables a company to
outperform its competitors.
• To increase profit
• Value addition to products and services
• Increase market share.
A competitive advantage must be difficult, if not impossible, to
duplicate. If it is easily copied or imitated, it is not considered a
competitive advantage.
Examples of Competitive
Advantage
• Access to natural resources that are restricted from competitors
• Highly skilled labor
• A unique geographic location
• Ability to manufacture products at the lowest cost
• Brand image recognition

Can you mention competitive advantages that UDOM has over its
competitors ????
• To construct a competitive advantage, a company must be able to
detail the benefit that they provide to their target market in ways
that other competitorrs cannot.

• Strategies for Competitive Advantage

• There are three strategies for establishing a competitive advantage:
Cost Leadership, Differentiation, and Focus (Cost-focus and
Differentiation-focus).
Cost Leadership

• In a cost leadership strategy, the objective is to become the lowest-

cost producer. This is achieved through large-scale production, where
companies can exploit economies of scale.
• If a company is able to utilize economies of scale and produce
products at a cost lower than that of its competitors, the company is
then able to establish a selling price that is unable to be replicated by
other companies. Therefore, a company adopting a cost leadership
strategy would be able to reap profits due to its significant cost
advantage over its competitors.
Differentiation

• In a differentiation strategy, a company’s products or services are

differentiated from that of its competitors. This can be done by
delivering high-quality products or services to customers or
innovating products or services.
• If a company is able to differentiate successfully, the company would
then be able to set a premium price on its products or services.
Focus

• In a focus strategy, a company focuses on a narrow target market

segment. This strategy is successful if the company is able to
successfully create products/services that can cater to these
customers. The focus strategy also has two variants;
• Cost-focus: Lowest-cost producer in a narrow market segment
• Differentiation-focus: Differentiated products/services in a narrow
market segment
Group quiz and Discussion
Choose any organization of your choice and identify the adopted
strategy to achieve competitive advantage
Read on your own
• Risk associated with Cost leadership, differentiation and niche
strategy as well as when it is appropriate to apply them ?