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Framework For Strategy Analysis

Framework For Strategy Analysis

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Published by ClassOf1.com
Firms establish business strategies to differentiate themselves from competitors, but an industry’s economic characteristics affect the flexibility that firms have in designing these strategies. In some cases, firms can create sustainable competitive advantages. PepsiCo’s size, brand name, and access to distribution channels give it sustainable competitive advantages over smaller, less well-known beverage companies.
Firms establish business strategies to differentiate themselves from competitors, but an industry’s economic characteristics affect the flexibility that firms have in designing these strategies. In some cases, firms can create sustainable competitive advantages. PepsiCo’s size, brand name, and access to distribution channels give it sustainable competitive advantages over smaller, less well-known beverage companies.

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Published by: ClassOf1.com on Jul 10, 2013
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06/21/2015

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Financial Accounting
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Sub: Financial Accounting Topic:
 
Financial Strategy
*
Framework for Strategy Analysis
Firms establish business strategies to differentiate themselves from competitors, but an industry’s
economic characteristics affect the flexibility that firms have in designing these strategies. In somecas
es, firms can create sustainable competitive advantages. PepsiCo’s size, brand name, and access
to distribution channels give it sustainable competitive advantages over smaller, less well-knownbeverage companies. Coca-Cola enjoys similar advantages. The reputation for quality familyentertainment provides Disney with a sustainable advantage. A reputation for low prices generatesadvantages in high customer traffic and high sales volume for Wal-Mart. The set of strategic choicesconfronting a particular firm varies across industries. The following framework dealing with productand firm characteristics helps the analyst identify and structure the set of trade-offs and choices afirm must face.1.
 
Nature of Product or Service.
Is a firm attempting to create unique products or services forparticular market niches, thereby achieving relatively high profit margins (referred to as aproduct differentiation strategy)? Or is it offering non-differentiated products at low prices,accepting a lower profit margin in return for a higher sales volume and market share (referredto as a low-cost leadership strategy)? Is a firm attempting to achieve both objectives bydifferentiating (perhaps by creating brand loyalty or technological innovation) and being pricecompetitive by maintaining tight control over costs?2.
 
Degree of Integration in Value Chain.
Is the firm pursuing a vertical integration strategy,participating in all phases of the value chain, or selecting just certain phases in the chain?With respect to manufacturing, is the firm conducting all manufacturing operations itself (asusually occurs in steel manufacturing), outsourcing all manufacturing (common in athleticshoes), or outsourcing the manufacturing of components but conducting the assemblyoperation in-house (common in automobile and computer hardware manufacturing)? With
 
 
Sub: Financial Accounting Topic:
 
Financial Strategy
*
respect to distribution, is the firm maintaining control over the distribution function oroutsourcing it? Some restaurant chains,
for example
, own all of their restaurants, while otherchains operate through independently owned franchises. Computer hardware firms haverecently shifted from selling through their own sales staffs to using various indirect sellers,such as value-added resellers and systems integrators
in effect shifting from in-housesourcing to outsourcing of the distribution function.3.
 
Degree of Geographical Diversification.
Is the firm targeting its products to its domesticmarket or integrating horizontally across many countries? Operating in other countriescreates opportunities for growth but exposes firms to risks from changes in exchange rates,political uncertainties, and additional competitors.4.
 
Degree of Industry Diversification.
Is the firm operating in a single industry or diversifyingacross multiple industries? Operating in multiple industries permits firms to diversify product,cyclical, regulatory, and other risks encountered when operating in a single industry but raises
questions about management’s ability to understand and manage
multiple and differentbusinesses effectively.

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