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Breakthrough Model

The Breakthrough model focuses attention on most substantial opportunities for creating
value for customers and shareholders.
Used for transformational review of basis of competition strategy, products,
marketing/sales
Industry

Company
Approach

External

Trends in the
economic
environment in
which the markets
exist

Market/Product
Repositioning
3

Market/product
strategy and basis
for competition

Industry
Transformation
4

Enterprise
Alignment
1

When creating a Breakthrough model, the


following criteria should be considered:
Summarize all opportunities to improve
business performance from other analyses
Categorize them into four groups:
Enterprise alignment
Best practice performance
Market/product repositioning
Industry transformation

Internal

Best practices
across this and
similar industries

Best Practice
Performance

Capabilities of the companys


people, processes,
technology, systems and
structure

Determine approximate economic value


of each type of strategy

5 Forces Analysis

The Five Forces Analysis evaluates the attractiveness of an industry.


Relevant for assessing entry into new markets, products, expansion OR for evaluating future
view of portfolio

SUPPLIERS
Bargaining power of suppliers is greater if:
The supply industry is dominated by a
few companies or is more concentrated
than the buying industry
The supply product is differentiated or
there are high switching costs
There are few substitutes
The buying industry is not an important
customer of the supply industry
The supply industry poses a credible
threat of forward integration

POTENTIAL ENTRANTS
Entry barriers are high if there are:
Economies of scale
Product differentiation
Capital requirements
Limited access to distribution channels
Restrictive government policies
Potential retaliatory reaction of incumbents

INDUSTRY COMPETITORS
Rivalry is intense if:
Competitors are numerous or roughly equal in power
or size
Industry growth is slow
There are high fixed costs or the product is perishable
The product lacks differentiation or switching costs
Capacity is augmented in large increments
Exit barriers are high
Rivals are diverse in strategies, origins, and
"personalities"

BUYERS
Bargaining power of customers is greater if:
The customer group is concentrated or
buys in large volume
Products purchased are undifferentiated
Products purchased represent a significant
portion of the customer's cost
Customers earn low profits, creating
incentive to lower purchasing costs
The product purchased is unimportant to
the quality of the customer's product
Switching costs are low
Customer group poses a credible threat of
backward integration

SUBSTITUTES
Threat of substitutes is high if:
There is an abundance of products or services that serve the
same function
The price-performance tradeoff of substitutes is attractive

Example
Assess entry of a Financial Services company into Life Insurance

Suppliers
Medium bargaining power
Dominated by a few big companies
No product differentiation but High
switching costs

SUPPLIERS
Bargaining power of suppliers is greater if:
The supply industry is dominated by a
few companies or is more concentrated
than the buying industry
The supply product is differentiated or
there are high switching costs
There are few substitutes
The buying industry is not an important
customer of the supply industry
The supply industry poses a credible
threat of forward integration
Competitors
Rivalry is intense
Industry dominated by big 6
High fixed costs. Op costs
No product differentiation
Very high exit barriers

POTENTIAL ENTRANTS
Entry barriers are high if there are:
Economies of scale
Product differentiation
Capital requirements
Limited access to distribution channels
Restrictive government policies
Potential retaliatory reaction of incumbents

POTENTIAL ENTRANTS
High Entry Barriers
Need economies of scale
Little product differentiation
Very High Capital requirements
High cost distribution channels

INDUSTRY COMPETITORS
Rivalry is intense if:
Competitors are numerous or roughly equal in power
or size
Industry growth is slow
There are high fixed costs or the product is perishable
The product lacks differentiation or switching costs
Capacity is augmented in large increments
Exit barriers are high
Rivals are diverse in strategies, origins, and
"personalities"

BUYERS
Bargaining power of customers is greater if:
The customer group is concentrated or
buys in large volume
Products purchased are undifferentiated
Products purchased represent a significant
portion of the customer's cost
Customers earn low profits, creating
incentive to lower purchasing costs
The product purchased is unimportant to
the quality of the customer's product
Switching costs are low
Customer group poses a credible threat of
backward integration

SUBSTITUTES
Threat of substitutes is high if:
There is an abundance of products or services that serve the
same function
The price-performance tradeoff of substitutes is attractive

Substitutes
Low Threat
No alternative to life insurance

Buyers
Low bargaining power
Individual buyers
Low annual spend for customers
High switching costs
High impact potential

5 Forces
Approach
Five Forces analysis utilizes a four step approach and is applied as a starting point for
understanding a markets attractiveness:
Step 1:

Collect data

Step 2:

Evaluate strength of key forces, including:


Buyers
Suppliers
Substitutes
Competitors
Potential entrants

Step 3:

Qualitatively assign a high, medium or low score to each key force

Step 4: Assess the overall effect of the forces on industry attractiveness and strategic
implications

This tool fails in the case of disruptive changes to business models

Product portfolio BCG growth share


matrix

Issue Trees/Maps Impact of alternatives

An Issue Tree/Issue Map typically begins with a broad question and defines the sequence of
key issues (phrased as yes or no choices) that will support a specific answer.
Backed by relevant analysis at key decision points, this is a very strong tool for evaluating
options and presenting choices to management
Yes

Will likely movements


in prices and demand
allow Client to achieve
reasonable profitability
if it carries on as
presently?
1

Analysis

Is client prepared
to wait for this?

Yes Carry on as
presently

No

Action

Go to A

Analysis

Can client achieve


No reasonable
profitability by
better sales and
marketing efforts?
3
Analysis

Improve sales and


marketing effectiveness by selecting
Yes
target segments and
refocusing efforts
Yes
Can client
No
achieve
reasonable
profitability by
reducing its
costs?
4

No

Analysis

Define and implement


profit improvement
programs
Would major
investment provide
client with reasonable
profitability?

Yes

Define and implement


reinvestment program

Is client worth
more to others
No than to its
parents?
6

Analysis

Analysis

Yes Dress up
for sale
Develop
No harvest
strategy

Example
This study was to assist management at a diversified parent co. develop a vision for the future of its heritage business - a paperboard
subsidiary. While returns had been attractive in this subsidiary, management was questioning whether further investment was advisable.
Yes
No
No

No
No

2
Would further
integration
economically develop a
sustainable low-cost
position?

5
Can Client Name
economically
leapfrog competition
in production
technology?

No

6
Will modernization be forced on
Client Name as a ticket to play
the game?

8
Will capacity expansion be
required to economically
develop the cost leadership
position?

9
Can Client Name change
the game (i.e., compete
on something other than
cost?)

11
Change the game

12
Niche/milk

13
Build strength through
capacity

Yes
Yes

7
Will current state-of-the-art
technology be replaced,
putting Client Name at a
disadvantage with a modern
plant?

Yes

14
The modernized Client
Name

10
Yes
Can Client Name
economically develop and
lead the introduction of
this S3 technology

15
Aggressive leadership in
technology

16
Leadership exploitation

Yes

No

No

Find the market segments


that are not cost-sensitive

Modernize all plants as quickly as


possible

No

Yes

4
Are external factors
likely to foreclose on
this cost position?

Find another basis for


competing, i.e., value not
cost

No

Yes

1
Over the next 12-18 months,
can Client economically
become the low-cost
producer through
optimization of the current
plant?

Answers to Each

17
Build strength through
integration

Expand capacity to a point that


maximizes profit

Minimize any current


modernization; participate in
S3 development; lead
introduction

Minimize current
modernization; be aware and
flexible to convert when
appropriate

Integrate backward and forward to


an extreme

No
Make cost management/
productivity a way of life
3
Is this position
sustainable?
Yes

18
The excellent
manufacturing company
Yes

Strategic alignment -Core Competency


Models

Core Competency Analysis provides a practical and systematic process to identify a


companys core competencies and assess key competitive advantages.
Very useful for assessing unique strengths of a company and alignment of key resources
(capital, skills, technology, operations) to support these while seeking partnerships or
outsourcing opportunities for execution of other areas

COMPETENCIES MODEL - FRAMEWORK


Strategic/
Technology
Product
Financial PlanningDevelopment Development

Mfg/Joint
Venture

Marketing

Sales/
Distribution

Customer
Refill Support

Other
Customer Service

Hard to
copy

Example: McDonalds

Fast, affordable,
fun, family dining
experience

Core Competence (CC) - A competence which delivers a sustainable competitive


advantage in current markets, provides access to a wide variety of markets, and makes
a significant contribution to the perceived customer benefits of the end product.
Critical Strategic Capabilities (SC) - The capabilities in which a company is a
leader. These capabilities are the source of competitive advantage.

Marketing and brand mgmt.


Training
Franchise mgmt.
Product innovation

BigMac recipe
High quality, low price product
sourcing
Efficient operation

Hamburger preparation
Menu selection

Critical Enabling Capabilities (EC) - The capabilities in which a


company is competitively equivalent to other market leaders.
These capabilities are often the source of a barrier to entry.
Primary Capabilities (PC) - Minimum functional and
technical requirements necessary to participate.

"Core
Competencies"
"Capabilities"

Easy to
copy

Strategic
Essentially
Requirement Gives
unique
about
advantage
"catching up"

Extension to Core Competency Model - The specialized enterprise :


Seeks performance excellence in all four types of business components

Support
Component

Internal
Specialization

Manage to meet the


needs of strategic
components

Invest and expand to


gain component
advantages

Example:
Risk Management

Example:
Product Ideation

Utility
Component

External
Specialization

Strategic
Component

Partner
Component

Use multiple specialists


that have a low cost of
entry and service

Ensure that partners


meet critical business
requirements

Example:
Payroll

Example:
Call Center

Non-Differentiating

Differentiating

By choosing to focus and invest in


the truly strategic components,
the specialized enterprise
supports the business by
leveraging industry networks of
best-in-class specialists

THE STRATGEIC COMPONENT


THAT DRIVES AN ENTERPRISE
ALSO DRIVES ITS DECISIONS ON IT
ENABLERS

As they mature, firms will internally focus on strategic


components by leveraging more external components
Initial Business
Internal
Specialization

Specialized Enterprise
Internal
Specialization

Support
Support

Utility
Non-Differentiating

Strategic

Strategic

Utility

External
Specialization

HLL, DELL Brand


Management &
Distribution
Apple, Cisco Product
Design
Pfizer, 3M Research &
New Product Launch

Partner
Differentiating

Partner

External
Specialization
Non-Differentiating

Differentiating

Firms should evaluate component performance to determine where the greatest value is achieved
The decline in transaction costs increases the number of opportunities for external specialization
Simultaneously, external specialists build scale and further expand their absolute advantage

Example CC specialist
Primary Issuing
Functions

Product
development

Marketing and
Sales

Underwriting and
Fulfillment

Customer
Servicing

Revenue
Enhancement

Delinquency
Management

Compliance

Key activities

Maintain in-house

Potential for Outsourcing

Support
Capabilities

Target Segment
Identification

Communication
Design

Information
Verification

Transaction
Processing

Credit Line and


APR Mgmt

Payment Followup

Gap Analysis and


Product design

Campaign
Execution

Underwriting
Decision

Statement
Generation

Targeted Loyalty
Programs

Risk Profiling

Business Case
Development

Segmentation and
Targeting

Credit Limit
Assignment

Payment
Processing

Usage/ Revolving
Incentives

Proactive Risk
Strategies

Piloting and
Refinement

Sales Planning and


Forecasting

Card Creation and


Dispatch

Query Resolution

Product Cross-sell

Recovery
Mechanism

Product Rollout

Distribution and
Monitoring

Card Activation

Grievance
Redressal

Organization structure
Technology Infrastructure

Legal Recourse

Value chain model Generic value chain

When and when not to vertically integrate?

Experience Curve Models

The Experience Curve forecasts future trends in cost/labor and determines the relative cost
position of various competitors. The tool quantifies cost savings, theoretically achieved
through experience gained in conducting a process.
Relevant for traditional/brick and mortar companies to assess near term positioning.
EXPERIENCE CURVE FOR WIDGETS - PROJECTIONS

Unit Cost
($)
50

1974

Slope 20%

1975

40

1976
1978
1977

30

1979

1980
1981
1982

20

1983
1984

10

200

400 600 800 1000


2000
Unit Volume (Thousands)

4000

Generic competitive strategies


Selection matrix

Generic competitive strategies


What will be the impact on the firm?

Scenario Envisioning

A base tool to determine the position of the company and industry direction
Excellent tool for high-impact visual presentation of a company or a portfolio.
HIGH

Ideal Strategy
Development

Dynamic Industry
Rapid Discontinuous
Change

Industry Driver
Impact

New entrants
New/substitute
products
New markets
M&A activity
Shifting
business
models and
economics

Scenario
Envisioning

Transforming
Industry
Steady Evolutionary
Change

Traditional
Strategy
Development

Static Industry
Slow Incremental
Change

Budgetary
Planning

LOW
LOW

Environment Driver Impact


Technology
Regulation
Consumer Disposition

HIGH

Scenario Envisioning
Scenario Envisioning is a powerful approach for companies in industries that are experiencing rapid discontinuous change where the future
cannot be extrapolated from the past and present. Scenario Envisioning fulfills the key needs for formulating strategy in a rapid discontinuous
change environment.
Approach
Innovative hypothesis about the future, based on extensive expert industry knowledge and research are formulated for study and review. The scenario
team converts these theories of logical futures - ones that diverge from the past and present trends - into a set of distinctly different scenarios.
Develop Future Industry Scenarios
Step 1

Define the broad future industry and market context within which the scenarios will be developed. For example, the
banking industry, the broader context may be financial services or even personal information services.

Step 2

Identify the paramount forces that will shape this industry and market context. For example, what consumer,
regulatory, social, legal and technological changes can or could exert the most powerful influence on your industry?
How do these interact on a global basis? Which of these is the most uncertain?

Step 3

Identify the boundary parameters - the full range of uncertainty - of the paramount forces. For example, if regulation
is one of the paramount forces, could the industry be intensively regulated or completely deregulated?

Step 4

Develop logical but innovative hypotheses that explain how the most powerful and uncertain forces could interact.
For example, will a major segment of the banking industry evolve into an on-line personal with building industry,
fostered by deregulation and increasing consumer technological capability?

Step 5

Create a set of scenarios that show how a few key unpredictable forces with the highest impact could interact.
Using a matrix model, the interaction of two or more unpredictable conditions results in a number of distinct
possibilities. The goal is to cover a comprehensive spectrum of market conditions.

The 7S Framework Analyzing an organization

Strategy

A coherent statement of actions aimed at gaining


a sustainable advantage over competition

Critical Success
Factors (CSFs)

Key factors needed by the company to


effectively implement the strategy

Capabilities possessed by the organization as a whole as


distinct from those of individuals; some companies
perform extraordinary feats with ordinary people

Capabilities/Skills

Processes/
Systems
The process and
procedures
through which
things get done
from day-to-day
and the systems
that facilitate
them

Staff

The people in the


organization
considered in terms
of corporate
demographics, not
individual
personalities

Culture/Style

Structure

The way managers


collectively behave
with respect to use
of time, attention
and symbolic actions

The organization
chart and
accompanying
baggage that
show who reports
to whom and how
tasks are divided
up and integrated

7S
When To Apply
When it is necessary to evaluate the building blocks of an organization that serve to support its mission and allow it to execute its
strategies. Information for this analysis is difficult to obtain in some areas without extensively interviewing company personnel. The model
as a simple description of the status quo; it should move the analysis forward to identify areas in which the organizational building blocks
are not supporting the strategy.
Approach

STEP
1. Document
mission/shared vision
2. Document strategy

DATA REQUIRED
Mission Statement

Company documents

Business plans

Interviews with key


executives and staff

Annual strategic plans


Organization charts

3. Evaluate key skills and


capabilities
4. Evaluate support levers,
decision
processes/systems, staff,
culture/style and
structure

SOURCE(S)

Training manuals

Position descriptions
Budgeting process documentation
Performance measures