The strategic idea is an overarching communication message that takes into consideration a

shared truth of the identified target market. As we have learned previously, one strategy of IMC
is integration across different publics of the target market. This considers that, within the defined
target market, there are behavioral nuances or sub-segments based on consumer behavior. IMC
allows marketers to be more relevant and more strongly connect to individuals, rather than to a
collective audience.
As marketers, it is important to identify which of this sub-groups are most valuable to the brand
- that is, can deliver the business objectives in the short- term and the long-haul. 
This step of strategic fine-tuning, or as some call it in practice as strategic way-in, enables
marketers to customize the message and the delivery based on important behavioral criteria.  It
makes communication more suited and relatable to the individual consumers. It allows brands to
have greater emotional and logical connection to specific and valuable publics.

As we have seen, conveying an appropriate brand message or idea is important in changing

consumer behavior. However, this message must be able to reach the consumers being
targeted. That is why, IMC places equal, if not even greater, importance to how the
message is delivered to the consumer.

Customarily, creating the message comes before creating the activities and selecting communication media or channels, as
it has been arranged in the modules of this course. This was when there was not much differentiation among consumers,
and the avenues for communication were quite limited to mass media like TV, radio, print and even direct mailers. With
limited delivery vehicles, brands relied on standing out through magnitude of investment and creativity of messages.
 
However, IMC challenges this way of thinking and doing, given how consumers now demand to be seen as individuals
rather than a speckle in a crowd. Also, today there is are almost limitless opportunities of delivering the brand messages –
in the internet, on social media, special events, sponsorships, merchandise, blogs, YouTube videos, streaming sites, and so
on. Just look around and see where brands have placed their communication materials – on mobile apps, lamp posts,
jeepney stops, balloons, sari-sati store signages, mall corridors, even on walls of private residences.
 
In this case then, how and where the message is delivered plays a pivotal role in changing consumer behavior. A primary
IMC decision, then, is for marketers to recognize where consumers hear, see or learn about the product or service, and
maximize these situations to stimulate positive action.

While marketers integrate the brand’s marketing communication, consumers as well integrate
their experiences of the brand across the marketing communication mix. The consumer comes in
contact with the brand in many ways. It can be by activities initiated by the marketer, or those
that are outside the control of marketers like consumer-to-consumer communication in social
media, or personal referrals among friends.
These experiences and situations are referred to as contact points or touch points of the brand.
Brand contact points are situations and means by which the consumer might have an interaction
with the product or service, its branding, its attributes and benefits, its promised offering, or its
offered solution, before, during and after purchase and usage. This includes actual and potential
points of contact points where the brand may be relevant to the consumer, whether or not the
consumers are exposed or aware of the brand in that instance. For example, a hot summers’ day
in a school fair is a key contact point for a refreshing soda drink.
A brand contact point is relevant to the consumers because it provides the brand message
when they need or want it, and not just when the marketer wants to make it available. It makes
these touch points are It is not seen as intrusive and interruptive. 

Consumers are most responsive in these touch points because it gives them a solution or a
choice for a necessity or a desire of the moment. For example, during a ball game, consumers are
more receptive to receiving messages on branded team merchandise. This same message may not
be as relevant or consumers may not be as enthusiastic outside this moment.

To understand the customer experience of brands, a valuable approach is to do a brand contact

audit.
The brand contact audit determines where, when and how the consumers might come in contact
with the brand, product, service or the company. It seeks to review where consumers have an
actual or potential interaction with the brand. 

 The first step is a do contact point mapping, which plots where consumers can receive
communication on the product or service – whether or not the marketer has control over
these occasions.
 After taking account of these contact points, it is time to assess which are the more
important “moments of truth” – those contacts that resulted in a decision to accept and adopt,
or reject the brand.
 After determining the "moments of truth," a review of what consumers are actually
experiencing at these contact points, and determine what their expectations are.
 This inventory allows marketers to plan marketing communication messages and
activities that ensure effectivity in changing consumer behavior.

 Implication in planning
 Brand contact audits are indispensable in the IMC process. It allows marketers to realize
that consumers' exposure to effective brand messages may not be where they thought it
would be, and that these moments are not always under their exclusive control. Marketers
must conduct research not only to find relevant consumer insights that will be critical in
developing strategic ideas, but also to appreciate and understand consumer behavior
that determines where, when and how consumers need and want to receive brand
information.
 Therefore, the decision on where consumers receive brand messages must not be at the
convenience or whim of the marketers, but must be born from the understanding of
consumer behavior. In planning for IMC, it can be seen that effectivity of brand message
 delivery and efficiency of how this message is delivered - meaning, every contact point is
meaningful and not wasted - is directly related to desired output on consumer behavior.

As said earlier, the consumer has an integrated experience of the brand across different touch
points. Therefore, there is a need to coordinate the IMC activities of the brand, ensuring that each
activity, using each of the tools of the marketing communication mix, at every contact point, has
a specific goal and working together towards fulfilling the IMC objectives.
As mentioned in Module 1, one of the most accepted strategies of integration in IMC is the
integration of communication messages across the marketing communication mix. In your course
pre-requisite of Marketing Management, you learned the tools in the marketing mix - which
consists of the specific blend of advertising, personal selling, sales promotion, public relations,
and direct and digital marketing tools that the company uses to engage consumers, persuasively
communicate customer value, and build customer relationships. 
If you need a refresher, you may want to review the Promotions or Marketing
Communication module of the Marketing 4Ps. See the Appendix module at the end of this
course.
Here are some examples of how brands have coordinated and integrated the activities of their
marketing mix.

LS 126

To emphasize, Strategic Issues are Opportunities or Threats, or Strengths that create

Opportunities,  or Weaknesses  that can affect the firm's performance in a major way over a
long period of time, and cannot just be ignored.  These entail substantial investment,
management attention and resources, and thus  have the potential to make or break a firm. 
This is the reason that managers and entrepreneurs must  exert commensurate effort to
understand them and take extra caution when making decisions about how to address them.
An example of a strategic issue that may be true for a firm is the effects of a pandemic like
COVID19.  Many businesses have been affected by this in a variety of ways - the unavailability
of workers in the manufacturing plants or in the outlets or stores where products or services are
offered, the stalling of banking services on which payroll and other transactions are dependent,
the need to provide for social distancing and other safety measures in the work place, and others. 
This situation has caused a multitude of firms a loss of revenues and a spike in their costs.  The
expected effect on firm performance will be long-term.
The main purpose of a thorough environmental scan and internal assessment is to uncover a
firm's Strategic Issues.  From hereon, keep your eyes open, your ears alert and your mind
thirsting for insight to spot Strategic Issues as you are about to dive into a sea of information in
this module pertaining to your emergent business.

In earlier LS and Marketing courses, you may have learned that successful strategies and plans
are well grounded on a thorough understanding of the firm's external and internal environments. 
It is imperative that you take this process seriously, otherwise, as the saying goes, "garbage in,
garbage out."  As mentioned in the video, businesses in general and would-be  entrepreneurs like
you need ways of  organizing thinking through a sea of information and data by utilizing
frameworks of analysis of our external environments. As the earlier video showed, a successful
scan involves the following:
1. An Analysis of the Macro Environment
2.  An Analysis of the Micro Environment: Competitive Analysis and Industry Analysis
Two major analytical frameworks for the Macro Environmental Analysis which you may have
taken up in past LAS or Marketing classes are worth review, but this time with new eyes, i.e.,
from the point of view of developing your new business.  
1.  The PESTEL ANALYSIS
2.  Porter's Five Forces that Shape Strategy 
The introductory video actually touched on these two tools,  but it didn't mention that it was 
referring to the Porter Analysis for the Competitive and Industry Analyses. The tool for macro
environment analyses was a simple PEST analysis.
In addition to the frameworks, we will also touch on a tool,  the Competitive Profile Matrix
(CPM), which helps your Competitive Analysis.
As a result, you will learn how to develop a list of Opportunities and Threats which will form
the basis of actionable responses in Strategy.  And, to tie it all up, you will be applying these
lessons along the way, individually and with your group for a submission at the end of the
module.
The next sections and their videos should reinforce your understanding of the salient points of
these frameworks and tools by utilizing more examples which should help start you off listing 
the salient trends and developments that affect or  may affect your business. 

Economic Factors
All Sections
11 unread reply.11 reply.
It goes without saying that economic factors have a direct and significant impact on strategy. 
For example, when interest rates rise, funds needed for capital expansion become more costly. 
The demand for discretionary goods falls  with the decline in discretionary income.   When
looking at economic factors, business owners and strategists are mainly concerned about the
economy's health and growth prospects, inflation rates, borrowing costs, behavior of cost factors,
exchange rates in case they heavily rely on raw material imports or they have huge revenues
from exports,  and the like, and how all these will potentially impact their business.
Euromonitor's 2019 Country Report for the Philippines features some economic indicators in the
table below. A full report can be accessed in the following link. (Links to an external site.)
 

 
Read these excerpts of a consumer report with a number of economic indicators which managers
typically would like to review each year to get a feel of the business and consumer environment.
 

Social, Cultural, Demographic, Natural

Environment Forces
All Sections
4242 unread replies.4242 replies.
Social, cultural, demographic, and environmental trends are shaping the way Filipinos live,
work, produce, and consume. New trends are creating a different type of consumer and,
consequently, a need for different products, new services, and updated strategies.
For example, the growing awareness for healthy lifestyle has given birth to multiple niche
products (e.g. organic vegetables) and services (e.g. personal trainers). Though the millennial
and post-millennial generation is a worldwide phenomenon,  the large number of youth in the
Philippines makes the local market more susceptible than in other countries. 
Among the many sources for this type of data is Euromonitor's periodic Consumer
Lifestyles (Links to an external site.) report which looks at a number of  variables such as those
below.
 

 
Other variables of Social, Cultural, Demographic, Natural Environment forces include:
Technology has been instrumental in shaping the way businesses work. We see this
transformation especially in Southeast Asian countries. Indonesia, in particular, is a hotspot for
tech investment due to its size and potential. By 2025, the digital economy in SEA is expected to
be worth $300 Billion, 3x its size in 2019. The Digital 2019 Philippines report by Hootsuite &
We Are Social, estimates about 70% of our population uses the internet and social media, up by
over 10% from 2018. For the full report you may refer to this link (Links to an external site.).
 
In the early 2000s, Gabby Lopez, then President of ABS CBN was raising during our planning
session that many international players in media were already predicting the imminent trend on
people creating their own online content.  He mentioned how this was an immediate opportunity
for one of its businesses, ABS-CBN Global to earn from digital ads that could ride on these
individual content. 
Today, individual content is all over the internet, with many people earning from the ads the
media and other companies are placing.
Aside from the digital economy, other technological advances worth monitoring include:

 3D printing
 virtual and augmented reality
 biotech
 human augmentation
 machine learning
 data analytics
 robotic process automation
 artificial intelligence
 re-skilling human workforce
 

Political, Government, and, Legal Forces

All Sections
22 unread replies.22 replies.
National, provincial and municipal governments are major regulators, deregulators, employers,
and customers of organizations. Political, governmental, and legal factors, therefore, can
represent key opportunities or threats for both small and large institutions. This is even more
important in industries that depend heavily on government contracts and licenses, like broadcast
networks, which can be closed in some without government support. Changes in laws,  tax rates
and lobbying activities can also affect firms significantly. 
Some questions strategists have to consider are:

 What role(s) does the government have in business?

 How does the political climate affect businesses?
 What are the most discussed topics in politics and legislation?
 How are businesses affected by government policies?
For example, Euromonitor's Business Dynamics Philippines report (seen below) feature a
number of Political variables that affect our attractiveness to foreign companies. For a full report
you may refer to the this link (Links to an external site.).
 
 
Here are other variables of political, governmental and legal factors that could impact strategy:
Speaking with the Right
Data/Analytics 
It may sound easy to name and present trends in the PESTEL.  However, any  entrepreneur or
manager must apply a  number of useful practices when presenting trends and information,
especially in this day and age.   These are as follows:
1.  He must be discriminating in his choice of information, trends and analytics.  He must focus
on those that may have a profound impact on his business in the short and long term. 
2.  When he makes a claim about  trends and developments, he must speak and reason with
data to prove his claims. Any claims of increases or decreases in the trend of any key variable or
strong or lack of relationships of selected variables must be proven.   
3.  He must ensure that sources of information are credible and well-validated for correctness and
consistency. Many of us get victimized by unverified sources which turn out unreliable. In a
business setting, this may be damaging to one's own reputation, even as a secondary bearer of the
news.   
4.  One must not stop at presenting data. Analysis is what makes any presentation value-adding
and impressive. (Note to you students: as soon-to be-graduates of the Ateneo, you carry a brand
name that conveys an assurance of Quality Analytics.  Deliver the analysis, not just the data. 
Remember, your boss always has the option to hire lower paid people for research and data.)  
5.  His analysis must be presented clearly and concisely, using  appropriate charts that are
simple, yet effective, and easy to recall.  Trends must be illustratedover a period of time, so as
to prove or illustrate them (complete with labels and dates and amounts and currencies, if
any). 
6.  With the speed of change in many industries today, it is always best to cite more recent data,
i.e., over the last 3-5 years.  The exception is when one intends to present historical trends or
establish patterns over the years, as is usually true for economic statistics like how the Philippine
GDP has behaved over the past 30 years or the like.
Keep these in mind as you conduct your own research, synthesize results and prepare to present
them in the various modules that follow. 

The Industry Life Cycle

The Industry Life Cycle is the general evolution of an industry over time. It is important to gauge
the stage of the industry of a business because:
1.  it will provide an idea of the nature of and intensity of competition
2.  it is indicative of the strategies that existing firms are most probably employing to survive and
likewise, the appropriate strategies for a new entrant to adopt if it is to compete successfully
3.  it is also indicative of the general level of investments needed to compete in the industry
This four stage model is closely related to the Product Life Cycle usually used in marketing.
Learn from this next video which describes these stages. 

Please watch this video on the industry life cycle:

 
An industry's life cycle typically consists of four stages — introduction., growth, maturity, and
decline. The stages can vary in length across various industries - some only in months or others
in years.  The nature of competition in each stage tends to vary, with intensity probably at its
peak as the industry starts to mature.  
Let's delve deeper into each of the four Life Cycle Stages in the series of videos following:

 
Introduction Stage

o New product or service offered to the market
o Firm may be alone in the industry/ few players
o Strategy will be focused on niche market/early adopters
o Profits usually negative at this stage (takes time to recoup investments)
o Examples: Wearable technology, drones

 
 
Growth Stage

o Period of rapid market acceptance and increasing profits
o Requires significant amount of capital for expansion
o Examples: Sharing economy-Airbnb and Grab/Uber

 
 
Maturity Stage

o Period of slowdown in sales where industry growth rate hits a plateau
o Typically fewer and bigger players
o Innovations are not as radical
o Examples: shampoos,  mobile phones

 
 
Decline Stage

o Falling sales, lower production volume resulting to decreasing profitability
o Firms that failed to innovate start exiting the market
o Mergers and consolidations also happen
o Examples: analog cameras

There is another five stage model of the Industry Life Cycle that includes a Shakeout stage
between the Growth and Maturity stages. This Shakeout stage denotes the period where
competitors exit the industry as a few strong players dominate the market. It is also important to
note that even declining industries can extend their life cycle by introducing new products and
services that reinvent the industry. Examples of these include the Milk Tea industry, which has
evolved from kiosks to coffee-shop like establishments, and live theatrical productions which has
found its niche in elaborate musicals for the upper class. 
Watch this power point to get an idea of the nature of strategies  that companies employ
depending on the stage of their industry:

Michael Porter's Five Competitive Forces of the

Industry 
All Sections
1313 unread replies.1313 replies.
This section is essentially a review of Michael Porter's Five Competitive Forces of the
Industry which you may have taken in past Marketing or LAS courses.   
 

Porter's Five Forces  is a groundbreaking business framework developed by Michael Porter in

1979. The Harvard Business Review published the framework in an article entitled, How
Competitive Forces Shape Strategy. (i.e. You may read the full article in this link) (Links to an
external site.).
 
 
This framework is a robust and powerful tool in assisting potential new entrepreneurs like you in
making an assessment of the attractiveness  of the industry you are intending to enter.   In doing
so, you will get a better picture of the threats and opportunities in your industry,  which should
alert you on the compelling issues you need to address for your business.  As this video below
highlights, "understanding the forces that shape industry is the starting point of strategy."
The series of videos below provide a clear discussion of this useful analytical framework.  If you
are already confident about your skills in using the framework, you may altogether skip the
videos in this segment of the course.  However,  if you feel the need for further polishing your
skills, sit through the videos and answer the questions within and at the end of each of the videos
to think through each of the forces of your industry. Prepare yourself for a group discussion to
apply the framework to your business at the end of this module. 
 

The Threat of Competition 

In order to make a meaningful analysis under Porter's framework, it is essential that your team
has researched on your major competitors, their apparent strategies,  infrastructure, market
position and financial performance, and the reasons they have achieved such.  You must be able
to gather insights and ideas from the factors that have made them successful or caused any
failures for that matter.  You must start to think about how you can get ahead of their actions,
even block or prevent them from moving ahead, or, as Gary Hamel puts it, "totally change the
rules of the game" in order to invalidate their current positions. 
Michael Porter goes on to state that competition goes beyond your existing direct competitors.
Competitors must include potential substitutes to your product or service or new entrants to the
market.  Watch this next video and answer the questions as you go along.
 

The Threat of Expanded Competition: New Entrants and Substitutes

Indeed, life would be simpler in an industry if barriers to entry were so high so as to prevent
future new entrants.  It would also be simpler if there would be no substitutes to a business'
products, unlike how butter could be used as a substitute to cooking oil,  thus making the
industry even more competitive.
As if all these types of competition are not enough.  Porter goes on to add that there are other
forces that shape your industry.  You must be wary of any power your Suppliers or
your Buyers may have over your firm.  Watch the next video and answer the questions.
 

The Bargaining Power of Buyers and Suppliers

Your suppliers of services or raw materials, particularly those your company are most dependent
on, are an added factor to manage for the overall well being of your firm.  Suppliers may be a
threat to your business in the sense that they can become future competitors.  For example,  some
makers of packaging products have moved forward to produce the products of their clients as an
expansion of their business portfolio. 
Your company's Buyers, i.e., your clients or consumers may also present some issues to your
operations.  This is most true for B2B companies which have clients who own large market
shares in their industries.  Many food and drug packaging companies are small operations,
competing for volumes from the likes of Nestle or Coca-Cola or Unilab and other large players. 
These giant food or Pharmaceutical players have the capability to force the smaller packaging
players to reveal their production costs, usually a safeguarded competitive secret, and further
lower their selling prices when joining competitive bids. 
 
So what does all the above analysis mean for your business?  Porter's Five Forces Analysis, if
done well can uncover many strategic issues, whether they be Opportunities or Threats for your
business, and hence can lead you to ideas of what you can do about them in strategy.  Watch this
last video from B2U which illustrates this. 

he Competitive Profile Matrix 

All Sections
No unread replies.No replies.
The PESTEL and Porter's Five Forces analyses have assisted you in identifying the  forces that
may affect your business.  In this section, we look into a strategic tool  to help you further make
sense of and prioritize the trends and forces that are most important to strategy.
A strategy tool that takes your  Competitor Analysis results and pushes it further  is the
Competitive Profile Matrix  or the CPM.  The CPM identifies an industry's Critical Success
Factors (CSFs) and rates the business and its major competitors against these CSFs.   
Let us first understand a very important concept in strategy, i.e., Critical Success Factors  by
checking out this file:
Play media comment.
Downloadable Version: Mod 3 CSFs dwnld vrsn.pdf

 
So Critical Success Factors are what every player in an industry must fulfill or address in
strategy in order to continue to succeed in the industry.
The first step in developing your CPM is to agree on the Critical Success Factors (CSFs) of your
industry.  After analyzing the players in your industry, along with their strategies and
performance, you need to list down what you have observed as the top 8 -10 Critical Success
Factors that every player needs to  in order to survive or perform well in the industry.
 

Here is a demonstration on creating a CPM:

 
The Competitive Profile Matrix is one way to compare competitors within an industry. In real
life, each Weight and Rating should have some objective basis. For class purposes, we will allow
you to make a subjective estimate if data is not available.
By comparing the organization's performance against the industry's KSFs vis-a-vis competitors,
we should be able to find more strengths, opportunities and weaknesses. It is also possible to
obtain many other insights from this analysis.
Watch this Power Point video on a  CPM analysis made by a former group  on Wendy's:
Play media comment.
 

Wendy's CPM Chart .pptx

Downloadable Version:Mod 3 Wendy's CPM Chart dwnld vrsn.pdf

 
What does this version of a CPM analysis of Wendy's tell us?
1.  The group considered 10 top Critical Success Factors for the Fast Food Industry, the most
important of which (as indicated by their weights) are Market Share, Advertising, Product
Quality and  Global Expansion.
2. Of the 4 players being compared, McDonald's garnered the the highest weighted score (at 3.7) 
and is therefore seen to be faring better in terms of delivering on the industry's Critical Success
Factors as of the time of the analysis.
3.  McDonald's strengths, as shown by their weighted scores in each CSF, lies in its market
share, global expansion and price competition.
4.  Wendy's, the company being audited, fared lowest in terms of total weighted score (2.3), but
is not too far away from its rival, Burger King.  Wendy's main strength is seen to be in
Advertising, the third CSF of the industry.  Per the group's analysis, Wendy's needs to improve
on its customer service, management experience and financial position.
 
Here is a link (Links to an external site.) to the template for the CPM.  GO to Row 97.
You may read more about the CPM in  page 78 of the book of David (Main Textbook for the
course). 
 
Testing the concept of your proposed business is a form of an assessment  for your planned
Product/Service. 
At this stage, we introduce our business idea to a small sample of the market, which Professor
Walters termed an in-house sample, so we may better refine the concept prior to investing in
prototypes. Generally speaking, the greater the required investment in prototyping, the more
extensive our Concept Test should be.
The video below expands on the process of Concept Testing and introduces some marketing
research techniques that you may employ.
 
 
So one needs to do a Concept Test by conducting two things:
1.  Quantitative Research to size the market and determine its growth and understand the
current players' market shares and own growths.  You may have noted by now that this lies
at the core of Industry Analysis, and is among information that Michael Porter asks about in his
Five Forces Analysis.
You need to establish if the market is huge to accommodate many players, and whether or not it
is still growing.  You also need to assess a target market share which at this stage of entry is
usually only a tiny single digit share. 
2.  Qualitative Research to get a feel of customers' opinions on the need for the
product/service.  This is done via focused group discussions, interviews of a good sized sample
of potential users or actually making observations on how people buy and use the product, i.e., if
there is something similar in the market.
An Introduction to the Internal Assessment
Process
All Sections
No unread replies.No replies.
Definition of the Internal Assessment
You have completed an External Assessment of the Industry, Competition and the Macro
Environment, and hopefully have been able to pinpoint salient Opportunities and Threats, and
insights that you incorporated to improve your  Business Model design.  Now let's move on to
the other side of our Building Blocks for Stage 1 of the Strategy Formulation Framework, the
Internal Assessment.

Play media comment.

Downloadable Version: Mod 3 Internal Assessment Intro 0 DwnLoad.pdf  Links to an external site.

 
As the video just highlighted, the objective of the Internal Assessment  is not only to understand
a company's Strengths and Weaknesses as you have leaned in past classes, but also to  search
for the company's  Competitive Advantage/s.  If there are none yet, the objective is to look out
for areas that may become springboards for future Competitive Advantage.   
 
How do we uncover a Company's Strengths, Weaknesses and Competitive Advantage/s, if any? 
To perform an effective Internal Assessment, there must be an organized and disciplined
approach to it.
Check out a number of frameworks in the submodules that follow.
 
Established companies use a number of frameworks and tools to perform an Internal
Assessment.   Many of the frameworks contain checklists to help companies  be as
comprehensive as possible in assessing or auditing their performance.  The frameworks vary in
terms of how they organize these audit questions.
 

INTERNAL ANALYSIS FRAMEWORKS

 
Play media comment.
Downloadable Version: Internal Frameworks.pdf

 
1.  David's Functional Audit
Our textbook organizes the assessment by functions, calling it a  Functional Audit. Summarized
below are the questions prsented in David:

David's Functional Audit.pptx

 
 
As emphasized, the questions are framed for an established company.  For start-ups like yours,
any audit at this point will be limited to your resources or networks or potential partners that you
possess at the moment.  You may try to name a few possible strengths, and perhaps be
overwhelmed by many weaknesses.  You may consider some items in  this checklist that may
help you be more thorough in terms of thinking about Strengths and Weaknesses, and the finer
aspects that must be addressed by business.
You can  also use this to assess your competitors who have been in the market for quite some
time in order to understand the areas they are strong or weak in, or to identify their own
competitive advantage/s (The audit of competition can actually help you build your CPM chart in
the External Assessment).  As you evaluate yourself relative to competition, take note of the
things they seem to be doing particularly well as you should be able to address this (or go around
it or render it useless) in the final design of your business model.
 
2.  VRIO Framework to Competitive Advantage  
 

 
Downloadable Transcription: Link (Links to an external site.)
 
The VRIO Approach to Competitive Advantage is also called the Resource Based View
(RBV) developed by J. Barney.  The RBV focuses on sources of Competitive Advantage from
within the company.  As the video points out, resources can be any combination of assets,
capabilities, processes, firm attributes, Information or Knowledge that a company has built
overtime  in an effort to operate more efficiently and effectively.  
Resources can be classified as Tangible (physical resources) or Intangible Assets, (brand,
reputation, relationships, etc.)  or in terms of capital. i.e., Physical, Human or Organizational
capital.  The RBV adopts the VRIO view that  to build a real Competitive Advantage from its
resources, its resources must first and foremost  be:
1.  Valuable - they have the capability to improve efficiencies or effectiveness of processes or
activities of the firm and lead to an increase in revenues or a decrease in costs.
2.  Rare - they can only be acquired by one or a few companies
3.  Inimitable - they are difficult to imitate because of any of the following:
     a.  Historical Conditions - they were available only at some point in time and space like a
valuable piece of land in a very strategic location whose value has grown through the years due
to the development in that area;
     b.  Causal Ambiguity - there are causal linkages and interdependencies that enhance each
other which outsiders find difficult to pinpoint
     c.  Social Complexity - there are proprietary relationships or reputations built over time as
with supplier relationships, organizational culture, great teamwork
4.  Organized - to maximize all the strengths and capture their full value, the firm is well
organized as it has in place  regular and clear reporting structures, compensation policies and/or
strong management of its cultural systems, etc.,  which have been established over time
For a firm to claim to have a Competitive Advantage, ALL of the above 4 elements must be
present. 
Another guru in Strategy, Gary Hamel, ventures to say that a  Competitive Advantage is not just
a single strength.  It is usually a combination of strengthstightly knit together and performed
extraordinarily well - and that is what makes it difficult to copy.  However, it cannot be just
any group of strengths taken together.   Like the VRIO, for it to be a Competitive Advantage, it
must be able to reap a major benefit to the firm's performance in the market.  A firm may have
the best looking and unique packaging design due to its design team, but if the design is not
something valued by the market, or if leads to the product's outrageous price which customers
will not appreciate, then the design team and the unique packaging cannot be called a
Competitive Advantage.
Taking this mindset of seeking to create a Competitive Advantage as you go along and build
your business model is a very powerful way to ensure that your strategies will survive the test of
time.
 
3. Value Chain Analysis
The Value Chain, which is another tool that was also introduced by Michael Porter, is like
another version of a functional audit but it pushes analyses further by forcing one to focus on
and understand the areas of a firm that create the most value and drive its current
margins. 
Porter emphasizes that a thorough understanding  each of a firm's individual key areas (including
those of its support structure) and the  linkages among them,  may lead to new insights on its cost
or value drivers.  Tightening  linkages across key areas can  increase value by eliminating
unnecessary activities in the chain or introducing new systems or ways of doing things.
Value Chain Analysis yields the best  results if it can be performed on the firm in parallel with
a benchmark company that is already successful in the market.  It should serve to
highlight what leading competitors are doing better than yours, what areas of strength
should be overcome, or the points of weakness that can be be taken advantage of. 
As mentioned earlier, we will use the Value Chain to fully develop the other boxes like
Channels, Key Activities, Key Partners and Resources of our business models in Module 5.  The
Value Chain Tool will be elaborated in more detail come Module 5 of this Course.
 

https://www.business-to-you.com/value-chain/ (Links to an external site.)

 
4.  Organizational  Strategy, Systems, Linkages and Relationships  Frameworks
The last two frameworks, that is McKinsey's 7S and the Weisboard model are other helpful
frameworks that look across the firm, not from the lens of functional flows but more from
relationships and interactions of key systems and organizational enablers.  We will not focus on
them in this course, but if you are interested, you can look up these models in the future in case
you may want to make more thorough  analyses of any firm.
If you have time after this course, you may consider learning from these other source videos on
these  topics later on:

LinkLinks to an external site.

LinkLinks to an external site.
 
HYBRID TOOL: THE COMPETITIVE PROFILE MATRIX
As earlier highlighted in the External Analysis, the CPM is a hybrid tool.  As you have seen, it
can be used to appraise Competition against the Critical Success Factors (CSFs) of the Industry. 
As a tool in Internal Assessment, the CPM is used to evaluate your own company against the
Industry's CSFs and make a comparison of the resulting score and individual ratings with these
competitors.
As a start-up, you should expect to get a lower score in the CPM relative to the industry leader or
some other strong companies in the industry.  Your rating should be close to that of other start-
ups ahead of you, if there are any.  
The CPM should help you understand what CSFs you need to further build strengths in to help
improve your performance and market position.  It cannot be overemphasized that oftentimes, in
a highly competitive industry, the goal should even be to attempt to change the CSFs in the
industry by introducing new uses or features for your products, new ways to reach the customer,
or other approaches to the market that can help you succeed.  As Gary Hamel puts it, the ideal
route in Strategy is to change the rules of the game in the industry. 
The CPM is a powerful tool to help you understand which factors make each competitor tick so
to speak, i.e., if you use it wisely.  It may lead you to new insights on your own strategy. 
Conversely, take note of the areas where you have rated yourself particularly weak at.  These are
important considerations as you begin to build your strategy beginning Module 4.
 
As a potential start-up, you have almost nothing at this point, not even a product or company to
speak of yet.   You will be able at most to name a few resources and possibly networks that you
can leverage to start to build your business.  It will be debatable whether these can be considered
strengths at this point, unless they are things related to a very unique knowhow or rare raw
material or resource.   You will find that you also have a good number of weaknesses relative to
competition. 
For now, use these frameworks in the following manner:
1.  To get familiar with the areas of a company and the various activities that must be done right.
You will need to consider these areas when designing your strategies for your own business in
later modules.  
2.  To learn from competition through benchmarking with their own set-up and performance. 
3.  To get ideas on how to move forward from the few resources and many weaknesses you will
identify at the start.
 
The frameworks and tool are used singly or in combination with one or two to facilitate a
company's Internal Assessment. When used correctly, can serve as a means for a company to
honestly appraise itself in an effort to become better and better than competition. You may use
these tools more rigorously after a year or so of your operations to help ensure more organized
planning in the future.

Financial Analysis in the Internal Assessment

All Sections
No unread replies.No replies.
Financial Assessment of the Company
Any Internal Assessment cannot be complete without an Analysis of the Financial Performance
of the company.  This next video summarizes the steps that analysts undertake to perform good
financial analyses, whether of their own firm or that of competition.
As mentioned earlier, you do not have any product or  business at this point and thus have
nothing to analyze in terms of a financial performance yet.  Having gone through your Finance
and Managerial Accounting classes,  it is expected that  you have become good enough financial
analysts who can perform this assessment on companies in a breeze, making this segment just a
review. 
 

Play media comment.

 
Remember the minimum that you need to do to provide a complete financial analysis of a
company:
1.  Prepare your Horizontal and Vertical Analyses.
2.  Compute the relevant Financial Ratios.
3.  Analyze the results, searching for the reasons for numerical trends, whether these be
growth or declines, but focusing on the most significant ones
4.  Benchmark performance with other companies and identify Weaknesses and Strengths
relative to those of competitor companies.
As a potential start-up at this point in the course, the financial analysis required of your team will
be more focused on your competitors and will be useful to complete the CPM for the External
Analysis. The analysis will most likely be limited to top line results and trends (Revenue,
Margins, Costs, Assets, Liabilities) and selected financial ratios (ROS, ROA, ROE) due to the
limited information that is usually obtained, unless you are able to obtain a detailed set of
financial statements from the SEC. Note that while the CPM was presented in the External
Assessment module of the course, it is also an Internal Assessment tool as it allows you to
benchmark your performance with Competition and provides a basis to claim your own good or
bad performance..
It would be great if you can get competitor financial statements from the SEC  as this would
provide more details on key cost factors for your business, along with a benchmark forthe
structure of costs.   In later modules of this course, when you have had a feel of your sales and
costs during market tests, you can use these to assess your position versus that of competition. 
Here are a few relevant questions a manager would always want to know in performing a
Financial Assessment of any company:
1.  Are revenues growing ahead of costs?  How does growth fare versus the industry's growth?
2.  Which segments are driving revenue growth?
3.  Which costs are significant components of the total variable or fixed costs?  How are they
behaving?
4.  How are margins per unit behaving over time?
5.  Are the revenue growth or cost trends to continue? What factors will contribute to these?
6.  Are assets being utilized efficiently?
7.  Are funds being utilized  efficiently?
8.  How are the relevant company ratios behaving over time? Are debt levels still healthy?
9.  What Income statement or balance sheet numbers are off? What explains them?
10.  What are the bright spots? What are areas that urgently need to be addressed?
 Which questions are most important may vary from industry to industry, as with the
combination  of questions. 
For your start-up, you must eventually answer these questions framed in a forward looking
manner to help formulate your own strategies.  Also, in the next module of the course, you are
expected to have pinpointed the key activities necessary to produce your product, along with the
relevant production cost factors.
Later on in your career, to perform the Internal Assessment, you can tie up or relate the results
of the financial analysis with findings from  the Value Chain or David's functional Audit. 
These may help explain some financial outcomes or trends.  For example, if you are seeing a
significant rise in some fixed costs, you can trace this to some activities in the value chain that
may have caused the increase.
More than simply getting the answers to the strategic  questions above, the goal  is to solve  or
resolve the issues that plague the company, or to know which  strategies to continue,
discontinue, or even enhance in order to effect continuing and sustainable firm growth, 
good performance and build more or further strengthen  competitive advantages.