Situation Analysis

Presented by:
Dr. A. K. M. Saiful Majid
Professor, IBA
University of Dhaka

November 2013

Two considerations
Companys external or
macro-environment
Industry and competitive conditions
Companys internal or
micro-environment
Competencies, capabilities,
resource strengths and weaknesses,
and competitiveness

What is Situation Analysis?
The most general layer of the environment is often
referred to as the macro environment. This consists
of broad environmental factors that impact to a
greater or lesser extent on almost all organizations.
A starting point can be provided by the PESTEL
framework which can be used to identify how future
trends in the political, economic, social, technological,
environmental and legal environments might impinge
on organizations.
The PESTEL framework categorizes environmental
influence into six main types: political, economic,
social, technological, environmental and legal
Within this broad general environment the next layer
is called an industry or a sector. This is a group of
organizations producing the same products or
services.
The most immediate layer of the environment
consists of competitors and markets.
The concept of strategic groups can help with the
identification of both direct and indirect competitors.
Fig:From Thinking Strategically about the
Companys Situation
to Choosing a Strategy
Fig: The Components of a
Companys Macro-Environment
Industry Analysis:
Defining an Industry
Industry
A group of companies offering products or services that are close
substitutes for each other and that satisfy the same basic customer needs
Industry boundaries may change as customer needs evolve and
technology changes
Sector
A group of closely related industries
Market Segments
Distinct groups of customers within an industry
Can be differentiated from each other with distinct attributes and specific
demands
Industry analysis begins by focusing on the
overall industry before considering market
segment or sector-level issues
External Analysis requires an assessment of:
Industry environment in which company operates
Competitive structure of industry
Competitive position of the company
Competitiveness and position of major rivals

The country or national environments in which company competes

The wider socioeconomic or macro-environment that may affect the
company and its industry

PESTEL
External Analysis
The purpose of external analysis is to identify the
strategic opportunities and threats in the
organizations operating environment that will affect
how it pursues its mission.
PESTEL Analysis
Political Factors
Political ideologies
Government stability
Security and social welfare policies
Taxation policy
Political / civil unrest, etc.

PESTEL Analysis
Economic Factors
The challenge of a global economy
Monetary policy
GNP trends
Inflation rates
Employment (wage rates)
Disposable income
Budget deficits, etc.
PESTEL Analysis
Socio-Cultural Factors
Demographics
Social mobility/diversity
Lifestyle preferences
New consumerism
Levels of education
Women in the workforce
Attitudes about the QWL
Social values, etc.





PESTEL Analysis
Technological Factors
Speed of technology transfer
New discoveries and innovations
Effects of new Technology on
business structure in the country
ICT or IT
Product Life Cycles (PLC)
Focus of private & government
supported R & D expenditures, etc.
PESTEL Analysis
Legal Factors
Specific laws
Employment laws
Trade unions policies
Labor training laws
Taxation laws
International trade agreements, i.e.
GATT, WTO, SAFTA, NAFTA, etc.
PESTEL Analysis
Environmental/Ethical/Ecological
Climate issues
Environmental protection issues
Human Rights issues
Pollution
Recycling and environmental
friendly issues
Hazard prevention
Green environmental issues, etc.
Porters Five Forces Model
Source: M. E. Porter, 1985.
Competitive Advantage, p. 5
Q: What Market Positions Do
Rivals Occupy?
One technique to reveal
different competitive positions
of industry rivals is
strategic group mapping
A strategic group is a
cluster of firms in an industry
with similar competitive
approaches and market positions
Strategic Group Mapping
Firms in same strategic group have
two or more competitive
characteristics in common
Have comparable product line breadth
Sell in same price/quality range
Emphasize same distribution channels
Use same product attributes to appeal
to similar types of buyers
Use identical technological approaches
Offer buyers similar services
Cover same geographic areas
ILC is a useful tool for analyzing the effects of an industrys
evolution on competitive forces. Using the industry life cycle model,
we can identify five industry environments, each linked to a distinct
stage of an industry's evolution:
Industry Life Cycle Analysis
1. Embryonic industry just beginning to develop
Rivalry based on perfecting products, educating customers,
and opening up distribution channels.
2. Growth first-time demand takes-off with new customers
Low rivalry as focus is on keeping up with high industry
growth.
3. Shakeout demand approaches saturation, replacements
Rivalry intensifies with emergence of excess productive
capacity.
4. Mature market totally saturated with low to no growth
Industry consolidation based on market share, driving down
price.
5. Decline industry growth becomes negative
Rivalry further intensifies based on rate of decline and exit
barriers.
Stages in the Industry Life Cycle

Strength and nature of five forces change as industry evolves
The Role of the Macro-environment
Changes in the
forces in the macro-
environment can
directly impact:
The Five Forces
Relative Strengths
Industry
Attractiveness
Competitive Analysis
The behavior of competitors limits its
ability to pursue its objectives.

Changes within the market offer threats
and opportunities to which the
organization must respond.

The structure of the sector in which the
organization operates largely
determines its ability to make profits.
Courtesy of The University of Reading
The Five Forces Analysis: Key
Questions & Implications
What are the key forces at work in the
competitive environment?
Are there underlying forces driving
competitive forces?
Will competitive forces changes?
What are the strengths and weaknesses
of competitors in relation to the competitive
forces?
Can competitive strategy influence
competitive forces (e.g. by building barriers
to entry or reducing competitive rivalry)?
Assignment: Brothers Furniture Ltd.
The Brothers Furniture Ltd was established in 1985. It has only
three branches that are located in Gulshan, Uttara and
Baridhara. The furniture company employes over 150 full-time
employees with its annual turn over US $52,00, 000. The
company manufactures wooden furniture and machine made
wooden door, doorframe, stair rail, molding bit, wooden floor,
kitchen cabinet etc. The Brothers Furniture Ltd has good
technical skills and marketing experiences that have been
praised in different international trade fairs at home and abroad.
As a result sophisticated machines and technology have been
introduced in their Shahjadpur, Gulshan factory to cope with the
demand of the customers. Nonetheless, in the recent years the
company is facing fierce competition from other branded and
non-branded furniture retailers. On the basis of the information
given here
conduct : a) PESTEL Analysis, b) SWOT Analysis, and c) Five
Forces Model of Competition.

Source: brothersbd.com
Brothers Furniture Ltd Rating: Low/Medium/High
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry against Existing Competitors
Bargaining Power of Buyers
Threat of Substitute Products

Please take 10 minutes to agree to
this analysis amongst your team -
show comments and ratings against
all 5 areas.
S W O T represents the first letter in
S trengths
W eaknesses
O pportunities
T hreats
For a companys strategy to be well-
conceived, it must be
Matched to its resource strengths and
weaknesses
Aimed at capturing its best market
opportunities and erecting defenses
against external threats to its well-being
S W
O T
Q: What Are the Companys Strengths,
Weaknesses, Opportunities and Threats ?
Identifying Resource Strengths
and Competitive Capabilities
A strength is something a firm does well or an
attribute that enhances its competitiveness
Valuable competencies or know-how
Valuable physical assets
Valuable human assets
Valuable organizational assets
Valuable intangible assets
Important competitive capabilities
An attribute that places a company in a position of
market advantage
Alliances or cooperative ventures with partners

Resource strengths and competitive
capabilities are competitive assets!
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
Fig: The Three Steps of SWOT
Analysis
Thank you