MANAGEMENT

CONSULTANT
National Competitiveness, Market Dynamics & Business Analysis
Mahesh Narayan
LEARNING OUTCOME

▪ Conduct analysis of industries & companies by analyzing the

advantages it gets from its Home Country
▪ Conduct analysis for understanding Market dynamics using
SCP & Internal-External Matrix
▪ Learn where & how to use these frameworks
COMPETITIVE ADVANTAGE & COMPETITIVENESS

Source: Professor Michael E. Porter, Harvard Business School, Advanced Management Program, April 15, 2009
CHANGING NATURE OF DOMESTIC & INTERNATIONAL COMPETITION

•Falling barriers to trade and investment

•Globalization of markets
•Globalization of capital investment
•Globalization of company value chains
•Rapidly increasing stock and diffusion of knowledge
•Increasing knowledge and skill intensity of competition
•Value is increasingly concentrated in service functions, not manufacturing activities themselves
•Shift from vertical integration to relying on outside suppliers, partners, and institutions
•Rising logistical costs due to costs of energy and emissions
•Costs in China and India are rising rapidly
•Competitive upgrading is occurring in many countries

Source: Professor Michael E. Porter, Harvard Business School, Advanced Management Program, April 15, 2009
WHAT IS COMPETITIVENESS

•Competitiveness depends on the productivity with which a nation uses its human, capital, and natural
resources.
• Productivity sets the sustainable standard of living(wages, returns on capital, returns on natural resources) that a
country can sustain
• It is not what industries a nation competes in that matters for prosperity, but how productively it
competes in those industries
• Productivity in a national economy arises from a combination of domestic and foreign firms
• The productivity of “local” or domestic industries is fundamental to competitiveness, not just that of
export industries

Source: Professor Michael E. Porter, Harvard Business School, Advanced Management Program, April 15, 2009
DETERMINANTS OF COMPETITIVENESS

• Macroeconomic
competitiveness creates the
potential for high
productivity, but is not
sufficient

• Productivity ultimately
depends on improving the
microeconomic capability of
the economy and the
sophistication of local
competition

Source: Professor Michael E. Porter, Harvard Business School, Advanced Management Program, April 15, 2009
QUALITY OF BUSINESS ENVIRONMENT
PORTER’S DIAMOND

Source: Professor Michael E. Porter, Harvard Business School, Advanced Management Program, April 15, 2009
FRAMEWORKS TO ANALYZE MACRO ENVIRONMENT
PORTER’S DIAMOND

• Factor Conditions
• Nation does not inherit but instead creates the most important factors of production
• Stock of factor less important than the rate & efficiency with which it creates, upgrades & deploys them in
particular industries
• Most important factors are those that involve sustained & heavy investment and are specialized to an
industry’s specific needs
• Factors which are scarce, more difficult for foreign competitors to imitate
• Competitive advantage results from the presence of world-class institutions that first create specialized factors &
continually work to upgrade them (Denmark has specialized institutions that research diabetes – Denmark is also
world’s leading exporter of Insulin, Holland – Flower etc)
FRAMEWORKS TO ANALYZE MACRO ENVIRONMENT
PORTER’S DIAMOND

• Demand Conditions
• Composition & Character of the home market effect how companies perceive, interpret & respond to global
buyer needs
• Companies gain competitive advantage where the home demand gives them clear understanding of
emerging buyer needs
• Demanding buyers, pressure companies to innovate faster & achieve more sophisticated competitive
advantages than their foreign rivals
• If domestic buyers are the world’s most sophisticated & demanding buyers
• Stringent needs arise from local values & circumstances
• Local buyers – help companies to anticipate global trends/needs (Denmark’s Environmentalism, US – Fast
Food/Credit Card
• When the industry in home country is large – companies have a competitive advantage
• Demand conditions force companies to respond to tough challenges
FRAMEWORKS TO ANALYZE MACRO ENVIRONMENT
PORTER’S DIAMOND

•Related & Supporting Industries

• Presence of supporting /downstream industries which are internationally competitive
• Deliver most cost-effective inputs
• Provide innovation & upgrading (short lines of communication) – companies have the opportunity to influence
their suppliers (test sites for R&D accelerating the pace of innovation)
• Home based related industry results in embracing of new skills also brings in new ways of competing
FRAMEWORKS TO ANALYZE MACRO ENVIRONMENT
PORTER’S DIAMOND

•Firm Strategy, Structure & Rivalry

• How companies are created, organized & managed
• Small/medium sized – Privately owned & operated as extended families – good for companies which emphasizes
focus, customized products, niche marketing, rapid change & flexibility
• Hierarchical managers with technical backgrounds – good for companies which are technical/engineering oriented
▪ National capital markets & compensation practices for managers
• Germany/Switzerland – Banks comprise a substantial part of nation’s shareholders, shares held for long term
appreciation – Mature industries
• US – Risk capital, Widespread trading, Compensation based on individual results – new industries
▪ Competitive in activities that people admire or depend on (Switzerland – Banking, Isreal – Defense)
▪ Presence of strong rivals
• Local rivals push each other to lower costs, improve quality & service & create new products & services
• Geographic concentration
• Look for more sustainable competitive advantage
QUALITY OF BUSINESS ENVIRONMENT
STATE OF CLUSTER DEVELOPMENT

Source: Professor Michael E. Porter, Harvard Business School, Advanced Management Program, April 15, 2009
QUALITY OF BUSINESS ENVIRONMENT
STATE OF CLUSTER DEVELOPMENT

Source: Professor Michael E. Porter, Harvard Business School, Advanced Management Program, April 15, 2009
 FRAMEWORKS TO ANALYZE MACRO ENVIRONMENT
FLYING GEESE MODEL

The phase "flying geese pattern of development" was coined originally by Kaname Akamatsu in 1930s articles in Japanese, and presented to world
academia after the World War II in 1961 and 1962 articles in English.
The flying geese (FG) model intends to explain the catching-up process of industrialization of latecomer economies from the following three aspects:
• Intra-industry aspect: product development within a particular developing country, with a single industry growing over three time-series curves,
i.e., import (M), production (P), and export (E).
• Inter-industry aspect: sequential appearance and development of industries in a particular developing country, with industries being diversified and
upgraded from consumer goods to capital goods and/or from simple to more sophisticated products.
• International aspect: subsequent relocation process of industries from advanced to developing countries during the latter's catching-up process.
GEOGRAPHIC INFLUENCES ON COMPETITIVENESS
GEOGRAPHIC INFLUENCES ON COMPETITIVENESS
MODELS &
FRAMEWORKS OF
STRATEGIC ANALYSIS
Other Frameworks

Mahesh Narayan
PROFIT POOLS ARE THE TOTAL PROFITS EARNED IN AN INDUSTRY AT ALL POINTS ALONG THE VALUE CHAIN

U.S. Consumer Photographic

Industry Profit Pool

Total profit =
$1.9B

Operating profit

Photofinishin
g equipment

Enhanced
services
Share of Industry Revenue

Profit pools answer the question: “Where and how is money being
made?”
CONVERGENCE BLURS BUSINESS BOUNDARIES CREATING NEW OPPORTUNITIES

I
T
Pharmacogenomics drug Disease management (e.g. Pfizer)
e.g Herceptin antibody therapy (e.g. Genentech)

Diagnostics Rx
Remote patient monitoring

Smart Drug Delivery

(e.g. Ortho Evra/J&J
(e.g Medtronic, Guidant

End-to-end diabetes solution

(e.g. Novo Nordisk)
Artificial Pancreas
e.g Medtronic, Roche

Alza)
Drug-eluting stent
(e.g. J&J Cordis)
Drug
Medical
Implantable drug pumps Delivery
Devices (e.g Medtronic, Amgen)
KEY LEARNINGS FROM THE SESSION

• My Key Learnings … • My actions …

MODELS &
FRAMEWORKS OF
STRATEGIC ANALYSIS
Market Dymanics

Mahesh Narayan
MEASURING MARKET POWER OF THE FIRM

• How would you measure the market power of a firm or its exercise in a market
• How would you measure the impact of different factors on the market power of a firm
MODELS OF MARKET DYNAMICS
S-C-P MODEL

Basic Conditions: factors which shape the market of

the industry, e.g. demand, supply, political factors
Structure: attributes which give definition to the
supply-side of the market, e.g. economies of scale,
barriers to entry, industry concentration, product
differentiation, vertical integration.
Conduct: the behavior of firms in the market, e.g.
pricing behavior advertising, innovation.
Performance: a judgement about the results of market
behaviour, e.g. efficiency, profitability, fairness/income
distribution, economic growth.
MODELS OF MARKET DYNAMICS
S-C-P MODEL

Market Power is a measure of seller concentration in the industry & barriers to entry in the
industry

Seller concentration:
• Number & Size of firms
• Coordinate their pricing behavior
• Collusion
• Conditions of Entry
• Extent of barriers to entry
• Economies of Scale
• Product Differentiation
• Absolute Cost Advantages
KEY LEARNINGS FROM THE SESSION

• My Key Learnings … • My actions …

INTERNAL-EXTERNAL MATRIX

• Used to analyze working conditions and strategic position of a

business.
• I-E is based on an analysis of internal and external business factors
• The IE Matrix positions an organization’s various divisions in a nine-cell
EFE MATRIX
• used for assessment of current business conditions. The EFE matrix is a good tool to visualize and prioritize the
opportunities and threats that a business is facing.
• How do I create the EFE matrix?
• List factors: The first step is to gather a list of external factors. Divide factors into two groups: opportunities and
threats.
• Assign weights: Assign a weight to each factor. The value of each weight should be between 0 and 1 (or
alternatively between 10 and 100 if you use the 10 to 100 scale). Zero means the factor is not important. One or
hundred means that the factor is the most influential and critical one.  The total value of all weights together
should equal 1 or 100.
• . Rate factors: Assign a rating to each factor. Rating should be between 1 and 4. Rating indicates how effective the
firm’s current strategies respond to the factor. 1 = the response is poor. 2 = the response is below average. 3 =
above average. 4 = superior. Weights are industry-specific. Ratings are company-specific
• Multiply weights by ratings: Multiply each factor weight with its rating. This will calculate the weighted score for
each factor.
• Total all weighted scores: Add all weighted scores for each factor. This will calculate the total weighted score for
the company.
EFE MATRIX

2 0.10

2.41
“HEAT MAP” CAN HELP IDENTIFY OPPORTUNITIES
Life P&C
Credit Mutual insur- insur- Under- Deriva- Corp. Foreign ex-
cards Mort-gagesfunds De-posits ance ance M&A writing tives lending change Opportunity
United assessment
States Hot
Ger-many
Cold
Japan

Italy

UK

Korea

Peru

Each cell represents a geographic product market and is

shaded according to its likely profitability and growth
VALUE CHAIN ANALYSIS

i Value chain analysis provides a systematic method for disaggregating a firm or industry
into its major discrete activities to understand sources of competitive advantage

E O M
q p S o
D In
ui e er n
es st
p r vi i
ig al
m a c t
n l
e t e o
nt e r

Successively finer disaggregations of activities can expose differences important to

competitive advantage
VALUE CHAIN SCOPE DEPENDS LARGELY ON THE PURPOSE FOR WHICH IT IS BEING USED
 FRAMEWORKS TO ANALYZE ENVIRONMENT

• PESTEL FRAMEWORK
• DRIVERS OF GLOBALIZATION
• Market Globalization
• Political • Similar Customer needs
• Economic • Global Customers
• Socio-Cultural • Transferable Marketing
• Technological • Cost Globalization
• Environmental • Scale Economies
• Legal • Sourcing Efficiencies
• BUILDING SCENARIOS • Country specific costs
• High Product Development costs
I • Competition Globalization
m • Interdependence
p • High Exports/Imports
ac • Global Competitors
t • Global Policies
• Trade Policies
• Technical Standards
• Host Govt. Policies
Uncertainty
 Market maps show the size of market segments, market share and level
of fragmentation
Medical Device Market

Source: Medical and Healthcare Marketplace Guide; Analyst Reports (In-vitro: SG Cowen
IFE MATRIX
• tool for auditing or evaluating major strengths and weaknesses in functional areas of a business
• The IFE matrix can be created using the following five steps:
• 1) Key internal factors - Conduct internal audit and identify both strengths and weaknesses in all your business areas. It is suggested you identify
10 to 20 internal factors, but the more you can provide for the IFE matrix, the better. The number of factors has no effect on the range of total
weighted scores (discussed below) because the weights always sum to 1.0, but it helps to diminish estimate errors resulting from subjective
ratings. First, list strengths and then weaknesses. It is wise to be as specific and objective as possible. You can for example use percentages,
ratios, and comparative numbers.
• 2) Weights - Having identified strengths and weaknesses, the core of the IFE matrix, assign a weight that ranges from 0.00 to 1.00 to each factor.
The weight assigned to a given factor indicates the relative importance of the factor. Zero means not important. One indicates very important. If you
work with more than 10 factors in your IFE matrix, it can be easier to assign weights using the 0 to 100 scale instead of 0.00 to 1.00. Regardless of
whether a key factor is an internal strength or weakness, factors with the greatest importance in your organizational performance should be
assigned the highest weights. After you assign weight to individual factors, make sure the sum of all weights equals 1.00 (or 100 if using the 0 to
100 scale weights). The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm's industry.
Weights are industry based.
• 3) Rating - Assign a 1 to X rating to each factor. Your rating scale can be per your preference. Practitioners usually use rating on the scale from 1 to
4. Rating captures whether the factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a
major strength (rating = 4). If you use the rating scale 1 to 4, then strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2
rating. Note, the weights determined in the previous step are industry based. Ratings are company based.
• 4) Multiply - Now we can get to the IFE matrix math. Multiply each factor's weight by its rating. This will give you a weighted score for each factor.
• 5) Sum - The last step in constructing the IFE matrix is to sum the weighted scores for each factor. This provides the total weighted score for your
business.
IE MATRIX

• The IE matrix works in a way that you plot the total weighted score from the EFE matrix
on the y axis and draw a horizontal line across the plane. Then you take the score
calculated in the IFE matrix, plot it on the x axis, and draw a vertical line across the
plane. The point where your horizontal line meets your vertical line is the determinant of
your strategy. This point shows the strategy that your company should follow.
• On the x axis of the IE Matrix, an IFE total weighted score of 1.0 to 1.99 represents a
weak internal position. A score of 2.0 to 2.99 is considered average. A score of 3.0 to 4.0
is strong.
• On the y axis, an EFE total weighted score of 1.0 to 1.99 is considered low. A score of 2.0
to 2.99 is medium. A score of 3.0 to 4.0 is high.
LEARNING OUTCOME

▪ Conduct Competition Analysis

• Porters 5 forces
• SWOT
• Competition Cost Analysis
• Competitor Product Mappings
▪ Learn where & how to use the frameworks
WHY IS COMPETITOR INTELLIGENCE IMPORTANT?

If we understand what our competitors do and what they are good at, we can start to determine
where our own relative strengths and weaknesses lie
Anticipating our key competitors’ strategic moves will help us to identify areas of opportunity and
concern for the future
KEY QUESTIONS TO ASK INCLUDE...

What do our competitors do?

▪ What activities do they perform and what products do they produce?
What are their main strengths and weaknesses?
How do their capabilities compare with our own?
Where are our competitors vulnerable?
Are they satisfied with their current position?
▪ Does current performance meet current goals?
What are the likely future strategy shifts and how dangerous will these be?
COMPETITOR INFORMATION IS HARD TO COME BY...

Data sources are relatively abundant, but very little meaningful information is likely to be given
away, especially in published sources
▪ Customer/employee interviews are likely to yield the best results
Even when information is found, it can be highly misleading
▪ Do not take everything you read at face value!
▪ Does every ‘strength’ that a competitor claims to have really constitute a strength?
IFE
IE MATRIX
IE MATRIX

• The IE matrix can be divided into three major regions that have different strategy implications.

• Cells I, II, and III suggest the grow and build strategy. This means intensive and aggressive
tactical strategies. Your strategies should focus on market penetration, market development,
and product development. From the operational perspective, a backward integration, forward
integration, and horizontal integration should also be considered.

• Cells IV, V, and VI suggest the hold and maintain strategy. In this case, your tactical strategies
should focus on market penetration and product development.

• Cells VII, VIII, and IX are characterized with the harvest or exit strategy. If costs for rejuvenating
the business are low, then it should be attempted to revitalize the business. In other cases,
aggressive cost management is a way to play the end game.
IE MATRIX
KEY LEARNINGS FROM THE SESSION

• My Key Learnings … • My actions …

AVAILABLE DATA SOURCES INCLUDE...

Annual reports/financial statements • Analyst reports

▪ Financial data available on OneSource • Available from Investext

Other published literature • Press searches

▪ Brochures etc. • Available from Reuters Business
Briefing
Internet pages
• Industry associations
Current/former employee interviews
• Publications or interviews
▪ Via personal contacts or anonymously by phone
• Market research
• Available from Profound
• Customer interviews
YOUR RESULTS WILL BE MOST MEANINGFUL IF YOU...

Use as many sources as possible

▪ Compare and contrast your findings until you come up with a picture that you ‘believe’
Compare findings across key competitors
▪ What are the claims that everybody makes?
▪ What are the true differentiators?
Compare qualitative and quantitative outputs
▪ Do the figures support the words?
▪ Which comments appear to be ‘pie in the sky’ and which appear to be more realistic?
PORTER'S FIVE FORCES
SECTOR CHARTS:
PERCEPTUAL MAP
COMPETITOR PRODUCT MAPPING
Product Semiconductor Software
System Suppliers
Categories Suppliers Suppliers

Proprietary AM Micr Linu AM

Intel Intel XYX SUN IBM
Technology D osoft x D

Application Microsof
Linux IBM
Software t

Middle Microsof
Linux SUN IBM
Ware t

Operating Micro
Linux SUN IBM
System soft

System AMA AM
Intel Intel SUN IBM
Hardware DM D
D

CPU AMD Intel SUN IBM

Design

CPU
AMD Intel TI IBM
Fabrication
ACQUISITION ANALYSIS
RONA CHARTS

RONA Charts are used to assess the financial performance of competitors

They focus on
▪ How competitors are managing their asset base
▪ The profitability of each competitor’s strategy
They tell us what generic strategies competitors might be following
▪ High volume, low margin reflected by high asset turns and low ROS
▪ High price, low volume, reflected by lower asset turns and higher ROS
RONA CHARTS
MARKET MAPS

Market maps help to identify those market segments in which a business is well or
poorly established
▪ By plotting market maps for different points in time, you can gain an understanding of how
each competitor’s position is changing
Others
100% Others
Others
Comp F Comp D
Comp E Comp E
Comp D Comp F
Comp A
Comp C Comp B
Market Share (Companies stacked in decreasing
order)
Comp B Comp A

Comp B

Comp A Comp C

0% Segment 1 Segment 2 Segment 3

0% Segment Size (Stacked in 100%

decreasing order)
COMPETITOR COST ANALYSIS

It is an approach which can be used to estimate the costs of your client’s key
competitors
The first step is to gain a thorough understanding of your client’s own cost base
▪ Break the cost base down into its constituent elements
▪ Establish an understanding of what drives each of these elements
Then, using any available competitor information, take a view as to how these drivers
might vary between the key competitors in the industry
▪ Good data sources are competitor interviews, market research and benchmarking data
▪ Using this approach, you can estimate the cost base of your client’s competitors by summing your
estimates for each of the constituent elements
COST DATA CAN BE FOUND IN MANY PLACES

Product brochures
Plant/site tours Customer interviews

Government filings and

Market research reports patent filings

Former employees Supplier interviews

Utility companies Literature searches

Cost
Financial analysis information Local newspapers

Client sales and

Equipment vendors
marketing

Industry experts Current employees

Industry conventions Labor unions

Reverse engineering
reports

Multiple data sources should be used whenever possible

ANALYZE STRUCTURE AND COMPOSITION OF CLIENT COSTS

For example:
Choose the value
Manufacturing
55% Other
Marketing/ (Admin,
Design Sourcing Sales Finance)
3% 33% Net working Drying 4%
Stages 1&2
Con- 5%
capital Assembly Testing Rework
struction
15% 15% 3% 3% 4%
15%
COST COMPARISONS

Higher COGS and SG&A Higher COGS

SWOT IS A USEFUL TOOL FOR EXAMINING BOTH INTERNAL AND
COMPETITOR SITUATIONS
Internal

S
trengths W eaknesses

O T
External

pportunities hreat
s

Given this competitive position, what are the

implications for your own business?
SWOT MATRIX
INTERNAL

Strengths Weaknesses
-Human Resource
-Competitive
-Customer Base
vulnerability
-Market Position
-Low profit margins
-Financial Resources
-Sales channel conflicts
-Products/Services

Threats
Opportunities
POSITIVE -Complimentary market
-Economy NEGATIVE
-New Govt. regulations
-Strategic alliances -Lose of key staff
-Competition weakness - New technology

60
EXTERNAL
WHAT MAKES UP SWOT?

Strengths
Positive tangible and intangible attributes, internal to an organization.
They are within the organization’s control.

Weakness
Factors that are within an organization’s control that detract from its ability to attain the desired goal.
Which areas might the organization improve?

Opportunities
External attractive factors that represent the reason for an organization to exist and develop.
What opportunities exist in the environment, which will propel the organization?
Identify them by their “time frames”

Threats
External factors, beyond an organization’s control, which could place the organization mission or operation at risk.
The organization may benefit by having contingency plans to address them if they should occur.
Classify them by their “seriousness” and “probability of occurrence”.
STRENGTHS ANALYZE INTERNAL ABILITIES AND ASSOCIATED
COMPETITIVE ADVANTAGES

Strengths
• What does the competitor do well? Do best?
• What are the competitor’s advantages?
• What relevant resources does the competitor have?
• How much better are the competitor’s advantages/resources relative to
other market players?

How do your competitor’s strengths adversely affect

your own competitive position?
WEAKNESSES ANALYZE INTERNAL LIMITATIONS AND ASSOCIATED
COMPETITIVE DISADVANTAGES

Weaknesses
• What does the competitor do poorly?
• What does the competitor need to improve?
• What resources does the competitor lack?
• What market segments does the business avoid?
• Does the competitor have bad debt or cash flow problems?
• How much worse are the competitor’s disadvantages relative to other
market players?

How do your competitor’s weaknesses create potential

share gain opportunities for you?
OPPORTUNITIES ANALYZE EXTERNAL TRENDS AND ASSOCIATED
COMPETITIVE PROSPECTS

Opportunities
• What external trends could competitor use to build competitive advantage?
• Are the required specifications for the competitor’s products/services
changing in a potentially beneficial manner for the competitor?
• Is changing technology aiding the competitor?
• Is the competitor relatively more affected by these trends than other market
players?

How may these opportunities for your competitor shift

competitive dynamics in your market?
THREATS ANALYZE EXTERNAL TRENDS AND ASSOCIATED
COMPETITIVE OBSTACLES

Threats
• What external obstacles does the competitor face?
• Are the required specifications for the competitor’s products/services
changing in a potentially disadvantageous way for the competitor?
• Is changing technology threatening the competitor?
• Is the competitor relatively more affected by these trends than other market
players?

How do these threats to your competitor shift

competitive dynamics in your market?
STRATEGIES FROM SWOT

WT ST
• Minimize Weaknesses & Threats • Use Strengths to minimize threats
• Merger/cut back operations
SO
WO • Use strengths to exploit opportunities
• Minimize weaknesses & maximize
opportunities
• Weaknesses prevent the company from
taking advantage of opportunities
• Alliances/Acquisition
• Hire talent
“SPIDER CHARTS” – AS IS POSITION
“SPIDER CHARTS” – ADJACENCIES
LEARNING OUTCOME

• CPM
• SPACE
• Portfolio Analysis
• BCG Matrix
• Ansoff Matrix
• Directional Policy Matrix/Business Screen
• Ashridge Portfolio Display
• Public Sector Portfolio Matrix
•QSPM
COMPETITIVE INTELLIGENCE FRAMEWORK

Relevant and strategic insights to each function enables the company to compete better
overall… • “Green” initiatives

Initiatives • CSR initiatives

• Customer engagement strategy and • Attack programs

• Customer Experience comparisons Customer Programs

Corporate • Revenues and margins analyses
• Quality of support Manageme
Strategy
• Warranty and Returns management nt • Acquisition analyses

Strategic • Market share and size analyses

• Future outlook hypotheses

Channel
insights on Branding
and
• GTM Strategy
Strategy Competition Positionin
• Channel partner segmentations
g
• Partner programs and promotions • Brand strategy and positioning
• Channel efficiencies analyses • Brand communication
Supply Product
• Customer perceptions on brand
Chain Strategy

• Manufacturing strategy • Product positioning and feature comparisons

• Supply chain costs and efficiencies analyses • Price Band analyses
• ODM strategies
CI DELIVERABLES
Competitor Profiles • How do I get the big picture on my competitor? Corporate Strategy Shift • Why did my competitor acquire this company/business?
• What is my competitor’s overall strategy for growth? Analyses • What is their strategy for BRIC countries?
• What is their business model? • How are they financially growing?

Earnings Analyses • How are competitors performing in terms of revenues Brand and Messaging Analyses • How is my competitor targeting customers?
and margins in key markets? • What is the underlying message that they are trying to
• What kind of new strategies are they likely to employ? push through this campaign?

Product Comparisons • How does the competitor product differ from ours in Supply Chain Analyses • What kind of manufacturing and distribution efficiencies
terms of features, technology, and price? are my competitors gaining?
• How do we compete against them at a feature, price, • How do our ODM relationships compare?
technology, or solution level?

Channel and GTM • How is my competitor targeting specific segments like Customer Management Strategy • What is my competitor doing on Environment initiatives?
SMB and Online? • How is my competitor using Social Media for marketing?
• What kind of partner incentives and programs are
they running?

Newsletters • What are the different reasons for which my Special Initiatives Analyses • What is my competitor doing on Environment initiatives?
competitor was in the news? • How is my competitor using Social Media for marketing?
• What rumors and potential developments is the
industry foreseeing for my competitor?
COMPETITIVE PROFILE MATRIX

• A tool to compare the firm with the major players of the industry.
•Competitive profile matrix show the clear picture to the firm about their strong points and weak
points relative to their competitors.
•The CPM score is measured on basis of critical success factors, each factor is measured in
same scale mean the weight remain same for every firm only rating varies.
The competitive profile matrix  consists of following attributes mentioned below.
•Critical Success Factors
• Critical success factors  are extracted after deep analysis of external and internal environment of the firm.
The higher rating show that firm strategy is doing well to support this critical success factors and lower
rating means firm strategy is lacking to support the factor.
COMPETITIVE PROFILE MATRIX

•Rating
• rating range from 1.0 to 4.0  
• The response is poor represented by 1.0
• The response is average is represented by 2.0
• The response is above average represented by 3.0
• The response is superior represented by 4.0
•Weight
• Weight attribute in CPM indicates the relative importance of factor to being successful in the firm’s industry.
The weight range from 0.0 means not important and 1.0 means important, sum of all assigned weight to
factors must be equal to 1.0
•Weighted Score
• Weighted score value is the result achieved after multiplying each factor rating with the weight.
COMPETITIVE PROFILE MATRIX
CPM matrix shown below show the comparison among Harley, Honda and Yamaha.

Analysis show Harley Davidson is dominating

on critical success factors because the total
weighted score is high compare to Yamaha and
Honda.
SPACE (STRATEGIC POSITION & ACTION EVALUATION) MATRIX

• It is used to determine what type of a strategy a company should undertake. The Strategic Position & ACtion Evaluation matrix
• The SPACE matrix is broken down to four quadrants where each quadrant suggests a different type or a nature of a strategy:
• Aggressive
• Conservative
• Defensive F
• Competitive
S

CA I
S

E
S
SPACE (STRATEGIC POSITION & ACTION EVALUATION) MATRIX

• SPACE matrix tells us that our company should pursue an aggressive strategy. Our
company has a strong competitive position it the market with rapid growth. It needs to
use its internal strengths to develop a market penetration and market development
strategy. This can include product development, integration with other companies,
acquisition of competitors, and so on.
• The SPACE Matrix analysis functions upon two internal and two external strategic
dimensions in order to determine the organization's strategic posture in the industry. 
• The SPACE matrix is based on four areas of analysis.
• Internal strategic dimensions:
• Financial strength (FS)
• Competitive advantage (CA)
• External strategic dimensions:
• Environmental stability (ES)
• Industry strength (IS)
SPACE (STRATEGIC POSITION & ACTION EVALUATION) MATRIX

• The financial strength factors often come from company accounting. These SPACE matrix factors can
include for example return on investment, leverage, turnover, liquidity, working capital, cash flow, and
others.
• Competitive advantage factors include for example the speed of innovation by the company, market
niche position, customer loyalty, product quality, market share, product life cycle, and others.
• SPACE matrix factors related to business external strategic dimension are for example overall
economic condition, GDP growth, inflation, price elasticity, technology, barriers to entry, competitive
pressures, industry growth potential, and others.
• The SPACE matrix calculates the importance of each of these dimensions and places them on a
Cartesian graph with X and Y coordinates.
The following are a few model technical assumptions:
• - By definition, the CA and IS values in the SPACE matrix are plotted on the X axis.
- CA values can range from -1 to -6.
- IS values can take +1 to +6.
• - The FS and ES dimensions of the model are plotted on the Y axis.
- ES values can be between -1 and -6.
- FS values range from +1 to +6.
SPACE (STRATEGIC POSITION & ACTION EVALUATION) MATRIX

• The SPACE matrix is constructed by plotting calculated values for the competitive advantage (CA) and industry
strength (IS) dimensions on the X axis. The Y axis is based on the environmental stability (ES) and financial strength
(FS) dimensions. The SPACE matrix can be created using the following seven steps:
• Step 1: Choose a set of variables to be used to gauge the competitive advantage (CA), industry strength (IS),
environmental stability (ES), and financial strength (FS).
• Step 2: Rate individual factors using rating system specific to each dimension. Rate competitive advantage (CA) and
environmental stability (ES) using rating scale from -6 (worst) to -1 (best). Rate industry strength (IS) and financial
strength (FS) using rating scale from +1 (worst) to +6 (best).
• Step 3: Find the average scores for competitive advantage (CA), industry strength (IS), environmental stability (ES),
and financial strength (FS).
• Step 4: Plot values from step 3 for each dimension on the SPACE matrix on the appropriate axis.
• Step 5: Add the average score for the competitive advantage (CA) and industry strength (IS) dimensions. This will be
your final point on axis X on the SPACE matrix.
• Step 6: Add the average score for the SPACE matrix environmental stability (ES) and financial strength (FS)
dimensions to find your final point on the axis Y.
• Step 7: Find intersection of your X and Y points. Draw a line from the center of the SPACE matrix to your point. This
line reveals the type of strategy the company should pursue.
SPACE (STRATEGIC POSITION & ACTION EVALUATION) MATRIX

Each factor within each strategic dimension is rated using appropriate rating scale. Then averages are calculated. Adding
individual strategic dimension averages provides values that are plotted on the axis X and Y.
PORTFOLIO ANALYSIS
PORTFOLIO ANALYSIS

• BCG Matrix
• Ansoff Matrix
•Directional Policy Matrix/Business Screen
• Ashridge Portfolio Display
•Public Sector Portfolio Matrix
BCG Matrix

❑ BCG Matrix a.k.a. Growth-Share Matrix, Boston Box, Boston Matrix, Boston
Consulting Group analysis.

❑ Created by Bruce Henderson for the Boston Consulting Group in 1970 to help
corporations with analyzing their business units or product lines.

❑ This helps the company allocate resources and is used as an analytical tool in
brand marketing, product management, strategic management, and portfolio
analysis.
BCG Matrix
BCG Matrix
BCG CATEGORIES
Stars
• generate & consume large amounts of
cash
• strong relative market share,
• high growth rate- cash in each direction
approximately nets out
• Decline in market growth rate coupled
with sustained large market share can
make star a cash cow
Cash cows
• leaders in a mature market
• exhibit greater return on assets than the market growth
rate
• generate more cash than they consume
• provide the cash required to turn question marks into
market leaders, to cover the administrative costs of the
company, to fund research and development, to service
the corporate debt, and to pay dividends to shareholders
• generates a relatively stable cash flow
• provides for accurate value determination through present
cash flow evaluation using a discounted cash flow analysis
Question marks
• Rapid growth – high cash consumption
• low market shares – low cash
• potential to gain market share - become a star-
eventually a cash cow when the market growth slows
• On the flip side- prolonged cash consumption and
retarded growth it may degenerate into a dog when
the market growth declines.
• Require careful analysis to determine investment
worthiness in growing market share
Dogs
• low market share & a low growth rate
• neither generate nor consume a large
amount of cash
• cash traps -money tied up in a little
potential
• candidates for divestiture.
DIVERSIFICATION FOR GROWTH

•Reasons for Diversification

• Economies of Scope
• Corporate managerial capabilities
• Increased market power
• Environmental change
• Risc spreading
• Expectation of powerful stakeholders
•Types of Diversification
• Related
• Vertical (Backward/Forward)
▪ Unrelated
ANSOFF GROWTH MATRIX
ASHRIDGE PORTFOLIO DISPLAY

• Heartland – ones to which parent

can add value
•Ballast – Parent understands well
but can do little
•Value trap – Parents attention will do
more harm than good
•Alien – little opportunity to add
value, & do not fit into parents
behavior
DIRECTIONAL POLICY MATRIX/BUSINESS SCREEN
DIRECTIONAL POLICY MATRIX/GE BUSINESS SCREEN
PUBLIC SECTOR PORTFOLIO MATRIX

The principal way of judging success in the private sector is by

reference to customers. In the public sector, activities must have
political support. This does not depend exclusively on the
opinions of the consumers of the services
provided.
A public sector star is something that the system is doing well
and should not change. They are essential to the viability of the
system.
Political hot boxes are services that the public want, or which
are mandated, but for which there are not adequate resources or
competences.
Golden fleeces are services that are done well but for which
there is low demand. They are potential targets for cost cutting.
Back drawer issues are unappreciated and have low priority for
funding. They are obvious candidates for cuts, but if managers
perceive them as essential, they should attempt to increase
support for them and move
them into the political hot box category.
DIRECTIONAL POLICY MATRIX
QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM) 

• QSPM) is a high-level strategic management approach for evaluating possible strategies.

• provides an analytical method for comparing feasible alternative actions.
• When company executives think about what to do, and which way to go, they usually
have a prioritized list of strategies. If they like one strategy over another one, they move it
up on the list. This process is very much intuitive and subjective. The QSPM method
introduces some numbers into this approach making it a little more "expert" technique.
• approach attempts to objectively select the best strategy using input from other
management techniques and some easy computations
QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM) 

Identified two options. One strategy is

acquiring a competing company. The other
strategy is to expand internally. They are
now asking which option is the better one.

Conclusion that acquiring a competing

company is a better option. This is given by
the Sum Total Attractiveness Score figure.
The acquisition strategy yields higher score
than the internal expansion strategy. The
acquisition strategy has a score of 4.04 in the
QSPM shown above whereas the internal
expansion strategy has a smaller score of
2.70.

(Attractiveness Score: 1 = not acceptable; 2 = possibly acceptable; 3 = probably acceptable; 4 = most acceptable; 0 = not relevant)
QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)

The left column of a QSPM consists of key external and internal factors . The top row consists of feasible alternative strategies
• Step 1 - Provide a list of internal factors -- strengths and weaknesses. Then generate a list of the firm's key external factors
-- opportunities and threats. These will be included in the left column of the QSPM.
• Step 2 - Having the factors ready, identify strategy alternatives that will be further evaluated. These strategies are displayed at the top of
the table. Strategies evaluated in the QSPM should be mutually exclusive if possible.
• Step 3 - Each key external and internal factor should have some weight in the overall scheme. You can take these weights from the IFE
and EFE matrices again.
• Step 4 - Attractiveness Scores (AS) in the QSPM indicate how each factor is important or attractive to each alternative strategy.
Attractiveness Scores are determined by examining each key external and internal factor separately, one at a time, and asking the
following question: Does this factor make a difference in our decision about which strategy to pursue? If the answer to this question is
yes, then the strategies should be compared relative to that key factor. The range for Attractiveness Scores is 1 = not attractive, 2 =
somewhat attractive, 3 = reasonably attractive, and 4 = highly attractive. If the answer to the above question is no, then the respective key
factor has no effect on our decision. If the key factor does not affect the choice being made at all, then the Attractiveness Score would be
0.
• Step 5 - Calculate the Total Attractiveness Scores (TAS) in the QSPM. Total Attractiveness Scores are defined as the product of
multiplying the weights (step 3) by the Attractiveness Scores (step 4) in each row. The Total Attractiveness Scores indicate the relative
attractiveness of each key factor and related individual strategy. The higher the Total Attractiveness Score, the more attractive the
strategic alternative or critical factor.
• Step 6 - Calculate the Sum Total Attractiveness Score by adding all Total Attractiveness Scores in each strategy column of the QSPM. The
QSPM Sum Total Attractiveness Scores reveal which strategy is most attractive. Higher scores point at a more attractive strategy,
considering all the relevant external and internal critical factors that could affect the strategic decision.
STRATEGIES FROM SWOT

WT ST
• Minimize Weaknesses & Threats • Use Strengths to minimize threats
• Merger/cut back operations
SO
WO • Use strengths to exploit opportunities
• Minimize weaknesses & maximize
opportunities
• Weaknesses prevent the company from
taking advantage of opportunities
• Alliances/Acquisition
• Hire talent
TOWS MATRIX

It helps you ask, and answer, the

following questions: How do
you:
• Make the most of your
strengths?
• Circumvent your weaknesses?
• Capitalize on your
opportunities?
• Manage your threats?
TOWS MATRIX
TOWS MATRIX EXAMPLE
“SPIDER CHARTS” – AS IS POSITION
“SPIDER CHARTS” – ADJACENCIES
COMPETITIVE PROFILE MATRIX

• A tool to compare the firm with the major players of the industry.
•Competitive profile matrix show the clear picture to the firm about their strong points and weak
points relative to their competitors.
•The CPM score is measured on basis of critical success factors, each factor is measured in
same scale mean the weight remain same for every firm only rating varies.
The competitive profile matrix  consists of following attributes mentioned below.
•Critical Success Factors
• Critical success factors  are extracted after deep analysis of external and internal environment of the firm.
The higher rating show that firm strategy is doing well to support this critical success factors and lower
rating means firm strategy is lacking to support the factor.
COMPETITIVE PROFILE MATRIX

•Rating
• rating range from 1.0 to 4.0  
• The response is poor represented by 1.0
• The response is average is represented by 2.0
• The response is above average represented by 3.0
• The response is superior represented by 4.0
•Weight
• Weight attribute in CPM indicates the relative importance of factor to being successful in the firm’s industry.
The weight range from 0.0 means not important and 1.0 means important, sum of all assigned weight to
factors must be equal to 1.0
•Weighted Score
• Weighted score value is the result achieved after multiplying each factor rating with the weight.
COMPETITIVE PROFILE MATRIX
CPM matrix shown below show the comparison among Harley, Honda and Yamaha.

Analysis show Harley Davidson is dominating

on critical success factors because the total
weighted score is high compare to Yamaha and
Honda.
COST DATA CAN BE FOUND IN MANY PLACES

Product brochures
Plant/site tours Customer interviews

Government filings and

Market research reports patent filings

Former employees Supplier interviews

Utility companies Literature searches

Cost
Financial analysis information Local newspapers

Client sales and

Equipment vendors
marketing

Industry experts Current employees

Industry conventions Labor unions

Reverse engineering
reports

Multiple data sources should be used whenever possible

ANALYZE STRUCTURE AND COMPOSITION OF CLIENT COSTS

For example:
Choose the value
Manufacturing
55% Other
Marketing/ (Admin,
Design Sourcing Sales Finance)
3% 33% Net working Drying 4%
Stages 1&2
Con- 5%
capital Assembly Testing Rework
struction
15% 15% 3% 3% 4%
15%
COST COMPARISONS

Higher COGS and SG&A Higher COGS

 If your Corporate Strategy is not being effectively implemented it’s
because your people either…

1. Don’t know it.

2. Don’t understand it. Avoid the 7 Choke
3. Don’t agree with it. Points!
4. Don’t feel attached to it.
5. Don’t have a process to improve it.
6. Don’t have a framework to bring it down to a tactical level.
7. Don’t have benchmarks to navigate it.
CREATING THE CONDITIONS FOR
SUCCESSFUL IMPLEMENTATION OF STRATEGY

1. Engage as many people in the organization as possible to contribute to strategy

development, even if its just compiling information.
2. Communicate the direction and reasoning of your strategy in a way that makes sense to each
audience.
3. Listen to what’s being said and learn from others in your organization who are responsible for
bringing the strategy to life.
4. Help to bring the strategy closer to the minds and hearts of your people by developing a
multi-channel, two-way communications program.
5. Provide a simple method to share thinking up and down the organization.
6. Establish a framework that empowers managers and employees to translate the strategy into
their workday.
7. Measure what you do, how you do it and be proactive.
ORGANIZATION STRATEGY IMPLEMENTATION MODEL

Source: Charlesmore Partners International

IMPLEMENTATION MODEL
THE 7-S FRAMEWORK
• strategy (the coherent set of actions selected as a course
of action);
• structure (the division of tasks as shown on the
organization chart);
• systems (the processes and flows that show how an
organization gets things done);
• style (how management behaves);
• staff (the people in the organization);
• shared-values (values shared by all in the organization);
and
• skills (capabilities possessed by the organization).
• seven of these variables must "fit" with one another in
order for strategy to be successfully implemented.
• Shared values are the central core of the framework
because they are the heart-and soul themes around which
an organization rallies.

The 7-S framework was first mentioned in ‘The art of Japanese management ’by Richard Pascale and Anthony Athos in 1981
At the same time Tom Peters and R H Waterman were exploring what made a company excellent.
THE 7-S FRAMEWORK
• Strategy • Systems
• Ways in which Sustainable Competitive Advantage will be • Formal processes & procedures used to manage
achieved the organization
• Key Questions • Management control systems
• What are the company’s sources of sustainable • Performance measurement & reward systems
competitive advantage
• Planning & Budgeting
• What are the company’s key strategic priorities
• Resource Allocation systems
• Structure
• Information systems
• Way in which tasks & people are specialized & divided and
authority is divided • Distribution systems
• Focus people’s attention on what needs to get done • Key Questions
• Structural Forms • Does the organization have the systems it
• Functional
needs to run its business?

• Divisional • What are the management systems that top

management uses to run the company?
• Matrix Which ones do they pay the closest attention
• Network to?
• Key Questions
• What is the basic structural form
• How centralized v/s decentralized is the organization
• What is the relative status & power of the
organizational sub-units
THE 7-S FRAMEWORK
• Staffing
• The people, their backgrounds & competencies
• Organization's approaches to recruitment, selection, socialization &
training
• Key Questions
• How does organization recruit & develop its people
• What are the demographic characteristics of the
management team
• Where are the strongest leaders found in the organization
• Skills
• Distinctive competencies that reside in the organization
• Can be distinctive competencies of people, management
practices, systems & technology
• Capabilities possessed by the organization (developed over the
years)
• Key Questions:
• What business activities is the company distinctively good
at performing
• What new capabilities does the organization need to
develop & which ones does it need to unlearn to compete
in the future
• Style
• Leadership style of top management
• Overall operating style of the organization
• Style impacts the norms people follow & how they work &
interact with each other & customers
• Key Questions
• How does top management make decisions
• How do managers spend their time
• Shared Values
• Core/Fundamental set of values that are widely shared in the
organization & serve as guiding principles of what is important
• Provide broader sense of purpose
• Key questions
• Do people have a shared understanding of why the
company exists
• Do people have a shared understanding of the vision for
the company
• What type of issues receive the most & least top
management attention
• How do people describe the ways in which the company
is distinctive
IMPROVEMENT/LEARNING CURVE
IMPROVEMENT CURVE ANALYSIS

• As individuals and/or organizations get more experienced at a task, they

usually become more efficient at it, following a progression of the learning
first getting easier and then harder as one approaches a limit.
• A "steep" learning curve, in colloquial usage, usually means experiencing a
large and increasing amount of effort for a constant amount of learning, i.e.
approaching a natural limit. Much the reverse is the meaning of a steep
slope in a learning progress curve. A learning progress curve is steep when
very little effort is required
• This relationship was probably first quantified in 1936 at
Wright-Patterson Air Force Base in the United States[1], where it was
determined that every time total aircraft production doubled, the required
labour time decreased by 10 to 15 percent.
• Subsequent empirical studies from other industries have yielded different
IMPROVEMENT CURVE ANALYSIS

• General concept is that the resources (labor and/or material)

required to produce each additional unit decline as the total
number of units produced over the item's entire production
history increases.
• The concept further holds that decline in unit cost can be
predicted mathematically. As a result, improvement curves can
be used to estimate contract price, direct labor-hours, direct
material cost, or any other recurring contract cost.
• The improvement curve has been used as a contract
estimating and analysis tool in a variety of industries including:
airframes, electronics systems, machine tools, shipbuilding,
IMPROVEMENT CURVE ANALYSIS

• In the late 1960s Bruce Henderson of the Boston Consulting Group (BCG) began to
emphasize the implications of the experience curve for strategy. Research by BCG
in the 1970s observed experience curve effects for various industries that ranged
from 10 to 25 percent.
• A curve that depicts a 15% cost reduction for every doubling of output is called an
“85% experience curve”, indicating that unit costs drop to 85% of their original level.
IMPROVEMENT CURVE ANALYSIS
REASONS
• Labour efficiency - Workers become physically more dexterous. They become mentally more confident
and spend less time hesitating, learning, experimenting, or making mistakes. Over time they learn short-
cuts and improvements. This applies to all employees and managers, not just those directly involved in
production.
• Standardization, specialization, and methods improvements - As processes, parts, and products
become more standardized, efficiency tends to increase. When employees specialize in a limited set of
tasks, they gain more experience with these tasks and operate at a faster rate.
• Technology-Driven Learning - Automated production technology and information technology can
introduce efficiencies as they are implemented and people learn how to use them efficiently and effectively.
• Better use of equipment - as total production has increased, manufacturing equipment will have been
more fully exploited, lowering fully accounted unit costs. In addition, purchase of more productive
equipment can be justifiable.
• Changes in the resource mix - As a company acquires experience, it can alter its mix of inputs and
thereby become more efficient.
• Product redesign - As the manufacturers and consumers have more experience with the product, they
can usually find improvements. This filters through to the manufacturing process. A good example of this is
Cadillac's testing of various "bells and whistles" specialty accessories. The ones that did not break became
mass produced in other General Motors products; the ones that didn't stand the test of user "beatings"
were discontinued, saving the car company money. As General Motors produced more cars, they learned
IMPROVEMENT CURVE ANALYSIS
Strategic consequences of the effect
• The BCG strategists examined the consequences of the experience effect for
businesses. They concluded that because relatively low cost of operations is a very
powerful strategic advantage, firms should capitalize on these learning and
experience effects. The reasoning is increased activity leads to increased learning,
which leads to lower costs, which can lead to lower prices, which can lead to
increased market share, which can lead to increased profitability and market
dominance.
• According to BCG, the most effective business strategy was one of striving for
market dominance in this way. This was particularly true when a firm had an early
leadership in market share. It was claimed that if you cannot get enough market
share to be competitive, you should get out of that business and concentrate your
resources where you can take advantage of experience effects and gain dominant
market share.
• One consequence of the experience curve effect is that cost savings should be
IMPROVEMENT/LEARNING CURVE
IMPROVEMENT CURVE ANALYSIS

• As individuals and/or organizations get more experienced at a task, they

usually become more efficient at it, following a progression of the learning
first getting easier and then harder as one approaches a limit.
• A "steep" learning curve, in colloquial usage, usually means experiencing a
large and increasing amount of effort for a constant amount of learning, i.e.
approaching a natural limit. Much the reverse is the meaning of a steep
slope in a learning progress curve. A learning progress curve is steep when
very little effort is required
• This relationship was probably first quantified in 1936 at
Wright-Patterson Air Force Base in the United States[1], where it was
determined that every time total aircraft production doubled, the required
labour time decreased by 10 to 15 percent.
• Subsequent empirical studies from other industries have yielded different
IMPROVEMENT CURVE ANALYSIS

• General concept is that the resources (labor and/or material)

required to produce each additional unit decline as the total
number of units produced over the item's entire production
history increases.
• The concept further holds that decline in unit cost can be
predicted mathematically. As a result, improvement curves can
be used to estimate contract price, direct labor-hours, direct
material cost, or any other recurring contract cost.
• The improvement curve has been used as a contract
estimating and analysis tool in a variety of industries including:
airframes, electronics systems, machine tools, shipbuilding,
IMPROVEMENT CURVE ANALYSIS

• In the late 1960s Bruce Henderson of the Boston Consulting Group (BCG) began to
emphasize the implications of the experience curve for strategy. Research by BCG
in the 1970s observed experience curve effects for various industries that ranged
from 10 to 25 percent.
• A curve that depicts a 15% cost reduction for every doubling of output is called an
“85% experience curve”, indicating that unit costs drop to 85% of their original level.
IMPROVEMENT CURVE ANALYSIS
REASONS
• Labour efficiency - Workers become physically more dexterous. They become mentally more confident
and spend less time hesitating, learning, experimenting, or making mistakes. Over time they learn short-
cuts and improvements. This applies to all employees and managers, not just those directly involved in
production.
• Standardization, specialization, and methods improvements - As processes, parts, and products
become more standardized, efficiency tends to increase. When employees specialize in a limited set of
tasks, they gain more experience with these tasks and operate at a faster rate.
• Technology-Driven Learning - Automated production technology and information technology can
introduce efficiencies as they are implemented and people learn how to use them efficiently and effectively.
• Better use of equipment - as total production has increased, manufacturing equipment will have been
more fully exploited, lowering fully accounted unit costs. In addition, purchase of more productive
equipment can be justifiable.
• Changes in the resource mix - As a company acquires experience, it can alter its mix of inputs and
thereby become more efficient.
• Product redesign - As the manufacturers and consumers have more experience with the product, they
can usually find improvements. This filters through to the manufacturing process. A good example of this is
Cadillac's testing of various "bells and whistles" specialty accessories. The ones that did not break became
mass produced in other General Motors products; the ones that didn't stand the test of user "beatings"
were discontinued, saving the car company money. As General Motors produced more cars, they learned
IMPROVEMENT CURVE ANALYSIS
Strategic consequences of the effect
• The BCG strategists examined the consequences of the experience effect for
businesses. They concluded that because relatively low cost of operations is a very
powerful strategic advantage, firms should capitalize on these learning and
experience effects. The reasoning is increased activity leads to increased learning,
which leads to lower costs, which can lead to lower prices, which can lead to
increased market share, which can lead to increased profitability and market
dominance.
• According to BCG, the most effective business strategy was one of striving for
market dominance in this way. This was particularly true when a firm had an early
leadership in market share. It was claimed that if you cannot get enough market
share to be competitive, you should get out of that business and concentrate your
resources where you can take advantage of experience effects and gain dominant
market share.
• One consequence of the experience curve effect is that cost savings should be
GAME THEORY
 GAME THEORY

• What if you could make good predictions about how competitors will respond to your actions?
• What if you could take this into account BEFORE taking action to make sure that that action is
in your best interest?
• And better still, what if you could do this with a "scientific" method, rather than just with guess-
work?
WHAT IS GAME THEORY?

“No man is an island”

• Study of rational behavior

in interactive or interdependent situations

• Bad news:
Knowing game theory does not guarantee winning

• Good news:
Framework for thinking about strategic interaction
GAMES WE PLAY

• Group projects
• Traffic
GAMES BUSINESSES PLAY

• Market entry
• Drug testing
• Supply chains
• Corporate takeovers
• Patent races
• Stock options
• OPEC output
WHY STUDY GAME THEORY?

“Managers have much to learn from game theory —

provided they use it to clarify their thinking, not as a
substitute for business experience.”
The Economist,
WHY STUDY GAME THEORY?

Because recruiters tell us to …

• “Game theory forces you to see a business situation over many periods from
two perspectives: yours and your competitor’s.”
• Judy Lewent – CFO, Merck

• “Game theory can explain why oligopolies tend to be unprofitable, the cycle
of over capacity and overbuilding, and the tendency to execute real options
earlier than optimal.”
• Tom Copeland – Director of Corporate Finance, McKinsey
APPLICATIONS

• Winning the game

• Commitment
Credibility, threats, and promises
• Information
Strategic use of information
• Bargaining
Gaining the upper hand in negotiation
• Auctions
Design and Participation
INTERACTIVE DECISION THEORY
• Decision Theory
• You are self-interested and selfish
• Game Theory
• So is everyone else

“ If it’s true that we are here to help others,

then what exactly are the others here for? ”
- George Carlin
THE GOLDEN RULE

COMMANDMENT
Never assume that your opponents’
behavior is fixed.
Predict their reaction to your behavior
DECISION THEORY VS. GAME THEORY

• Ten of you go to a restaurant

• If each of you pays for your own meal…

• This is a decision problem

• If you all agree to split the bill...

• Now, this is a game
RESTAURANT DECISION-MAKING

May I recommend that with the Bleu

Cheese for ten dollars more?
Sure!

It is only
a
dollar more
for
• Check splitting policy changes incentives.
me!
DEFINING THE GAME

CAVEAT
Predict opponents’ reaction to your behavior.
BUT
Be sure you understand who your opponents are.
(Do you know everyone who may react to your
decisions?)
SUMMARY
DEFINING THE GAME

• The strategic environment

• Who are the players? (Decision makers)
• What strategies are available? (Feasible actions)
• What are the payoffs? (Objectives)

• Rules of the game

• What is the time-frame for decisions?
• What is the nature of the conflict?
• What is the nature of interaction?
• What information is available?
 GAME THEORY

• Game theory is a reasoned attempt to predict behavior.

• It applies in situations where an individual's success in making choices depends on the choices
of others.
• Simple models include a group of players, a definition of the actions that those players can
choose, and the "payoffs" (how much each player will win or lose) for each combination of
actions.
• John von Neumann and Oskar Morgenstern defined the foundations of game theory in 1944
with their classic book, "Theory of Games and Economic Behavior."
KEY ELEMENTS OF A GAME

• Players: Who is interacting?

• Strategies: What are their options?
• Payoffs: What are their incentives?
• Information: What do they know?
• Rationality: How do they think?
 PAYOFF MATRIX

Company 2 - does nothing Company 2 - develops new

widget
Company 1 - does nothing $2,000,000, $2,000,000 $1,050,000, $2,650,000

Company 1 - develops new $2,650,000, $1,050,000 $1,700,000, $1,700,000

widget

•Best outcome for either company: Develop the new widget, and for its competitor to do nothing.

•If either company does nothing - it risks a large drop in income of nearly 50% if the other company develops the new product.

•If it goes ahead - might do extremely well if the other company does nothing, or experience a relatively smaller drop in income, if the
other company goes ahead too.

•Wise option - to go ahead, however managers need to be careful to prepare for the possible downsides that could occur if their
competitors also develop new products.
• Tip:
When thinking about what your competitor will do, assume that he or
she will make the best possible choice for themselves. Don't assume
that their decision will be random!
ACTIVITY

• Refer to your project

• Chart out competitors actions and the payoffs thereoff and best possible strategy given
competitor’s move
 THE BSC FRAMEWORK
Overall
Financial
FINANCIA

Revenue Objective Operating

L

Strategy Efficiency
Risk
Management

Product/ Service
CUSTOME

Attributes
VALUE

Functionality, Image Relationship

R

Quality, Price,
Time

Identify Develop Market & Deliver

INTERNA

PROCESS

Customer Market/ & Launch Sell the the Customer Customer

Need Create Products/ Products/ Products / Service Need
L

Identified Offering Services Services Services Satisfied

“Innovation” “Operational Excellence” “Service Quality”

RGANISATION
DEVELOPNENT

Structure, Climate for Action

Headcount, Roles Technology
Infrastructure Performance Mgmt,
& Responsibilities Career Planning
and Competency
WHY BSC
BSC
BSC
BSC
BSC
TOOL
KEY LEARNINGS FROM THE SESSION

• My Key Learnings … • My actions …

SOLUTION/RECOMMENDATION
HAVE WE SELECTED THE RIGHT RECOMMENDATION

• Does it solve the clients problem?

• Does it meet the clients objectives?
• Have we considered the advantages and
disadvantages
relative to the clients critical success factors?
• Is the cost reasonable for the value delivered?
• Does it address short and long term needs?
MID TERM

Entry strategy for a Casino Group – Harrah’s Entertainment

4 groups
Date: Next Saturday – 30th July
15 min presentation
15 min Q&A (ask questions on project, class presentations & readings (both consulting skills &
IPR (classes covered) )
WILL OUR SOLUTION WORK?

• Has the client got the resources?

• Can we get the clients commitment to the
solution?
• Have we identified resistance and can it be
overcome?
• Have we identified and considered other issues
relating to implementation?
• Do we understand the risks?
CONSULTING ENGAGEMENT PRINCIPLES
BEST PRACTICE
CONSULTING / CLIENT MANAGEMENT
• Study to understand, not to
criticize
• The problem is not always the
problem
• The wider you spread it, the
thinner it gets
• Use the same recipe, get the same
bread
• Don’t make facts fit a solution
• If you don’t know, admit that you
don’t know
• Never promise more than 10%
• If what they’ve been doing hasn’t
solved the problem, they probably
need to do something else
• If they don’t like your work, don’t
take their money
• To say yes to yourself as a
consultant, learn to say no to any
of your clients
• Spend at least one-fourth of your
time doing nothing
• Spend at least one day a week
getting exposure
BEST PRACTICE
EXCEL MODELING
SEPARATION CONSISTENCY INTEGRITY

• Separate inputs, calculations, reports • Consistent use of columns across sheets • Do not use balancing figures or `fudges’
• Start model development with reports • Consistent formulae across rows • Use check totals where a relationship exists
• Each cell contains only data or a formula, never both • Consistent layout between the results of separate calculations
• Model logic should flow top to bottom, front to back

LINEARITY SIMPLICITY PROTECTION

• Avoid using circular referencing • Build models using small and simple logical steps • Protect all areas which do not contain input data
between input data and reports from alteration
• Split complex formulae into their constituent
parts

VERSION CONTROL

• Adopt a logical naming convention e.g. frog-

01.xls
• Save any changes under a different version

160
BEST PRACTICE
WRITING / PRESENTATION
GEORGE ORWELL’S RULES FOR
GROUND RULES
CLEAR WRITING

• Never use a metaphor, simile or other • Be specific

figure of speech that you are used to - tell the reader exactly what you are
seeing in print talking about
• Never use a long word where a short - do not assume the reader knows
one will do • Use concrete examples (e.g. refer to specific
• If it is possible to cut out a word, cut it products, competitors or deals)
out • Keep it simple – don’t over complicate
• Never use the passive when you can use
the active MUST HAVEs
• Never use a foreign phrase, a scientific
word or a jargon word, if you can think • Table of contents
of an every day English word • Page numbers
• Break any of these rules rather than say • Scope section, or
anything outright barbarous • Engagement Letter
- in the Appendix
• Executive Summary
• Consistency
BEST PRACTICE
DELIVERABLE QUALITY CHECK-LIST
DO’S & DON’TS
DO’S AND DON’TS
1. KNOWING WHAT TO LOOK FOR
Do
− Put a description of your hypotheses
and deliverables in writing
− Generate a list of data sets and
arguments that is sufficient to prove
your hypotheses
− List alternative sources for each data
set (using client and your resources)
− Develop a research strategy with a
sequence of data gathering and
timing/deadlines
− Validate your hypotheses regularly
during the data gathering phase
2. GETTING THE DATA
Do
− Spend time with the client to understand
what data they have, how it is organised
and how quickly it can be retrieved
− Be clear about what data you need and why
− Be specific in date requests and agree a
timetable for receiving data
Don’t
− Start work until you can explain
how the data you will look for will
help prove the overall hypotheses
− Continue work when you have lost
track of how the data you are
looking for will help to prove your
hypotheses
Don’t
− Issue verbal data requests
− Forget to follow up data requests
3. STRUCTURING THE INFORMATION
Do
− Organise your data requirements and sources
• lists of data needed and received
• work against the hypothesis framework and the
emerging storyboard towards the final output
4. BACKUPS
Do
− Give detailed sources as per the SCI style
slide
− Not “Datamonitor” but “Datamonitor,
Midrange System Sales by Vendor, 6 Sept
01”
− Make your assumptions clear
Don’t
− Get data that does not help
prove/disprove hypothesis
Don’t
− Forget to make a note of or to save data
from the web that you will not be able
to find again in three months
• be specific about web sources e.g.
`www.ft.com’ not `FT website’
− Build too many stand-alone,
complicated models of which you will
lose track
DO’S AND DON’TS

5. DATA MODELS 7. MAINTAINING CREDIBILITY

Do Don’t Do Don’t
− Put lots of comments into your − Build a model before you − Plan each client interaction − Confuse/Mis-direct your
models, explain every formula know what the answers and • data gathering: be clear in your client
in plain text what the slide will look like mind about what you want to find
out
− Lie
− Highlight the areas containing
data that are used in slides • Pre-wire: be clear in your mind − Be afraid to be silent or to
about what information you want say “I don’t know”
− Always have control to share
totals/checks − Criticise the client or target
− Communicate clearly how you organisation and individuals
− Cross Reference came to your conclusion
• Note: (1) See Excel Best Practice for further − Know your sources, make sure
information they are noted and qualify them

6. COMMUNICATING THE INFORMATION

Do Don’t
− Keep the story together; don’t show − Use slides that are half-finished
factoids (applies to blanks, handdrawns,
− Mark slides clearly as needed produced slides)
• ‘Work in Progress’ − Get caught with spelling mistakes,
sloppy grammar or imprecise text
• ‘Preliminary’
• ‘Illustrative’
LEARNING OUTCOME

▪ Annual reports
▪ Analyzing Financial statements
FINANCIAL ANALYSIS

• Ratio Analysis
• Valuation - DCF
• Vertical & Horizontal
 Annual Reports and their interpretation

168
Every Limited Company prepares an annual report on Chairman's statement: -
its accounts and state of affairs. The annual report • It is an important medium through which company's management
comprises : - communicates with its shareholders, prospective investors and
✔ Notice of Annual General Meeting others interested in the performance and prospects of the company.
• Highlights of the company's performance, future plans, industrial
✔ Chairman's statement relations, company's position in the industry, research and
✔ Director's Report development efforts, etc.
✔ Auditors Report • Investors should make a thorough study of such statements.
✔ Balance Sheet
✔ Profit and Loss Account
✔ Notes on Accounts

169
Every Limited Company prepares an annual report on Auditors Report: -
its accounts and state of affairs. The annual report • Every company is subject to audit and an auditor
comprises : - makes a report to the members of the company on its
✔ Notice of Annual General Meeting state of affairs.
✔ Chairman's statement • It is a comment on accounts and on balance sheet and
✔ Director's Report profit and loss account and other documents attached
✔ Auditors Report to the financial statements, which are laid in the
✔ Balance Sheet AGM.
✔ Profit and Loss Account • Auditors report to shareholders contains an opinion
✔ Notes on Accounts as to whether the financial statements present a true
and fair view of the state of affairs of the company, in
case of a balance sheet and of profit or loss in case of
profit and loss account.
• They also report whether the books of accounts are in
agreement and whether there is any deviation from
generally accepted accounting principles.
• It indicates the areas to which shareholders and
investors must give due attention while assessing the
financial strength of the company whose securities
are being considered for investment.

170
Every Limited Company prepares an annual report on Director's Report:
its accounts and state of affairs. The annual report • Director's report is a report submitted by the directors of a
company to its shareholders, appraising them of the
comprises : -
performance of the company under its direction. It is an
✔ Notice of Annual General Meeting exercise of self-evaluation.
✔ Chairman's statement • Director's report expresses the opinion of directors on the state
✔ Director's Report of the company, explains performance and the financial
✔ Auditors Report results, discusses company's plans for expansion,
✔ Balance Sheet diversification or modernization, tells about appropriation of
✔ Profit and Loss Account profits, elaborates company's future prospects and plans for
investments.
✔ Notes on Accounts • The director's report talks about developments that have
happened after the balance-sheet date.
• Other than the financials, it talks about expansion plans,
employee productivity and near-term growth plans.
• It also mentions the products and services introduced during
the year and their potential, besides abnormal expenditures or
negatives that have hit margins.
• Then there is an assessment of the current year's prospects,
which is important for fundamental analysis.

171
Every Limited Company prepares an annual report on Report on Corporate Governance
its accounts and state of affairs. The annual report It includes disclosures about board of directors, appointment
of nonexecutive directors, constraints imposed on management
comprises : -
power and ownership concentration, financial information and
✔ Notice of Annual General Meeting executive compensation. The level of transparency, fairness and
✔ Chairman's statement accountability in dealings with the constituents of the business
✔ Director's Report shows how stable and strong the company is.
✔ Auditors Report
✔ Balance Sheet
✔ Profit and Loss Account Management Discussion
The Management Discussion and Analysis (MD&A), usually put
✔ Notes on Accounts at the start of the annual report, is supposed to be a frank
commentary on the management's outlook about the company.

Notes to Accounts
These non-financial notes relate to details about financial
numbers and are extremely important for appropriate
interpretation of the company's financials.

Contingent Liabilities
Contingent liabilities are possible future liabilities. Contingent
liabilities give a sense of the risk and concerns associated with
key assumptions made during the analysis

172
AN APPROACH TO READING FINANCIAL STATEMENTS

STEP 1 : Making yourself knowledgeable about the environment in which the company operates
in now and its direction in the future
STEP 2: Have a look to the statement of comprehensive income and the statement of financial
position and assess the size of the company and its profitability. Read: “To Our Stockholders”
letter and/or President/CEO letter
•Are Earnings or Sales down?
•Is the Market down?
•Look for Alibis and Excuses
Read between the lines...What’s your “gut” feeling?
STEP 3:Turn to the notes to the financial statements. Read the accounting policies which are
used for any items which have attracted your attention in the financial statements. look for the
notes which elaborate on any amounts which have come to your attention in the financial
statements. Read the Management’s Discussion & Analysis (MD&A section)
AN APPROACH TO READING FINANCIAL STATEMENTS

STEP 5: Read the audit report to see if the audit opinion has been modified or contains some
other communication by the auditor.
– Read the Auditor’s Statement
• Read enough to recognize “normal” verbiage
• Look for exceptions -- References to footnotes should be investigated
• Look for softening of the language used in prior years reports
• Warning Words:
–“subject to. . .” “except for. . .”
STEP 6:
Compare the company Data with --
–S&P 500
–Industry Averages (Peer Group)
TIPS
• Look for outliers
• When you’ve collected a large amount of data on a particular aspect of your problem,
look for outliers— things that are especially good or bad. Use a computer to get a quick
picture. For example, suppose you are collecting data on your company’s sales force.
Enter the average sales of each salesperson and divide it by the number of accounts
served by that salesperson for, say, the last three years; this gives you the average sales
per account. Type the data into your favorite spreadsheet software and sort the averages
from lowest to highest. Then look at the two or three best and worst figures.
Congratulations, you’ve just found a fruitful area for research. Figure out why the
numbers are so good or bad and you’ll be well on your way to fixing the problem.
• Look for best practice
• There’s an old saying that no matter how good you are at something, there’s always
somebody better. This is as true in business as it is anywhere else. Find out what the
best performers in the industry are doing and imitate them. Often, this is the quickest
antidote to poor performance. Talk to other people in the industry: suppliers, customers,
Wall Street analysts, friends from business school, and so forth. Sometimes you can find
best practice within your company.
FINANCIAL ANALYSIS EAGLE PERSPECTIVE

• Earnings and Growth Potential-This can tell you whether a company is on a

growth trajectory or in decline,
• Cash flow trends-Cash is real-When a company's net income is much higher
than cash flow, investors want to be aware and find out why
• Debt Obligations- Debt isn't necessarily toxic for companies, as long as the
companies generate ample cash flow to service the debt payments.
• Equity-% of Retained earnings |Share holding pattern
 Ratio analysis

Pre- requisites of Ratio analysis

⮚ Data used while compiling ratios must be totally reliable

⮚ While attempting inter-firm comparison, the accounting policies to be
aligned
⮚ A series of ratio giving a good indicator in one year may not hold true in
the succeeding year
⮚ Significant & consistent methodology to be applied
⮚ The ratios to be used should be periodically revisited
⮚ The explanation for the results of the ratio should be explained & recorded
for future reference

177
RATIO COVERAGE
✔ Liquidity Ratio-Current Ratio, Acid Test Ratio, Net Working Capital

✔ Profitability Ratios- Return on Assets(ROA), Return on Capital

employed(ROCE), Dividend pay out ratio, Price earning ratio (PE)

✔Asset Management Ratio-Receivables turnover, Inventory Turnover, DPO

– Days Payables Outstanding, DSO – Day sales Outstanding, Days Cash
Conversion Cycle, Total asset turnover

✔ Leverage Ratio- Debt To Total Assets, Debt to Common Equity

178
WHAT TO LOOK IN P&L

Revenue Costs
• Revenue from operations • COGS
• Operating Margin-Business risk • Depreciation
• Net profit margin-Business+Financial • Employee cost
Risk • SGA
• EBIT
• EBITDA
WHAT TO LOOK IN A BALANCE SHEET

Asset Liabilities
• Cash • Overdraft
• Debtors-A/c receivables • Short term borrowings.
• Stock-Inventories . • Trade creditors-A/C payables
• Net Block • Tax Payables
• Long term debt
• Long term bank borrowings.
• Equity & Retained earnings
WHAT TO LOOK IN CASH FLOW STATEMENT

• Look at bottom line "net increase/decrease in cash and cash

equivalents“
• Net Cash flow from operations
•  operating cash flow ratio, illustrates the company's ability to
service its loans and interest payments.
• Net Cash flow from Investing
• Net Cash Flow from Financing
LOOK FOR ACCOUNTING RED FLAGS

• Significant change in accounting policies during poor performance

• Unexplained transactions that boost profits
• Unusual increase in A/C receivables
• A increase in gap between Reported income and Tax income
• Use of SPV
• Unexpected large write offs
• Large fourth quarter adjustments
• Related party transactions
ACTIVITY

• Research In Motion Limited -

http://press.blackberry.com/content/dam/rim/press/PDF/Financial/FY20
13/Q4FY13_final_filing.pdf
• Try & interpret what's wrong with RIM

183