Strategic Analysis

WHY DO A SITUATION ANALYSIS?

• Identify issues in a firm’s external & internal
environment which open up avenues to
• STRATEGIC OPTIONS
• OPPORTUNITIES
• Focuses on two considerations:
– EXTERNAL factors: MACRO environment (industry &
competitive conditions)
– INTERNAL factors: MICRO environment (firm’s
internal situation & competitive position)
How Strategic Thinking and Analysis
Lead to Good Choices

Thinking strategically
about industry and
Competitive
Conditions

Identifying strategic Choice of

Options open to The best
The firm strategy

Thinking strategically
About a company’s own
situation
 External Environment
1. Industry’s economic traits
2. Competitive forces in industry & their
strength
3. Drivers of change in industry
4. Firms in strongest/weakest competitive
positions
5. Competitive moves of rivals
6. Key factors determining competitive success
or failure in industry
7. Attractiveness of industry
 ENVIRONMENTAL SCANNING

• A broad-ranging effort to monitor &

interpret social, political, economic,
ecological, & technological events in an
effort to identify trends & conditions
that could eventually impact industry
• To raise consciousness about potential
developments that could
– Have important impact on industry conditions
– Grasp new opportunities & withstand threat
 Industry Traits
• Market size & growth rate
• Stage in life cycle
• Number of competitors & relative sizes
• Prevalence of backward/forward integration
• Entry/exit barriers
• Nature & pace of technological change
• Product & customer characteristics
• Scale economies & experience curve effects
• Capacity utilization & capital requirements
• Industry profitability
 Analysis of competitive forces
• To identify
• Main SOURCES of competitive forces and
• STRENGTH of these forces

• Why identify competitive forces?

• To be successful, strategy must be designed
to cope effectively with competitive pressures
To position based on competitive advantage!
 COMPETITOR ANALYSIS

• A firm’s strategic moves are affected by

– Current strategies of competitors
– Actions competitors are likely to take next
• Profile of key competitors involves
studying:
– Current position in industry
– Strategic objectives & recent actions
– Basic competitive approaches
 COMPETITOR ANALYSIS

Successful strategists take great pains in

scouting competitors by
– Understanding their strategies
– Watching their actions
– Evaluating their vulnerability to driving forces
& competitive pressures
– Sizing up their strengths & weaknesses
– Trying to anticipate rivals’ next moves
 PREDICTING MOVES
OF RIVAL COMPETITORS

Predicting rivals’ next moves involves

– Analyzing current competitive positions
– Examining public pronouncements about what
it will take to be successful in industry
– Gathering information from grapevine about
current activities & potential changes
– Studying past actions & leadership
– Determining who has flexibility to make major
strategic changes & who is locked into
pursuing same basic strategy
 KEY SUCCESS FACTORS

• KEY SUCCESS FACTORS (KSFs) spell

difference between
– Profit & loss
– Competitive success or failure
• A KEY SUCCESS FACTOR can be
– Specific skill or talent
– Competitive capability
– Something a firm must do to satisfy customers
PINPOINTING INDUSTRY KEY SUCCESS
FACTORS

• Identifying KSFs is top priority as they are

good cornerstones of a firm’s strategy
– Winning COMPETITIVE ADVANTAGE often
hinges on being distinctively better than rivals
at one or more of the KSFs
• KSFs consist of the 3 - 5 really major
determinants of financial & competitive
success in industry
 EXAMPLE: INDUSTRY
KEY SUCCESS FACTORS

• Beer/Brewing Industry
– Utilization of brewing capacity - to keep
manufacturing costs low
– Developing a strong network of wholesale
distributors - to gain access to retail outlets
– Clever advertising - to induce beer drinkers to
buy a particular brand
 EXAMPLE: INDUSTRY
KEY SUCCESS FACTORS

• Apparel Manufacturing Industry

– Fashion design - to create buyer appeal
– Low-cost manufacturing efficiency - to keep
selling prices competitive
 ASSESSING OVERALL
INDUSTRY ATTRACTIVENESS

• Industrys market size & growth potential

• Whether industry will be favorably or unfavorably
impacted by driving forces
• Potential for entry/exit of major firms
• Stability/dependability of demand
• Will competitive forces become stronger or
weaker
• Severity of problems facing industry
• Degree of risk & uncertainty in industry�s future
• Whether competitive conditions are conducive to
rising/falling industry profitability
 CONDUCTING AN INDUSTRY &
COMPETITIVE SITUATION ANALYSIS

Two things to consider:

1. Task of analyzing a firm’s EXTERNAL
situation cannot be reduced to a formula-
like exercise
2. Sweeping industry & competitive
analyses need to done every 1 to 3 years