Chapter 1 – Strategic Analysis, Choice and Implementation
Analysis Models:
Portfolio Analysis
Internal Analysis
Product Life Cycle
Development –
• Low cash flow – high R&D investment
• Market research key for success
Introduction –
Continued cash outflow – marketing
costs
• Initial demand dependent on pricing
policy
Growth –
• New competition – may need to
improve quality
• EOS – may emerge due to mass
market
Maturity
• Critical Mass – cost efficiencies
• Positive cash flow – less marketing, maximum sales
Decline
• Heavy discounting – to utilize spare capacity and cover overheads
• Brand loyalty – key to retaining customers
Key to keep balanced portfolio
Too many products in 1 phase = problems (cash flow)
BCG Matrix – balance between market growth and market share
Star –
• Under constant threat from new entrants due to
high market growth
• Needs to continuously build
Question Mark –
• decide whether to harvest or build by injecting
finance
• Attractive market – no share to be competitive
• Lack of economies of scale due to low share
Cash Cow –
• lack of threat from new entrants = easy to hold position or Harvest
• Dominant position due to low growth of market
• Competitors will not try gain market share
• Large positive cash flows
, Dog –
• decide whether to hold position or divest in short term
• Low share of unattractive market
• Market isn’t attractive to seek growth
Porter’s Generic Strategies
• Cost leadership – lowest cost producer in industry
• Differentiation – create product
features customer wants to pay
more for
• Focus on market segments
Address if:
• Strategy = differentiate/cost
leader
• Scope – broad/narrow?
Cost Leadership
How to achieve Benefits Risks
• EOS – (bulk buy) • Higher profits • Only room for 1 cost
• Seek cheaper suppliers • EOS = barrier to leader
• Reduce costs (labour) entry • Lack of quality
• Value chain analysis – reduce
non-key activities
Differential Strategy:
How to achieve Benefits Risks
• Strong branding • Command premium price • Cheap copies
• Innovation • Few perceived substitute • Consumers don’t want
• Quality due to brand extra
loyalty/uniqueness • Differention not valued
anymore
Focus Strategy
How to achieve Benefits Risks
• Identify consumer segment • Smaller segment – • Segment too small –
with different similar needs smaller not enough demand
• Pick differentiation/cost marketing/productive • Too large – larger
focus cost businesses join
• Develop products to meet • Less competition
segment • Easier to enter
,Porter’s Value Chain
• Looks at sequence of activities to add
value to product/services by company
• Value(Margin) = Sales revenue less Cost
Ansoff’s Matrix
External Analysis
PESTEL Analysis
• Political – tax, government spending, trade barriers
• Economic – growth, interest rates, inflation
• Social – tastes, income distribution, population demographics
• Technological – Improved production methods, new products
• Environmental – sustainability, ESG rules, Climate change
• Legal – Employment law, competition laws
Competitive Advantage of Nation’s - Porter’s
Diamond
Explains advantage of some nations in certain
industries:
• Factor Conditions – supply side
o Availability of factors (resources
needed)
▪ Human Resources, physical,
capital, infrastructure
• Demand conditions
, o Demanding consumers = forced to be innovative
▪ Trend setting local consumers help anticipate future global trends
• E.g. German drivers demanded powerful cars from German
manufacturers
• Related and supporting industries
o Proximity of related/supporting industries =
▪ Easy access to components
▪ Knowledge sharing = increased innovation
• E.g. accountancy in UK supports finance sector
• Strategy, structure and rivalry
o Strong domestic rivalry = forces efficiency
o Structures may give advantages
▪ Flat structure – encourages innovation (e.g. Japan)
Porter’s 5 Forces
SWOT –
• Can also be used for strategic analysis
Key analysis: for strategic analysis qs
• Analyse/evaluate environment firm in
• Evaluate industry which firm is in
• Analyse current position of firm
o Financially and non financially
Analysis Models:
Portfolio Analysis
Internal Analysis
Product Life Cycle
Development –
• Low cash flow – high R&D investment
• Market research key for success
Introduction –
Continued cash outflow – marketing
costs
• Initial demand dependent on pricing
policy
Growth –
• New competition – may need to
improve quality
• EOS – may emerge due to mass
market
Maturity
• Critical Mass – cost efficiencies
• Positive cash flow – less marketing, maximum sales
Decline
• Heavy discounting – to utilize spare capacity and cover overheads
• Brand loyalty – key to retaining customers
Key to keep balanced portfolio
Too many products in 1 phase = problems (cash flow)
BCG Matrix – balance between market growth and market share
Star –
• Under constant threat from new entrants due to
high market growth
• Needs to continuously build
Question Mark –
• decide whether to harvest or build by injecting
finance
• Attractive market – no share to be competitive
• Lack of economies of scale due to low share
Cash Cow –
• lack of threat from new entrants = easy to hold position or Harvest
• Dominant position due to low growth of market
• Competitors will not try gain market share
• Large positive cash flows
, Dog –
• decide whether to hold position or divest in short term
• Low share of unattractive market
• Market isn’t attractive to seek growth
Porter’s Generic Strategies
• Cost leadership – lowest cost producer in industry
• Differentiation – create product
features customer wants to pay
more for
• Focus on market segments
Address if:
• Strategy = differentiate/cost
leader
• Scope – broad/narrow?
Cost Leadership
How to achieve Benefits Risks
• EOS – (bulk buy) • Higher profits • Only room for 1 cost
• Seek cheaper suppliers • EOS = barrier to leader
• Reduce costs (labour) entry • Lack of quality
• Value chain analysis – reduce
non-key activities
Differential Strategy:
How to achieve Benefits Risks
• Strong branding • Command premium price • Cheap copies
• Innovation • Few perceived substitute • Consumers don’t want
• Quality due to brand extra
loyalty/uniqueness • Differention not valued
anymore
Focus Strategy
How to achieve Benefits Risks
• Identify consumer segment • Smaller segment – • Segment too small –
with different similar needs smaller not enough demand
• Pick differentiation/cost marketing/productive • Too large – larger
focus cost businesses join
• Develop products to meet • Less competition
segment • Easier to enter
,Porter’s Value Chain
• Looks at sequence of activities to add
value to product/services by company
• Value(Margin) = Sales revenue less Cost
Ansoff’s Matrix
External Analysis
PESTEL Analysis
• Political – tax, government spending, trade barriers
• Economic – growth, interest rates, inflation
• Social – tastes, income distribution, population demographics
• Technological – Improved production methods, new products
• Environmental – sustainability, ESG rules, Climate change
• Legal – Employment law, competition laws
Competitive Advantage of Nation’s - Porter’s
Diamond
Explains advantage of some nations in certain
industries:
• Factor Conditions – supply side
o Availability of factors (resources
needed)
▪ Human Resources, physical,
capital, infrastructure
• Demand conditions
, o Demanding consumers = forced to be innovative
▪ Trend setting local consumers help anticipate future global trends
• E.g. German drivers demanded powerful cars from German
manufacturers
• Related and supporting industries
o Proximity of related/supporting industries =
▪ Easy access to components
▪ Knowledge sharing = increased innovation
• E.g. accountancy in UK supports finance sector
• Strategy, structure and rivalry
o Strong domestic rivalry = forces efficiency
o Structures may give advantages
▪ Flat structure – encourages innovation (e.g. Japan)
Porter’s 5 Forces
SWOT –
• Can also be used for strategic analysis
Key analysis: for strategic analysis qs
• Analyse/evaluate environment firm in
• Evaluate industry which firm is in
• Analyse current position of firm
o Financially and non financially
