MODULE II

Strategic Management

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Dr. Bhumika Achhnani, FMS, Marwadi University
 SWOT stands for Strengths, Weaknesses, Opportunities,
and Threats. A SWOT analysis is a framework to help assess
and understand the internal and external forces that may
create opportunities or risks for an organization.

SWOT ANALYSIS
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Dr. Bhumika Achhnani, FMS, Marwadi University
 Strengths and weaknesses are internal factors. They are
characteristics of a business that give it a relative advantage (or
disadvantage, respectively) over its competition.
 Opportunities and threats, on the other hand, are external
factors. Opportunities are elements of the external environment
that management can seize upon to improve business
performance (like revenue growth or improved margins).
 Threats are elements of the external environment that may
endanger a firm’s competitive advantage(s), or even its ability
to operate as a going concern (think regulatory issues or
technological disruption).

SWOT ANALYSIS
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Dr. Bhumika Achhnani, FMS, Marwadi University
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Dr. Bhumika Achhnani, FMS, Marwadi University
 TOWS Analysis is an extension of the classic analytics tool, SWOT
Analysis.
 While SWOT analysis, puts the emphasis on the internal environment
(your strengths and weaknesses), TOWS forces you to look at your
external environment first (your threats and opportunities).
 It examines a business from an approach that references marketing
and administration.
 It helps you ask, and answer, the following questions:
 How can we make the most of our strengths?
 How do we circumvent our weaknesses?
 How can we capitalize on external opportunities?

TOWS ANALYSIS
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Dr. Bhumika Achhnani, FMS, Marwadi University
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Dr. Bhumika Achhnani, FMS, Marwadi University
  Strength And Opportunity SO - SO or Maxi-Maxi strategy utilizes internal strengths to
maximize or optimally use external opportunities available to an organization.
 Strengths And Threats ST - ST or Maxi-Mini strategy maximizes the strengths of a
business and minimizes the threats using those strengths.
 Weakness And Opportunity WO - WO or Mini-Maxi strategy’s aim is to minimize
weaknesses of an organization and maximize opportunities. This strategy revamps
internal weaknesses by using external opportunities.
 Weakness And Threats WT - The WT strategy, also known as the mini-mini strategy,
aims to minimize threats and weaknesses. A TOWS matrix example will show that it’s a
defensive spot in the matrix that is utilized by businesses in adverse situations.
 Note: The WT quadrant – weaknesses and threats – is concerned with defensive
strategies. Put these into place to protect yourself from loss, however don't rely on them
to create success.

TWOS ANALYSIS
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Dr. Bhumika Achhnani, FMS, Marwadi University
 When you have many factors to consider, it may be helpful to
construct a matrix to match individual strengths and
weaknesses to the individual opportunities and threats you've
identified.

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Dr. Bhumika Achhnani, FMS, Marwadi University
 Strengths
 Apple Has High Standards Of Products And Services, Which Makes
It The Most Trusted Brand
 It Can Be Differentiated By Its Strong Brand Image
 The Organization Has High Liquidity And Profitability Owing To Its
Massive Financial Strength
 The Supply Chain Is Highly Sophisticated And Innovative
 Premium And Efficient Products Guarantee High Sales, High Profit
Margins And A Loyal Customer Base

TWOS MATRIX EXAMPLE OF

APPLE
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Dr. Bhumika Achhnani, FMS, Marwadi University
  Weaknesses
 Prices Are High And Don’t Aim To Compete With Other Brands
 Range Of Products Is Narrow
 Products And Services Are Exclusive And Hence Non-Compatible With Other Brands
 Opportunities
 The Demand For Newer Electronic Gadgets, Especially Smartphones, Is Constantly
Growing, Irrespective Of The Prices
 Threats
 Competitors Keep Emerging And Challenging Apple
 Manufacturing Costs Are Constantly Rising
 Personal Computer Sales Have Fallen Which Has Affected Apple’s Market Share
 The TOWS matrix of Apple will put all these elements in the matrix to analyze each
strategy of the matrix.

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Dr. Bhumika Achhnani, FMS, Marwadi University
TWOS EXAMPLE
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Dr. Bhumika Achhnani, FMS, Marwadi University
 The VRIO framework is an internal analysis that helps
businesses identify the advantages and resources that give
them a competitive edge.
 The VRIO framework is an acronym for the various
measurements of success that relate to your business. It
includes value, rarity, imitability, and organization.
 Identification is important with this framework because if you
can’t identify one of these variables it’s a sign that you should
rethink some of the previous steps or go back and do more
research on the overall idea you’re analyzing.

VRIO FRAMEWORK
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Dr. Bhumika Achhnani, FMS, Marwadi University
 Value: Value relates to the specific needs that drive your
product/service and the capabilities you provide. Some good
questions to ask here are:
 What specific ability do you empower customers to take
advantage of?
 What resources of value do you provide to customers?
 If you can’t determine the value provided by your
organization, you need to rethink the value you hope to
provide and guide your resources towards that goal.

VRIO FRAMEWORK
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Dr. Bhumika Achhnani, FMS, Marwadi University
 Rarity: Rarity has to do with the availability of your resources
and how accessible they are to your competition. Some
prompting questions for this section might be:
 What hard-to-obtain resources do you have at your disposal?
 What unique capabilities do you provide?
 What part of your product/service has low supply and high demand?
 Rarity is important because, when mixed with value, it creates a
promising recipe for success. They are mutually important,
however, because without rarity it can be hard to capitalize on
the value you possess.

VRIO FRAMEWORK
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Dr. Bhumika Achhnani, FMS, Marwadi University
 Imitability: Imitability is similar to rarity but questions the
ability of your competition to imitate your solution within their
own business model. It asks:
 What is the cost of duplication for your organization’s
resource/solution?
 Is there anything similar that currently exists?
 If you’re struggling to identify the potential imitability of your
product/service, think of ways you can tweak it to increase its
value and attach it to your brand.

VRIO FRAMEWORK
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Dr. Bhumika Achhnani, FMS, Marwadi University
 Organization: The organization portion is an internal analysis
of how your business operates and is structured for success.
Some good prompts for this section are:
 Are there reliable workflows within your business that breed
success?
 What management structures/systems are in place to ensure your
resources and advantages will be capitalized on?
 This is the final step in the VRIO framework and asks you to
consider the organizational factors that play into creating a
sustainable competitive advantage over your competition.

VRIO FRAMEWORK
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Dr. Bhumika Achhnani, FMS, Marwadi University
 VRIO FRAMEWORK

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Dr. Bhumika Achhnani, FMS, Marwadi University
 VRIO FRAMEWORK

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Dr. Bhumika Achhnani, FMS, Marwadi University
 VRIO FRAMEWORK

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Dr. Bhumika Achhnani, FMS, Marwadi University
 SWOT Analysis VRIO Framework
 Looks internally at strengths and  Focuses strictly on internal metrics
weaknesses and externally at and resources that influence your
opportunities and threats. competitive advantage.
 Helps assess future opportunities  Focuses on the positives that create
based on your current positioning. a competitive advantage and the
 things that could be difference-
Looks at the positive and negative
portions of your business plan. makers.
 Requires nuanced understanding of
 Simpler, more approachable
analysis. your unique value and competitive
ecosystem.
 Is able to focus on resources that
you possess rather than general
strengths, creating very tangible
solutions. 20
Dr. Bhumika Achhnani, FMS, Marwadi University
 It can help prioritize the allocation of business resources to
highlight your unique value.
 It can highlight internal resources and advantages that would
otherwise be hard to recognize.
 Helps highlight the most important factors to creating and
maintaining a competitive advantage over similar
organizations.
 Enables you to identify and prioritize your competitive edge.

VRIO FRAMEWORK ADVANTAGES

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Dr. Bhumika Achhnani, FMS, Marwadi University
 Due to the cyclical nature of the competitive ecosystem, your
unique value and edge cannot be predicted in the long term.
 Only really accessible by established organizations. Many
smaller companies may struggle to define many of the key
terms in the VRIO framework.
 Strictly looks inward at your resources and capabilities and
does not analyze exterior opportunities.

VRIO FRAMEWORK LIMITATIONS

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Dr. Bhumika Achhnani, FMS, Marwadi University
 I/O MODEL OF ABOVE-AVERAGE
RETURNS
1. External Environments
General 1. Strategy dictated by the
Global external environments of
l
ga
the firm (what

De
Le

Industry

mo
opportunities exist in
al/

Environment

gra
c

these environments?)
liti

ph
Po

ic
2. Firm develops internal
skills required by
So

ic
cio

om
Competitor external environment
cu

on
ltu

Environment (what can the firm do

Ec
ral

Dr. Bhumika Achhnani, FMS, Marwadi University

Technological about the opportunities?) 23

Environment
1. The external environment is assumed to
possess pressures and constraints that
determine the strategies that would result in
above-average returns
2. Most firms competing within a particular or
within a certain segment of it are assumed to
control similar strategically relevant resources
and to pursue similar strategies in light of those
resources

FOUR ASSUMPTIONS OF THE I/O

MODEL
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Dr. Bhumika Achhnani, FMS, Marwadi University
3. Resources used to implement
strategies are highly mobile across firms
4. Organizational decision makers are
assumed to be rational and committed to
acting in the firm’s best interests, as shown
by their profit-maximizing behaviors

FOUR ASSUMPTIONS OF THE I/O

MODEL
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Dr. Bhumika Achhnani, FMS, Marwadi University
 I/O Model of Above-Average Returns
Industrial Organization 1. Study the external
Model environment, especially the
industry environment
The External Environment • economies of scale
• barriers to market entry
• diversification
• product differentiation
• degree of concentration of
firms in the industry

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Dr. Bhumika Achhnani, FMS, Marwadi University

 I/O Model of Above-Average Returns
Industrial Organization 2. Locate an attractive industry
Model with a high potential for
above-average returns
The External Environment

An Attractive Industry Attractive industry: one whose

structural characteristics
suggest above-average returns

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Dr. Bhumika Achhnani, FMS, Marwadi University

 I/O Model of Above-Average Returns
Industrial Organization 3. Identify the strategy called
Model for by the attractive industry
to earn above-average returns
The External Environment

An Attractive Industry

Strategy Formulation Strategy formulation: selection

of a strategy linked with
above-average returns in a
particular industry

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Dr. Bhumika Achhnani, FMS, Marwadi University

 I/O Model of Above-Average Returns
Industrial Organization 4. Develop or acquire assets and
Model skills needed to implement
the strategy
The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills Assets and skills: those assets

and skills required to
implement a chosen strategy
29

Dr. Bhumika Achhnani, FMS, Marwadi University

 I/O Model of Above-Average Returns
Industrial Organization 5. Use the firm’s strengths (its
Model developed or acquired assets
and skills) to implement the
The External Environment strategy
An Attractive Industry

Strategy Formulation

Assets and Skills

Strategy implementation:
Strategy Implementation select strategic actions linked
with effective implementation 30
of the chosen strategy
Dr. Bhumika Achhnani, FMS, Marwadi University
 I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills Superior returns: earning

of above-average returns
Strategy Implementation

Superior Returns 31

Dr. Bhumika Achhnani, FMS, Marwadi University

 RESOURCE-BASED MODEL OF
ABOVE AVERAGE RETURNS

1. Firm’s Resources 1. Strategy dictated by

unique resources and
capabilities of the firm
(what can the firm do
best?)
2. Find an environment in
which to exploit these
assets (where are the best
opportunities?) 32
Dr. Bhumika Achhnani, FMS, Marwadi University
 Resource-based Model of Above Average
Returns
Resource-based 1. Identify the firm’s resources--
Model strengths and weaknesses
compared with competitors
Resources
Resources: inputs into a firm’s
production process

33

Dr. Bhumika Achhnani, FMS, Marwadi University

 Resource-based Model of Above Average
Returns
Resource-based 2. Determine the firm’s
Model capabilities--what it can do
better than its competitors
Resources

Capability Capability: capacity of an

integrated set of resources to
integratively perform a task or
activity

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Dr. Bhumika Achhnani, FMS, Marwadi University
 FOUR ATTRIBUTES OF RESOURCES AND
CAPABILITIES (COMPETITIVE ADVANTAGE)

Valuable allow the firm to exploit opportunities or

neutralize threats in its external

Resources and Capabilities

environment

Rare possessed by few, if any, current and

potential competitors

Costly to imitate when other firms cannot obtain them or

must obtain them at a much higher cost

Nonsubstitutable the firm is organized appropriately to

obtain the full benefits of the resources in
order to realize a competitive advantage 35
Dr. Bhumika Achhnani, FMS, Marwadi University
 RESOURCES AND CAPABILITIES THAT MEET
THESE FOUR CRITERIA BECOME A SOURCE OF:

Valuable

Resources and Capabilities

Rare
Core Competencies
Costly to imitate

Nonsubstitutable
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Dr. Bhumika Achhnani, FMS, Marwadi University
 CORE COMPETENCIES ARE THE
BASIS FOR A FIRM’S

Competitive
advantage

Strategic
competitiveness Core Competencies
Ability to earn
above-average
returns
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Dr. Bhumika Achhnani, FMS, Marwadi University
 Resource-based Model of Above Average
Returns
Resource-based 3. Determine the potential of the
Model firm’s resources and
capabilities in terms of a
Resources competitive advantage
Capability

Competitive Advantage Competitive advantage: ability

of a firm to outperform its
rivals

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Dr. Bhumika Achhnani, FMS, Marwadi University

 Resource-based Model of Above Average
Returns
Resource-based 4. Locate an attractive industry
Model
Resources

Capability

Competitive Advantage

An Attractive Industry An attractive industry: an

industry with opportunities that
can be exploited by the firm’s
resources and capabilities 39
Dr. Bhumika Achhnani, FMS, Marwadi University
 Resource-based Model of Above Average
Returns
Resource-based 5. Select a strategy that best
Model allows the firm to utilize its
resources and capabilities
Resources relative to opportunities in
Capability the external environment

Competitive Advantage

An Attractive Industry
Strategy formulation and
Strategy Form/Impl implementation: strategic
actions taken to earn above 40
average returns
Dr. Bhumika Achhnani, FMS, Marwadi University
 Resource-based Model of Above Average
Returns
Resource-based
Model
Resources

Capability

Competitive Advantage

An Attractive Industry Superior returns: earning

of above-average returns
Strategy Form/Impl

Superior Returns 41

Dr. Bhumika Achhnani, FMS, Marwadi University

COMPONENTS OF Strategic
INTERNAL ANALYSIS Competitiveness

Competitive
Core Discovering Core Advantage
Competencies Competencies

Capabilities

Four Criteria Value

Resources of Sustainable Chain
• Tangible
• Intangible Advantages Analysis

• Valuable • Outsource
• Rare
• Costly to Imitate
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• Nonsubstitutable
 Discovering Core
Competencies

Resources
• Tangible
• Intangible

Resources are what a firm has Resources represent inputs into a

to work with--its assets-- firm’s production process... such
including its people and the as capital equipment, skills of
value of its brand name employees, brand names,
finances and talented managers

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Discovering Core
Competencies

Resources
• Tangible
• Intangible

Tangible Resources Intangible Resources

• Financial • Technological
• Physical • Innovation
• Human resources • Reputation
• Organizational

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Discovering Core
Competencies

Capabilities

Capabilities become important when they are combined in

unique combinations which create core competencies which
have strategic value and can lead to competitive advantage

45
Discovering Core
Competencies

Capabilities

Capabilities are what a firm does, and represent the firm’s

capacity or ability to integrate individual firm resources to
achieve a desired objective

46
Discovering Core
Competencies

Core
Competencies

Core competencies are resources and capabilities that serve as

a source of competitive advantage over rivals
Core competencies distinguish a company competitively and
make it distinctive
McKinsey and Co. recommends using three to four
competencies when framing strategic actions
47
 CORE COMPETENCE AS A
STRATEGIC CAPABILITY
Resources Core Competence
• Inputs to a firm’s • A strategic
production process capability

Yes
Does it satisfy
Capability the criteria of
• An integration of a
The source of sustainable
team of resources
competitive No
advantage?

Capability
• A nonstrategic
team or resource 48
The Basic
Value Chain M
gin ar
ar gin
M

Technological Development
Human Resource Mgmt.
Support Activities Service

Firm Infrastructure
Marketing & Sales

Procurement
Outbound Logistics

Operations

Inbound Logistics

49
Primary Activities
 Outsourcing is the M
purchase of some or g in ar
ar g in
all of a value-creating M

Technological Development
activity from an
external supplier

Human Resource Mgmt.

Usually this is
Service

Support Activities
because the specialty

Firm Infrastructure
supplier can provide
these functions more Marketing & Sales

Procurement
efficiently
Outbound Logistics
OUTSOURCING Operations
Inbound Logistics
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Primary Activities
 Improve Business Focus
 lets company focus on broader business issues
by having outside experts handle various
operational details
 Provide Access to World-Class Capabilities
 the specialized resources of outsourcing
providers makes world-class capabilities
available to firms in a wide range of applications

STRATEGIC RATIONALES FOR

OUTSOURCING
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 Accelerate Business Re-Engineering Benefits
 achieves re-engineering benefits more quickly by
having outsiders--who have already achieved
world-class standards--take over process
 Share Risks
 reduces investment requirements and makes
firm more flexible, dynamic and better able to
adapt to changing opportunities

STRATEGIC RATIONALES FOR

OUTSOURCING
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 Free Resources for Other Purposes
 permits firm to redirect efforts from non-core
activities toward those that serve customers
more effectively

STRATEGIC RATIONALES FOR

OUTSOURCING
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 Greatest Value
 outsource only to firms possessing a core competence in
terms of performing the primary or support activity being
outsourced
 Evaluating Resources and Capabilities
 don’t outsource activities in which the firm itself can create
and capture value
 Environmental Threats and Ongoing Tasks
 do not outsource primary and support activities that are used
to neutralize environmental threats or complete necessary
ongoing organizational tasks
OUTSOURCING ISSUES
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 Nonstrategic Team of Resources
 do not outsource capabilities that are critical
to their success, even though the
capabilities are not actual sources of
competitive advantage
 Firm’s Knowledge Base
 do not outsource activities that stimulate the
development of new capabilities and
competencies

OUTSOURCING ISSUES
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 ETOP analysis (environmental threat and opportunity profile) is the process
of gathering information about events and their relationships within an
organization’s internal and external environments.
 ETOP involves dividing the environment into different sectors. Each sectors
can be subdivided into sub sectors. For example oil & gas sector can be
broken down into sub-sectors such as exploration & production, integrated
oil & gas, oil equipment & services, pipelines, renewable energy
equipment, alternative fuels producers, oil equipment, services &
distribution, alternative energy etc.
 ETOP gives a clear picture to the strategies about each aspect of the
business environment, the various individual factors within each sector
which affect the business favorably or otherwise.

ENVIRONMENT THREAT AND

OPPORTUNITY PROFILE (ETOP)
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Dr. Bhumika Achhnani, FMS, Marwadi University
… … … ..+

ENVIRONMENT THREAT AND OPPORTUNITY PROFILE (ETOP)

57
Dr. Bhumika Achhnani, FMS, Marwadi University
Environmental Sectors Impact of each sector
Social (↑) Customer preference for motorbike, which are
fashionable, easy to ride and durable.
Political (→) No significant factor.
Economic (↑) Growing affluence among urban consumers; Exports
potential high.
Regulatory (↑) Two Wheeler industry a thrust area for exports.

Market (↑) Industry growth rate is 10 to 12 percent per year, For

motorbike growth rate is 40 percent, largely
Unsaturated demand.
Supplier (↑) Mostly ancillaries and associated companies supply
parts and components, REP licenses for imported raw
materials available.

Technological (↑) Technological up gradation of industry in progress.

Import of machinery under OGL list possible.

ENVIRONMENTAL THREAT AND OPPORTUNITY PROFILE (ETOP)

FOR A MOTOR BIKE COMPANY 58
Dr. Bhumika Achhnani, FMS, Marwadi University
 The strategic managers should keep focus on the following dimensions,
 Issue Selection: Focus on issues, which have been selected, should not be
missed since there is a likelihood of arriving at incorrect priorities. Some of the
important issues may be those related to market share, competitive pricing,
customer preferences, technological changes, economic policies, competitive
trends, etc.
 Accuracy of Data: Data should be collected from good sources otherwise the
entire process of environmental scanning may go waste. The relevance,
importance, manageability, variability and low cost of data are some of the
important factors, Which must be kept in focus.

ENVIRONMENT THREAT AND OPPORTUNITY PROFILE (ETOP)

59
Dr. Bhumika Achhnani, FMS, Marwadi University
 Impact Studies: Impact studies should be conducted focusing on the various
opportunities and threats and the critical issues selected. It may include study
of probable effects on the company’s strengths and weaknesses, operating
and remote environment, competitive position, accomplishment of mission
and vision etc. Efforts should be taken to make assessments more objective
wherever possible.
 Flexibility in Operations: There are number of uncertainties exist in a business
situation and so a company can be greatly benefited by devising proactive and
flexible strategies in their plans, structures, strategy etc. The optimum level of
flexibility should be maintained.

ENVIRONMENT THREAT AND OPPORTUNITY PROFILE (ETOP)

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Dr. Bhumika Achhnani, FMS, Marwadi University
 A set of factors that directly influences a company and its
competitive actions and responses.
 Interaction among these factors determine an industry’s
profit potential.

 Threat of new entrants

 Power of suppliers
 Power of buyers
 Product substitutes
 Intensity of rivalry

INDUSTRY ENVIRONMENT
61
 PORTER’S FIVE FORCES MODEL OF
COMPETITION
 Identify current and potential competitors
and determine which firms serve them.
 Conduct competitive analysis.
 Recognize that suppliers and buyers can
become competitors.
 Recognize that producers of potential
substitutes may become competitors.

62
FIVE FORCES MODEL OF COMPETITION
g Th
n
o ms re
at
Am Fir of
lry ing N
iva e t ew
R p En
m
Co t ra
n ts

rs r of
Thr
Five Forces of

e
eat roduc

Sup g Pow
Competition
P
of S ts

plie
nin
ubs

gai
titu

Bar
te

Bargaining Power of
63
Buyers
 Barriers to entry

 Economies of scale
 Product differentiation
 Capital requirements
 Switching costs
 Access to distribution channels
 Cost disadvantages independent of scale
 Government policy
 Expected retaliation

THREAT OF NEW ENTRANTS

64
 A supplier group is powerful when:

 it is dominated by a few large companies

 satisfactory substitute products are not available to industry firms
 industry firms are not a significant customer for the supplier group
 suppliers’ goods are critical to buyers’ marketplace success
 effectiveness of suppliers’ products has created high switching costs
 suppliers are a credible threat to integrate forward into the buyers’ industry

BARGAINING POWER OF SUPPLIERS

65
 Buyers (customers) are powerful when:

 they purchase a large portion of an industry’s total output

 the sales of the product being purchased account for a significant portion of the seller’s annual
revenues
 they could easily switch to another product
 the industry’s products are undifferentiated or standardized, and buyers pose a credible threat if they
were to integrate backward into the seller’s industry

BARGAINING POWER OF BUYERS

66
  Product substitutes are strong threat when:

 customers face few switching costs

 substitute product’s price is lower
 substitute product’s quality and performance capabilities are equal to or
greater than those of the competing product

THREAT OF SUBSTITUTE PRODUCTS

67
 Intensity of rivalry is stronger when competitors:
 are numerous or equally balanced
 experience slow industry growth
 have high fixed costs or high storage costs
 lack differentiation or low switching costs
 experience high strategic stakes
 have high exit barriers

INTENSITY OF RIVALRY
68
 Common exit barriers include:

 specialized assets (assets with values linked to a particular business

or location)
 fixed costs of exit such as labor agreements
 strategic interrelationships (relationships of mutual dependence
between one business and other parts of a company’s operation, such
as shared facilities and access to financial markets)
 emotional barriers (career concerns, loyalty to employees, etc.)
 government and social restrictions

HIGH EXIT BARRIERS

69
 Strategic groups are sets of firms that follow similar strategies to one another
 A strategic group consists of a set of industry competitors that have similar
characteristics to one another but differ in important ways from the members of
other groups
 Understanding the nature of strategic groups within an industry is important for at
least three reasons.
 First, emphasizing the members of a firm’s group is helpful because these firms are
usually its closest rivals. When assessing their firm’s performance and considering
strategic moves, the other members of a group are often the best referents for
executives to consider.

STRATEGIC GROUPS
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Dr. Bhumika Achhnani, FMS, Marwadi University
 Second, the strategies pursued by firms within other strategic groups highlight
alternative paths to success. A firm may be able to borrow an idea from another
strategic group and use this idea to improve its situation.
 Third, the analysis of strategic groups can reveal gaps in the industry that
represent untapped opportunities.

STRATEGIC GROUPS
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Dr. Bhumika Achhnani, FMS, Marwadi University
 To develop a strategic group map for an industry, the competitive factors for
each of the two axes must be selected. On the vertical axis, price is often the
measurement used. A different parameter that further differentiates the
members of the industry is chosen for the horizontal axis.
 For the airline industry, for example, it could be the number of routes flown. It
can be the breadth of models offered by each car manufacturer in the
automobile industry. The competitive factors should be chosen based on the
market characteristics that are to be examined, usually the most important
ones.

DESIGNING A STRATEGIC GROUP MAP

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Dr. Bhumika Achhnani, FMS, Marwadi University
 Once the various firms in the industry are plotted on the
strategic group map, the natural groupings of the companies
can be determined and circled. The stiffest competition in the
industry typically happens within each strategic group.
 Profitability between each group often varies. It is generally
difficult to move from one group to another, as mobility
barriers exist hindering the ability of a firm to impact the
chosen competitive factors being measured.

DESIGNING A STRATEGIC GROUP MAP

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STRATEGIC GROUP MAP EXAMPLE 74
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 McKinsey 7S model is a tool that analyzes firm’s organizational design by
looking at7 key internal elements: strategy, structure, systems, shared values,
style, staff and skills, in order to identify if they are effectively aligned and allow
organization to achieve its objectives.
 The model can be applied to many situations and is a valuable tool when
organizational design is at question. The most common uses of the framework
are:
 To facilitate organizational change.
 To help implement new strategy.
 To identify how each area may change in a future.
 To facilitate the merger of organizations.

MCKINSEY 7S MODEL
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 In McKinsey model, the seven areas of organization are divided into the
‘soft’ and ‘hard’ areas. Strategy, structure and systems are hard elements
that are much easier to identify and manage when compared to soft
elements. On the other hand, soft areas, although harder to manage, are
the foundation of the organization and are more likely to create the
sustained competitive advantage.
 A sound strategy is the one that’s clearly articulated, is long-term, helps
to achieve competitive advantage and is reinforced by strong vision,
mission and values. But it’s hard to tell if such strategy is well-aligned with
other elements when analyzed alone. So the key in 7s model is not to look
at your company to find the great strategy, structure, systems and etc. but
to look if its aligned with other elements.

MCKINSEY 7S MODEL
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 Structure represents the way business divisions and units are organized and includes
the information of who is accountable to whom. In other words, structure is the
organizational chart of the firm. It is also one of the most visible and easy to change
elements of the framework.
 Systems are the processes and procedures of the company, which reveal business’
daily activities and how decisions are made. Systems are the area of the firm that
determines how business is done and it should be the main focus for managers during
organizational change.
 Skills are the abilities that firm’s employees perform very well. They also include
capabilities and competences. During organizational change, the question often arises
of what skills the company will really need to reinforce its new strategy or new structure.

MCKINSEY 7S MODEL
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 Staff element is concerned with what type and how many employees an
organization will need and how they will be recruited, trained, motivated and
rewarded.
 Style represents the way the company is managed by top-level managers,
how they interact, what actions do they take and their symbolic value. In other
words, it is the management style of company’s leaders.
 Shared Values are at the core of McKinsey 7s model. They are the norms and
standards that guide employee behavior and company actions and thus, are
the foundation of every organization.

MCKINSEY 7S MODEL
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 Identify the areas that are not effectively aligned
 Determine the optimal organization design
 Decide where and what changes should be made
 Make the necessary changes
 Continuously review the 7s

APPLYING THE 7S MODEL

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 The GE-McKinsey Matrix (a.k.a. GE Matrix, General Electric Matrix,
Nine-box matrix) is a portfolio analysis tool used in corporate
strategy to analyze strategic business units or product lines.
 This matrix combines two dimensions: industry attractiveness and
the competitive strength of a business unit into a matrix.
Correspondingly, a business can direct its business units. It can then
determine where to invest, to hold their position, harvest or divest.
 the GE-McKinsey Matrix uses multiple variables to determine the two
dimensions:
 Industry attractiveness, and
 Competitive strength

GE MCKINSEY MATRIX
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 Industry Attractiveness
 When evaluating the business along this dimension, consider the long term growth
potential, industry size, industry profitability, entry and exit barriers, etc.
Furthermore, evaluate the power of suppliers and buyers as well as any other
environmental factors that could influence industry attractiveness.
 In addition, consider your product or service, how they change over time, pricing
and labor requirements.
 The vertical axis of this matrix – Industry Attractiveness – is divided into High,
Medium and Low. Industry attractiveness represents the profit potential of the
industry for a business to enter and compete in that industry. The higher the profit
potential, the more attractive is the industry. An industry’s profitability is affected by
the current level of competition and future changes in the competitive landscape.

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 Competitive Strength
 When evaluating a business unit along this dimension, consider how it fares relative to its competitors
within the industry. Some factors that can help a business assess its competitive advantage in an
industry are:
 Market share it commands
 Market share growth potential
 Brand awareness
 Profit margins of the business
 Customer loyalty and satisfaction
 Uniqueness of its products or services
 If the business has a competitive edge, consider whether its competitiveness is sustainable in the long-
term or only temporary. Finally, if the business has a sustainable competitive advantage, determine the
duration that it can leverage its position in the industry.
 The horizontal of this matrix – Competitive Strength – is divided into High, Medium and Low. This
dimension measures the business’s competitiveness among its rivals. This dimension indicates the
business’s ability to compete in that industry. A business’s strengths give it an advantage over its rivals.
 These strengths are often referred to as unique selling points (USP’s), firm-specific advantages (FSA’s) or
as sustainable competitive advantages.
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 Strategic implications
 The three degrees (High, Medium and Low) of Industry
Attractiveness and Competitive Strength provide 9 different
strategic postures for a business. The strategic actions to
choose from are:
 Invest / Grow strategy
 Selectivity / Earnings strategy, and
 Harvest/Divest strategy

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 The matrix plots a company’s offerings in a four-square matrix,
with the y-axis representing the rate of market growth and the
x-axis representing market share. It was introduced by the
Boston Consulting Group in 1970.
 The BCG growth-share matrix breaks down products into four
categories, known heuristically as "dogs," "cash cows," "stars,"
and “question marks.” Each category quadrant has its own set
of unique characteristics.

BCG GROWTH-SHARE MATRIX

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 Dogs (or Pets)
 If a company’s product has a low market share and is at a low
rate of growth, it is considered a “dog” and should be sold,
liquidated, or repositioned.
 dogs can turn out to be cash traps, tying up company funds for
long periods of time. For this reason, they are prime candidates
for divestiture.
 Cash Cows
 Products that are in low-growth areas but for which the
company has a relatively large market share are considered
“cash cows,” and the company should thus milk the cash cow
for as long as it can. Cash cows, seen in the lower left quadrant,
are typically leading products in markets that are mature.
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 Stars
 Products that are in high growth markets and that make up a sizable
portion of that market are considered “stars” and should be invested
in more. In the upper left quadrant are stars, which generate high
income but also consume large amounts of company cash. If a star
can remain a market leader, it eventually becomes a cash cow when
the market's overall growth rate declines.
 Question Marks
 Questionable opportunities are those in high growth rate markets
but in which the company does not maintain a large market share.
Question marks are in the upper right portion of the grid. They
typically grow fast but consume large amounts of company
resources. Products in this quadrant should be analyzed frequently
and closely to see if they are worth maintaining.
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 The BCG Growth-Share Matrix considers a company's growth
prospects and available market share via a 2x2 grid. By assigning
each business to one of these four categories, executives can
then decide where to focus their resources and capital to
generate the most value, as well as where to cut their losses.

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 The balanced scorecard allows managers to look at the business
from four important perspectives. (See the exhibit “The Balanced
Scorecard Links Performance Measures.”) It provides answers to
four basic questions:
 The Balanced Scorecard Links Performance Measures
 How do customers see us? (customer perspective)
 What must we excel at? (internal perspective)
 Can we continue to improve and create value? (innovation and learning
perspective)
 How do we look to shareholders? (financial perspective)

BALANCED SCORECARD
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 Any strategy, to be effective, must contain descriptions of
financial aspirations, markets served, processes to be
conquered, and, of course, the people who will steadily and
skillfully guide the company to success.

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 Customer Perspective
 When choosing measures for the Customer perspective of the Scorecard,
organizations must answer three critical questions:
 Who are our target customers?
 What is our value proposition in serving them?
 What do our customers expect or demand from us?
 Internal Process Perspective
 In the Internal Process perspective of the Scorecard, we identify the key
processes the firm must excel at in order to continue adding value for
customers and ultimately shareholders.
 Product development, production, manufacturing, delivery, and postsale
service may be represented in this perspective.
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 Employee Learning and Growth Perspective
 The objectives and measures in the Employee Learning and Growth
perspective of the Balanced Scorecard are really the enablers of the other
three perspectives.
 Once you identify objectives, measures, and related initiatives in your
Customer and Internal Process perspectives, you can be certain of discovering
some gaps between your current organizational infrastructure of employee
skills (human capital), information systems (informational capital), and the
environment required to maintain success (organizational capital).
 Employee skills, employee satisfaction, availability of information, and
alignment could all have a place in this perspective.
 Financial Perspective
 The objectives and measures in this perspective tell us whether our strategy
execution — which is detailed through objectives and measures chosen in the
other perspectives — is leading to improved bottom-line results. 94
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 THANK YOU!!

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