XX的战略分析框架（英文PPT99.pptx 101页

StrategyPractitionerToolsCoreToolsOctober19990 TableofContents1ANALYSISPLAN2BREAKTHROUGHMODEL3COMPETITIVEBENCHMARKING4COMPETITIVEPOSITIONING5CORECOMPETENCTYANALYSIS6CUSTOMERSEGMENTATION7EXPERIENCECURVE8FINANCIALMODELING9FITVS.ATTRACTIVENESSMODEL10FIVEFORCESANALYSIS11GANTTCHART12GAPANALYSIS13GROWTHSHAREMATRIX14INDUSTRYVALUECHAINANALYSIS15ISSUETREE/ISSUEMAP16KEYPERFORMANCEINDICATORS17MARKETPROFITABILITY18PORTFOLIOANALYSIS19REALOPTIONS/STRATEGICOPTION20SCALECURVE21SCENARIOENVISIONING22SENSITIVITYANALYSIS23SEVENSFRAMEWORK24STAKEHOLDERANALYSIS25SWOT26VALUEBASEDMANAGEMENT27VALUECHAINANALYSIS28VALUETREE29VOICEOFTHECUSTOMER AnalysisPlanSummaryTheanalysisplandetailsaproblem-solvingprocessandspecificanalysiswhichmustbedevelopedtoassessahypothesis.Theanalysisplanmustbeflexibleandthattheanalysestobeconductedandthedeliverablestobeproducedmaychangeduringthecourseoftheproject.AnalysisPlanCLIENTEXAMPLE:HYPOTHESIS/ANALYTICALPLANHypothesisAnalysisInfo.RequiredInfo.SourceEndProductsOverallHypothesisOrganizationalphilosophyneedstobemodifiedSupportingHypothesisExistingorganizationdoesnotadequatelysupportthebusinessstrategyDefinebusinesssystem,operatingenvironmentDefineCSFs,organizationalrequirementsalongbusinesssystemDefinehowexistingorganizationsupportsbusinesssystem,CSFsKeyactivities,processesbyLOBCSFsalongbusinesssystembyLOBExistingorganizationalelementsimpactingbusinesssystemManagementinterviewsSecondaryresearchHRdocumentsBusinessSystemDiagramsActivityCSF~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Evenafteradjustingforassetwrite-up,financialperformancehasnotmetcorporateexpectationsorcompetitivestandardsduetoaninappropriateorganization(andcost)structureFinancialperformancevs.competitors,budget/plansOverviewofcoststructure(e.g.,fixedvs.variablecosts)ROA,NIadjustedforassetwrite-upsHistoricandprojectedfinancialdataAssetwrite-upinformationSummarycost,volumeinfoforproductionunitsAnnualreports,10Ks,10Qs,etc.CompanyfinancialreportsFinancialdepartmentinterviewsFinancialMetricsTheincreasingcomplexityofbusinessandtheevolvingimportanceof,andcoordinationrequiredbetweenspecializedexpertiserequireschangesinthedecision-makingprocessandinformationflowsDefineactualvs.perceivedvs.“real”organizationchart,decision-makingprocess/responsibilities;identifygapsDefineexpertise,inforequiredtomakedecision,organizationalrequirementsDefineevolvingnatureoforganizationandinformationflowsKeydecisionsKeyindividualsinvolvedindecision-makingprocessInformationflowsManagementinterviewsOrganizationchartsMemos/documentsonmanagementprocessesSystemflowchartsData/InfoFlowsOrgCharts ApproachAnalysisPlanWhenToApplyWhenitisnecessarytolayoutproblem-solvingprocessindepth/detailandidentifytheanalyseswhichneedtobeundertakentovalidatetheselectedhypothesesDefineanissueonwhichaspecificactiondependsandphraseitasa“yes”orno”questionEstablishahypothesis:astatementoflikelyresolutionoftheissueincludingthereasonsforanswering“yes”or“no”Developananalysisstatementthatoutlinesthe“models”thatwillbeexploredinordertoproveordisprovethehypothesisIdentifythelikelylocationormeansofobtainingdatatoaccomplishtheanalysisDevelopendproducts(presentations)tographicallyrepresenttheoutputoftheanalysis Citations-ClientandIndustryExperienceAnalysisPlanCompaq/Technology/VasuKrishnamurthyGalileo/Travel/SpencerLin&VasuKrishnamurthyPostOfficeCountersLtd./TransportationServices/KITdatabasePwCMCS/Consulting/VasuKrishnamurthyUnitedAirlines/Travel/VasuKrishnamurthyRobertM.Grant,“ContemporaryStrategyAnalysis”,3rdEditionSourceList BreakthroughModelSummaryTheBreakthroughmodelfocusesattentiononmostsubstantialopportunitiesforcreatingvalueforcustomersandshareholders.BreakthroughModelExternalInternalIndustryCompanyTrendsintheeconomicenvironmentinwhichthemarketsexistBestpracticesacrossthisandsimilarindustriesMarket/productstrategyandbasisforcompetitionCapabilitiesofthecompany’speople,processes,technology,systemsandstructure1234Market/ProductRepositioningIndustryTransformationEnterpriseAlignmentBestPracticePerformance ApproachBreakthroughModelWhenToApplyUtilizetheBreakthroughmodeltoidentifyandcategorizeallopportunitiestocreatesubstantialincrementalshareholdervalue.WhencreatingaBreakthroughmodel,thefollowingcriteriashouldbeconsidered:SummarizeallopportunitiestoimprovebusinessperformancefromotheranalysesCategorizethemintofourgroups:EnterprisealignmentBestpracticeperformanceMarket/productrepositioningIndustrytransformationDetermineapproximateeconomicvalueofeachtypeofstrategy Citations-ClientandIndustryExperienceBreakthroughModelNon-PwC:Toyota:theleanproductionsystem•Frito-Lay:end-to-endsupplychainmanagementandtheuseofadvancedtechnology•Intel:highvelocityproductdevelopment•Amazon.com:Internetbasedchannelsofdistributiononbehalfofshareholders.PaulElkin,“MasteringBusinessPlanningandStrategy:ThePowerandApplicationofStrategicThinking”SourceList CompetitiveBenchmarkingSummaryCompetitiveBenchmarkingisusedtoidentifyandmeasurethefactorsthatdeterminewhyaprocesshasspecificcost,qualityortimingattributesandincorporatethebestpracticesintoanactionablechangeplan.Itdoessoinpart,bycomparingacompany’sperformanceinkeyareaswithrespecttoitscompetitors’performance.ExamplesofpresentingCompetitiveBenchmarkingfindings:CompetitiveBenchmarkingMonthsHomeGoodsPerishablesApparelAverage=6.7=Maximum#=AverageorMostCommon=Minimum02468101214161820ABCDEFGIJKLMNNEWPRODUCTDEVELOPMENTCYCLETIMEBestPractices~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~3.55.04.56.513.55.06.09.07.06.010.56.04.5 ApproachCompetitiveBenchmarkingWhenToApplyWhilenotacomprehensivecomparison,CompetitiveBenchmarkingillustratestheefficiencyofspecificprocessesincomparisontoacompany’scompetitors.Selectcompaniestobenchmarkagainstcarefully-rememberthatcompaniesoutsidetheclient’sindustrymaybethebestcandidates.Ensurethatdatacollectedarecomparableandthetherightprocessesarebenchmarked;thosewhichhavethebiggestimpactoncustomerservice/satisfaction/value.Examinetheissuesmostimportanttothecompany’ssituationtodeterminewhetherroles,processes,orstrategicissuesshouldbybenchmarkedIdentifykeyperformancevariablesanddeterminewhichcompaniestouseforcomparison(bothwithincompany’sindustryandoutsidetheindustry)Forprocessbenchmarking,determinethemetricstobemeasured;thesecanbekeyperformanceindicators(KPI’s),orothermeasurementsEstablishdatacollectionmethodology(industrysources,on-linedatabases,on-sitevisits,phoneinterviews,surveyquestionnaires,competitors,etc.)MeasureclientcompanyperformanceMeasureperformanceofcompetitorsandbestpracticeleadersIllustratethespectrumofperformancesonanappropriategraphDeterminegapsandreasoningDevelopactionplans/recommendationtoaddressgapsImplementactionsandmonitorprogress Citations-ClientandIndustryExperienceCompetitiveBenchmarkingBallCorporation/Packaging/VasuKrishnamurthy&MikeWeissMotorola/Technology/VasuKrishnamurthyPwCMCS/Consulting/VasuKrishnamurthyUnitedAirlines/Travel/VasuKrishnamurthyPaulElkin,“MasteringBusinessPlanningandStrategy:ThePowerandApplicationofStrategicThinking”LiamFahey,RobertM.Randall,“ThePortableMBAinStrategy”RobertM.Grant,“ContemporaryStrategyAnalysis”,3rdEditionMichaelGould,AndrewCampbell,MarcusAlexander,“Corporate-LevelStrategy:CreatingValueintheMultibusinessCompany”SourceList CompetitivePositioningSummaryCompetitivePositioninganalysisshowshowacompanyispositionedinitsindustryrelativetoitscompetitorsPositioningMapExample:EntertainmentHighLowLowHighChannelStrengthContentStrengthIntellectualpropertystrengthProductstrengthLowMediumHighMarketStrengthCompetitivePositioning ApproachCompetitivePositioningWhenToApplyToshowclientsthatyouunderstandtheirmarketandposition.Canalsobeusedtodevelopstrategicrecommendations.STEPDATAREQUIREDSOURCE(S)1.Chooseaxesthatarerelevanttocustomerdecision-making(first)andthosewhichdifferentiatesuppliers(second)2.Illustratewherecompetitorslieonmap(s)3.Interpretmapforstrategicimplications(e.g.,clustersoropenspaces)InformationonindustryasawholeInformationoncompetingcompanies’strategiesandpositioningTradeassociationsTradeperiodicalsandpublicationsInformationservicesAnalystreportsVariouscompanies’annualreportsandotherpublicinformationInterviewswithcompetitormanagementIndustryexperts Citations-ClientandIndustryExperienceCompetitivePositioningBarclaysGlobalInvestors(BGI)/Banking/KITdatabaseBlueCross/Insurance/MikeWeissBoots/Retail/KITdatabaseGalileo/Travel/SpencerLin&VasuKrishnamurthyGiddings&Lewis/MachineTool/VasuKrishnamurthyOshKoshB’Gosh?SP/Retail/MikeWeissPwCMCS/Consulting/VasuKrishnamurthySave&Prosper/Banking/KITdatabasePaulElkin,“MasteringBusinessPlanningandStrategy:ThePowerandApplicationofStrategicThinking”RobertM.Grant,“ContemporaryStrategyAnalysis”HenryMintzberg,JamesBrianQuinn,SumantraGhoshal,“TheStrategyProcess”HenryMintzberg,JamesBrianQuinn,“TheStrategyProcess:Concepts,Contexts,Cases”SourceList CoreCompetencyAnalysisSummaryCoreCompetencyAnalysisprovidesapracticalandsystematicprocesstoidentifyacompany’scorecompetenciesandassesskeycompetitiveadvantages.ExamplesofCoreCompetencyModels:CoreCompetencyAnalysisMarketingExample:McDonald’sCustomerRefillSupportSales/DistributionOtherCustomerServiceCriticalStrategicCapabilities(SC)-Thecapabilitiesinwhichacompanyisaleader.Thesecapabilitiesarethesourceofcompetitiveadvantage.CriticalEnablingCapabilities(EC)-Thecapabilitiesinwhichacompanyiscompetitivelyequivalenttoothermarketleaders.Thesecapabilitiesareoftenthesourceofabarriertoentry.Strategic/FinancialPlanningTechnologyDevelopmentProductDevelopmentMfg/JointVentureCoreCompetence(CC)-Acompetencewhichdeliversasustainablecompetitiveadvantageincurrentmarkets,providesaccesstoawidevarietyofmarkets,andmakesasignificantcontributiontotheperceivedcustomerbenefitsoftheendproduct.PrimaryCapabilities(PC)-Minimumfunctionalandtechnicalrequirementsnecessarytoparticipate.COMPETENCIESMODEL-FRAMEWORKFast,affordable,fun,familydiningexperienceMarketingandbrandmgmt.TrainingFranchisemgmt.ProductinnovationBigMacrecipeHighquality,lowpriceproductsourcingEfficientoperationHamburgerpreparationMenuselection ApproachCoreCompetencyAnalysisWhenToApplyEmployCoreCompetencyanalysistoevaluateacompany’scapabilitiesineachfunctionofthevaluechainwithahierarchicalmodelwhichidentifiescapabilitiesandthedegreetowhichtheyprovidecompetitiveadvantageandcanbeleveraged.Pleasenotethatthereisariskofdefiningtoonarrowlythemarketinwhichtheclientcompetes,thusfocusingonthewrongcompetencyrequirementsorasubsetofthecompetenciesrequiredtoeffectivelycompete.Itiskeythatthoseprojectsandprogramsthataimatdevelopingcorecompetenciesshouldnotbeopentore-prioritizationatalaterstage.AdheretothefollowingguidelineswhenanalyzingcorecompetenciesanddevelopingaCompetenciesModel-Framework:InterviewcompanyseniormanagementandbusinesslinemanagementaswellascompetitormanagementDefinecompany’sbusinesssystemandactivitiesperformedwithineachfunction-Basedonthetotalrangeofcapabilitiesidentified,askthequestions:Whichonesdowehavetobe“goodat”?Whichonesdowehavetobe“market/worldleadingat”?Determinewhethereachactivityisaprimarycapability,acriticalenablingcapability,acriticalstrategiccapability,oracorecompetence,basedonthedegreetowhichtheactivityprovidescompetitiveadvantageandcanbeleveragedNotethatwhilealltheidentifiedcapabilitieswillbecriticaltoachievethevisionandstrategy,thequestionswillhelpdistinguishcorefromnon-corebyinvokingmanagementattentionandreflectioninasystematicandstructuredmanner Citations-ClientandIndustryExperienceCoreCompetencyAnalysisGalileo/Travel/SpencerLin&VasuKrishnamurthyGiddings&Lewis/MachineTool/VasuKrishnamurthyMetLife/Insurance/KITdatabasePwCMCS/Consulting/VasuKrishnamurthySave&Prosper/Banking/KITdatabaseDavidA.Aaker,“DevelopingBusinessStrategies”,5thEditionRobertM.Grant,“ContemporaryStrategyAnalysis”,3rdEditionMichaelGould,AndrewCampbell,MarcusAlexander,“Corporate-LevelStrategy:CreatingValueintheMultibusinessCompany”HenryMintzberg,BruceAhlstrand,JosephLampel,“StrategySafari:AGuidedTourThroughtheWildsofStrategicManagement”HenryMintzberg,JamesBrianQuinn,SumantraGhoshal,“TheStrategyProcess”HenryMintzberg,JamesBrianQuinn,“TheStrategyProcess:Concepts,Contexts,CasesSourceList EstablishSegmentationObjectivesDataAssessmentModelConstructionBuildClosedLoopPerformanceToolWhataretheobjectivesofthesegmentation?BetterROI,redistributespending,changesalesefforts?Whatdataisneededtomeettheobjectives?Howmuchofthatdatacanbeobtainedinternally?externally?Whatdataisessentialtothesegmentation?Whatdatacanbeafocusforfurtherimprovementinthefuture?Definethevariablesofthemodelwithaccessibledata?Developananalyticaltoolthatutilizesthevariablestodetermineacustomerrankingorgrouping(iemostidealpartnertomostinefficientpartner).Refocusinternaleffortsbasedonsegmentationoutcome.Establishawaytocapturethekeydataneededtosegmentcustomerbase.Utilizethedataonanongoingbasistoimproveperformanceandcontinuallyrewardthebetterperformingcustomers.CustomerSegmentationMethodologyHighlevelworkflowforacustomersegmentationCustomerSegmentationMethodologySummary CustomerSegmentationSummaryCustomersegmentationisadivisionofamarketintodistinctgroupsofbuyerswhomightrequireseparateproductsand/ormarketingmixes.THECONVERTERMARKETCANBESEGMENTEDUSINGTWOVARIABLES:ECONOMICRISKANDFABRICINNOVATIONHoldinventoryCreditproblemBasicfabrics“Opportunistic”StrategySpecialtyproductsNarrowcustomerbaseNicheStrategy(specializedproducttonarrowcustomerbase)SelltomanufacturersbeforefabricpurchaseEstablishedcreditBroadcustomerbaseBasicfabricsLow-CostStrategySelltomanufacturersbeforefabricpurchaseEstablishedcreditFocusedcustomerbaseNovelfabrics(“fashionforward”)DifferentiationStrategy(specializedproducttobroadcustomerbase)EconomicRiskInventorypositionCreditstatusProductmixCustomerbaseFabricInnovationPercentnoveltiesOrdersizeNumberofcollectionsHighLowHighLowCustomerSegmentation ApproachSTEPDATAREQUIREDSOURCE(S)1.Identifysegmentationvariablesandsegmentthemarketa)SurveyStage:Conductinterviews/focusgroupswithconsumerstogaininsightintomotivations,attitudes,andbehaviorb)AnalysisStage:Applyfactoranalysistodatatoremovehighlycorrelatedvariables;applyclusteranalysistocreateanumberofmaximallydifferentsegments2.Formsegmentsbylookingatconsumercharacteristicsaswellasconsumerresponsesa)GeographicSegmentationb)DemographicSegmentationc)PsychographicSegmentationd)BehavioralSegmentationResultsfromfocusgroups,interviews,andsurveysCustomercharacteristics:demographics,statistics,etc.Focusgroups,interviews,surveysCompanydataWhenToApplyApplicablewhenitisusefultobetteridentifymarketingopportunities,todeveloptherightofferingforeachtargetmarket,ortobeabletoreachthetargetmarketinthemostefficientmannerpossible.CustomerSegmentation Citations-ClientandIndustryExperienceCustomerSegmentationGalileo/Travel/SpencerLin&VasuKrishnamurthyGeneralMills/CIP/JohanSauerGiddings&Lewis/MachineTool/VasuKrishnamurthyTheLittlewoodsOrganization/Retail/KITdatabasePwCMCS/Consulting/VasuKrishnamurthyPaulElkin,“MasteringBusinessPlanningandStrategy:ThePowerandApplicationofStrategicThinking”RobertM.Grant,“ContemporaryStrategyAnalysis”HenryMintzberg,JamesBrianQuinn,SumantraGhoshal,“TheStrategyProcess”SourceList TheExperienceCurveforecastsfuturetrendsincost/laboranddeterminestherelativecostpositionofvariouscompetitors.Thetoolquantifiescostsavings,theoreticallyachievedthroughexperiencegainedinconductingaprocess.ExperienceCurveSummaryTheExperienceCurveEXPERIENCECURVEFORWIDGETS-PROJECTIONS5040302010200400600800100020004000UnitVolume(Thousands)UnitCost($)19741975197619771978197919801981198219831984Slope20% ApproachExperienceCurveCreatingtheExperienceCurverequiresyearlyaccumulatedproductionvolumefortheentireindicativeandindividualcompetitors,andtheunitcostfortheentireindustryandcompetitors(usepricedataifcostdataisnotavailable.)Datacanbesecuredfromgovernmentagencies,tradeassociations,andfrominternalcompanydata.Step1Plotaccumulatedvolumefordifferentyearsagainstunitcostonalog/logscale(unitcostshouldbedeflatedbyusingageneralindexsuchastheGNPdeflator,orspecificindicesforthevariousparsofcostsuchasmaterialsandlabor.)Step2Addastandardregressionlinetothegraph.CAVEATS:Costfiguresmustbedefinedinthesamemannerbyallsourcesofdata.Ifcompanycost-accountingdataisused,itmayneedtobeadjustedforoverheadallocationsandothercostsnotconsideredtobepartoftheactivity,process,orproductunderstudy.IfpricedataisusedpricingbehaviorofparticipantsneedstobeconsideredInnovationwithinanyfunctionalarea(e.g.,product,process,distribution)canrenderthecurrentexperiencecurveuselessasastrategytool.Therefore,itisimportanttounderstandtheenvironmentalandcustomertrendsinordernottorelytooheavilyonthisanalysisTheexperiencecurveisonlyananalyticalconcept,andthereisnoguaranteethatcostswillactuallydecreaseaccordingtoit.ThecompanymustactivelymanagecostsdownWhentoApplyTheGrowthShareMatrixmaybeoverlysimplistic,marketsharedoesnotalwayscorrelatewithprofitabilityandnotallbusinesseshavethesameassetintensity.Conclusionsaresensitivetobusinessandmarketdefinitions;wherelinesaredrawn.Practitionersmustbecreative,carefulandconsistentwithmarketdata. Citations-ClientandIndustryExperienceExperienceCurveSourceListDavidA.Aaker,“DevelopingBusinessStrategies”,5thEditionTheBostonConsultingGroup,“PerspectivesonStrategy”RobertM.Grant,“ContemporaryStrategyAnalysis”,3rdEditionHenryMintzberg,BruceAhlstrand,JosephLampel,“StrategySafari:AGuidedTourThroughtheWildsofStrategicManagement FinancialModelingSummaryFinancialModelingThefinancialmodelwillallowustotestmanagementassumptionsandunderstandhowdifferentactionsmayaffectperformanceonsomekeycompetitivedimensions. ApproachWhenToApplyFinancialModelingiseffectiveinanalyzinghowacompany’sperformance,incoreareasofbusiness,willbeaffectedbypursuingdifferentcoursesofaction.Thistoolfacilitatesanunderstandingofvariouscause-effectandprovidesamodelbywhichtotestvarious"whatif"statements.FinancialModelingFollowthesestepstosuccessfullycreateaFinancialModelStep1Gatherinformationonkeydriversie.FromthecashflowanalysisperformedaspartoftheSVADataandinsightfromVoiceoftheCustomerisanothersourceofinsightStep2Maptherelationshipsandidentifyfactorswhichreinforceoneanothervs.thosethathaveanegativerelationship(e.g.increaseinpricemayhaveanegativeeffectondemand)Step3Buildthefinancialmodelbasedonthecause-effectrelationshipsidentifiedStep4GatherdatafromindustryanalysisorinternalcorporatedataStep5Testthequalityofthemodelbydoingmanualcalculationsonsome"whatif”Step6Perform"whatif"toassessthecompletenessofthemodel Citations-ClientandIndustryExperienceFinancialModelingFlemingsFundManagementLtd(FFML)/Banking/KITdatabaseGalileo/Travel/SpencerLin&VasuKrishnamurthyOshKoshB’Gosh?SP/Retail/MikeWeissPwCMCS/Consulting/VasuKrishnamurthyUnitedAirlines/Travel/VasuKrishnamurthyRobertM.Grant,“ContemporaryStrategyAnalysis”,3rdEditionSourceList TheFitvs.AttractivenessModeloptimizesstrategybydevelopingasenseoftherealisticstateofthemarketandcompanyaffairs.TheModelcomparesproductfitwithamarkettoproductfitwithacompany’sobjectives.Fitvs.AttractivenessModelSummaryTheFitvs.AttractivenessModelBakedGoodsBulbsCheeseFruitKitchenwareMeat/SeafoodNurseryStockSnacks/CandyStationeryDecorativeAccessoriesIndoorPlantsNutsSeedsTrees/ShrubsGourmetFoodBed/BathPool/Patio/GardeningCraftsPersonalCare/GroomingSpecialtyApparelCampingEquipmentChildren’sApparelDrug/Vitamins/HealthFoodHardware/ToolsHosiery/LingerieWomen’sApparelMen’sApparelWomen’sLargeSizeApparelAthleticEquipmentFishingEquipmentHuntingEquipmentSportingGoodApparelCategoryFitWithCompanyHighMediumLowLowMediumHighCategoryAttractivenessCATEGORYEVALUATION-SPECIALTY/SPIN-OFFCategoriesincludedinexistingorplannedspecialtybooksRecommendedadditionalspecialtybookventureEXAMPLE ApproachFitvs.AttractivenessModelStep1Identifyproduct,categoryormarketoverallattractivenessasbeinglow,medium,orhigh.Plotalongx-axis.Step2Identifyproductcategory,ormarketfitwithcompanyobjectivesasbeinglow,medium,orhigh.Plotalongy-axis.Step3Evaluatenewlycreatedmatrix;aimtorevealproducts,categories,ormarketsthatfallunderhighoverallattractivenessandhighfitwithcompanyobjectives.WhentoApplyTheFitVs.AttractivenessModelisusedtoanalyzeanewproductorserviceoffering’sfitwithinacompany,incomparisontotheoverallattractivenessoftheproductoroffering.Thisparticularmodelrequiresjudgementswhicharesubjectiveinnature;oneshouldbeawarethatthismodelmayoversimplifythemarketsituation. Citations-ClientandIndustryExperienceFitvs.AttractivenessModelSourceListGalileo/Travel/SpencerLin&VasuKrishnamurthyPwCMCS/Consulting/VasuKrishnamurthyPaulElkin,“MasteringBusinessPlanningandStrategy:ThePowerandApplicationofStrategicThinking”HenryMintzberg,JamesBrianQuinn,SumantraGhoshal,“TheStrategyProcess” FiveForcesAnalysisSummaryTheFiveForcesAnalysisevaluatestheattractivenessofanindustry.FiveForcesAnalysisDRIVERSOFMARKETATTRACTIVENESSPOTENTIALENTRANTSEntrybarriersarehighifthereare:EconomiesofscaleProductdifferentiationCapitalrequirementsLimitedaccesstodistributionchannelsRestrictivegovernmentpoliciesPotentialretaliatoryreactionofincumbentsINDUSTRYCOMPETITORSRivalryisintenseif:CompetitorsarenumerousorroughlyequalinpowerorsizeIndustrygrowthisslowTherearehighfixedcostsortheproductisperishableTheproductlacksdifferentiationorswitchingcostsCapacityisaugmentedinlargeincrementsExitbarriersarehighRivalsarediverseinstrategies,origins,and"personalities"SUBSTITUTESThreatofsubstitutesishighif:ThereisanabundanceofproductsorservicesthatservethesamefunctionTheprice-performancetradeoffofsubstitutesisattractiveSUPPLIERSBargainingpowerofsuppliersisgreaterif:ThesupplyindustryisdominatedbyafewcompaniesorismoreconcentratedthanthebuyingindustryThesupplyproductisdifferentiatedortherearehighswitchingcostsTherearefewsubstitutesThebuyingindustryisnotanimportantcustomerofthesupplyindustryThesupplyindustryposesacrediblethreatofforwardintegrationBUYERSBargainingpowerofcustomersisgreaterif:ThecustomergroupisconcentratedorbuysinlargevolumeProductspurchasedareundifferentiatedProductspurchasedrepresentasignificantportionofthecustomer"scostCustomersearnlowprofits,creatingincentivetolowerpurchasingcostsTheproductpurchasedisunimportanttothequalityofthecustomer"sproductSwitchingcostsarelowCustomergroupposesacrediblethreatofbackwardintegration ApproachWhenToApplyUsetheFiveForceanalysistoevaluateamarket’sstructureandthetrendsaffectingamarket’sprofitability.Pleasenotethatthestructuralconditionsalonedonotprovideaquantificationoftotalfuturemarketprofitabilityortheviabilityofacompany.Therefore,itisimportanttointegratecompanyspecificinsightsandconfirmthatthemodelaccuratelyreflectswhatishappeninginthemarket.FiveForcesAnalysisFiveForcesanalysisutilizesafourstepapproachandisappliedasastartingpointforunderstandingamarket’sattractiveness:Step1:CollectdataStep2:Evaluatestrengthofkeyforces,including:(Whatabouttechnology?)BuyersSuppliersSubstitutesCompetitorsPotentialentrantsStep3:Qualitativelyassignahigh,mediumorlowscoretoeachkeyforceStep4:Assesstheoveralleffectoftheforcesonindustryattractivenessandstrategicimplications Citations-ClientandIndustryExperienceFiveForcesAnalysisAerospace&ElectronicsAlliance/Multi-Industry/KITdatabaseGalileo/Travel/SpencerLin&VasuKrishnamurthyIberdrolaandJohnson&Johnson/TC-Utilities/KITdatabaselaCaixa/FM-Banking/KITdatabaseLeviStraus,MerkandMotorola/Multi-Industry/KITdatabasePwCMCS/Consulting/VasuKrishnamurthySourceListDavidPBaron,“TheNonmarketStrategySystem”,SloanManagementReview,Fall1995LiamFahey,RobertM.Randall,“ThePortableMBAinStrategy”RobertM.Grant,“ContemporaryStrategyAnalysis”,3rdEdition GANTTChartAGANTTchartgivestheexpectedtimelinefortheengagementbasedontheclient’sneedsandourexperienceandexpertise.GANTTChartIDNameScheduledFinish3/143/213/284/44/114/184/25MarApr1234567891011123/26/933/26/934/23/934/12/933/30/934/1/934/5/934/7/934/8/934/9/934/12/934/19/93MobilizationPwCMobilizationSCMMobilizationDesigncustomerserviceprocessMapcommunicationModeleconomicdecisionsIdentifycostdriversIdentifyvaluedriversSpecifyCSactivitiesSpecifyCSinformationneedsSpecifyCSresourcePreparetrainingmaterials ApproachGANTTChartWhenToApplyWhenitisnecessarytoIllustratefortheclientaroughtimelinefortheproposedengagement.Determinetheapproximatedurationforeachtask.Understandtheprospectiveclient"stimeconstraints.UsingaprojectmanagementsoftwaretoolsuchasMicrosoftProject,determinethespecifictimelinefortheprojectWorkeitherforwardfromananticipatedstartdatetodeterminetheapproximatetimeofcompletion,orbackwardfromaclient"s"must-complete-by"datetodeterminethenecessarydurationoftasks,orboth Citations-ClientandIndustryExperienceGANTTChartChrysler/Automotive/VasuKrishnamurthyE.B.Eddy-Forestry&WoodProductsDivision/Agriculture,Forestry&Fisheries/KITdatabaseGiddings&Lewis/MachineTool/VasuKrishnamurthyRBMG/MortgageBanking/VasuKrishnamurthyUnitedAirlines/Travel/VasuKrishnamurthyHenryMintzberg,JamesBrianQuinn,SumantraGhoshal,“TheStrategyProcess”SourceList GapAnalysisSummaryAnanalysisrankingcriticalsuccessfactorsagainstacompany’sabilitytoattainthemandtheircriticalitytosucceedingwithaparticularproductorservice.GapAnalysisCallcenteradaptation(e.g.7x24)Sourcesoftware/agreementEnsuresoftwarequalityandsecuritySoftwarevendorcontactsNegotiatecontractswithsoftwarevendorsanddistributionchannelsDevelopproductofferingmixandmarketingexpertise(e.g.non-traditionaldistribution;CD-ROM)AppropriateInternetinterfaceModifysoftwareasneededObtainstrongpatentsEvaluateAtlassoftwareMarketandfeasibilityassessmentsFinancialprojections(marketing)TechnicalsupportDonglecapabilityandmanufacturingsourcePaymentmethodHighPriorityCoreChallengeQuickHitLowestPrioritySourceCD-ROManddisksmanufacturersDIFFICULTYFORCOMPANYTOATTAINLowHighHighCRITICALITYTOPRODUCTSUCCESSSource:PWanalysis,industryinterviewsEXAMPLE: ApproachGapAnalysisWhenToApplyWhenyoumustunderstandwhichcriticalsuccessfactorspresentthegreatestchallengeinordertofocusefforts.STEPDATAREQUIREDSOURCE(S)1.Determinethetrademarkaxesforthematrix2.Determinethecompany’sexistingstrategyagainsttheindustry3.GeneratealternativestrategicoptionsforthecompanyandplotthemonthematrixAnunderstandingoftheclient’scurrentpositioning,vis-a-viscompetitorsUnderstandingofstrategicoptionsavailableInterviewswithseniormanagementAnalystreportsIndustryexpertsInterviewswithcompetitorsTradepublicationsIsthisthecorrecttext??????????? Citations-ClientandIndustryExperienceGapAnalysisFlemingsFundManagementLtd(FFML)/Banking/KITdatabaseGalileo/Travel/SpencerLin&VasuKrishnamurthyGeneralMotors/Automotive/KITdatabasePhilips/Multi-Industry/KITdatabasePwCMCS/Consulting/VasuKrishnamurthyDavidA.Aaker,“DevelopingBusinessStrategies”,5thEditionRobertM.Grant,“ContemporaryStrategyAnalysis”3rdEditionMichaelGould,AndrewCampbell,MarcusAlexander,“Corporate-LevelStrategy:CreatingValueintheMultibusinessCompany”SourceList GrowthShareMatrixSummaryGrowthShareMatrixSTARSQUESTIONMARKSCASHCOWSDOGSNOMAN’SLAND30%0%MarketGrowthRateExpectedGrowthifAvailable;Otherwise3-YearHistoricalGrowthRates4x2x1.5x1x.5x.25xCompany’sSalesorShareLargestCompetitorsSalesorShare?TheGrowthShareMatrixisexaminesacompany’sportfolioofbusinesses,depictingthecompany’scashflowpositionbyplottingeachbusiness’relativemarketshareagainstindustrygrowth.Thistoolassistscompaniesindeterminingwhichbusinessunitsshouldbeafocalpointforgrowthstrategies.TwoexamplesofGrowthShareMatricesappearbelow:MarketGrowthRatePPONat’lAccountLocalGroupCostPlusandASODentalStand-AloneNationalAccountControlNationalAccountParTraditional/CompLocalGroupMetroTraditional/CompLocalGroupOutstatePPOOutstateDirectPayCompMedicareLifeHMOPPO5.03.02.01.51.00.70.50.30.2EachcirclerepresentsadifferentbusinessCirclesizerepresentsproportionalsalesDataneededforeachbusinessunit:1.Sales2.Marketgrowth3.Salesoflargestcompetitor(ormarketsharedata)4.0 ApproachGrowthShareMatrixWhenToApplyThistoolaimstoeliminatemanagementdistractioninsmallunprofitablebusinessandguidesmanagementtoaccesstheappropriateresourcelevelsneededforallocationtopromisingnewbusinesses/corebusinesses.Althoughausefultool,ithasbeencriticizedasbeingoverlysimplistic.Marketsharedoesnotalwayscorrelatewithprofitabilityandnotallbusinesseshavethesameassetintensity.Conclusionsaresensitivetobusinessandmarketdefinitions;wherelinesaredrawn.Whenusingthistool,practitionersshouldbecreative,carefulandconsistentwithmarketdata.CreatingtheGrowthShareMatrixrequiressalesdata,marketgrowthinformationandmarketsharedata.Thisinformationcanbefoundinthefollowingsources:companydata/financialstatements,tradepublications,interviewswithseniormanagementandindustryexpert/analystopinions.ThefollowingstepswillassistincreatingaGrowthShareMatrix:Step1Plotrelativemarketshareonx-axisStep2Plotmarketgrowthrateony-axisUseexpectedgrowthifavailable,otherwiseuse3yearhistoricalgrowthratesStep3Eachcircle(plot)shouldrepresentadifferentbusinessThesizeofthecircleshouldbeproportionatetosales Citations-ClientandIndustryExperienceGrowthShareMatrixGalileo/Travel/SpencerLin&VasuKrishnamurthyPwCMCS/Consulting/VasuKrishnamurthyDavidA.Aaker,“DevelopingBusinessStrategies”,5thEditionRobertM.Grant,“ContemporaryStrategyAnalysis”,3rdEditionJohnMicklethwait&AdrianWooldridge,“TheWitchDoctors:MakingSenseoftheManagementGurus”SourceList GrowthShareMatrixSupplementLosingMarketShareHoldingMarketShareGainingMarketShareMarketGrowthRateBusinessGrowthRate30%0%30%Use3-yearhistoricalgrowthrates(use5-yearifbusinessishighlycyclical)Dataneededforeachbusinessunit:1.Sales2.MarketGrowth3.Salesoflargestcompetitor(ormarketsharedata)EachcirclerepresentsadifferentbusinessCirclesizerepresentsproportionalsalesItisusefultoaccompanytheGrowth/ShareMatrixwithaGrowth/GrowthMatrix,whichshowsthosebusinessesthataregainingshareandthosethatarelosingshare.Thismatrixwilloftensuggestadditionalanalyses,examiningthestrategyofthosebusinesseslosingshare. IndustryValueChainAnalysisSummaryTheValueChainAnalysiscanoperateontwolevels:asastrategictooltofacilitateanunderstandingofwherethekeystrengthsandweaknessesliewithinanorganizationandasamoreoperationaltooltolookatsupplychainmanagementissues.Limitationsinclude:difficulttoestimatewherevalueiscreated(ordestroyed)withoutmoredetailedanalysis,e.g.ABM,relativelystaticmodel,shouldnotbeappliedinnonmanufacturingornonprocessorientedcompaniesIndustryValueChainAnalysis ApproachIndustryValueChainAnalysisWhenToApplyUnderstandopportunitiesforaddingvaluebyimprovingthevariouselementsofthevaluechainStep1IdentifythekeyprimaryandsupportactivitiesStep2IdentifyvalueaddedateachstageStep3Assessthecontributionofeachstagetotheorganization"scompetitiveadvantageStep4IdentifythekeycostdriversStep5AssesspotentialforincreasingvalueanddecreasingcostsThevaluechainanalysisisatits"simplestahighleveldiagnostictoseewheretheorganizationneedstoimproveormaintainvaluecreation. Citations-ClientandIndustryExperienceIndustryValueChainAnalysisGalileo/Travel/SpencerLin&VasuKrishnamurthyPaulElkin,“MasteringBusinessPlanningandStrategy:ThePowerandApplicationofStrategicThinking”LiamFahey,RobertM.Randall,“ThePortableMBAinStrategy”RobertGrant,“ContemporaryStrategyAnalysis”HenryMintzberg,JamesBrianQuinn,SumantraGhoshal,“TheStrategyProcess”HenryMintzberg,BruceAhlstrand,JosephLampel,“StrategicSafari:AGuidedTourThroughtheWildsofStrategicManagement”SourceList IssueTree/IssueMapSummaryAnIssueTree/IssueMaptypicallybeginswithabroadquestionanddefinesthesequenceofkeyissues(phrasedasyesornochoices)thatwillsupportaspecificanswer.Apractitionerwoulduseissuemapstoframeoptions,usuallylaterintheproject.Amoredetailedexampleisincludedasasupplement.However,abasicrepresentationcanbefoundbelow.IssueTree/IssueMapIssueMap(Yes/NoTree)?YesNo ApproachIssueTree/IssueMapWhenToApplyThistoolismosteffectivewhenconsideringdiscreteorwell-definedalternativesandisextremelypracticalforcommunicationrelatedissues.ApractitionershouldberecognizethatanIssueTree/IssueMaprequiresstrongknowledgeofproblemorissue,clientandindustry.Itcanbefrustratingtopushdecisionbranchestoyes/noquestionsanddifficult(timeconsuming)tocreateMECEoptions.AnIssueTree/IssueMapensureslogicalintegrityoftheproblemsolvingframeworkandreducespotentialforoversightsormissedopportunities.Followthese5stepstosuccessfullycreateanIssueTree/IssueMap:Step1IdentifythekeyissuesStep2Definethestartingpoints(i.e.whatfactorsdrivetheseissues?)Step3IdentifyallpossibleoutcomesStep4DevelopthelogicflowconnectionsamongtheseoptionsStep5Startover Citations-ClientandIndustryExperienceIssueTree/IssueMapBCBSF//ChuckSternGalileo/Travel/SpencerLin&VasuKrishnamurthyUnitedAirlines/Travel/VasuKrishnamurthyStrategicChangeMBATrainingSourceList IssueTree/IssueMapSupplementWilllikelymovementsinpricesanddemandallowClienttoachievereasonableprofitabilityifitcarriesonaspresently?Isclientpreparedtowaitforthis?Canclientachievereasonableprofitabilitybybettersalesandmarketingefforts?CarryonaspresentlyImprovesalesandmarketingeffective-nessbyselectingtargetsegmentsandrefocusingeffortsDefineandimplementprofitimprovementprogramsDefineandimplementreinvestmentprogramAnalysisAnalysisAnalysisAnalysisAnalysisAnalysisActionDressupforsaleDevelopharveststrategyYesNoIsclientworthmoretoothersthantoitsparents?YesNoWouldmajorinvestmentprovideclientwithreasonableprofitability?YesNoCanclientachievereasonableprofitabilitybyreducingitscosts?GotoAYesNoYesNoYesNoA213456NotethatthisissuemapforevaluatinganSBU’sstrategysetsupsixanalysesinorder. AnswerstoEachFindanotherbasisforcompeting,i.e.,valuenotcost14“ThemodernizedClientName”10CanClientNameeconomicallydevelopandleadtheintroductionofthisS3technology7Willcurrentstate-of-the-arttechnologybereplaced,puttingClientNameatadisadvantagewithamodernplant?6WillmodernizationbeforcedonClientNameasa“tickettoplaythegame”?5CanClientNameeconomically“leapfrog”competitioninproductiontechnology?2Wouldfurtherintegrationeconomicallydevelopasustainablelow-costposition?1Overthenext12-18months,canClienteconomicallybecomethelow-costproducerthroughoptimizationofthecurrentplant?13“Buildstrengththroughcapacity”12“Niche/milk”11“Changethegame”15“Aggressiveleadershipintechnology”16“Leadershipexploitation”17“Buildstrengththroughintegration”18“Theexcellentmanufacturingcompany”Findthemarketsegmentsthatarenotcost-sensitiveModernizeallplantsasquicklyaspossibleExpandcapacitytoapointthatmaximizesprofitMinimizeanycurrentmodernization;participateinS3development;leadintroductionMinimizecurrentmodernization;beawareandflexibletoconvertwhenappropriateIntegratebackwardandforwardtoanextremeMakecostmanagement/productivitya“wayoflife”9CanClientName“changethegame”(i.e.,competeonsomethingotherthancost?)8Willcapacityexpansionberequiredtoeconomicallydevelopthecostleadershipposition?4Areexternalfactorslikelytoforecloseonthiscostposition?3Isthispositionsustainable?YesNoNoNoNoNoNoNoNoNoNoYesYesYesYesYesYesYesYesYesIssueTree/IssueMapSupplementEXAMPLEThisstudywastoassistmanagementatadiversifiedparentco.developa“vision”forthefutureofits“heritage”business-apaperboardsubsidiary.Whilereturnshadbeenattractiveinthissubsidiary,managementwasquestioningwhetherfurtherinvestmentwasadvisable. KeyPerformanceIndicatorsSummaryAlthoughtherearemanyapproachestoperformancemanagementandvarioustypesofKPIs:StrategicKPIs,FinancialKPIs,OrganizationalKPIsandCityKPIs,thisparticularexamplefocusesonStrategicKPIs(SKPIs).FoundedontheconceptofaBalancedScorecard,theStrategicKPImanagementtechniquehighlightsthosefactorsthatarecriticaltomaintainingthestrategicdirectionofabusiness.TheBalancedScorecardisameasurementframeworkwhichfocusesonthefourprimaryperspectivesofcorporateperformance.Eachperspectivefocusesonaparticularquestionfundamentaltothefutureprosperityoftheoverallbusiness.KeyPerformanceIndicators-KPIBUSINESSDEVELOPMENTPERSPECTIVE…howdowelooktoourowners?FINALPERSPECTIVE…howcanwefurtherdevelop?CUSTOMERPERSPECTIVE…howdoourcustomersseeus?INTERNALPERSPECTIVE…whatmustweexcelat?TheBalancedScorecard KeyPerformanceIndicatorsSummary-continued...TheBalancedScorecarddrivesperformancethroughouttheorganization.ThereisadirectlineofintegrationbetweentheVisionoftheorganizationandtheStrategythatisbeingpursued.Italsoprovidesthetoplevel“scoring”mechanismtoensureeachaspectofthebusinessison-track.Thelinkbetweenobjectives,SKPIs,targetsandinitiativesisillustratedbelow.KeyPerformanceIndicators-KPIFINANCIALPERSPECTIVETheBalancedScorecardApproachOBJECTIVESSKPITARGETSINITIATIVESAAAAAAAAAAAABBBBBBBBBBBBCCCCCCCCCCCCDDDDDDDDDDDDBUSINESSDEVELOPMENTPERSPECTIVEOBJECTIVESSKPITARGETSINITIATIVESAAAAAAAAAAAABBBBBBBBBBBBCCCCCCCCCCCCDDDDDDDDDDDDCUSTOMERPERSPECTIVEOBJECTIVESSKPITARGETSINITIATIVESAAAAAAAAAAAABBBBBBBBBBBBCCCCCCCCCCCCDDDDDDDDDDDDINTERNALPERSPECTIVEOBJECTIVESSKPITARGETSINITIATIVESAAAAAAAAAAAABBBBBBBBBBBBCCCCCCCCCCCCDDDDDDDDDDDDTHEVISION“toachievesustainableoutstandingresultsthroughacontinuousfocusonbrandvaluesandcustomerservice”THEVISIONdelivercustomersatisfactioncontinuousimprovementdevelopqualitypeoplemeetshareholderexpectations ApproachKeyPerformanceIndicatorsWhenToApplyUsetheStrategicKPIapproachtodeterminewhatfactorswillbethefoundationforensuringacultureofcontinuousperformanceimprovementandpreparingtheoverallbusinessforboththeboomandrecessionaryperiodswhichtypifytheeconomiccyclesinwhichcorporationsoperate.Itisparticularlyeffectivetovisualizethedirectcorrelationbetweenanorganization’svisionandthestrategywhichisbeingpursuedtosatisfythatvision.Step1Assigneachoftheorganization’sBusinessObjectivestotheappropriateStrategicKPI;theseSKPIswillrepresentmeasurementtoolsusedtotrackprogress.ExamplesregardingtheFinancialPerspectiveareasfollows:ProfitabilityNetprofitMargin(%)ReturnonTotalFunds(%)ShareholderIncomeDividendLevel($)DividendCover(times)GrowthSalesTrend(yearonyeargrowth)StabilityGearing(Debt:Equity)RatioInterestCover(times)Step2SetandclearlycommunicateastretchingyetachievabletargetlevelofperformancetoeachSKPIStep3Identify,implementandcontinuallyreviewspecificinitiativeswhichwillenabletheorganizationtoachievetheaforementionedtargets Citations-ClientandIndustryExperienceKeyPerformanceIndicatorsDuPont/Chemicals/VasuKrishnamurthyEricsson/Technology/KITdatabaseFlemingsFundManagementLtd(FFML)/Banking/KITdatabaseInternationalPaperCompany/Multi-Industry/KITdatabaseSAP/CIP/KITdatabaseSegaofAmerica/Technology/KITdatabaseValco/Chemicals/VasuKrishnamurthyPaulElkin,“MasteringBusinessPlanningandStrategy:ThePowerandApplicationofStrategicThinking”RobertM.Grant,“ContemporaryStrategyAnalysis”,3rdEditionSourceList MarketProfitabilityModelingSummaryMeasurescurrentandpredictsfuturemarketprofitabilitybycompanyprofitmargins.MarketProfitabilityTOTALMARGINSOFHMOsCONTROLLEDBYNETWORKMANAGERSMargins($Billions) ApproachMarketProfitabilityWhenToApplyWhenyouwouldliketoforecastindustryprofitability.STEPDATAREQUIREDSOURCE(S)1.Collectmargindataindollarsforindustrycompetitorsforthecurrentyearandaggregate2.Predictthesamemarginsforadeterminedfutureyearandaggregate3.GraphcurrentandfutureaggregatemarginsCompetitormargindataCompanyfinancialstatementsMoody’scompanydataBloombergIndustryAssociations/Publications Citations-ClientandIndustryExperienceMarketProfitabilityBraun/CIP/KITdatabasePwCMCS/Consulting/VasuKrishnamurthyDavidA.Aaker,“DevelopingBusinessStrategies”,5thEditionRobertM.Grant,“ContemporaryStrategyAnalysis”,3rdEditionSourceList PortfolioAnalysis/ProductPortfolioAnalysisSummaryThisanalysisillustratesproductperformanceandsuggestsproductstrategies;forexample:highcompetitivepositioncoupledwithhighmarketattractivenesssuggestsinvestingtogrowatthemaximumdigestiblerate.PortfolioAnalysis/ProductPortfolioAnalysis ApproachPortfolioAnalysis/ProductPortfolioAnalysisWhenToApplyBestutilizedtoconsidertherelativestrengthsofacompany’sarrayofproductsanddetermineappropriatestrategiesforeach.Whenpresentingportfolioanalysis/productportfolioanalysisfindings,usethefollowingguidelines:Useavailableinternalandexternalsourcestocollectdataonindicatorsofmarketattractivenessandcompetitivepositionsuchasmarketshare,%revenuegrowth,andrevenueinabsolutedollarsforeachofthecompany’sproductlinesForeachproduct:graphgrowthratevs.relativemarketsharescalethedatapointstoreflectproductrevenueinabsolutedollarsDivideeachaxisintothreesections-low,medium,andhigh-toformninesubdivisionsonthegraph Citations-ClientandIndustryExperiencePortfolioAnalysis/ProductPortfolioAnalysisAllstateInsuranceCompany/Banking/KITdatabaseVanguard/Banking/KITdatabaseDavidA.Aaker,“DevelopingBusinessStrategies”,5thEditionTheBostonConsultingGroup,“PerspectivesonStrategy”SourceList RealOptions/StrategicOptionsSummaryProducespositioningmapstoassessvariousstrategicoptions.Traditionally,thefinancialtoolmostwidelyreliedontoestimatethevalueofstrategy,discountedcashflow(DCF)valuation,assumesthatmanagementwillfollowapredeterminedstrategicplan,regardlessofhoweventsunfoldorwhatnewinformationisobtained.Ideally,executiveswouldliketoaddressflexibilityanduncertaintyintheirstrategieswhenassuringthem.Optionpricingisatoolwhichenablesexecutivestodojustthat,improvingdecisionmakingaboutthesequenceandtimingofaportfolioofstrategicinvestments.Optionspaceisawaytovisualizethevariousoptionsforanexecutive;itgivesthemawayto“draw”astrategyintermsthatareneitherwhollystrategicnorwhollyfinancialbutsomeofboth.RealOptions/StrategicOptionsDiscountStoresClientGeneralStoreSpecialtyStoresNon-CostCostGeneralMerchandiseSpecialtyMerchandiseWHERETOCOMPETEEXISTINGSTRATEGYHOWTOCOMPETEOptionSpaceDividedintoRegions“TheTomatoGarden”higherlowerVolatilityValue-to-cost1.00.0Region6:Never.Rottentomatoes,InvestRegion1:Now.Ripetomatoes,InvestRegion5:Probablynever.LateblossomsandsmallgreentomatoesLesspromisinggreentomatoesRegion4:MaybelaterInedible,butverypromisingtomatoesRegion3:ProbablylaterRegion2:Maybenow.Imperfectbutedibletomatoes ApproachRealOptions/StrategicOptionsWhenToApplyWhenyouwishtoidentifyvariousstrategicoptions(positioning),whichoutlinewhereandhowtocompete.STEPDATAREQUIREDSOURCE(S)1.Determinethetrademarkaxesforthematrix2.Determinethecompany’sexistingstrategyagainsttheindustry3.GeneratealternativestrategicoptionsforthecompanyandplotthemonthematrixAnunderstandingoftheclient’scurrentpositioning,vis-a-viscompetitorsUnderstandingofstrategicoptionsavailableInterviewswithseniormanagementAnalystreportsIndustryexpertsInterviewswithcompetitorsTradepublications Citations-ClientandIndustryExperienceRealOptions/StrategicOptionsGTECyberTrust/Banking/KITdatabaseKelloggCompany/Food&Beverage/KITdatabaseRobecoBankSA/Banking/KITdatabaseStarSystemInc.-E-CommerceWorkshop/Banking/KITdatabaseRobertM.Grant,“ContemporaryStrategyAnalysis”TimothyLuehrman,“InvestmentOpportunitiesasRealOptions:GettingStartedontheNumbers”,HBR,July1998TimothyLuehrman,“StrategyasaPortfolioofRealOptions”,HBR,September1998SourceList ScaleCurveSummaryTheScaleCurveidentifiesthebenefitsderivedfromeconomiesofscale.ScaleCurve10.05.01.00.50.1123456789101A1A1A1A1A1A1A1A1A1A1A1A1A1AClientAClientBCompetitorCCompetitorBKeySUPPORTLABORSCALEEFFECT-CONVENTIONALFIGHTERAIRCRAFTEXAMPLERatioofSupportLaborHourstoTouchLaborHoursTotalAnnualProgramTouchLaborHours(000)ClientPlanebasehoursSLOPE=67% ApproachScaleCurveWhenToApplyWhenitisnecessarytodetermineifthereisabenefittoderivedfromeconomiesofscale.GathercostinformationofproducingaserviceoraproductatvariousvolumesDisplayinformationinscalecurveforrelevantproductsorfunctions Citations-ClientandIndustryExperienceScaleCurveBCBSF//ChuckSternRobertGrant,“ContemporaryStrategyAnalysis”SourceList TheScenarioEnvisioningconceptisaninductive,“top-down”approachtodevelopingfutureindustry/marketscenarios.Theapproachhypothesizesfuturescenariosindependentofthepastandpresentupfrontandthenlinksthemtopastandcurrenttrends.Thescenariosarethenusedinsimulatingbusinessoutcomessuchasconsumerpreferences,businesssystemsandcompetitiveactions,whichinturnareusedtoidentifyvalueaddedopportunitiesandfuturestrategies.PricewaterhouseCoopers’ScenarioEnvisioninghasbeendevelopedtoassistcompaniesinmappingthepossiblefutureofanindustryintransition.DecisionmakersareusingScenarioEnvisioningtorethinkhowthedrivingforcesoftheirindustrymightcombineinsurprisingways.Inthesenewmodelsofthefuture,theytestcurrentstrategy,developandexploreotheroptions.Executivespracticeoperatingandunderstandingtheirbusinessinstatesthatcurrentrivalsdon’texpect,makingdecisionstodaythatwillenhancetheirorganization’schancesofsucceedingtomorrow.MostmanagersexpectScenarioEnvisioningtobeginwithprefabricatedworldvisionsofeconomicandgeopoliticaltrends.Incontrast,ScenarioEnvisioningdevelopscustomizedpicturesofacompany’sfuturemarketsthataredistinctlydifferentfromthepresentandyetquitepossible.Hence,managersexperiencewhatitwouldbeliketooperateinnewmarketsandservecustomerswithnewneeds.ScenarioEnvisioningSummaryScenarioEnvisioning ScenarioEnvisioningisapowerfulapproachforcompaniesinindustriesthatareexperiencingrapiddiscontinuouschange–wherethefuturecannotbeextrapolatedfromthepastandpresent.ScenarioEnvisioningfulfillsthekeyneedsforformulatingstrategyinarapiddiscontinuouschangeenvironment.Thecentralconflictineconomics….isthebattlebetweenpastandfuture,thewarbetweentheexistingconfigurationofindustriesandtheindustriesthatwillsoonreplacethem,”observedtheWallStreetJournalrecently.Afewyearsago,plannerslabeledsuchindustrytransformation“discontinuity,”orabreakinestablishedtrends.Amoredescriptivewordis“convergence,”onetypeofdiscontinuitythatcreatesanewsetofcustomervaluesandproductswhentwoormoreindustriesortechnologiescollide.Thisphenomenonhasalreadyredefinedmanymarketsandiseventransformingwholeindustries.Executivestodaytaskedwithformulatingstrategicplansfacetheuncertainfutureoftheseconvergingindustries.ScenarioEnvisioningcanbeemployed,butnotlimitedtothefollowingsituations:Organizationleaderswhoseektounderstandtheemergingfutureanditsimplicationsformakingimmediatedecisions.Managementbeginningcorporaterepositioning,strategicvisioning,orre-inventioninitiativesManagersofsuchfunctionsasmergersandacquisitions,researchanddevelopment,marketingandsaleswhoneedtotesttheconsequencesofcurrentandpotentialdecisionsindifferentcompetitivefuturesStaffunitsneedingtodepict,assessandcommunicatetheimplicationsofthealternativefuturesfacingtheirorganizationsaspartoftheplanningcycleCorporatedevelopmentmanagerswhowanttomonitoremergingtechnologiesandpotentialcompetitiveconditionsProductandservicemarketerswhotracktherapidevolutionofcustomerneedsSeniorexecutiveswhointegrateandcoordinatemergersandacquisitions,jointventuresandstrategicalliancesandwhoneedaclearvisionoftheoutcomesandbenefitsoftheseventures.ScenarioEnvisioningWhentoApply ScenarioEnvisioningApproachThroughPricewaterhouseCoopers’workwithcompaniesinevolvingindustries,aten-stepapproachhasbeendevelopedthatpreviewsinnovativeandnontraditionalindustryandmarketcapabilities.Innovativehypothesisaboutthefuture,basedonextensiveexpertindustryknowledgeandresearchareformulatedforstudyandreview.Thescenarioteamconvertsthesetheoriesoflogicalfutures-onesthatdivergefromthepastandpresenttrends-intoasetofdistinctlydifferentscenarios.DevelopFutureIndustryScenariosStep1Definethebroadfutureindustryandmarketcontextwithinwhichthescenarioswillbedeveloped.Forexample,thebankingindustry,thebroadercontextmaybefinancialservicesorevenpersonalinformationservices.Step2Identifytheparamountforcesthatwillshapethisindustryandmarketcontext.Forexample,whatconsumer,regulatory,social,legalandtechnologicalchangescanorcouldexertthemostpowerfulinfluenceonyourindustry?Howdotheseinteractonaglobalbasis?Whichoftheseisthemostuncertain?Step3Identifytheboundaryparameters-thefullrangeofuncertainty-oftheparamountforces.Forexample,ifregulationisoneoftheparamountforces,couldtheindustrybeintensivelyregulatedorcompletelyderegulated?Step4Developlogicalbutinnovativehypothesesthatexplainhowthemostpowerfulanduncertainforcescouldinteract.Forexample,willamajorsegmentofthebankingindustryevolveintoanon-linepersonalwithbuildingindustry,fosteredbyderegulationandincreasingconsumertechnologicalcapability?Step5Createasetofscenariosthatshowhowafewkeyunpredictableforceswiththehighestimpactcouldinteract.Usingamatrixmodel,theinteractionoftwoormoreunpredictableconditionsresultsinanumberofdistinctpossibilities.Thegoalistocoveracomprehensivespectrumofmarketconditions. ScenarioEnvisioningApproachcont.Keybusinessoutcomesofthescenariossuchasvaluechainsandcompetitivedynamicsaresimulated.Byviewingthepotentialevolutionarypathsofmarkets,decisionmakerscananticipatewhatmoveswillputacompanyintothemostadvantageousposition.AssessEconomicPotentialandDefineStrategyOptionsStep8Simulatebusinessoutcomesandsuchasnewvaluechainsandnewcompetitordynamicscreatedbytheevolutionarypathsofthescenarios.Thiswillidentifywhichsegmentsofyourindustrymayhaveincreasedprofitpotentialandwhichtypesofmarketparticipantsarelikelytoreapthebenefits.Step9Assessyourcompany’scapabilitiesandcomparethemtocapabilitiesneededtocompeteinthevariousscenarios.Identifythecompany’scapabilitygapsanddeveloppotentialsolutionstoovercomethem.Step10Develop,prioritize,andselectaportfolioofoptimalstrategicoptionstocompetesuccessfullyineachofthescenarios,andcomparethemwiththepresentdirection.Thiswillallowthecompanytorehearseitspotentialfuture.Step7Plottheevolutionarypathsofthescenarios.Forexample,thedeliveryofbroadbandTVtothehomebyfiberopticscablemaynotoccurformanyyears.Inthemeantime,avarietyof“compromise”technologiessuchasdirectbroadcastsatelliteTV,ISDNphonelines,andultra-fastmodems,mayflourish.Step6Testthecredibilityofthescenariosbyassessingtheviabilityofenablingeventsrequiredtomakethemhappen.Forexample,astoday’syoungstersquicklyadapttointeractivegames,willthemarketforthistypeofentertainmentcontinuetogrowastheymature? Citations-ClientandIndustryExperienceScenarioEnvisioningHollywoodStudio/EntertainmentAtamajorHollywoodStudio,PwCwasemployedtoleadstudioexecutivesthroughtheScenarioEnvisioningtenstepapproach.PleaserefertoSampleDeliverables.Galileo/Travel/SpencerLin&VasuKrishnamurthyAtGalileo,PwCusedtheScenarioEnvisioningtooltodeveloppotentialdiversificationstrategies.Deliverablesareavailableforreview.Tetra-pack/?/E-Business/Susan?SaulJ.BermanandSteveRedwood,“DevelopingStrategyinChangingMarkets:ACaseStudyinScenarioEnvisioning”StrategicChange:ScenarioEnvisioningApproachtoStrategyDevelopmentSourceList IndustryDriverImpactNewentrantsNew/substituteproductsNewmarketsM&AactivityShiftingbusinessmodelsandeconomicsTechnologyRegulationConsumerDispositionHIGHLOWLOWHIGHEnvironmentDriverImpactStaticIndustrySlowIncrementalChangeTransformingIndustrySteadyEvolutionaryChangeDynamicIndustryRapidDiscontinuousChangeScenarioEnvisioningTraditionalStrategyDevelopmentBudgetaryPlanningIdealStrategyDevelopmentScenarioEnvisioningSupplement High-LevelApproachScenarioEnvisioningSupplementStep1:Step2:Step3:Step4:Step5:Step6:Definefutureindustry/marketcontextIdentifyparamountforcesthatwillshapethiscontextIdentifyboundaryparametersoftheparamountforcesCreateasetofscenarioswithintheseboundaryparametersTestcredibilityofscenariosbyassessingviabilityofenablingeventsModifyandselectscenariosforfurtheranalysesbasedonStep5Step7:Step8:Step9:Step10:Simulatebusinessoutcomessuchasconsumerpreferences,businesssystemsandcompetitiveactionsAssessclient’scapabilitiesincontextofscenariosandbusinessoutcomesIdentifyclient’scapabilitygapsanddeveloppotentialsolutionsDevelopportfolioofoptimalstrategiesSimulateBusinessOutcomesandDevelopStrategyDevelopFutureIndustryScenarios SensitivityAnalysisSummarySensitivityanalysisassessestheeffectsonprofitsandcashflowwhenchangesaremadeinkeyvariables.Thereliabilityofasensitivityanalysisisonlyasgoodasthereliabilityoftheestimatedkeyvariablesforeachcase.Ensurethatthevariableschangedineachcasearethevariableswiththemostimpactontheendresult(revenues,profit,etc.)SensitivityAnalysisAnnualProjectCashFlow ApproachSensitivityAnalysisWhenToApplySensitivityanalysisshouldbeusedtodeterminetherangeofprofit/lossandcashflowpossibilitiesforapotentialprojectbychangingkeyrevenueandcostvariables.Whencreatingasensitivityanalysismodel,therearethreekeysteps.Step1:CreateaproformabasecasefortheprojectinquestionStep2:DeterminerangeoflowtohighnumbersforeachoftheestablishedvariablesStep3:Replacebasecasenumberswithlowand,thenhighcasenumbersseparatelytodeterminetheoveralloutcomerange Citations-ClientandIndustryExperienceSensitivityAnalysisBraun/Multi-Industry/KITdatabaseCompaq/Technology/VasuKrishnamurthyMotorola/Technology/VasuKrishnamurthyNationalBrandsLimited/Food&Beverage/KITdatabaseTopEuropeanBrewery/Food&Beverage/KITdatabaseDavidMathesonandJimMatheson,“TheSmartOrganization:CreatingValuethroughStrategicR&D”SourceList SevenSToolSummaryThe7-SFrameworkStrategyCriticalSuccessFactors(CSFs)Capabilities/SkillsProcesses/SystemsStaffCulture/StyleStructureKeyfactorsneededbythecompanytoeffectivelyimplementthestrategyAcoherentstatementofactionsaimedatgainingasustainableadvantageovercompetitionCapabilitiespossessedbytheorganizationasawholeasdistinctfromthoseofindividuals;somecompaniesperformextraordinaryfeatswithordinarypeopleTheprocessandproceduresthroughwhichthingsgetdonefromday-to-dayandthesystemsthatfacilitatethemThepeopleintheorganizationconsideredintermsofcorporatedemographics,notindividualpersonalitiesThewaymanagerscollectivelybehavewithrespecttouseoftime,attentionandsymbolicactionsTheorganizationchartandaccompanyingbaggagethatshowwhoreportstowhomandhowtasksaredividedupandintegratedThe7-Sframeworkprovidesameanstoanalyzethebuildingblocksofanorganizationthatultimatelyservestosupportitsstrategy.Thebottomlevelofthepyramidrepresentsthemoretangiblecomponentsofthecompanywhichprovidethefoundationforachievingthecompany’sgoals. SevenSToolSummaryThe7-SFrameworkStrategyProcesses/SystemsStaffCulture/StyleStructureWhatiscurrentstrategy?WhatisfuturestrategyHowwellisitcommunicated?Doesitvarybyregion?Whatmustbedonewelltoachievestrategy?Howwellarethesecurrentlybeingdone?Dopeoplehavetherightskills?Isthelevelofstaffingappropriate?Howdoesthecultureimpacteffectivenessandchangereadiness?Howwelldoperformancemeasuressupportgoals?Doesstructuremakesense?Whatarethebestpractices?Dotheadministrativefunctionsadequatelysupportcustomerandregionneeds?Canthisbedonemoreeffectively?Whatarethebestpracticesacrossregions?Howeffectivearesystemsandprocessesatsupportingcustomerandstrategicgoals?CriticalSuccessFactors(CSFs)Capabilities/SkillsWhatskillsareneededtosupportCSFs?Dothesecapabilitiescurrentlyexist?Whatarethecurrentcorecapabilities?AretheysupportingCSFsandStrategy?Whenperforminga7-Sassessment,apractitionermustaddressseveralkeyquestionsalongeachofthemodel’sdimensions.Organizationalstrengthsandweaknessesmustbeidentifiedandthegapbetweentheorganizationalrequirementsmustbedetermined. ApproachThe7-SFrameworkSTEPDATAREQUIREDSOURCE(S)1.Documentmission/sharedvision2.Documentstrategy3.Evaluatekeyskillsandcapabilities4.Evaluatesupportlevers,decisionprocesses/systems,staff,culture/styleandstructureMissionStatementBusinessplansAnnualstrategicplansOrganizationchartsTrainingmanualsPositiondescriptionsBudgetingprocessdocumentationPerformancemeasuresCompanydocumentsInterviewswithkeyexecutivesandstaffWhenToApplyWhenitisnecessarytoevaluatethebuildingblocksofanorganizationthatservetosupportitsmissionandallowittoexecuteitsstrategies.Informationforthisanalysisisdifficulttoobtaininsomeareaswithoutextensivelyinterviewingcompanypersonnel.Themodelasasimpledescriptionofthestatusquo;itshouldmovetheanalysisforwardtoidentifyareasinwhichtheorganizationalbuildingblocksarenotsupportingthestrategy. Citations-ClientandIndustryExperience7-SFrameworkDuPont/Chemicals/VasuKrishnamurthyMCSMarketStrategy/FIP/SteveMalloyRover/Automotive&Transportation/KITdatabaseUnitedAirlines/Travel/VasuKrishnamurthyPaulElkin,“MasteringBusinessPlanningandStrategy:ThePowerandApplicationofStrategicThinking”LiamFahey,RobertM.Randall,“ThePortableMBAinStrategy”HenryMintzberg,BruceAhlstrand,JosephLampel,“StrategySafari:AGuidedTourThroughtheWildsofStrategicManagement”SourceList StakeholderAnalysisSummaryThistoolrevealsstakeholderexpectations,identifiespotentialconflictingobjectives,andallowsmanagementtomakeconsciouschoicesonwhichstakeholderstoprioritize,andhowtodealeffectivelywiththosethatarenotprioritized.StakeholderAnalysis ApproachStakeholderAnalysisWhenToApplyStakeholderanalysisisusedtounderstandtheobjectivesandinterestsofvariousstakeholdersinordertoidentifypotentialconflictsofinterest.Whilesomeconflictsarenotreadilyresolvable,discussingthemwillraiseawarenessoftheirexistence.Adheretothefollowingcriteriawhenperformingananalysisofstakeholderinterests:IdentifypotentialstakeholdersattheclientorganizationIdentifypotentialobjectivesthroughdiscussionswithmanagement,keyowners,unionrepresentatives,etc.Supporttheobjectivesbyavailablesecondaryinformation(e.g.,unionpurposestatements)Identifypotentialareasofconflictanddiscusswithmanagementpotentialactionstoresolvetheconflicts Citations-ClientandIndustryExperienceStakeholderAnalysisAllState/Insurance/JuliaStambergerCrownLifeInsuranceCompany/Insurance/KITdatabaseDana/Automotive/MikeWeissFritoLay/CIP/MikeWeisslaCaixa/Banking/KITdatabasePillsbury/CIP/JuliaStambergerShellItalia/Energy(Petroleum)/KITdatabasePaulElkin,“MasteringBusinessPlanningandStrategy:ThePowerandApplicationofStrategicThinking”LiamFahey,RobertM.Randall,“ThePortableMBAinStrategy”MichaelGould,AndrewCampbell,MarcusAlexander,“Corporate-LevelStrategy:CreatingValueintheMultibusinessCompany”HenryMintzberg,BruceAhlstrand,JosephLampel,“StrategySafari:AGuidedTourThroughtheWildsofStrategicManagementSourceList SWOTAna;ysisisaframeworkusedtoidentifytheStrengths,Weaknesses,Opportunities,andThreatsanorganizationisfacing.SWOTprovidesahigh-levelunderstandingoftheinternalchallengesanddirectionofacompany,andtheexternalenvironment’sdevelopingforces.SWOTcanbesimultaneouslysimpleandpowerful,providinganoverallassessmentofabusiness.SWOTAnalysisSummarySWOTAnalysisOpportunitiestoIncreaseRevenueLeverageexistingclientrelationshipsNewareasofbusinessContentmanagementDigitalassetmanagementInternetapplicationsIncreaseddemandforcurrentservicesCostreductionChangemanagementrevenueenhancementnewbusinessopportunitiesinfrastructuredevelopmentGrowththroughacquisitionorallianceIncreasedconsultancyneedsduetoregulatorychangesThreatsCompetitionaggressivelytargetingEMCindustryclientsBuildingofresourcesslowerthanmarketgrowthLimitedabilitytoquicklyrecruitandeffectivelydeployqualifiedconsultantswithdeepindustryexperiencePotentialconflictsofinterestasclientlistgrowsShrinkingclientbaseduetoindustryconsolidationStrengthsEntertainmentindustryexpertiseandthoughtleadershipEMC2000TechnologyForecastETCPublicationsFunctionalexperienceFinancialsystemsStrategydevelopmentLarge,existingclientbaseinentertainmentConcentratedfocusthroughEMCpractice,marketingandPReffortsBroadrangeofconsultingservicesInternationalnetworkofpartnersandconsultantsStrongvendorrelationships(e.g.,Oracle,SAP)toleverageHighvisibilitywithCFOsgainedthroughfinancialsystemsprojectsWeaknessesNotenoughconsultantswithindustryexpertiseandfunctionalexperiencetomeetdemandMinimummediaclientexperienceInternalcompetitionforindustryvs.functionalresourcesLimitedvisibilityinthe“businessissues”marketontheCEOandCOOlevelInconsistentclientmanagementandconsultingskillsLimitedabilitytorespondquicklyNosoftwarepackagetoleverage ApproachSWOTAnalysisSWOTAnalysisinvolvesa4stepapproach,requiringinputfrombothinternalandexternalsources,including,interviewswithseniorandbusinesslinemanagement,aswellas,expertopinionsfromindustryanalystsandtradepublications.Step1InterviewcompanymanagementStep2PerformcompetitiveanalysisStep3ListstrengthsandweaknessesofcompanyStep4DetermineopportunitiesandthreatsthecompanyfacesWhentoApplySWOTistool,usedtoidentifymarketopportunitiesfacingacompany,competitorissues,andkeysuccessfactorstoleverage.Itcanbeeffectiveincombiningvariousissuesidentifiedthroughotherformsofanalysis. Citations-ClientandIndustryExperienceSWOTAnalysisPaulElkin,“MasteringBusinessPlanningandStrategy:ThePowerandApplicationofStrategicThinking”LiamFahey,RobertM.Randall,“ThePortableMBAinStrategy”RobertM.Grant,“ContemporaryStrategyAnalysis”,3rdEditionHenryMintzberg,BruceAhlstrand,JosephLampel,“StrategySafari:AGuidedTourThroughtheWildsofStrategicManagementSourceListGalileo/Travel/SpencerLin&VasuKrishnamurthyPhilips/Multi-Industry/KITdatabasePwCMCS/Consulting/VasuKrishnamurthyPwCSpecialtyChemicalsPointofView/EnergyPractice&StrategicChange/KITdatabaseRalstonPurinaCompany/CIP/KITdatabaseUSPostalService/Multi-Industry/KITdatabase ValueBasedManagementSummaryVBMadvocatestheuseofstrongmanagementprocessesintandemwithvalue-basedperformancemetricstomakestrategicdecisionsforacompany.Value-basedperformancemetricsformakingbetterdecisions.Value-basedmanagementisanintegrativeprocessdesignedtoimprovestrategicandoperationaldecisionmakingthroughoutanorganizationbyfocusingonthekeydriversofcorporatevalue.VBMcanbeakeycomponentinimprovingorganizationaleffectiveness,becauseitprovidesanunambiguousandpreciseperformancemetric,namelyvalue,uponwhichtobuildanorganization.Previously,somemanagementtheorieshavenotbeenbaseduponthebottom-lineimpactonthebusiness.Forexample,intotalqualitymanagement(TQM),thelackofvalue-orientedperformancetargetsandmeasurescontributedtofailure.ValueBasedManagement2015105005101520ValueCreationValueDestructionReturnonEquityCostofEquityFRAMEWORKFORSBUANALYSISEXAMPLE ApproachValueBasedManagementWhenToApplyToevaluatewhetheracompany’sfinancialresultshavecreatedordestroyedshareholdervalue.Canbeappliedinbusinessunitanalysisortotheorganizationasawhole.Properlyallocateoverheadtobusinessarea,andcalculateprofitability*DeterminemeasureofbusinessriskandrequiredreturnsthroughextensiveexternalanalysisofsimilarpubliccompaniesAllocatingequityorassetsamongthebusinessunitsDeterminecostofequityandreturnonequity*ForBusinessUnitAnalysis ValueBasedManagementAppendixBusinessValuation5.Calculateandinterpretresults4.Estimatecontinuingvalue3.Estimatecostofcapital2.Forecastperformance1.AnalyzehistoricalperformanceCalculateNOPLATandinvestedcapitalCalculatevaluedriversDevelopanintegratedhistoricalperspectiveAnalyzefinancialhealthUnderstandstrategicpositionDevelopperformancescenariosForecastindividuallineitemsCheckoverallforecastforreasonablenessDeveloptargetmarketvalueweightsEstimatecostofnon-equityfinancingEstimatecostofequityfinancingSelectappropriatetechniqueSelectforecasthorizonEstimatetheparametersDiscountcontinuingvaluetopresentCalculateandtestresultsInterpretresultswithindecisioncontext Citations-ClientandIndustryExperienceValueBasedManagementAmoco/Energy(Petroleum)/KITdatabaseCompaq/Technology/VasuKrishnamurthyDelta/Transportation/DaveMorganMotorola/Technology/VasuKrishnamurthyUnionPacific/Transportation/DaveMorganCopeland,KallerandMurrin,“Valuation:MeasuringandManagingtheValueofCompaniesRobertM.Grant,“ContemporaryStrategyAnalysis”,3rdEditionMichaelGould,AndrewCampbell,MarcusAlexander,“Corporate-LevelStrategy:CreatingValueintheMultibusinessCompany”SourceList ValueChainAnalysisSummaryTheValueChainAnalysisisfunctionalontwolevels:asastrategictooltofacilitateanunderstandingofwherethekeystrengthsandweaknessesliewithinanorganizationandasamoreoperationaltooltoevaluatesupplychainmanagementissues.ValueChainAnalysis ApproachWhenToApplyEmployValueChainanalysisasahighleveldiagnosticusedtodeterminewhereanorganizationneedstoimproveormaintainvaluecreation.ItismosteffectivewhenappliedtomanufacturingorprocessorientedcompaniesandisnotasubstituteformoredetailedanalysissuchasAMBortheRelativelyStaticModel.ValueChainAnalysisListedbelowarekeyfeaturestoconsiderwhencreatingaValueChainAnalysismodel:Separatethecompany’sbusinessintoprimaryandsupportactivitiesandlisttheprimaryactivitiesperformedineachcomponentIdentifythecriticalsuccessfactorsforeachcomponentandevaluatethecompany’sstrengths/weaknessesforeachIdentifythekeycostdriversAssesspotentialforincreasingvalueanddecreasingcosts Citations-ClientandIndustryExperienceValueChainAnalysisAmoco/Energy(Petroleum)/KITdatabaseCrownLifeInsuranceCompany/Insurance/KITdatabaseGalileo/Travel/SpencerLin&VasuKrishnamurthyMetLife/Insurance/KITdatabaseRhonePoulenc/Chemicals/KITdatabaseSave&Prosper/Banking/KITdatabaseTheNewZealandRefiningCompanyLtd(NZRC)/Energy(Petroleum)/KITdatabaseSourceListDavidA.Aaker,“DevelopingBusinessStrategies”,5thEditionDavidPBaron,“TheNonmarketStrategySystem”,SloanManagementReview,Fall1995LiamFahey,RobertM.Randall,“ThePortableMBAinStrategy”RobertM.Grant,“ContemporaryStrategyAnalysis”,3rdEditionHenryMintzberg,BruceAhlstrand,JosephLampel,“StrategySafari:AGuidedTourThroughtheWildsofStrategicManagement ValueTreeSummaryThistoolisusefultodevelopacomprehensivelistofpotentialvaluecreationdriversValueTree ApproachValueTreeWhenToApplyWhenitisnecessarytodevelopacomprehensivelistofpotentialvaluecreationdriversBeginwithastandardvaluetreeconsistingofbenefittype,first-orderdrivers,andsecond-orderdriversDetermine"third-orderdrivers,"i.e.,thosespecificactivitieswhichconstitutethesecond-orderdrivers,basedonone"sindustryknowledgeandanycompany-specificinformationUsetheavailableinformationandinsightsfromothertools(e.g.DupontAnalysis,EnterpriseDiagnostic,andLeanProducerChart)todeterminewhichbenefitdriversmightbethespecificareasofcompanyconcern“Runthenumbers”tomodelpotentialprofitimprovement Citations-ClientandIndustryExperienceValueTreeCompaq/Technology/VasuKrishnamurthyStrategicChangeMBATrainingSourceList ProvideTechnicalSupportDeliverGoodsRelationManagementVariedperformancein1996NotflexibleduetocampaignstructureStart-upproblemswithNNSomeproblemswithlabelingSomeproblemswithwrappingOverall,strongondeliveryperformanceGoodonurgentdeliveryConsignmentstocksarewellreceivedStrongtechnicalcompetenceSpeedofresponse-reactiveJointR&DwithfewselectedcompaniesSomepositivesignstowardscloserco-operationVerygoodwithselectedclientsVerygoodwhen"goinggetstough"Reactive,notproactiveDonotbringtechnicalstafftomeetings/notstructuredTechnicalissuesnotalwaysdealtwithbytechnicalstaffAttitudetopricingisshort-termLackofinitiative/notspontaneousNotopenaboutmarketinformationandstrategyToodependentononekeypersonUnclearaboutstrategicdirectionNounityofapproachConfusingaccounthandlingEasytogetholdofTech.competenceContinuityofrepresentativesFrequencyofvisitsOpenness,sharinginformationHonesty,integrity,trustAvailabilityComplaintshandlingTechnicalknowledgeProcessknowledgeSpeedofresponseSolutionorientatedProactiveUndamageddeliveryUrgencydeliveryFlexibilityTimeddelivery(JIT)Deliveryreliability/securityUnderstandingclientsbusinessAbilitytolistenOrderwinningGivenCrucialWeaknessesStrengthsPerformanceProcess7.27.76.78.187.57.37.87.47.9Timeddelivery(OW))Deliveryreliable.(OW)Urgencydelivery(C)Flexibility(C)Undamageddel.(G)56789XXXCompetitor7.67.78.377.87.68.17.58.37.67.86.9Speedofresp.(OW)Solutionorient.(OW)Technicalknow.(C)Knowl.ofcust.(C)Availability(G)Complaintshandle.(G)56789XXXCompetitor7.87.87.37.57.47.96.87.987.57.47.47.68.17.67.8Honesty/integr.(OW)Abilitytolisten(C)Underst.client(C)Relationship(C)Easytogethold(G)Technicalcomp.(G)Continuityofrep(G)Freq.ofvisits(G)56789XXXCompetitorsVoiceoftheCustomerSummaryVoiceoftheCustomerTheVoiceoftheCustomerisaframeworkforunderstandingwhatarecriticalfactorsfromthecustomers"pointofviewandhowwellthecorporationperformscomparedtoitscompetitors. ApproachVoiceoftheCustomerWhenToApplyTheVoiceoftheCustomerisusedtodeterminewhichanalysiswillyieldtherelativeimportanceofeachvaluedrivertothecustomers.Byassociatingeachvaluedriverwithbusinessprocessesandcapabilities,onecanusetheresulttomakestrategicchoicesonwheretofocusandhow"good"thecorporationshouldaspiretobeonthecriteria.Apractitionershouldnotethatthistechniquedoeshaveafewlimitations/pointsofconcerns:VoiceoftheCustomersurveyprovidesanassessmentofwhatcustomerscurrentlybelievetobethecase,notfutureneeds,requirements,etc.Itisthereforeimportanttoincludenon-customersandadiscussionwithmanagementaboutwhatmightbecometherequirementsofthefutureItmightbeagoodideatohaveaselectionofmanagersandemployeesanswerthesamequestions.Often,youwillfindagapbetweenwhatisinternallyperceivedtobeimportantandwhatthecustomerssays.Initselfadisturbingandrevealingfactthatshouldraisesomeinterestingdiscussions.Step1PreparationLookthroughexistingcorporatematerialoncustomersurveysPerformafocusgroupworkshoptoraisethevariousdimensionsthatmightconcerncustomers(internandwithaselectionofcustomers)Step2Developthequestionnaireandtestit.Makesuretohavecustomersfocus:Criteria:orderwinning,crucial,givenComparison:Betterthancompetitors,equal,competitorsbetterRanking:onascalefrom1to5Step3Performthesurvey.NOTE:Makesuretoincludethevoiceofnon-customersStep4AssembletheresultsaccordingthetheVoCpresentationoutline. 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