PART 5:

STRATEGIC TOOLS
&
TECHNIQUES
 TOOLS AND TECHNIQUES OF STRATEGIC
MANAGEMENT
1. Igor Ansoff’s Product-market Matrix Model
2. BCG Matrix
3. GE Multifactor Portfolio Matrix
4. PESTLE Analysis
5. SWOT Analysis
6. Balanced Scorecard
7. VRIO Analysis
8. MINTZBERG ’ 5 P S of Strategy
9. Michael Porter’s Five Forces Model
10. Critical Question Analysis
1. IGOR ANSOFF’S PRODUCT-MARKET MATRIX
• The Purpose of this matrix is to help managers
consider how to grow their business through
existing or new products or in existing or new
markets.
• This is marketing planning model that helps a
business determine its product and market
strategy.
• This helps managers to assess the differing degrees
of risk associated with moving their organisation
forward.
• Ansoff’s matrix suggests four alternative strategies.
 How does the Ansoff Matrix work?
• Ansoff’s matrix suggests that a business’
growth strategy depends on whether it
markets new or existing products in new or
existing markets
• The output from the matrix is a series of four
suggested growth strategies which set the
direction for the business strategy
 The four strategies are:-
1. Market penetration
• This involves increasing market share within
existing market segments.
• The firm seeks to achieve growth with existing
products in their current market segments,
aiming to increase its market share.
• This can be achieved by selling more
products/services to established customers or
by finding new customers within existing
markets.
 2. Product Development
• This involves developing new products for
existing markets.
• Product development involves thinking about
how new products can meet customer needs
more closely and outperform the products of
competitors.
 3. Market Development
• This strategy entails finding new markets for
existing products.
• Market research and further segmentation of
markets helps to identify new groups of
customers.
 4. Diversification
• This involves moving new products into new
markets at the same time.
• The firm grows by diversifying into new
businesses by developing new products for new
markets.
• It is the most risky strategy.
• The more an organisation moves away from what
it has done in the past the more uncertainties are
created. However, if existing activities are
threatened, diversification helps to spread risk.
 2. Critical Question Analysis
Formulating appropriate organizational strategy
is a process of critical question analysis.
Answering the following four basic questions:
1. What are the purpose(s) and objectives of
the organization?
2. Where is the organization presently going?
3. In what kind of environment does the
organization now exist?
4. What can be done to better achieve
organizational objectives in the future?
 2. SWOT Analysis
• A useful technique for analyzing a firm's
position in the market.
• Considers the firm's internal strengths and
weaknesses against external opportunities
and threats.
• This can allow a firm to exploit opportunities
using its strengths, while at the same time
improving upon its weaknesses in order to
avoid external threats.
 3. Boston Consulting Group (BCG) Matrix
• BOSTON CONSULTING GROUP (BCG) MATRIX is
developed by BRUCE HENDERSON of the BOSTON
CONSULTING GROUP IN THE EARLY 1970’s.
• The Boston Consulting Group Matrix is the most
common tool for performing a portfolio analysis.
• Considers products and services according to two
dimensions: market growth and relative market
share.
• According to the BCG Matrix, products and services
with high growth and high market share are the
most desirable, while those with low growth and low
market share are undesirable.
 Cont..
• According to this technique, businesses or
products are classified as low or high
performers depending upon their market
growth rate and relative market share
 1. Star
• Leader in Expanding Industry – BUILD
• Continue to increase market share – if
necessary at expense of short-term earnings
 2. Question mark/ Problem Child
• Low market share in Expanding Industry –
HARVEST if weak, BUILD if strong. – Assess
chances of dominating segment. If good, go
after share. If bad, redefine business or
withdraw.
 3. Cash Cow
• Leader in mature or declining industry – HOLD
- Maintain share and cost leadership until
further investment becomes marginal –
Maximize cash flow
 4. Dogs
• Low market share in a mature or declining
industry – DIVEST Plan an orderly withdrawal
so as to maximize cash flow or concentrate on
niches that require limited effort.
 GE Multifactor Portfolio Matrix
• Based on- Industry attractiveness & Business strength. As
examples, Industry Attractiveness might be determined by
such factors as:
- No. of Competitors in the Industry
- Rate of Industry Growth
- Weakness of Competitors within an Industry
• Business Strengths might be determined by such factors as:
- Company’s Financial Solid Position
- Its Good Bargaining Position over Suppliers
- Its high level of Technology Use.
 PESTLE Analysis
• It’s a way of working out what is going on ‘out there’ so you can then respond to it.
PESTLE stands for Political, Economic, Social, Technological, Legal and Environmental
• Political Environment :
- Environmental protection/legislation
- Consumer protection
- Government’s attitude
- Competition regulation
- Advertising standards
• Economic Environment :
- Economic growth
- Taxation international trade
- Exchange Rate
- Employment law
- Health and Safety law
- Inflation
- Minimum wage
 Pestle Cont..
• Social : Income distribution Demographics , Lifestyle
changes, Education, Health & Welfare, Living
conditions
• Technological : Changes in physical sciences, Internet,
Energy use and costs, Rates of technological
obsolescence, Government and Industry focus on
technology, Government spending on research
• Legal : Employment law, Health and Safety , Taxation
both corporate and consumer, Other regulations,
International trade barriers, Strength of the rule of law
• Environmental : How people’s perception and reaction
to environmental issues can affect a business.
 Balanced Scorecard
• Developed by Robert S. Kaplan and David P. Norton.
• Used by organization to measure its performance.
Includes both financial and non-financial metrics of
the organization’s performance.
• Includes various non-financial measures like
customer, business process and learning measures.
• The balanced scorecard suggests to view the
organization from four perspectives, and to develop
metrics, collect data and analyze it relative to each of
these perspectives.
 Balanced score card perspectives

• Financial: encourages the identification of a few relevant high-level

financial measures. In particular, designers were encouraged to choose
measures that helped inform the answer to the question "How do we
look to shareholders?" Examples: cash flow, sales growth, operating
income, return on equity.
• Customer: encourages the identification of measures that answer the
question "How do customers see us?" Examples: percent of sales from
new products, on time delivery, share of important customers’ purchases,
ranking by important customers.
• Internal business processes: encourages the identification of measures
that answer the question "What must we excel at?" Examples: cycle time,
unit cost, yield, new product introductions.
• Learning and growth: encourages the identification of measures that
answer the question "How can we continue to improve, create value and
innovate?". Examples: time to develop new generation of products, life
cycle to product maturity, time to market versus competition.
 CORE COMPETENCE
• Core competence- are the skills and abilities
by which resources are deployed through an
organization's activities and processes such as
to achieve competitive advantage in ways that
others cannot imitate or obtain.
 Four criteria
1. Valuable
2. Rare
3. Costly
4. Non-substitutable
 VRIO Analysis

• It was developed by Barney, J.B (1991). Used to analyze firm’s

internal resources and capabilities to find out if they can be a
source of sustained competitive advantage.
• VRIO is an acronym for the four questions- the question of Value,
the question of Rarity, the question of Imitability, and question of
Organization.
• The Question of Value: -"Is the firm able to exploit an opportunity
or neutralize an external threat with the resource/capability?“
• The Question of Rarity -"Is control of the resource/capability in the
hands of a relative few?“
• The Question of Imitability - "Is it difficult to imitate, and will there
be significant cost disadvantage to a firm trying to obtain, develop,
or duplicate the resource/capability?"
• The Question of Organization -"Is the firm organized, ready, and
able to exploit the resource/capability?"
 STRATEGIC ALLIANCES
• A strategic alliance is an agreement between
two or more parties to pursue a set of agreed
upon objectives needed while remaining
independent organizations. This form of
cooperation lies between
mergers and acquisitions and organic growth.
Strategic alliances occurs when two or more
organizations join together to pursue mutual
benefits.
 Cont..

• Partners may provide the strategic alliance with

resources such as products, distribution channels,
manufacturing capability, project funding, capital
equipment, knowledge, expertise, or intellectual
property. The alliance is a cooperation or
collaboration which aims for a synergy where each
partner hopes that the benefits from the alliance
will be greater than those from individual efforts.
The alliance often involves technology transfer
(access to knowledge and expertise),
economic specialization,[1] shared expenses and
shared risk.
 Typology (types of strategic alliance)
• Horizontal strategic alliances
• Vertical strategic alliances
• Intersectional alliances
• Joint ventures
• Equity alliances
• Non-equity strategic alliances
 Reasons to enter a Strategic Alliance:
• Shared risk: The partnerships allow the involved companies to offset their market
exposure. Strategic Alliances probably work best if the companies´ portfolio
complement each other, but do not directly compete.
• Shared knowledge: Sharing skills (distribution, marketing, management), brands,
market knowledge, technical know-how and assets leads to synergistic effects,
which result in pool of resources which is more valuable than the separated single
resources in the particular company.
• Opportunities for growth: Using the partner´s distribution networks in
combination with taking advantage of a good brand image can help a company to
grow faster than it would on its own. The organic growth of a company might often
not be sufficient enough to satisfy the strategic requirements of a company, that
means that a firm often cannot grow and extend itself fast enough without expertise
and support from partners
• Speed to market: Speed to market is an essential success factor In nowadays
competitive markets and the right partner can help to distinctly improve this.
• Complexity: As complexity increases, it is more and more difficult to manage all
requirements and challenges a company has to face, so pooling of expertise and
knowledge can help to best serve customers.
 Cont…
• Costs: Partnerships can help to lower costs, especially in non-profit
areas like Research&Development.
• Access to resources: Partners in a Strategic Alliance can help each other
by giving access to resources, (personnel, finances, technology) which
enable the partner to produce it´s products in a higher quality or more
cost efficient way.
• Access to target markets: Sometimes, collaboration with a local partner
is the only way to enter a specific market. Especially developing
countries want to avoid that their resources are exploited, which makes
it hard for foreign companies to enter these markets alone.
• Economies of Scale: When companies pool their resources and enable
each other to access manufacturing capabilities, economies of scale can
be achieved. Cooperating with appropriate strategies also allows
smaller enterprises to work together and to compete against large
competitors.
 Disadvantages of strategic alliances
• Sharing: In a Strategic Alliance the partners must share resources and profits and
often skills and know-how. This can be critical if business secrets are included in this
knowledge. Agreements can protect these secrets but the partner might not be
willing to stick to such an agreement.
• Creating a Competitor: The partner in a Strategic Alliance might become a
competitor one day, if it profited enough from the alliance and grew enough to end
the partnership and then is able to operate on its own in the same market segment.
• Opportunity Costs: Focusing and committing is necessary to run a Strategic Alliance
successfully but might discourage from taking other opportunities, which might be
benefitial as well.
• Uneven Alliances: When the decision powers are distributed very uneven, the
weaker partner might be forced to act according to the will of the more powerful
partners even if it is actually not willing to do so.
• Foreign confiscation: If a company is engaged in a foreign country, there is the risk
that the government of this country might try to seize this local business so that the
domestic company can have all the market on its own.
• Risk of losing control over proprietary information, especially regarding complex
transactions requiring extensive coordination and intensive information sharing.
• Coordination difficulties due to informal cooperation settings and highly costly
dispute resolution.
 Success factors
• Understanding: The cooperating companies need a clear understanding of the
potential partner´s resources and interests and this understanding should be the base
of set the alliance goals.
• No time pressure: During negotiations time pressure must not have an influence on
the outcome of the process. Managers need time to establish a working relationship
with each other, develop a time plan, set milestones, and design communication
channels.
• Limited alliances: Some incompatibilities between enterprises might not be avoidable,
so the number of alliances should be limited to a necessary amount, which enables the
companies to achieve their goals.
• Good connection: Negotiations need experienced managers. The managers from large
firms need to be connected very well so they have the possibility to integrate different
departments and business areas over internal borders, and they need legitimations and
support from the top management.
• Creation of trust and goodwill: The best basis for a profit-yielding cooperation
between enterprises is the creation of trust and goodwill, because it increases
tolerance, intensity and openness of communication and makes the common work
easier. Further it leads to equal and satisfied partners.
• Intense Relationship: Intensifying the partnership leads to the fact that partners get to
know each other better, each other's interests and operating styles and increases trust.
 Competitor analysis
• Is an assessment of the strengths and
weaknesses of current and potential competitors
. This analysis provides both an offensive and
defensive strategic context to identify
opportunities and threats. Profiling coalesces all
of the relevant sources of competitor analysis
into one framework in the support of efficient
and effective strategy formulation,
implementation, monitoring and adjustment.
• Competitor analysis is an essential component of
corporate strategy
 Generic Competitive Strategies
1. Low cost provider:
• This offers operations and/or scale advantages over
the competition.
• Reduce costs in the value chain system.
• Targeting:
• Price sensitive markets…price conscious buyers
• Segments with limited incomes
• Price sensitive customers in greater numbers thereby
– increasing profits (although thin profit margins)
• Extreme price competitive markets
• Products are essentially the same
• Where brand differences are inconsequential to the consumer
• When substitutes are readily available
• Good strategy for new entrants
Low cost provider cont…
• Strategic inputs:
• Optimize economies of scale
• Purchase in volume, JIT, keep raw materials costs low
• Utilize bargaining power
• Low cost inputs
• Reduce materials handling and shipping costs
• Advanced production technology and process designs
• Offer incentives
• Minimize operational and administrative staff and cost
• Merge support systems (ordering, procurement, billing, etc.)
• Pursue supply chain efficiency, i.e. limit ‘middle men’
• Efficient utilization of resources (plant, materials, human capital)
• Vertical integration
• Operate at full capacity (full advantage of fixed costs)
• Efficient communications systems and information technology
• Outsource where practicable
• Sell direct to customer (where practicable)
• Continuous improvement
• Continuous learning
 2. Broad differentiation:
• Keeping costs low, yet offering basic features
that low cost buyers consider essential.
• This creates positive differences between your
product and the rival’s, impacting the total
market.
• Focus on quality, design, intangibles, and
innovation.
Broad differentiation cont…
• Targeting:
• Diverse needs and preferences among target markets
• A broad range of buyers
• Value conscious consumers
• Products and services stand apart in consumers’ minds
• Customers looking for a unique value proposition
• Premium price products
• Buyers loyal to the brand (value the unique differentiation)
Broad differentiation cont…
• Strategic inputs:
• Customer service
• Unique tangible and intangible attributes
• Special order availability
• Continuous product improvement and innovation (design and
features)
• Uninterrupted product availability
• Value enhancement through efficient marketing channels
• Constant value signaling (through price, quality, performance, taste,
– packaging, advertising, standout attributes, reputation, status, et al)
• Coordination with suppliers
• Marketing intensity
• Make it more difficult for a competitor to copy it
• Employee skill and knowledge of the product
• Continuous improvement in organization
• Defensive strategy
 3. Best cost provider:

• This creates a positive value proposition vs.

the rival’s.
• Simultaneously deliver lower costs and higher
quality and differentiated features.
 Best cost provider cont..
• Targeting:
• Low cost, differentiation markets (a hybrid)
• Broad markets and market niches (middle ground)
• Value conscious buyers
• Those who shy away from cheap, low-end products and
– expensive high-end products
• Willing to pay a fair price for functionality and performance
• More for the money

– *Balances low-cost against emphasis on

differentiation and positioning
Best cost provider cont..
• Strategic inputs:

• Positioning near the middle of the market

• Combines other basic strategies

• Medium quality at below average price, or

• Somewhat higher quality at an average or slightly higher price

• Adjust strategy for economic conditions, i.e. more value

conscious

• Match strategy to internal resources and capabilities

 4. Focused low cost provider :
• This targets the market segment through price
advantage.
• Lower costs on niche goods.
• Targeting:
• Price conscious customers (similar to low cost provider strategy)
• Well defined segments
• Appealing to cultures and geographical preferences
• Brand loyal customers
• Appeal to broad market segments (low cost)
• Wants and needs of narrow and unique market segment (niche)

– *Good way to discourage entry of industry leaders

– *Another differentiation and positioning strategy
Focused low cost provider cont..
• Strategic inputs (essentially the same as low cost provider strategy):
• Optimize economies of scale
• Purchase in volume, JIT, keep raw materials costs low
• Utilize bargaining power
• Low cost inputs
• Reduce materials handling and shipping costs
• Advanced production technology and process designs
• Offer incentives
• Minimize operational and administrative staff and cost
• Merge support systems (ordering, procurement, billing, etc.)
• Pursue supply chain efficiency, i.e. limit ‘middle men’
• Efficient utilization of resources (plant, materials, human capital)
• Vertical integration
• Operate at full capacity (full advantage of fixed costs)
• Efficient communications systems and information technology
• Outsource where practicable
• Sell direct to customer (where practicable)
• Continuous improvement
• Continuous learning
 5. Focused differentiation:
• This tailors a superior product to a targeted
segment.
• Meet the highly specific needs of niche
customers.
• Targeting:
• Price conscious customers (similar to low cost provider strategy)
• Well defined segments
• Appealing to cultures and geographical preferences
• Brand loyal customers
• Appeal to broad market segments (low cost)
• Wants and needs of narrow and unique market segment (niche)
Focused differentiation cont..
• Strategic inputs (essentially the same as low cost provider strategy):
• Optimize economies of scale
• Purchase in volume, JIT, keep raw materials costs low
• Utilize bargaining power
• Low cost inputs
• Reduce materials handling and shipping costs
• Advanced production technology and process designs
• Offer incentives
• Minimize operational and administrative staff and cost
• Merge support systems (ordering, procurement, billing, etc.)
• Pursue supply chain efficiency, i.e. limit ‘middle men’
• Efficient utilization of resources (plant, materials, human capital)
• Vertical integration
• Operate at full capacity (full advantage of fixed costs)
• Efficient communications systems and information technology
• Outsource where practicable
• Sell direct to customer (where practicable)
• Continuous improvement
• Continuous learning
 COMPETITOR ANALYSIS
Components
• Background
– location of offices, plants, and online presences
– history - key personalities, dates, events, and trends
– ownership, corporate governance, and organizational structure
• Financials
– P-E ratios, dividend policy, and profitability
– various financial ratios, liquidity, and cash flow
– profit growth profile; method of growth (organic or acquisitive)
• Products
– products offered, depth and breadth of product line, and product portfolio balance
– new products developed, new product success rate, and R&D strengths
– brands, strength of brand portfolio, brand loyalty and brand awareness
– patents and licenses
– quality control conformance
– reverse engineering or deformulation
 Cont..
• Marketing
– segments served, market shares, customer base, growth rate, and customer loyalty
– promotional mix, promotional budgets, advertising themes, ad agency used, sales
force success rate, online promotional strategy
– distribution channels used (direct & indirect), exclusivity agreements, alliances, and
geographical coverage
– pricing, discounts, and allowances
• Facilities
– plant capacity, capacity utilization rate, age of plant, plant efficiency, capital investment
– location, shipping logistics, and product mix by plant
• Personnel
– number of employees, key employees, and skill sets
– strength of management, and management style
– compensation, benefits, and employee morale & retention rates
• Corporate and marketing strategies
– objectives, mission statement, growth plans, acquisitions, and divestitures
– marketing strategies
 Role competitor analysis play in strategic
planning process
• To help management understand their competitive
advantages/disadvantages relative to competitors
• To generate understanding of competitors’ past,
present (and most importantly) future strategies
• To provide an informed basis to develop strategies
to achieve competitive advantage in the future
• To help forecast the returns that may be made
from future investments (e.g. how will competitors
respond to a new product or pricing strategy?
 .

END
GOOD BYE
&
GOOD LUCK