nullStrategy Practitioner ToolsStrategy Practitioner ToolsCore Tools
October 1999*© 1998, PricewaterhouseCoopers L.L.P.DRAFT: FOR DISCUSSION ONLY /Version: 660_w3/
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/sfTable of ContentsTable of Contents1 ANALYSIS PLAN
2 BREAKTHROUGH MODEL
3 COMPETITIVE BENCHMARKING
4 COMPETITIVE POSITIONING
5 CORE COMPETENCTY ANALYSIS
6 CUSTOMER SEGMENTATION
7 EXPERIENCE CURVE
8 FINANCIAL MODELING
9 FIT VS. ATTRACTIVENESS MODEL
10 FIVE FORCES ANALYSIS
11 GANTT CHART
12 GAP ANALYSIS
13 GROWTH SHARE MATRIX
14 INDUSTRY VALUE CHAIN ANALYSIS
15 ISSUE TREE/ISSUE MAP16 KEY PERFORMANCE INDICATORS
17 MARKET PROFITABILITY
18 PORTFOLIO ANALYSIS
19 REAL OPTIONS/STRATEGIC OPTION
20 SCALE CURVE
21 SCENARIO ENVISIONING
22 SENSITIVITY ANALYSIS
23 SEVEN S FRAMEWORK
24 STAKEHOLDER ANALYSIS
25 SWOT
26 VALUE BASED MANAGEMENT
27 VALUE CHAIN ANALYSIS
28 VALUE TREE
29 VOICE OF THE CUSTOMER
Analysis Plan SummaryThe analysis plan details a problem-solving process and specific analysis which must be developed to assess a hypothesis. The analysis plan must be flexible and that the analyses to be conducted and the deliverables to be produced may change during the course of the project.
Analysis PlanAnalysis PlanAnalysis PlanApproachWhen To ApplyWhen it is necessary to lay out problem-solving process in depth/detail and identify the analyses which need to be undertaken to validate the selected hypotheses Define an issue on which a specific action depends and phrase it as a “yes” or no” question
Establish a hypothesis: a statement of likely resolution of the issue including the reasons for answering “yes” or “no”
Develop an analysis statement that outlines the “models” that will be explored in order to prove or disprove the hypothesis
Identify the likely location or means of obtaining data to accomplish the analysis
Develop end products (presentations) to graphically represent the output of the analysis
Analysis PlanCitations - Client and Industry ExperienceAnalysis Plan
Compaq/Technology/Vasu Krishnamurthy
Galileo/Travel/ Spencer Lin & Vasu Krishnamurthy
Post Office Counters Ltd./Transportation Services/KIT
database
PwC MCS/Consulting/Vasu Krishnamurthy
United Airlines/Travel/Vasu Krishnamurthy
Robert M. Grant, “Contemporary Strategy Analysis”, 3rd EditionSource List
Breakthrough Model SummaryThe Breakthrough model focuses attention on most substantial opportunities for creating value for customers and shareholders.Breakthrough ModelExternalInternalIndustryCompanyTrends in theeconomicenvironment inwhich the marketsexistBest practicesacross this andsimilar industriesMarket/productstrategy and basisfor competitionCapabilities of the company’speople, processes,technology, systems andstructure1234Market/ProductRepositioningIndustryTransformationEnterpriseAlignmentBest PracticePerformanceBreakthrough ModelBreakthrough ModelApproachWhen To ApplyUtilize the Breakthrough model to identify and categorize all opportunities to create substantial incremental shareholder value.When creating a Breakthrough model, the following criteria should be considered:
Summarize all opportunities to improve business performance from other analyses
Categorize them into four groups:
Enterprise alignment
Best practice performance
Market/product repositioning
Industry transformation
Determine approximate economic value of each type of strategyBreakthrough ModelCitations - Client and Industry ExperienceBreakthrough Model
Non-PwC:
Toyota: the lean production system
• Frito-Lay: end-to-end supply chain
management and the use of
advanced technology
• Intel: high velocity product
development
• Amazon.com: Internet based
channels of distribution
on behalf of shareholders.
Paul Elkin, “Mastering Business Planning and Strategy: The Power and Application of Strategic Thinking”
Source List
Competitive Benchmarking SummaryCompetitive Benchmarking is used to identify and measure the factors that determine why a process has specific cost, quality or timing attributes and incorporate the best practices into an actionable change plan. It does so in part, by comparing a company’s performance in key areas with respect to its competitors’ performance.
Examples of presenting Competitive Benchmarking findings:Competitive BenchmarkingCompetitive BenchmarkingCompetitive BenchmarkingApproachWhen To ApplyWhile not a comprehensive comparison, Competitive Benchmarking illustrates the efficiency of specific processes in comparison to a company’s competitors. Select companies to benchmark against carefully - remember that companies outside the client’s industry may be the best candidates. Ensure that data collected are comparable and the the right processes are benchmarked; those which have the biggest impact on customer service/satisfaction/value. Examine the issues most important to the company’s situation to determine whether roles, processes, or strategic issues
should by benchmarked
Identify key performance variables and determine which companies to use for comparison (both within company’s
industry and outside the industry)
For process benchmarking, determine the metrics to be measured; these can be key performance indicators (KPI’s), or
other measurements
Establish data collection methodology (industry sources, on-line databases, on-site visits, phone interviews, survey
questionnaires, competitors, etc.)
Measure client company performance
Measure performance of competitors and best practice leaders
Illustrate the spectrum of performances on an appropriate graph
Determine gaps and reasoning
Develop action plans/recommendation to address gaps
Implement actions and monitor progressCompetitive BenchmarkingCitations - Client and Industry ExperienceCompetitive Benchmarking
Ball Corporation/Packaging /Vasu Krishnamurthy &
Mike Weiss
Motorola/Technology/Vasu Krishnamurthy
PwC MCS/Consulting/Vasu Krishnamurthy
United Airlines/Travel/Vasu Krishnamurthy Paul Elkin, “Mastering Business Planning and Strategy: The
Power and Application of Strategic Thinking”
Liam Fahey, Robert M. Randall, “The Portable MBA in
Strategy”
Robert M. Grant, “Contemporary Strategy Analysis”, 3rd
Edition
Michael Gould, Andrew Campbell, Marcus Alexander,
“Corporate-Level Strategy: Creating Value in the
Multibusiness Company”
Source List
Competitive Positioning SummaryCompetitive Positioning analysis shows how a company is positioned in its industry relative to its competitorsPositioning Map
Example: EntertainmentHighLowLowHighChannel StrengthContent Strength
Intellectual property strength
Product strengthCompetitive PositioningCompetitive PositioningCompetitive PositioningApproachWhen To ApplyTo show clients that you understand their market and position. Can also be used to develop strategic recommendations.Competitive PositioningCitations - Client and Industry ExperienceCompetitive Positioning
Barclays Global Investors (BGI)/Banking/KIT database
Blue Cross/Insurance/Mike Weiss
Boots/Retail/KIT database
Galileo/Travel/ Spencer Lin & Vasu Krishnamurthy
Giddings & Lewis/Machine Tool/Vasu Krishnamurthy
Osh Kosh B’ Gosh?SP/Retail/Mike Weiss
PwC MCS/Consulting/Vasu Krishnamurthy
Save & Prosper/Banking/KIT databasePaul Elkin, “Mastering Business Planning and Strategy: The Power and Application of Strategic Thinking”
Robert M. Grant, “Contemporary Strategy Analysis”
Henry Mintzberg, James Brian Quinn, Sumantra Ghoshal, “The Strategy Process”
Henry Mintzberg, James Brian Quinn, “The Strategy Process:
Concepts, Contexts, Cases”Source List
Core Competency Analysis SummaryCore Competency Analysis provides a practical and systematic process to identify a company’s core competencies and assess key competitive advantages.
Examples of Core Competency Models:Core Competency AnalysisCore Competency AnalysisCore Competency AnalysisApproachWhen To ApplyEmploy Core Competency analysis to evaluate a company’s capabilities in each function of the value chain with a hierarchical model which identifies capabilities and the degree to which they provide competitive advantage and can be leveraged. Please note that there is a risk of defining too narrowly the market in which the client competes, thus focusing on the wrong competency requirements or a subset of the competencies required to effectively compete. It is key that those projects and programs that aim at developing core competencies should not be open to re-prioritization at a later stage. Adhere to the following guidelines when analyzing core competencies and developing a Competencies Model - Framework:
Interview company senior management and business line management as well as competitor management
Define company’s business system and activities performed within each function - Based on the total range of
capabilities identified, ask the questions:
Which ones do we have to be “good at”?
Which ones do we have to be “market/world leading at”?
Determine whether each activity is a primary capability, a critical enabling capability, a critical strategic capability, or a
core competence, based on the degree to which the activity provides competitive advantage and can be leveraged
Note that while all the identified capabilities will be critical to achieve the vision and strategy, the questions will help
distinguish core from non-core by invoking management attention and reflection in a systematic and structured mannerCore Competency AnalysisCitations - Client and Industry ExperienceCore Competency Analysis
Galileo/Travel/ Spencer Lin & Vasu Krishnamurthy
Giddings & Lewis/Machine Tool/Vasu Krishnamurthy
MetLife/Insurance/KIT database
PwC MCS/Consulting/Vasu Krishnamurthy
Save & Prosper/Banking/KIT database
David A. Aaker, “Developing Business Strategies”, 5th Edition
Robert M. Grant, “Contemporary Strategy Analysis”, 3rd
Edition
Michael Gould, Andrew Campbell, Marcus Alexander,
“Corporate-Level Strategy: Creating Value in the
Multibusiness Company”
Henry Mintzberg, Bruce Ahlstrand, Joseph Lampel, “Strategy
Safari: A Guided Tour Through the Wilds of Strategic
Management”
Henry Mintzberg, James Brian Quinn, Sumantra Ghoshal,
“The Strategy Process”
Henry Mintzberg, James Brian Quinn, “The Strategy Process:
Concepts, Contexts, CasesSource ListCustomer Segmentation MethodologyCustomer Segmentation MethodologyWhat are the objectives of the segmentation? Better ROI, redistribute spending, change sales efforts?What data is needed to meet the objectives?
How much of that data can be obtained internally? externally?
What data is essential to the segmentation?
What data can be a focus for further improvement in the future?
Define the variables of the model with accessible data?
Develop an analytical tool that utilizes the variables to determine a customer ranking or grouping (ie most ideal partner to most inefficient partner).
Refocus internal efforts based on segmentation outcome.Establish a way to capture the key data needed to segment customer base.
Utilize the data on an ongoing basis to improve performance and continually reward the better performing customers.High level work flow for a customer segmentationCustomer Segmentation Methodology Summary
Customer Segmentation SummaryCustomer segmentation is a division of a market into distinct groups of buyers who might require separate products and/or marketing mixes.THE CONVERTER MARKET CAN BE SEGMENTED USING TWO VARIABLES: ECONOMIC RISK AND FABRIC INNOVATIONEconomic Risk
Inventory position
Credit status
Product mix
Customer baseFabric Innovation
Percent novelties
Order size
Number of collectionsHighLowHighLowCustomer SegmentationCustomer SegmentationCustomer SegmentationApproachWhen To ApplyApplicable when it is useful to better identify marketing opportunities, to develop the right offering for each target market, or to be able to reach the target market in the most efficient manner possible.Customer SegmentationCitations - Client and Industry ExperienceCustomer Segmentation
Galileo/Travel/ Spencer Lin & Vasu Krishnamurthy
General Mills/CIP/Johan Sauer
Giddings & Lewis/Machine Tool/Vasu Krishnamurthy
The Littlewoods Organization/Retail/KIT database
PwC MCS/Consulting/Vasu Krishnamurthy
Paul Elkin, “Mastering Business Planning and Strategy: The Power and Application of Strategic Thinking”
Robert M. Grant, “Contemporary Strategy Analysis”
Henry Mintzberg, James Brian Quinn, Sumantra Ghoshal, “The Strategy Process”Source ListThe Experience CurveThe Experience Curve forecasts future trends in cost/labor and determines the relative cost position of various competitors. The tool quantifies cost savings, theoretically achieved through experience gained in conducting a process.
Experience Curve SummaryThe Experience CurveEXPERIENCE CURVE FOR WIDGETS - PROJECTIONSExperience CurveApproachExperience CurveCreating the Experience Curve requires yearly accumulated production volume for the entire indicative and individual competitors, and the unit cost for the entire industry and competitors (use price data if cost data is not available.) Data can be secured from government agencies, trade associations, and from internal company data.
Step 1 Plot accumulated volume for different years against unit cost on a log/log scale (unit cost should be deflated by using a general index such as the GNP deflator, or specific indices for the various pars of cost such as materials and labor.)
Step 2 Add a standard regression line to the graph.
CAVEATS:
Cost figures must be defined in the same manner by all sources of data. If company cost-accounting data is used, it may need to be adjusted for overhead allocations and other costs not considered to be part of the activity, process, or product under study. If price data is used pricing behavior of participants needs to be considered
Innovation within any functional area (e.g., product, process, distribution) can render the current experience curve useless as a strategy tool. Therefore, it is important to understand the environmental and customer trends in order not to rely too heavily on this analysis
The experience curve is only an analytical concept, and there is no guarantee that costs will actually decrease according to it. The company must actively manage costs downWhen to ApplyThe Growth Share Matrix may be overly simplistic, market share does not always correlate with profitability and not all businesses have the same asset intensity. Conclusions are sensitive to business and market definitions; where lines are drawn. Practitioners must be creative, careful and consistent with market data.
Experience Curve Citations - Client and Industry ExperienceExperience Curve Source List David A. Aaker, “Developing Business Strategies”, 5th Edition
The Boston Consulting Group, “Perspectives on Strategy”
Robert M. Grant, “Contemporary Strategy Analysis”, 3rd
Edition
Henry Mintzberg, Bruce Ahlstrand, Joseph Lampel, “Strategy
Safari: A Guided Tour Through the Wilds of Strategic
Management
Financial Modeling SummaryFinancial ModelingThe financial model will allow us to test management assumptions and understand how different actions may affect performance on some key competitive dimensions.Financial ModelingFinancial ModelingApproachWhen To ApplyFinancial Modeling is effective in analyzing how a company’s performance, in core areas of business, will be affected by pursuing different courses of action. This tool facilitates an understanding of various cause-effect and provides a model by which to test various "what if" statements.Follow these steps to successfully create a Financial Model
Step 1 Gather information on key drivers ie.
From the cash flow analysis performed as part of the SVA
Data and insight from Voice of the Customer is another source of insight
Step 2 Map the relationships and identify factors which reinforce one another vs. those that have a negative relationship
(e.g. increase in price may have a negative effect on demand)
Step 3 Build the financial model based on the cause-effect relationships identified
Step 4 Gather data from industry analysis or internal corporate data
Step 5 Test the quality of the model by doing manual calculations on some "what if”
Step 6 Perform "what if" to assess the completeness of the modelFinancial ModelingCitations - Client and Industry ExperienceFinancial Modeling
Flemings Fund Management Ltd (FFML)/Banking/KIT
database
Galileo/Travel/ Spencer Lin & Vasu Krishnamurthy
Osh Kosh B’ Gosh?SP/Retail/Mike Weiss
PwC MCS/Consulting/Vasu Krishnamurthy
United Airlines/Travel/Vasu Krishnamurthy
Robert M. Grant, “Contemporary Strategy Analysis”, 3rd EditionSource ListThe Fit vs. Attractiveness ModelThe Fit vs. Attractiveness Model optimizes strategy by developing a sense of the realistic state of the market and company affairs. The Model compares product fit with a market to product fit with a company’s objectives.
Fit vs. Attractiveness Model SummaryThe Fit vs. Attractiveness Model
Fit vs. Attractiveness ModelApproachFit vs. Attractiveness ModelStep 1 Identify product, category or market overall attractiveness as being low, medium, or high. Plot along x-axis.
Step 2 Identify product category, or market fit with company objectives as being low, medium, or high. Plot along y-axis.
Step 3 Evaluate newly created matrix; aim to reveal products, categories, or markets that fall under high overall attractiveness and high fit with company objectives.
When to ApplyThe Fit Vs. Attractiveness Model is used to analyze a new product or service offering’s fit within a company, in comparison to the overall attractiveness of the product or offering. This particular model requires judgements which are subjective in nature; one should be aware that this model may oversimplify the market situation.Fit vs. Attractiveness ModelCitations - Client and Industry ExperienceFit vs. Attractiveness ModelSource List Galileo/Travel/ Spencer Lin & Vasu Krishnamurthy
PwC MCS/Consulting/Vasu Krishnamurthy
Paul Elkin, “Mastering Business Planning and Strategy: The Power and Application of Strategic Thinking”
Henry Mintzberg, James Brian Quinn, Sumantra Ghoshal, “The Strategy Process”
Five Forces Analysis SummaryThe Five Forces Analysis evaluates the attractiveness of an industry.Five Forces AnalysisDRIVERS OF MARKET ATTRACTIVENESSPOTENTIAL ENTRANTS
Entry barriers are high if there are:
Economies of scale
Product differentiation
Capital requirements
Limited access to distribution channels
Restrictive government policies
Potential retaliatory reaction of incumbentsINDUSTRY COMPETITORS
Rivalry is intense if:
Competitors are numerous or roughly equal in power or size
Industry growth is slow
There are high fixed costs or the product is perishable
The product lacks differentiation or switching costs
Capacity is augmented in large increments
Exit barriers are high
Rivals are diverse in strategies, origins, and "personalities"SUBSTITUTES
Threat of substitutes is high if:
There is an abundance of products or services that serve the same function
The price-performance tradeoff of substitutes is attractiveSUPPLIERS
Bargaining power of suppliers is greater if:
The supply industry is dominated by a few companies or is more concentrated than the buying industry
The supply product is differentiated or there are high switching costs
There are few substitutes
The buying industry is not an important customer of the supply industry
The supply industry poses a credible threat of forward integrationBUYERS
Bargaining power of customers is greater if:
The customer group is concentrated or buys in large volume
Products purchased are undifferentiated
Produ