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BU 111 External Analysis Models-3

This document provides an overview of various strategic analysis models and frameworks including PEST analysis, SWOT analysis, Diamond-E framework, Porter's Five Forces, and Porter's generic strategies. It discusses key success factors and how to evaluate a firm's internal resources and capabilities as well as external opportunities and threats in the competitive environment. The goal is to understand how to develop a strategy that creates a good fit between a firm's internal strengths and the external environment.

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18 views6 pages

BU 111 External Analysis Models-3

This document provides an overview of various strategic analysis models and frameworks including PEST analysis, SWOT analysis, Diamond-E framework, Porter's Five Forces, and Porter's generic strategies. It discusses key success factors and how to evaluate a firm's internal resources and capabilities as well as external opportunities and threats in the competitive environment. The goal is to understand how to develop a strategy that creates a good fit between a firm's internal strengths and the external environment.

Uploaded by

dojacqueline25
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Key Success Factors & Strategic Analysis Models

Learning Objectives (LO)


● Understand the 6 key success factors and their interrelationships and key performance indicators
● Understand the relationship between the firm and its external environment
○ Diamond-E model, Porter’s Five Forces
● Explain how to do an external analysis
○ PEST factors
○ Porter’s five forces model
○ Data sources
● Understand Porter’s Generic Strategies and how to choose between them

“A good strategy matches internal with external”

PEST Analysis (Political, Economic, Social, Technological)


A management method whereby an organization can assess major external factors that
influence its operation.1

SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats)


A framework used to evaluate a company's competitive position and to develop strategic
planning. It assesses internal and external factors, as well as current and future potential.2

Diamond-E
⤷ A more detailed version of a
strength, weakness, opportunity,
threat (SWOT) analysis.

Porter’s Five Forces Framework


⤷ A framework for analyzing a company's competitive environment. 3
Diamond-E Framework (Identifies key variables to consider and connect)

Strategy → The plan the business uses to pursue opportunities & avoid threats.
→ The link between internal and external.
● Internal → What can we do?
● External → What should we do?
○ Strategy Models → Ansoff Matrix, Porter’s Generic Strategies

Diamond-E - Principle Logic (“A good strategy to structure fit increase firm performance.”)
Principle Logic → Consistency & alignment
● Internal Consistency → Good execution
● External Alignment → Right strategy for the environment
(e.g., P&G Strategy in 2000 → Inconsistent
● The CEO of P&G expanded their product line massively. Customers didn’t care to have
many varieties of the same product, they preferred something competitively priced
(external misalignment). P&G also didn’t have the capability to continually support the
sales in the manufacturing and marketing (internal inconsistency).
Ikea Strategy → Consistent
● Ikea saw a void in the market that was not filled and decided to fill it (external alignment).
They didn’t have the capabilities to manufacture all the furniture so they made contracts
with other factories to produce it for them (internal consistency))

Diamond-E - Application
1. Is our current strategy aligned with future opportunities & threats?
2. What new strategies are feasible and worthwhile?
3. What are our strengths and how can we use them for competitive advantage given the
environment?
4. What do we need to execute a strategy? Can we get it? Where are we inconsistent?

Diamond-E - How?
1. Deal with strategy-environment linkage
2. Assess forces at work and their implications
3. Adjust internal (execution) or adjust strategy
Internal (What do we want and what can we do?)
Management Preferences
● Vision, mission, preferences and biases
1. What does management want? Ambitions? Objectives?
2. What are its priorities?
3. How comfortable is it with risk?
4. Does it value or is it more comfortable with some capabilities and strategies more than others?
5. Does it value some capabilities or resources more than others?

Organization
● Culture → “Who” are we?
● Capabilities → What are we good at?
● Structure → How do we divide work?
1. What are we good at as an organization? Capability gaps?
2. Are we organized so that we can efficiently and effectively execute our strategy? Are we organized around
our most important success drivers? Specialist vs. generalist? Customer vs. product vs. function?
3. What do we value or not? (e.g., Innovation vs stability)
4. What do we feel safe doing and spending our time on? (e.g., Is it safe to express new ideas? Are they
valued? Should I be spending time on my job only or does management support new initiatives?

Resources
● Human, Capital (tangible and intangible), Financial
1. Do we have enough money to acquire needed resources or execute needed activities?
2. Do we have the production capacity to produce what is needed?
3. Can we change how or what we produce?
4. What kind of talent do we have? What kind of talent do we need? Do we have enough labour to execute?

Key takeaway → Once you have asked the questions and know the answers, create a plan to
resolve them.

Key Success Factors (KSF) - Importance, Actions & Indicators


Employees
● Enable operation
● Employee commitment
○ Loyalty (employee turnover), productive, mentally committed
■ Hire, train, motivate
Customers
● Provide revenue
● Customer Satisfaction
○ Many loyal advocates, share of wallet, larger market share, churn (turnover)
■ Target, understand, anticipate, satisfy
Products and Services
● Revenue means
● Quality products & services
○ Few returns, defects, warranty claims & waste
○ Value, consistency, reliability
■ Define; Define value. (e.g., what features, what does it look like?)
■ Inputs; How do we achieve these features and values?
■ Processes; Production process determines the reliability, consistency and
quality of the products.
Innovation
● Environmental alignment
● Improvement
● Innovation & creativity
○ New products, new approaches, low cycle time
○ Valuable change
■ Culture; Encourages change and creativity.
■ Structure; Allows ideas to be explored and filled out.
■ Rewards; For successful ideas and new innovations.
Uniqueness
● Market advantage
● Distinctive competitive advantage
○ Strong, unique reputation & superior comparative performance
○ Valuably & sustainable differentiation from other competitors
■ Competitor & market insight
■ Unique resources or capabilities
Financial resources
● Enable growth
○ Comparatively better & improving profit
○ Revenues, Profit, Growth, Return on Investment (ROI)
■ Sound strategic decisions
■ Efficient & effective execution

Why Key Success Factors?


Guide strategic and daily actions → Ensure success over time → Ensure holistic thinking
What to look for in External Analysis
Present - Understand
● Current situations
○ What’s changing, how is it changing, how do I navigate this environment?
Trends - Watch
● Evolutionary Changes
○ Long-term evolutionary changes in society are to be anticipated
Quick Change - Anticipate
● Plan contingent strategies
○ Unpredictable or surprising events, anticipate and plan for them and construe
contingency strategies (eg. covid)
PEST Overview
Political
→ Laws, regulations, international trade laws and trade agreements
● Expansion, barriers, competition
○ International tariffs can procure barriers for our manufacturers to be able to
export to a certain market
Economic
→ GDP, inflation, employment, exchange, interest
● Costs, demand, funding, competitive
Social
→ Values/attitudes, customs, habits, demographics
● Customers, employees, corporate social responsibility (CSR)
○ Do we care about pollution and environmental regulations
Technology
→ Information technology, internet, materials & equipment
● Barriers, innovation, strategy, R&D
○ Some tech is not accepted in other countries/companies
○ Certain high-tech equipment can create a barrier for new entries into a market
because bigger companies will have more efficient machinery

PEST Questions
1. Are social factors changing how I hire or what customers want?
a. How are customers different in foreign markets?
2. Can I use technology to improve my product quality, meet customer needs or increase
profitability?
3. Will changes in laws, regulations or technology reduce barriers to entry?
4. What legal protection do I have or laws do I have to comply with?
5. What do future economic conditions look like and how will they affect my demand?
Applying Porter’s Generic Strategies

“Questions to think about” slides at the end of the slideshow will help you with the midterm.

References
1
https://www.investopedia.com/terms/p/pest-analysis.asp
2
https://www.investopedia.com/terms/s/swot.asp
3
https://www.investopedia.com/terms/p/porter.asp

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