diagnosis. purpose of diagnosis to develop understanding plus a set of critical issues –...
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DIAGNOSISDIAGNOSIS
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Purpose of DiagnosisPurpose of Diagnosis
To develop understanding plus a set of critical issues
– Usually problems or threats, sometimes opportunities
– Small number - to provide focus
– Issues that should be central and vital to top management
– Both short- and long-range considerations
– Framed as issues, rather than solutions
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Diagnosis Overview
Current mission, strategic objectives, & strategies
Performance
Scan & analyze external environment
– Task (Competitive) environment
– Societal (General) environment
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Scan & analyze internal environment– Need to break up into manageable pieces
– Two main ways:
Value chain analysis
Functional area analysis
Critical success factors
S.W.O.T. table
Set of “Critical Issues”
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Scan & AnalyzeScan & Analyze External Environment External Environment
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Have to be selective and smart in scanning
Competitive Environment– Porter’s 5-force model of the industry
competitive environment
General Environment– Technological
– Political-legal
– Economic
– Social-cultural
Stakeholders (within above and others)
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"Awareness of the environment is not a "Awareness of the environment is not a
special project to be undertaken only special project to be undertaken only
when warning of change becomes when warning of change becomes
deafening.“deafening.“
(Kenneth R. Andrews) (Kenneth R. Andrews)
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"It is not the strongest of the species "It is not the strongest of the species
that survive, nor the most intelligent, that survive, nor the most intelligent,
but the ones most responsive to but the ones most responsive to
change.“change.“
(Charles Darwin) (Charles Darwin)
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The key point is that an organization needs to be in tune The key point is that an organization needs to be in tune with its often turbulent external environmentwith its often turbulent external environment
Since there is so much happening in the external Since there is so much happening in the external universe, we have to be selective and smart in scanning: universe, we have to be selective and smart in scanning:
• "Things are always different -- the art is figuring out "Things are always different -- the art is figuring out which differences matter." (Laszlo Birinyi) which differences matter." (Laszlo Birinyi)
• For a given industry (sometimes is country, industry, For a given industry (sometimes is country, industry, company-specific), certain aspects of the external company-specific), certain aspects of the external environment tend to be more important and should environment tend to be more important and should receive primary attentionreceive primary attention
• It helps to scan initially fairly quickly, then zoom in on It helps to scan initially fairly quickly, then zoom in on areas where something of importance seems to be areas where something of importance seems to be happeninghappening
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Key Strategic QuestionsKey Strategic QuestionsWhat are the industry's dominant features, especially What are the industry's dominant features, especially economic ones? economic ones?
What is competition like and how strong are each of the What is competition like and how strong are each of the competitive forces? competitive forces?
What is causing the industry's competitive structure and What is causing the industry's competitive structure and business environment to change? business environment to change?
Who are the major competitors and what are their Who are the major competitors and what are their relative competitive strengths? relative competitive strengths?
What strategic moves are rivals likely to make next? What strategic moves are rivals likely to make next?
What are the key factors for competitive success? What are the key factors for competitive success?
Is the industry attractive and what are the prospects for Is the industry attractive and what are the prospects for above-average profitability? above-average profitability?
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Porter’s 5-Force ModelPorter’s 5-Force Model
Rivalry Among Existing FirmsRivalry Among Existing Firms
Potential New EntrantsPotential New Entrants
Substitute Products or ServicesSubstitute Products or Services
Bargaining Power of SuppliersBargaining Power of Suppliers
Bargaining Power of BuyersBargaining Power of Buyers
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General EnvironmentGeneral Environment
Although usually only a few factors and Although usually only a few factors and trends are important, it is important to trends are important, it is important to identify themidentify themIs useful to think of four main aspects of Is useful to think of four main aspects of the general environmentthe general environment– TechnologicalTechnological– Political-LegalPolitical-Legal– Economic Economic – Social-CulturalSocial-Cultural
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Stakeholder AnalysisStakeholder Analysis
What is a stakeholder?
We need to be selective, consider MAJOR stakeholders:
– Power
– Interest
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Identify topic (usually a change) for analysis
Identify major stakeholders
Determine their degree of support or opposition to the action or change
Assess the balance of support
If not sufficient, work on changing
– Decrease larger opposing forces
– Increase supporting forces
Ideas re how to do this?
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Where We AreWhere We Are
Diagnosis overviewDiagnosis overview
Scan & analyze external environmentScan & analyze external environment
Scan & analyze internal ◄Scan & analyze internal ◄– Mission, objectives, strategies, performanceMission, objectives, strategies, performance
– Functional areas:Functional areas:FinancialFinancial
MarketingMarketing
Production/operationsProduction/operations
TechnologyTechnology
OrganizationalOrganizational
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Mission, Objectives, StrategiesMission, Objectives, Strategies
Identify and evaluateIdentify and evaluate
– ConsistentConsistent
– CurrentCurrent
– AppropriateAppropriate
– Implemented wellImplemented well
– Effective (performance vs. objectives)Effective (performance vs. objectives)
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Internal DiagnosisInternal DiagnosisIn either value chain or functional area analysis:
– Subdivide organization into several segments
– For each, identify what is being done, how well it is being done, strengths and weaknesses
– Examine linkages and potential synergies among various value chains & their segments, and/or among functional areas
– Look for opportunities to improve and create sustainable competitive advantages
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Value chain and functional area analysis
differ primarily in the way of subdividing
the organization (to aid analysis)
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Value Chain Functional AreasValue Chain Functional Areas
Inbound logisticsInbound logistics
OperationsOperations
Outbound logisticsOutbound logistics
Marketing & salesMarketing & sales
ServiceService
Production/operationsProduction/operations
MarketingMarketing
Human resource mgt.Human resource mgt.
InfrastructureInfrastructure
ProcurementProcurement
TechnologyTechnology
OrganizationalOrganizational
FinancialFinancial
TechnologyTechnology
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FinancialFinancial
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Financial DiagnosisFinancial Diagnosis
Do not need exotic skills for our purposes
Do need to do more than generate numbers and comment on trends ...need to
EVALUATE & DRAW CONCLUSIONS
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Analyze HistoricalAnalyze Historical
Have initial data (balance sheets & income statements for several years)
Need to develop conclusions about financial health of organization
– Are there significant strengths or weaknesses?
– Implications for strategy formulation & implementation?
How can we get from data to conclusions?
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Calculate some financial ratiosCalculate some financial ratios
Analyze trendsAnalyze trends
Compare with other companies or industryCompare with other companies or industry
Develop and state conclusionsDevelop and state conclusions
– Overall financial conditionOverall financial condition
– Specifics, especially problemsSpecifics, especially problems
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Also Look at FutureAlso Look at Future
Primarily to estimate needs and potential sources of strategic funds
Can get perspective even from a simple forecast model
Could use Index of Sustainable Growth
What are major sources of additional financing?
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Marketing Functional AreaMarketing Functional Area
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Marketing DiagnosisMarketing Diagnosis
Four P’s:
– Product
– Price
– Place
– Promotion
Product portfolio analysis
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Marketing Growth OptionsMarketing Growth Options
Market
Existing
Expanded
New
Existing
Expanded
Product
New
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Positioning & Competitive StrategyPositioning & Competitive Strategy
Competitive Advantage
Lower cost
Differentiation
Broad Price leadership
Differentiation
Competitive Scope
Narrow Price focus
Differentiation Focus
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Learning About a ModelLearning About a Model
A model is a tool, something to help you do some aspect of strategic management
WHAT does the model help you do?
What FACTORS or variables does it consider?
HOW do you use the model?
Limitations, etc.
Note that a picture of the model is less important
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Product Life CycleProduct Life Cycle
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Production/OperationsProduction/Operations
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Production/OperationsProduction/Operations
Often neglected
Much of COGS here
Also large effects on competitive position
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Key Strategic Decision VariablesKey Strategic Decision Variables
Locations & capacities of facilities
Planning of output (what, where, when, cycles, continuous/intermittent...?)
Flexibility (economies of scope)
Efficiency
Labor/capital intensity (operating leverage)
Inventory levels (raw, WIP, finished goods)
Quality
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Experience CurveExperience Curve
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Typical Price/Cost PatternTypical Price/Cost Pattern
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TechnologyTechnology
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Technology (R&D)Technology (R&D)
Tie to technology developments in external scan
Note successive S-curves (product performance vs. R&D expenditures)
Key to competitiveness is when to shift resources to different technology
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Major Strategic VariablesMajor Strategic VariablesTechnology strategy
– Technology position
– How we obtained & maintain position
Buy or build
Funding levels
Basic/applied, product/process
Application
Technology transfer
Trends, threats, what competitors are doing
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OrganizationalOrganizational
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Key Organizational FactorsKey Organizational FactorsTop management resources
BOD situation
Employee (labor) relations
Structure (change needed?)
Reward systems
Culture
Information systems
Human resources systems...
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Key Success FactorsKey Success Factors
In any In any industry industry there are certain key there are certain key variables that significantly affect variables that significantly affect competitive positionscompetitive positions
Vary by industryVary by industry
Vary with life cycle of an industryVary with life cycle of an industry
For example, technology early in PC For example, technology early in PC industry, now price (cost efficiency)industry, now price (cost efficiency)
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Finish DiagnosisFinish Diagnosis
SWOT table (list)SWOT table (list)
Critical IssuesCritical Issues
– Central & vital, typically 2-4Central & vital, typically 2-4
– Usually problems or threats, sometimes opportunities
– Both short- and long-range considerations
– Framed as issues, rather than solutions
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