Essential Strategy Models A collection of essential models for every strategist’s toolkit

SWOT analysis

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Strengths Weaknesses

Opportunities Threats

Summarise the firms Strengths, Weaknesses, Opportunities and Threats

Strengths and Weaknesses are typically internal to the firm and describe the current reality

Opportunities and Threats typically arise from factors in the firms competitive environment and may exist already or have the potential to occur in the future.

Strengths and Opportunities should be leveraged, Weaknesses and Threats should be mitigated.

A SWOT is a useful tool to summarise the insights gained from using other models.

McKinsey 7-S analysis

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Describe and analyse strengths and weaknesses in terms of: the “hardware”

◦ Strategy: alignment, implementation, communication, planning vs opportunism, rigour, depth, transformative vs incremental

◦ Structure: committees, governance, depth, breadth, collaboration,

◦ Systems: IT, operational, finance, HR, etc. level of rigour

the “software” ◦ Style: culture, leadership, managerial

versus transformational ◦ Staff: selection, reward, autonomy,

empowerment ◦ Skills: ability, training, experience ◦ Shared Values: alignment, positive

or negative, hard minds vs soft hearts

Consider applying this lens to each process in the Value Chain

Structure

Systems

Style

Staff

Skills

Strategy

Shared

Values

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Insights from a 7-S analysis can be summarised as Strengths or Weaknesses in a SWOT analysis

Porter’s 5 Forces analysis

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Analyse the competitive forces in the industry

Sample issues to consider:

Bargaining power of suppliers

◦ Extracting a higher margin

◦ Forward integrating

Bargaining power of buyers / distributors

◦ Price sensitivity

◦ Backward integration

◦ Switching costs

Threat of new entrants

◦ Industry profitability

◦ Barriers to entry

Threat of substitutes

◦ Disruptive change

◦ Perceived level of differentiation

Rivalry

◦ Concentration & stability

◦ Industry growth rates

Threat of

Substitutes

Bargaining

Power of

Suppliers

Bargaining

Power of

Buyers

Threat of New

Entrants

Rivalry

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Insights from a 5 Forces analysis can be summarised as Opportunities or Threats in a SWOT analysis

PEST analysis

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Political Economic

Social Technological

Identify environmental trends in the competitive environment:

Political: Changes in the political, regulatory, legal and special interest groups sphere.

Economic: Macro-economic trends such as interest rates, equity markets, inflation / purchasing power and disposable income; and micro-economic trends such as supply, demand and elasticity.

Social: and socio-economic trends such as health, longevity, family and living patterns, behaviour and fashions.

Technological: trends in product development, procurement, manufacturing, distribution and customer engagement.

The model is sometimes extended as PESTLE to include:

Legal: as a separate sphere

Environmental: an increasing consideration in many industries

Insights from a PEST analysis can be summarised as Opportunities or Threats in a SWOT analysis

Business Model Canvas

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KP Which Key Partners does the firm rely on, and for what?

KA What Key Activities must the firm perform?

VP What Value Proposition does the firm offer to solve its customers’ problems or satisfy their needs?

CS What Customer Segments does the firm target?

KR What Key Resources does the firm need?

CR What kinds of Customer Relationships does the firm have?

CH Through which CHannels does the firm deliver its products and services?

C$ What is the Cost structure of the firm?

R$ What is the Revenue structure of the firm?

Firms extract value from the markets in which they compete by integrating the 9 elements of their business model.

Target Operating Model

Identify the People, Processes and Technology required to deliver each value add in the Value Chain

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Activity System

A subset of Southwest Airlines’ activity system

Key strategic activities are mutually reinforcing

Individual activities are easy for competitors to copy; the whole system is harder to copy = sustainable competitive advantage

Focused – will not appeal to all passengers; not trying to be the best at everything

Specific – regarding what is done and what is not done

Differentiated – no other airline pursues the same strategy

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Limited

passenger

service

Frequent

Reliable

Departures

High

Aircraft

utilisation

Very low

ticket

prices

Short-haul

point-point

2ndary

airports

Lean

productive

ground

crews

No meals

No seat

assigns

No bag

transfer

No

connec-

tions

15 min

turn-

around

737s only

High

compen-

sation

Flexible

union

contracts

“low cost

airline”

Competitive Strategy is about being different. It means deliberately choosing a set of activities to deliver a unique mix of value.

Michael E. Porter, 1998

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Customer segmentation

Kaplan and Norton, 1996

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Some managers object to choosing targeted customer segments; they have never seen a customer they didn't like, and want to be able to satisfy all customers' preferences. But this approach runs the risk of doing nothing well for anybody. The essence of strategy is not just choosing what to do, it also requires choosing what not to do.

Segment Value Proposition Objectives Measures Targets Products

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Strategy Canvas

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A sample Strategy Canvas for Southwest Airlines

A Strategy Canvas is a visual representation of how a firm differentiates its value proposition(s) from those of its competitors:

Identify the factors which your customers consider important.

Chart how well your competitors/substitutes perform against each category.

A Strategy Canvas can be used to understand an existing value proposition, or to identify a new opportunity. Individual canvases can be produced for different target customer segments.

BCG Matrix

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For multi-line portfolios, map market growth against market share

Interpretation:

◦ Invest in Stars – they are the source of future profitability

◦ Improve efficiencies in Cash Cows – they are funding the investment in your Stars

◦ Decide whether you can turn Question Marks into Stars or not

◦ Exit Dogs – unless there are cross-line synergies (e.g. loss leaders); remember that all costs are variable in the long term

Variations: e.g. Bubble size for profit contribution

Market scope definition is key

Portfolio analysis can be performed for different products, services, customer segments, geographic markets, channels, brands, etc.

Cash Cows Stars

Dogs Question Marks

Mark

et

Share

Hig

h

Low

Market Growth Low High

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A Balanced Scorecard

Define measureable outcomes

Answer 4 simple questions using SMART objectives

For a mutual, replace shareholders with customers and regulators. For business units, treat the parent as the shareholder.

Define measures and targets

Aim for between 16 and 24 measurable outcomes (in total)

Aim for a balance between the four questions – don’t let one aspect of the strategy dominate the others

You get what you measure. If you can’t measure it, you can’t manage it.

Don’t confuse balanced scorecard metrics with benchmarking – strategy is non-comparable

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To succeed financially,

how should we appear to

our shareholders?

To achieve our vision, how should we

appear to our customers?

To satisfy our customers and shareholders, what business

processes must we excel

at?

To achieve our vision, how

will we sustain our ability to

learn and improve?

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For a confidential discussion, contact

Chris C Fox Consulting Limited

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