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Frameworks and Tools of Strategic Management


  1. External analysis: What’s going on outside your business
    1. Porter's five forces analysis
    2. Blue ocean Strategy
    3. PEST analysis PESTLE
    4. Scenario planning
    5. Growth–share matrix
  2. Internal analysis: What's going on with your business
    1. SWOT analysis
    2. Value chain
    3. Balanced scorecard
    4. VMOST
    5. Resources based view (VRIN Model)
    6. Kotter Change Model

External analysis: What’s going on outside your business

Porter's five forces analysis

Porter's Five Forces Framework is a tool for analyzing competition of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack of it) of an industry in terms of its profitability. An "unattractive" industry is one in which the effect of these five forces reduces overall profitability. The most unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit levels. The five-forces perspective is associated with its originator, Michael E. Porter of Harvard University. This framework was first published in Harvard Business Review in 1979.
Porter refers to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low because the industry's underlying structure of high fixed costs and low variable costs afford enormous latitude in the price of airline travel. Airlines tend to compete on cost, and that drives down the profitability of individual carriers as well as the industry itself because it simplifies the decision by a customer to buy or not buy a ticket. A few carriers--Richard Branson's Virgin Atlantic is one--have tried, with limited success, to use sources of differentiation in order to increase profitability.
Porter's five forces include three forces from 'horizontal' competition--the threat of substitute products or services, the threat of established rivals, and the threat of new entrants--and two others from 'vertical' competition--the bargaining power of suppliers and the bargaining power of customers.
Porter developed his five forces framework in reaction to the then-popular SWOT analysis, which he found both lacking in rigor and ad hoc. Porter's five-forces framework is based on the structure–conduct–performance paradigm in industrial organizational economics. It has been applied to try to address a diverse range of problems, from helping businesses become more profitable to helping governments stabilize industries. Other Porter strategy tools include the value chain and generic competitive strategies.

 Porter's five forces analysis

Blue ocean Strategy

Blue Ocean Strategy is a marketing theory from a book published in 2005 which was written by W. Chan Kim and Renée Mauborgne, professors at INSEAD and co-directors of the INSEAD Blue Ocean Strategy Institute. Based on a study of 150 strategic moves spanning more than a hundred years and thirty industries, Kim & Mauborgne argue that companies can succeed by creating "blue oceans" of uncontested market space, as opposed to "red oceans" where competitors fight for dominance, the analogy being that an ocean full of vicious competition turns red with blood.
They assert that these strategic moves create a leap in value for the company, its buyers, and its employees while unlocking new demand and making the competition irrelevant. The book presents analytical frameworks and tools to foster an organization's ability to systematically create and capture blue oceans.[1] The expanded edition of Blue Ocean Strategy was published in February, 2015.
The expanded edition updates all strategic moves in the book, bringing their stories up to the present, and adds new chapters on achieving strategic alignment and avoiding red ocean traps as well as expanding the discussion on sustainability and renewal.

Blue Ocean Strategy

PEST analysis PESTLE

PEST analysis (political, economic, socio-cultural and technological) describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. It is part of an external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro-environmental factors to be taken into consideration. It is a strategic tool for understanding market growth or decline, business position, potential and direction for operations.

Variants that build on the PEST framework include:

PESTEL or PESTLE, which adds legal and environmental factors. Popular in the United Kingdom.
SLEPT, adding legal factors.
STEPE, adding ecological factors.
STEEPLE and STEEPLED, adding ethics and demographic factors.
DESTEP, adding demographic and ecological factors.
SPELIT, adding legal and intercultural factors. Popular in the United States since the mid-2000s.

STEP = PEST in more positive approach.
PESTEL = PEST + Environmental + Legal
PESTELI = PESTEL + Industry analysis
STEEP = PEST + Ethical
SLEPT = PEST + Legal
STEEPLE = PEST + Environmental + Legal + Ethical
STEEPLED = STEEPLE + Demographic
PESTLIED = PEST + Legal + International + Environmental + Demographic
LONGPEST = Local + National + Global factors + PEST

There is also STEER, which considers sociocultural, technological, economic, ecological, and regulatory factors, but does not specifically include political factors.[4]

 PEST analysis

Scenario planning

Scenario planning, also called scenario thinking or scenario analysis, is a strategic planning method that some organizations use to make flexible long-term plans. It is in large part an adaptation and generalization of classic methods used by military intelligence[1].

The original method was that a group of analysts would generate simulation games for policy makers. The games combine known facts about the future, such as demographics, geography, military, political, industrial information, and mineral reserves, with key driving forces identified by considering social, technical, economic, environmental, and political (STEEP) trends.

In business applications, the emphasis on gaming the behavior of opponents was reduced (shifting more toward a game against nature). At Royal Dutch/Shell for example, scenario planning was viewed as changing mindsets about the exogenous part of the world, prior to formulating specific strategies[2][3].

Scenario planning may involve aspects of systems thinking, specifically the recognition that many factors may combine in complex ways to create sometime surprising futures (due to non-linear feedback loops). The method also allows the inclusion of factors that are difficult to formalize, such as novel insights about the future, deep shifts in values, unprecedented regulations or inventions[4]. Systems thinking used in conjunction with scenario planning leads to plausible scenario storylines because the causal relationship between factors can be demonstrated [5]. In these cases when scenario planning is integrated with a systems thinking approach to scenario development, it is sometimes referred to as dynamic scenarios.

Scenario planning

Growth–share matrix

 The growth–share matrix (aka the product portfolio matrix, Boston Box, BCG-matrix, Boston matrix, Boston Consulting Group analysis, portfolio diagram) is a chart that was created by Bruce D. Henderson for the Boston Consulting Group in 1970 to help corporations to analyze their business units, that is, their product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis. Some analysis of market performance by firms using its principles has called its usefulness into question.

این ماتریس با در نظر گرفتن دو فاکتور رشد جذابیت صنعت و سهم نسبی در صنعت وضعیت هر شرکت را در صنعت مربوط به خود مشخص کرده و پیش بینی چگونگی تخصیص منایع مالی و گردش نقدی را برای سودآوری بیشتر و بقاء در آن کسب و کار مشخص می‌کند.

Growth–share matrix

Internal analysis: What's going on with your business

SWOT analysis

 SWOT analysis (or SWOT matrix) is a strategic planning technique used to help a person or organization identify the Strengths, Weaknesses, Opportunities, and Threats related to business competition or project planning. It is intended to specify the objectives of the business venture or project and identify the internal and external factors that are favorable and unfavorable to achieving those objectives. Users of a SWOT analysis often ask and answer questions to generate meaningful information for each category to make the tool useful and identify their competitive advantage.
Strengths and Weakness are frequently internally-related, while Opportunities and Threats commonly focus on environmental placement.
-     Strengths: characteristics of the business or project that give it an advantage over others
-     Weaknesses: characteristics of the business that place the business or project at a disadvantage relative to others
-     Opportunities: elements in the environment that the business or project could exploit to its advantage
-     Threats: elements in the environment that could cause trouble for the business or project
The degree to which the internal environment of the firm matches with the external environment is expressed by the concept of strategic fit. Identification of SWOTs is important because they can inform later steps in planning to achieve the objective. First, decision-makers should consider whether the objective is attainable, given the SWOTs. If the objective is not attainable, they must select a different objective and repeat the process.
Some authors credit SWOT to Albert Humphrey, who led a convention at the Stanford Research Institute (now SRI International) in the 1960s and 1970s using data from Fortune 500 companies. However, Humphrey himself did not claim the creation of SWOT, and the origins remain obscure.

SWOT analysis

Value chain

 A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. The concept comes through business management and was first described by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.
    The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing (or service) organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.
    — IfM, Cambridge
The concept of value chains as decision support tools, was added onto the competitive strategies paradigm developed by Porter as early as 1979.[dubious – discuss] In Porter's value chains, Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, and Service are categorized as primary activities. Secondary activities include Procurement, Human Resource management, Technological Development and Infrastructure (Porter 1985, pp. 11–15).
According to the OECD Secretary-General (Gurría 2012) the emergence of global value chains (GVCs) in the late 1990s provided a catalyst for accelerated change in the landscape of international investment and trade, with major, far-reaching consequences on governments as well as enterprises (Gurría 2012).

 Value chain

Balanced scorecard

The balanced scorecard is a strategy performance management tool – a semi-standard structured report, supported by design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.
The phrase 'balanced scorecard' primarily refers to a performance management report used by a management team, and typically this team is focused on managing the implementation of a strategy or operational activities - in a recent survey 62% of respondents reported using Balanced Scorecard for strategy implementation management, 48% for operational management. Balanced Scorecard is also used by individuals to track personal performance, but this is less common - only 17% of respondents in the survey using Balanced Scorecard in this way, however it is clear from the same survey that a larger proportion (about 30%) use corporate Balanced Scorecard elements to inform personal goal setting and incentive calculations.
The critical characteristics that define a balanced scorecard are:
-     its focus on the strategic agenda of the organization concerned
-     the selection of a small number of data items to monitor
-     a mix of financial and non-financial data items.

 Balanced scorecard

VMOST

 

Resources based view (VRIN Model)

 

Kotter Change Model

 

 

 

 

 

 

 

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