Canvas_Lecture02_Strategic Analysis.pdf

Strategic Analysis Marketing (BT350) Jinwoo Kim Why Is Strategic Analysis Important 2 SWOT Analysis 3 SWOT Analysis ▪ Strengths Internal ▪ Weaknesses ▪ Opportunities External...

Strategic Analysis Marketing (BT350) Jinwoo Kim Why Is Strategic Analysis Important 2 SWOT Analysis 3 SWOT Analysis ▪ Strengths Internal ▪ Weaknesses ▪ Opportunities External ▪ Threats 4 Example SPAM 5 Example 6 Hormel in 2013 7 Hormel in 2013 8 Acquisition of Skippy ▪ Hormel Foods acquired Skippy from Unilever on Jan 3, 2013. - #2 peanut butter brand in US (FYI: #1 J.M. Smucker → JIF) ▪ The acquisition costed Hormel $700 million. - Net earning in 2012 was $505 million. ▪ Was it a good choice? 9 SWOT Analysis: Skippy Location Type of Factor of Factor Favorable Unfavorable Strengths Weakness Well-established and familiar brand in the Fierce market competition (e.g., JIF) category Store brands have a competitive Internal Can diversify Hormel Foods’ current advantage over Skippy product portfolio (hedging) Managers and workers relatively lacks expertise in the category Opportunities Threats Growing demand for vegetarian & vegan Around 30 million Americans are allergic foods to peanuts, and this number is increasing External Adoption of peanut butter or related Other nut & plant-based products are products outside US (e.g., China) gaining popularity (e.g., coconut butter, sunflower seed butter, sesame seeds) 10 Outcome of the Acquisition 11 Business Portfolio Analysis 12 Business Portfolio ▪ Business Portfolio - Collection of business and products that make up the company ▪ Strategic Business Unit (SBU) - Part of the company that has distinct mission, product, competitors , and can be planned independently 13 Mission Statement ▪ Mission Statement - A statement of the organization’s purpose; what it wants to accomplish in the larger environment ▪ Examples - Volvo - “The Volvo Group’s mission is to drive prosperity through transport and infrastructure solutions … that are 100% safe, 100% fossil-free and 100% more productive.” - Ford - “Throughout our nearly 118-year history, one thing that has not changed is our desire to help build a better world, where every person is free to move and pursue their dreams.” 14 Portfolio Analysis ▪ Which SBU to invest in? ▪ How much money to invest in? 15 BCG Matrix ▪ Boston Consulting Group (BCG) - Founded in 1963 - Annual Revenue: $8.6 billion - 90 offices around the world ▪ BCG Matrix - Growth-Share Matrix - A portfolio-planning method that evaluates a company’s SBUs in terms of market growth rate and relative market share 16 BCG Matrix Question Marks Stars Market Growth Rate High Requires investment. Potential Competition. But uncertain whether Need heavy it will become Star vs. investment to finance phase out the growth. Dogs Cash Cows Not attractive. Less competition. Low Reduce investment in No need for serious the SBU. investment. Low High Relative Market Share 17 BCG Matrix Question Marks Stars Market Growth Rate High Build (or Divest) Hold Dogs Cash Cows Low Divest Harvest Low High Relative Market Share 18 Exercise 19 Exercise Question Marks Stars Market Growth Rate High Dogs Cash Cows Low Low High Relative Market Share 20 Caveats ▪ Higher rates of market share may not lead to high rates of profit. ▪ Labeling effects - Managers would not want to work with Dog & Question Mark SBUs - Managerial judgments would be biased on account of labels ▪ Too simple - Only two dimensions, with a single variable each 21 Caveats ▪The framework assumes that each business unit is independent, but they could be interaction between SBUs. 22 GE Product-Portfolio Matrix ▪ McKinsey & Company - Founded in 1926 - Annual Revenue: $10.5 billion - 130 offices around the world ▪ GE Product-Portfolio Matrix - More complicated than BCG Matrix - Two dimensions, but the dimensions are multi-factorial - Market Attractiveness: 9 industry attractiveness measures - Competitive Position: 12 internal business strength measures 23 Market Attractiveness Factor Weight Value Score Aggregate Factors Market size.15 5.75 Growth/PLC stage.20 2.40 Sensitivity to trends.05 4.20 Industry Structure Profit Margin.15 4.60 Threat of new entrants.05 5.25 Negotiation power/customers.10 2.20 Negotiation power/suppliers.05 4.20 Competitive intensity.20 1.20 Threat of substitute products.05 3.15 Market Attractiveness Total 1.0 2.95 24 Competitive Position Factor Weight Value Score Market share.10 4.40 Price competition power.05 2.10 Growth rate.20 3.60 Experience curve effects.10 4.40 Added value.20 5 1.00 Production equipment.05 2.10 Production capacity.05 2.10 Quality of product.10 1.10 Sales promotion.05 4.20 R&D.05 5.25 Labor productivity.05 4.20 Competitive Position Total 1.0 3.45 25 Two Dimensions High Market Attractiveness Medium Low Weak Medium Strong Competitive Position 26 Action Plan: Simple High Selective Invest Invest Market Attractiveness Investment Harvest Medium Selective or Invest Investment Divest Harvest Harvest Selective Low or or Investment Divest Divest Weak Medium Strong Competitive Position 27 Action Plan: Complex Invest to < 1.67 1.67 - 3.33 3.33 < Build Protect build Market Attractiveness selectively position strength Selective Protect Harvest investment position Protect Manage Divest and earnings refocus < 1.67 1.67 - 3.33 3.33 < Competitive Position 28 Trade-off BCG Matrix GE Product-Portfolio Matrix Dimensions Market Growth Rate Market Attractiveness Relative Market Share Competitive Position ▪ Dimensions on the matrix are more readily available in the BCG Matrix. ▪ The GE Product-Portfolio Matrix can capture dynamics hidden under aggregated numbers. 29 Market Product Analysis 30 Market Product Analysis ▪ Product/Market Expansion Grid ▪ A portfolio-planning tool for identifying company growth opportunities ▪ Categorize based on the history of products and markets 31 Market Product Analysis markets Existing Market Product penetration development markets Diversification New Market - Related vs. Unrelated development - Horizontal vs. Vertical Existing New products products 32 Example 33 Discussion markets Existing Market Product penetration development markets New Market Diversification development Existing New products products 34  Financial Statement 35 Diagnosis 36 Income Statement 37 Balance Sheet 38