Strategic market management chapter 6

Chapter Six © 2007 John Wiley & Sons Internal Analysis Copyright © 2010 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Requests for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein Chapter - Internal Analysis PPT 6-1 Financial Performance – Sales and Profitability • Sales and Market Share • Profitability © 2007 John Wiley & Sons • Measuring Performance: Shareholder Value Analysis Chapter - Internal Analysis PPT 6-2 Shareholder Value Analysis • Cost of equity—weighted average of cost of capital and cost of debt © 2007 John Wiley & Sons – e.g Capital $1 billion (12%); Debt $3 billion (4%) then the cost of capital is 6% • Each business aims at ROA to exceed cost of equity so shareholder can improve stock investment Chapter - Internal Analysis PPT 6-3 © 2007 John Wiley & Sons Shareholder Value Risks • ROA estimate requires knowing the cash flow of any investment and the assets employed—could encourage short term results • Reducing assets employed by outsourcing could result in loss of control of business • Reducing investment could affect offering • Increasing debt to reduce cost of equity could be risky Chapter - Internal Analysis PPT 6-4 Performance Measures Reflecting Long-Term Profitability CustomerSatisfaction/ Satisfaction/ Customer BrandLoyalty Loyalty Brand Product/ServiceQuality Quality Product/Service Brand/FirmAssociations Associations Brand/Firm Current Performance Long Term Profits © 2007 John Wiley & Sons RelativeCost Cost Relative NewProduct ProductActivity Activity New Manager/Employee Manager/Employee Capability/Performance Capability/Performance Heritageand andValues Values Heritage Chapter - Internal Analysis Figure 6.1 PPT 6-5 Relative Cost vs Relative Performance - Strategic Implications More MoreExpensive Expensive Change • Design • Manufacturing/Systems Ignore © 2007 John Wiley & Sons Inferior Inferior Our Component is Value Analysis • De-emphasize • Upgrade Chapter - Internal Analysis Less LessExpensive Expensive Figure 6.2 Value Analysis • Raise prices • Promote Cost Reduction Superior Superior Value Analysis • Emphasize/promote • Leave it alone PPT 6-6 Strengths and Weaknesses • Strategies leverage strengths and neutralize weaknesses © 2007 John Wiley & Sons • Point of advantage vs points of parity vs liability Chapter - Internal Analysis PPT 6-7 Threats & Opportunities • Key output of external analysis © 2007 John Wiley & Sons • Evaluate as to: – Immediacy – Impact Chapter - Internal Analysis PPT 6-8 Structuring Strategic Decisions Organizational Strengths and Weaknesses Competitor Strengths and Weaknesses StrategyDecisions Decisions Strategy © 2007 John Wiley & Sons StrategicInvestment Investment ••Strategic Chapter - Internal Analysis ValueProposition Proposition ••Value Assetsand andCompetencies Competencies ••Assets FunctionalStrategies Strategiesand andPrograms Programs ••Functional Market Needs, Attractiveness, and Key Success Factors Figure 6.3 PPT 6-9 © 2007 John Wiley & Sons Key Learnings • Sales and profitability analysis provide an evaluation of past strategies and an indication of the current market viability of a product line • Shareholder value holds that the flow of profits emanating from an investment should exceed the cost of capital (which is the weighted average of the cost of equity and cost of debt) Routes to achieving shareholder value – such as downsizing, reducing assets employed, and outsourcing – can be risky when they undercut assets and competencies • Performance assessment should go beyond financials to include such dimensions as customer satisfaction/brand loyalty, product/service quality, brand/firms associations, relative cost, new product activity, and manager/employee capability and performance • Assets and competences can represent a point of advantage, a point of parity, or a liability Threats and opportunities that are both imminent and important should trigger strategic imperatives, programs with high priority Chapter - Internal Analysis PPT 6-10 © 2007 John Wiley & Sons Ancillary Slides Chapter - Internal Analysis PPT 6-11 “We have met the enemy and he is us.” © 2007 John Wiley & Sons - Pogo Chapter - Internal Analysis PPT 6-12 © 2007 John Wiley & Sons “Self-conceit may lead to self-destruction.” -Aesop, “The Frog and the Ox” Chapter - Internal Analysis PPT 6-13 © 2007 John Wiley & Sons “The fish is the last to know if it swims in water.” -Chinese proverb Chapter - Internal Analysis PPT 6-14 “The successful man is the one who finds out what is the matter with his business before his competitors do.” © 2007 John Wiley & Sons - Roy L Smith Chapter - Internal Analysis PPT 6-15 © 2007 John Wiley & Sons Six Rules for Success Face reality as it is, not as it was or as you wish it were Be candid with everyone Don’t manage, lead Change before you have to If you don’t have a competitive advantage, don’t compete Control your own destiny, or someone else will - Jack Welch former Chairman, General Electric Chapter - Internal Analysis PPT 6-16 “It’s not companies that fail, it’s their leaders who fail.” © 2007 John Wiley & Sons - Warren Bennis Chapter - Internal Analysis PPT 6-17 ... should trigger strategic imperatives, programs with high priority Chapter - Internal Analysis PPT 6- 10 © 2007 John Wiley & Sons Ancillary Slides Chapter - Internal Analysis PPT 6- 11 “We have met... General Electric Chapter - Internal Analysis PPT 6- 16 “It’s not companies that fail, it’s their leaders who fail.” © 2007 John Wiley & Sons - Warren Bennis Chapter - Internal Analysis PPT 6- 17 ... Capability/Performance Heritageand andValues Values Heritage Chapter - Internal Analysis Figure 6. 1 PPT 6- 5 Relative Cost vs Relative Performance - Strategic Implications More MoreExpensive Expensive