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66 markets they analysed。 Online book sales – Amazon （wrong）； Books。
（right） – Copiers； Xerox （wrong）； IBM （right） – PCs； IBM/Apple （both
wrong）； Micro Instrumentation Telemetry Systems （MITS） introduced its
PC the Altair； a 400 kit； in 1974； followed by Tandy Corporation （Radio
Shack） in 1977。
In fact the most pelling evidence from all the research was that nearly
half of all firms pursuing a first…to…market strategy were fated to fail； while
those following fairly close behind were three times as likely to succeed。
Tellis and Golder claim that the best strategy is to enter the market 19 years
a。。er pioneers； learn from their mistakes； benefit from their product and
market development and be more certain about customer preferences。
INDUSTRY ANALYSIS
Aside from articulating the generic approach to business strategy； Porter’s
other major contribution to the field was what has bee known as the
Five Forces theory of industry structure （Figure 12。2）。 Porter postulated that
the five forces that drive petition in an industry have to be understood
as part of the process of choosing which of the three generic strategies to
pursue。 The forces he identified are：
。 Threat of substitution： Can customers buy something else instead of
your product？ For example； Apple； and to a lesser extent Sony； have
laptop puters that are distinctive enough to make substitution
difficult。 Dell； on the other hand； faces intense petition from dozens
of other suppliers with near…identical products peting mostly on
price alone。
。 Threat of new entrants： If it is easy to enter your market； start…up
costs are low and there are no barriers to entry such as IP （intellectual
property） protection； then the threat is high。
。 Supplier power： The fewer the suppliers； usually the more powerful
they are。 Oil is a classic example； where less than a dozen countries
supply the whole market and consequently can set prices。
。 Buyer power： In the food market； for example； with just a few； powerful
supermarket buyers being supplied by thousands of much smaller
businesses； they are o。。en able to dictate terms。
。 Industry petition： The number and capability of petitors is one
determinant of a business’s power。 Few petitors with relatively
less a。。ractive products or services lower the intensity of rivalry in a
sector。 O。。en these sectors slip into oligopolistic （see also Chapter 7；
Economics） behaviour； preferring to collude rather than pete。
Strategy 269
You can see a video clip of Professor Porter discussing the Five Forces model
on the Harvard Business School website （h。。p：//harvardbusinessonline。
hbsp。harvard。edu/hbrol/en/archive/archive。jhtml 》 Strategy and Execution
》 By Author P 》 The Five petitive Forces that Shape petition）。
SHAPING STRATEGY – TOOLS AND
TECHNIQUES
While Porter’s Five Forces approach to strategy formulation is； as far as
business schools are concerned at least； the standard starting point； there
are a number of other tools that an MBA needs to be familiar with。 Some
pre…date Porter； some overlap； while others home in on specific issues。 Like
many such tools； they overlap with those used in marketing and in this book
you will find SWOT （strengths； weaknesses； threats and opportunities） and
perceptual mapping covered in Chapter 3； Marketing。
These are the main tools and techniques an MBA will be expected to
know and understand。
Figure 12。2 Five Forces theory of industry analysis （a。。er Porter）
Threat of new entrants
。 Economies of scale
。 Capital intensity
。 Access to marketing channels
。 Brand loyalty
。 Government regulations
。 IP and other barriers to entry
Industry petition
。 Many petitors
。 Some powerful petitors
。 High exit barriers
。 Strong brands
Buyer power
。 Buyer concentration
。 Relative size； buyer much
bigger
。 Buyers’ ability for backward
or forward integration
。 Price sensitivity
Threat of substitutes
。 Cost of switching
。 Relative price
。 Relative performance
。 Relative quality
Supplier power
。 Concentration of suppliers
。 Not a key customer to suppliers
。 Threat of supplier backward or
forward integration
。 Relative size； suppliers much bigger
Intensity of rivalry
。 Industry growth rate
。 Rate of technological
change
。 Effect of five forces
270 The Thirty…Day MBA
Ansoff’s Growth Matrix
Igor Ansoff； while Professor of Industrial Administration in the Graduate
School at Carnegie Mellon University； published his landmark book； Corporate
Strategy （1965）； where he explained a way of categorizing strategies
as an aid to understanding the nature of the risks involved。 He invited his
students to consider growth options as a square matrix divided into four
segments。 The axes are labelled with products and services running along
the ‘x’ axis； starting with ‘present’ and ‘new’； and markets up the ‘y’ axis
similarly labelled （Figure 12。3）。
Figure 12。3 Ansoff’s Growth Matrix
Existing products New products
Existing markets Market penetration Product development
New markets Market development Diversification
Horizontal
Vertical
Concentric
Conglomerate
Ansoff then went on to assign titles to each type of strategy； in an ascending
scale of risk （you can find out more about the matrix at
strategyvectormodel 》 Theories 》 Ansoff Matrix）：
。 Market penetration； which involves selling more of your existing products
and services to existing customers – the lowest…risk strategy。
。 Product/service development； which involves creating extensions to
your existing products or new products to sell to your existing customer
base。 This is more risky than market penetration； but less risky than
entering a new market where you will face new petitors and may
not understand the customers as well as you do your current ones。
。 Market development involves entering new market segments or pletely
new markets either in your home country or abroad。
。 Diversification is selling new products into new markets； the riskiest
strategy as both are relative unknowns。 Avoid； unless all other strategies
have been exhausted。 Diversification can be further subdivided into
four categories of increasing risk profile：
– Horizontal diversification （entirely new product into current market）。
– Vertical diversification （move backwards into firms supplier’s or
forward into customer’s business）。
Strategy 271
– Concentric diversification （new product closely related to current
products either in terms of technology or marketing presence but
into a new market）。
– Conglomerate diversification （pletely new product into a new
market）。
Boston Matrix
Developed in 1969 by the Boston Consulting Group （see above）； this tool
can be used in conjunction with the life…cycle concept （see Chapter 3；
Product/Service Life Cycle） to plan a portfolio of product/service offers。
The thinking behind the matrix is that a pany’s products and services
should be classified according to their cash generating or consumption
ability against two dimensions： the market growth rate and the pany’s
market share （Figure 12。4）。 Cash is used as the measure rather than profit；
as that is the real resource used to invest in new offers。 The objective then
is to use the positive cash flow generated from ‘cash cows’； usually mature
products that no longer need heavy marketing support budgets； to invest
in ‘stars’； that is； fast…growing； usually newer products； positioned in
markets in which the pany already has a high market share – usually
newer markets。 ‘Dogs’ should be disinvested and ‘question marks’ limited
in number and watched carefully to see if they are more likely to bee
stars or dogs。
Figure 12。4 The Boston Matrix
High Market Share Low
High
Low
Market Growth
STAR
Cash generated ＋＋＋
Cash used … … …
0
QUESTION MARK
Cash generated ＋＋＋
Cash used … … …
STAR
Cash generated ＋＋＋
Cash used …
0
STAR
Cash generated ＋
Cash used …
0
272 The Thirty…Day MBA
The GE–McKinsey Directional Policy Matrix
General Electric was much taken by the visual aspect of the Boston Matrix
and was using it to enhance its own performance using another consulting
firm； McKinsey and pany； to help。 Between them； in 1971 they came
up with a variant and in some ways an improvement by substituting
business strength and industry a。。ractiveness for market share and market
growth rate。 The logic being that although these are subjective measures；
they are more accessible than market growth and share； as these are hard
to establish and in any event the figures are themselves largely subjective
suppositions based largely on opinions （Figure 12。5）。
Figure 12。5 The GE–McKinsey directional policy matrix
Low Medium High
Business strength
Low Medium High
Industry attractiveness
Other matrix variations
A dozen or so other similar matrices are in use； each with their own strengths
and weaknesses。 Arthur D Li。。le Inc； a management consultancy founded
in 1886； based in Cambridge； Massachuse。。s； came up with its own matrix
in the late 1970s； using petitive position and industry maturity as the
directions。 Two business school professors； Gary Hamel （London Business
School） and C K Prahalad （University of Michigan）； developed a matrix in
1994 as an aid in se。。ing specific acquisition and deployment goals。 Other
academics； in the United States （Charles W Hofer and Dan Schendel） and
in the UK （Cranfield colleagues Malcolm McDonald and Cliff Bowman） as
well as panies such as Shell have all added twists to the basic matrix
strategy tool。
Cipher Systems （cipher…sys/analysis。htm）； a US consultancy
firm； provides a collection of strategic analysis tutorials on these and other
matrices。
Strategy 273
The long…run return pyramid
Another helpful strategy too is the long…run return pyramid； which is in
effect a checklist of growth options。 None of the options are mutually exclusive
and the tool does not provide for any form of evaluation。 Nevertheless；
it can be a valuable aide…mémoire to ensure that no stone has been
le。。 unturned during the strategic review process。 The pyramid’s pedigree
is unknown； but it is loosely based on the DuPont’s Return on Investment
Pyramid； used to trace all the performance ratios that influenced return on
investment。 The pyramid in the form shown in Figure 12。6 is a。。ributed to
Robert Brown； a senior academic at Cranfield School of Management。
Figure 12。6 The long…run return pyramid
New
markets
New
products
Increase
usage
rate
Win
petitors’
customers
Innovate pete
Volume
Improve
product
mix
Increase
price
Variable
costs
Fixed costs
Increase margins Cut costs
Productivity
Long…run returns
PEST （political； economic； social and
technological）
This is a framework predating Porter’s five forces approach that categorizes
the external factors that influence strategy under headings such as political；
economic； social and technological forces。 O。。en two additional factors；
environmental and legal； are added； changing the acronym to PESTEL
analysis （Figure 12。7）。
Figure 12。7 PESTEL analysis framework
Factor Event Impact Timing Proposed response
Political
Economic
Social
Technological
Environmental
Legal
274 The Thirty…Day MBA
IMPLEMENTING STRATEGY – BUSINESS
PLANS
All the thinking that goes into devising and shaping strategy has to be set
out in a form that will ensure it can be successfully implemented。 That form
is a business plan se。。ing out in detail the role each part of the organization
has to play for the next three to five years。 That period is needed as
recognizing an opportunity； developing a product or service to exploit that
opportunity and bringing that product to market all take time and the plan
has to enpass all these stages to be of any value。 The dichotomy here is
that while strategy takes time for the results to show； the world in which the
business is implementing its plans is changing。 As one military strategist
succinctly put it – all plans disintegrate on contact with the enemy。 So
three… to five…year business plans need to be reviewed fundamentally each
year and progress monitored at least quarterly。
Preparing business plans is a task that MBAs are invariably expected
to be able to carry out。 It calls for the broad level of understanding of all
aspects of the business – cash flow； profit margins； funding issues； marketing
and selling； staffing and structures； production； operations； research and
development； supply chain etc – that few others in the organization are
likely to have。 It is an opportunity for an MBA to broaden and deepen
their relationships with all key executives as well as the board of directors。
So o。。en tedious and always time consuming； the task of preparing business
plans should be weled as a career progression opportunity par
excellence。
Structure of the business plan
The plan is in essence the route map from where the business is to where
it wants to get and how it will go about ge。。ing to its destination – the
roles and responsibilities of key players； the resourc