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Situation analysis and

Business Strategy

Situational Analysis:
SWOT is an acronym used to describe the particular
Strengths,Weaknesses,Opportunities, and Threats
that are strategic factors for a specific company.
SWOT analysis should not only result in the
resources that a firm possesses and the superior way
in which they are usedbut also in the identification
of opportunities that the firm is not currently able to
take advantage of due to a lack of appropriate

SA=O/(S W)
SWOT can thus be used to take a broader view of
strategy through the formula SA=O/(S W) that is,
(Strategic Alternative equals Opportunity divided by
Strengths minus Weaknesses). This reflects an
important issue strategic managers face: Should we
invest more in our strengths to make them even
stronger (a distinctive competence) or should we
invest in our weaknesses to at least make them


The SFAS Matrix requires a strategic decision maker
opportunities, and threats into fewer than 10
strategic factors. This is done by reviewing and
revising the weight given each factor. The revised
weights reflect the priority of each factor as a
determinant of the companys future success

As shown in Figure , you can create an SFAS Matrix by following these steps:
1. In Column 1 (Strategic Factors), list the most important EFAS and IFAS items. After each
factor, indicate whether it is a Strength (S), Weakness (W), an Opportunity (O), or a Threat
2. In Column 2 (Weight), assign weights for all of the internal and external strategic factors.
As with the EFAS and IFAS Tables presented earlier, the weight column must total 1.00.
This means that the weights calculated earlier for EFAS and IFAS will probably have to be
3. In Column 3 (Rating), assign a rating of how the companys management is responding to each
of the strategic factors. These ratings will probably (but not always) be the same as those
listed in the EFAS and IFAS Tables.
4. In Column 4 (Weighted Score), multiply the weight in Column 2 for each factor by its rating
in Column 3 to obtain the factors rated score.
5. In Column 5 (Duration), depicted in Figure, indicate short-term (less than one year),
intermediate-term (one to three years), or long-term (three years and beyond).
6. In Column 6 (Comments), repeat or revise your comments for each strategic factor from the
previous EFAS and IFAS Tables. The total weighted score for the average firm in an
industry is always 3.0

The use of the SFAS Matrix

The use of the SFAS Matrix reduces the list of
factors to a manageable number, puts weights on each
factor, and allows one factor to be listed as both a
strength and a weakness (or as an opportunity and a

Business Strategies
Business strategy focuses on improving the
competitive position of a companys or business units
products or services within the specific industry or
market segment that the company or business unit
serves. Business strategy is extremely important
because research shows that business unit effects
have double the impact on overall company
performance than do either corporate or industry


Competitive strategy raises the following questions:
Should we compete on the basis of lower cost (and thus
price), or should we differentiate our products or
services on some basis other than cost, such as
quality or service?
Should we compete head to head with our major
competitors for the biggest but most sought-after
share of the market, or should we focus on a niche in
which we can satisfy a less sought-after but also
profitable segment of the market?

Generic competitive strategies

Michael Porter proposes two generic competitive
strategies for outperforming other corporations in a
particular industry: lower cost and differentiation.10
These strategies are called generic because they can
be pursued by any type or size of business firm, even
by not for- profit organizations.

Lower cost strategy

Lower cost strategy is the ability of a company or a
business unit to design, produce, and market a
comparable product more efficiently than its
Cost leadership is a lower-cost competitive strategy
that aims at the broad mass market and requires
aggressive construction of efficient-scale facilities,
vigorous pursuit of cost reductions from experience,
tight cost and overhead control, avoidance of
marginal customer accounts, and cost minimization in
areas like R&D, service, sales force, advertising, and
so on.

Advantage of lower cost strategy

Having a lower-cost position also gives a company or
business unit a defense against rivals. Its lower costs
allow it to continue to earn profits during times of
heavy competition. Its high market share means that
it will have high bargaining power relative to its
suppliers (because it buys in large quantities). Its low
price will also serve as a barrier to entry because few
new entrants will be able to match the leaders cost
advantage. As a result, cost leaders are likely to earn
above-average returns on investment

Issues of Cost Leadership

Cost leadership is not sustained:
Competitors imitate.
Technology changes.
Other bases for cost leadership erode.

Commonly Required Skills an Resources

Sustained capital investment and access to capital
Process engineering skills
Intense supervision of labor
Products designed for ease of manufacture
Low-cost distribution system

Differentiation strategy
Differentiation strategy is the ability of a company
to provide unique and superior value to the buyer in
terms of product quality, special features, or aftersale service.
The company or business unit may then charge a
premium for its product. This specialty can be
associated with design or brand image, technology,
features, a dealer network, or customer service.

Advantage of Differentiation
Differentiation is a viable strat-egy for earning
above-average returns in a specific business because
the resulting brand loyalty lowers customers
sensitivity to price. Increased costs can usually be
passed on to the buyers. Buyer loyalty also serves as
an entry barrier; new firms must develop their own
distinctive competence to differentiate their
products in some way in order to compete

Issues of Differentiation
Differentiation is not sustained:

Competitors imitate.
Bases for differentiation become
less important to buyers.

Commonly Required Skills and Resources

Strong marketing abilities
Product engineering
Creative flair
Strong capability in basic research
Corporate reputation for quality or technological leadership
Long tradition in the industry or unique combination of skills
drawn from other businesses
Strong cooperation from channels

Cost focus is a low-cost competitive strategy that
focuses on a particular buyer group or geographic
market and attempts to serve only this niche, to the
exclusion of others. In using cost focus, the company
or business unit seeks a cost advantage in its target
Differentiation focus, like cost focus, concentrates
on a particular buyer group, product line segment, or
geographic market.

Market Location Tactics: Where to Compete

A market location tactic deals with where a company
implements a strategy. A company or business unit
can implement a competitive strategy either
offensively or defensively. An offensive tactic usually
takes place in an established competitors market
location. Adefensive tactic usually takes place in the
firms own current market position as a defense
against possible attack by a rival.

Market Challenger Strategies

Frontal assault: The attacking firm goes head to head
with its competitor. It matches the competitor in
every category from price to promotion to
distribution channel. To be successful, the attacker
must have not only superior resources, but also the
willingness to persevere.
Flanking maneuver: Rather than going straight for a
competitors position of strength with a frontal
assault, a firm may attack a part of the market where
the competitor is weak.

Bypass attack: Rather than directly attacking the

established competitor frontally or on its flanks, a
company or business unit may choose to change the
rules of the game. This tactic attempts to cut the
market out from under the established defender by
offering a new type of product that makes the
competitors product unnecessary.
Encirclement: Usually evolving out of a frontal assault
or flanking maneuver, encirclement occurs as an
attacking company or unit encircles the competitors
position in terms of products or markets or both. The
encircler has greater product variety (e.g., a complete
product line, ranging from low to high price) and/or
serves more markets (e.g., it dominates every
secondary market).

Guerrilla warfare: Instead of a continual and extensive

resource-expensive attack on a competitor, a firm or
business unit may choose to hit and run. Guerrilla
warfare is characterized by the use of small,
intermittent assaults on different market segments
held by the competitor. In this way, a new entrant or
small firm can make some gains without seriously
threatening a large, established competitor and
evoking some form of retaliation. To be successful,
the firm or unit conducting guerrilla warfare must be
patient enough to accept small gains and to avoid
pushing the established competitor to the point that
it must respond or else lose face.

Market Leader Strategies

Defensive Tactics. According to Porter, defensive
tactics aim to lower the probability of attack, divert
attacks to less threatening avenues, or lessen the
intensity of an attack. Instead of increasing
competitive advantage per se, they make a companys
or business units competitive advantage more
sustainable by causing a challenger to conclude that
an attack is unattractive. These tactics deliberately
reduce short-term profitability to ensure long-term

Raise structural barriers. Entry barriers act to block a

challengers logical avenues of attack. Some of the
most important, according to Porter, are to:
1. Offer a full line of products in every profitable
market segment to close off any entry points (for
example, Coca Cola offers unprofitable noncarbonated
beverages to keep competitors off store shelves);
2. Block channel access by signing exclusive agreements
with distributors;
3. Raise buyer switching costs by offering low-cost
training to users;
4. Raise the cost of gaining trial users by keeping prices
low on items new users are most likely to purchase.

5. Increase scale economies to reduce unit costs;

6. Foreclose alternative technologies through patenting
or licensing;
7. Limit outside access to facilities and personnel;
8. Tie up suppliers by obtaining exclusive contracts or
purchasing key locations;
9. Avoid suppliers that also serve competitors; and
10. Encourage the government to raise barriers, such as
safety and pollution standards or favorable trade

Increase expected retaliation: This tactic is any

action that increases the perceived threat of
retaliation for an attack. For example, management
may strongly defend any erosionofmarket share by
drastically cutting prices or matching a challengers
promotion througha policy of accepting any pricereduction coupons for a competitors product. This
counterattackis especially important in markets that
are very important to the defending companyor
business unit.
Lower the inducement for attack: A third type of
defensive tactic is to reduce a challengers
expectations of future profits in the industry.

Market-Follower Strategies
1. CounterfeiterThe counterfeiter duplicates the leaders product and
packages and sells it onthe black market or through disreputable
dealers. Music firms, Apple, and Rolex have been plagued by the
counterfeiter problem, especially in Asia.
2. ClonerThe cloner emulates the leaders products, name, and
packaging, with slight variations.For example, Ralcorp Holdings sells
imitations of name-brand cereals in look-alike boxes. .
3. ImitatorThe imitator copies some things from the leader but
differentiates on packaging, advertising, pricing, or location. The
leader doesnt mind as long as the imitator doesnt attack aggressively.
4. AdapterThe adapter takes the leaders products and adapts or
improves them. The adapter may choose to sell to different markets,
but often it grows into a future challenger, as many Japanese firms
have done after improving products developed elsewhere.

Market-Nicher Strategies
End-user specialist. The firm specializes in one type of end-use
Vertical-level specialist. The firm specializes at some vertical level
of the production-distribution value chain.
Customer-size specialist. The firm concentrates on either small,
medium-sized, or large customers. Many nichers serve small
customers neglected by the majors.
Specific-customer specialist. The firm limits its selling to one or a
few ustomers. Many firms sell their entire output to a single

Product or product line specialist. The firm carries or produces only

one product line or product. A manufacturer may produce only
lenses for microscopes.
Product-feature specialist. The firm specializes in producing a
certain type of product or product feature.
Job-shop specialist. The firm customizes its products for individual
Quality-price specialist. The firm operates at the low- or highquality
ends of the market.
Service specialist. The firm offers one or more services not
available from other firms.
Channel specialist. The firm specializes in serving only one channel of
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