Professional Documents
Culture Documents
The Breakthrough model focuses attention on most substantial opportunities for creating
value for customers and shareholders.
Used for transformational review of basis of competition strategy, products,
marketing/sales
Industry
Company
Approach
External
Trends in the
economic
environment in
which the markets
exist
Market/Product
Repositioning
3
Market/product
strategy and basis
for competition
Industry
Transformation
4
Enterprise
Alignment
1
Internal
Best practices
across this and
similar industries
Best Practice
Performance
5 Forces Analysis
SUPPLIERS
Bargaining power of suppliers is greater if:
The supply industry is dominated by a
few companies or is more concentrated
than the buying industry
The supply product is differentiated or
there are high switching costs
There are few substitutes
The buying industry is not an important
customer of the supply industry
The supply industry poses a credible
threat of forward integration
POTENTIAL ENTRANTS
Entry barriers are high if there are:
Economies of scale
Product differentiation
Capital requirements
Limited access to distribution channels
Restrictive government policies
Potential retaliatory reaction of incumbents
INDUSTRY COMPETITORS
Rivalry is intense if:
Competitors are numerous or roughly equal in power
or size
Industry growth is slow
There are high fixed costs or the product is perishable
The product lacks differentiation or switching costs
Capacity is augmented in large increments
Exit barriers are high
Rivals are diverse in strategies, origins, and
"personalities"
BUYERS
Bargaining power of customers is greater if:
The customer group is concentrated or
buys in large volume
Products purchased are undifferentiated
Products purchased represent a significant
portion of the customer's cost
Customers earn low profits, creating
incentive to lower purchasing costs
The product purchased is unimportant to
the quality of the customer's product
Switching costs are low
Customer group poses a credible threat of
backward integration
SUBSTITUTES
Threat of substitutes is high if:
There is an abundance of products or services that serve the
same function
The price-performance tradeoff of substitutes is attractive
Example
Assess entry of a Financial Services company into Life Insurance
Suppliers
Medium bargaining power
Dominated by a few big companies
No product differentiation but High
switching costs
SUPPLIERS
Bargaining power of suppliers is greater if:
The supply industry is dominated by a
few companies or is more concentrated
than the buying industry
The supply product is differentiated or
there are high switching costs
There are few substitutes
The buying industry is not an important
customer of the supply industry
The supply industry poses a credible
threat of forward integration
Competitors
Rivalry is intense
Industry dominated by big 6
High fixed costs. Op costs
No product differentiation
Very high exit barriers
POTENTIAL ENTRANTS
Entry barriers are high if there are:
Economies of scale
Product differentiation
Capital requirements
Limited access to distribution channels
Restrictive government policies
Potential retaliatory reaction of incumbents
POTENTIAL ENTRANTS
High Entry Barriers
Need economies of scale
Little product differentiation
Very High Capital requirements
High cost distribution channels
INDUSTRY COMPETITORS
Rivalry is intense if:
Competitors are numerous or roughly equal in power
or size
Industry growth is slow
There are high fixed costs or the product is perishable
The product lacks differentiation or switching costs
Capacity is augmented in large increments
Exit barriers are high
Rivals are diverse in strategies, origins, and
"personalities"
BUYERS
Bargaining power of customers is greater if:
The customer group is concentrated or
buys in large volume
Products purchased are undifferentiated
Products purchased represent a significant
portion of the customer's cost
Customers earn low profits, creating
incentive to lower purchasing costs
The product purchased is unimportant to
the quality of the customer's product
Switching costs are low
Customer group poses a credible threat of
backward integration
SUBSTITUTES
Threat of substitutes is high if:
There is an abundance of products or services that serve the
same function
The price-performance tradeoff of substitutes is attractive
Substitutes
Low Threat
No alternative to life insurance
Buyers
Low bargaining power
Individual buyers
Low annual spend for customers
High switching costs
High impact potential
5 Forces
Approach
Five Forces analysis utilizes a four step approach and is applied as a starting point for
understanding a markets attractiveness:
Step 1:
Collect data
Step 2:
Step 3:
Step 4: Assess the overall effect of the forces on industry attractiveness and strategic
implications
An Issue Tree/Issue Map typically begins with a broad question and defines the sequence of
key issues (phrased as yes or no choices) that will support a specific answer.
Backed by relevant analysis at key decision points, this is a very strong tool for evaluating
options and presenting choices to management
Yes
Analysis
Is client prepared
to wait for this?
Yes Carry on as
presently
No
Action
Go to A
Analysis
No
Analysis
Yes
Is client worth
more to others
No than to its
parents?
6
Analysis
Analysis
Yes Dress up
for sale
Develop
No harvest
strategy
Example
This study was to assist management at a diversified parent co. develop a vision for the future of its heritage business - a paperboard
subsidiary. While returns had been attractive in this subsidiary, management was questioning whether further investment was advisable.
Yes
No
No
No
No
2
Would further
integration
economically develop a
sustainable low-cost
position?
5
Can Client Name
economically
leapfrog competition
in production
technology?
No
6
Will modernization be forced on
Client Name as a ticket to play
the game?
8
Will capacity expansion be
required to economically
develop the cost leadership
position?
9
Can Client Name change
the game (i.e., compete
on something other than
cost?)
11
Change the game
12
Niche/milk
13
Build strength through
capacity
Yes
Yes
7
Will current state-of-the-art
technology be replaced,
putting Client Name at a
disadvantage with a modern
plant?
Yes
14
The modernized Client
Name
10
Yes
Can Client Name
economically develop and
lead the introduction of
this S3 technology
15
Aggressive leadership in
technology
16
Leadership exploitation
Yes
No
No
No
Yes
4
Are external factors
likely to foreclose on
this cost position?
No
Yes
1
Over the next 12-18 months,
can Client economically
become the low-cost
producer through
optimization of the current
plant?
Answers to Each
17
Build strength through
integration
Minimize current
modernization; be aware and
flexible to convert when
appropriate
No
Make cost management/
productivity a way of life
3
Is this position
sustainable?
Yes
18
The excellent
manufacturing company
Yes
Mfg/Joint
Venture
Marketing
Sales/
Distribution
Customer
Refill Support
Other
Customer Service
Hard to
copy
Example: McDonalds
Fast, affordable,
fun, family dining
experience
BigMac recipe
High quality, low price product
sourcing
Efficient operation
Hamburger preparation
Menu selection
"Core
Competencies"
"Capabilities"
Easy to
copy
Strategic
Essentially
Requirement Gives
unique
about
advantage
"catching up"
Support
Component
Internal
Specialization
Example:
Risk Management
Example:
Product Ideation
Utility
Component
External
Specialization
Strategic
Component
Partner
Component
Example:
Payroll
Example:
Call Center
Non-Differentiating
Differentiating
Specialized Enterprise
Internal
Specialization
Support
Support
Utility
Non-Differentiating
Strategic
Strategic
Utility
External
Specialization
Partner
Differentiating
Partner
External
Specialization
Non-Differentiating
Differentiating
Firms should evaluate component performance to determine where the greatest value is achieved
The decline in transaction costs increases the number of opportunities for external specialization
Simultaneously, external specialists build scale and further expand their absolute advantage
Example CC specialist
Primary Issuing
Functions
Product
development
Marketing and
Sales
Underwriting and
Fulfillment
Customer
Servicing
Revenue
Enhancement
Delinquency
Management
Compliance
Key activities
Maintain in-house
Support
Capabilities
Target Segment
Identification
Communication
Design
Information
Verification
Transaction
Processing
Payment Followup
Campaign
Execution
Underwriting
Decision
Statement
Generation
Targeted Loyalty
Programs
Risk Profiling
Business Case
Development
Segmentation and
Targeting
Credit Limit
Assignment
Payment
Processing
Usage/ Revolving
Incentives
Proactive Risk
Strategies
Piloting and
Refinement
Query Resolution
Product Cross-sell
Recovery
Mechanism
Product Rollout
Distribution and
Monitoring
Card Activation
Grievance
Redressal
Organization structure
Technology Infrastructure
Legal Recourse
The Experience Curve forecasts future trends in cost/labor and determines the relative cost
position of various competitors. The tool quantifies cost savings, theoretically achieved
through experience gained in conducting a process.
Relevant for traditional/brick and mortar companies to assess near term positioning.
EXPERIENCE CURVE FOR WIDGETS - PROJECTIONS
Unit Cost
($)
50
1974
Slope 20%
1975
40
1976
1978
1977
30
1979
1980
1981
1982
20
1983
1984
10
200
4000
Scenario Envisioning
A base tool to determine the position of the company and industry direction
Excellent tool for high-impact visual presentation of a company or a portfolio.
HIGH
Ideal Strategy
Development
Dynamic Industry
Rapid Discontinuous
Change
Industry Driver
Impact
New entrants
New/substitute
products
New markets
M&A activity
Shifting
business
models and
economics
Scenario
Envisioning
Transforming
Industry
Steady Evolutionary
Change
Traditional
Strategy
Development
Static Industry
Slow Incremental
Change
Budgetary
Planning
LOW
LOW
HIGH
Scenario Envisioning
Scenario Envisioning is a powerful approach for companies in industries that are experiencing rapid discontinuous change where the future
cannot be extrapolated from the past and present. Scenario Envisioning fulfills the key needs for formulating strategy in a rapid discontinuous
change environment.
Approach
Innovative hypothesis about the future, based on extensive expert industry knowledge and research are formulated for study and review. The scenario
team converts these theories of logical futures - ones that diverge from the past and present trends - into a set of distinctly different scenarios.
Develop Future Industry Scenarios
Step 1
Define the broad future industry and market context within which the scenarios will be developed. For example, the
banking industry, the broader context may be financial services or even personal information services.
Step 2
Identify the paramount forces that will shape this industry and market context. For example, what consumer,
regulatory, social, legal and technological changes can or could exert the most powerful influence on your industry?
How do these interact on a global basis? Which of these is the most uncertain?
Step 3
Identify the boundary parameters - the full range of uncertainty - of the paramount forces. For example, if regulation
is one of the paramount forces, could the industry be intensively regulated or completely deregulated?
Step 4
Develop logical but innovative hypotheses that explain how the most powerful and uncertain forces could interact.
For example, will a major segment of the banking industry evolve into an on-line personal with building industry,
fostered by deregulation and increasing consumer technological capability?
Step 5
Create a set of scenarios that show how a few key unpredictable forces with the highest impact could interact.
Using a matrix model, the interaction of two or more unpredictable conditions results in a number of distinct
possibilities. The goal is to cover a comprehensive spectrum of market conditions.
Strategy
Critical Success
Factors (CSFs)
Capabilities/Skills
Processes/
Systems
The process and
procedures
through which
things get done
from day-to-day
and the systems
that facilitate
them
Staff
Culture/Style
Structure
The organization
chart and
accompanying
baggage that
show who reports
to whom and how
tasks are divided
up and integrated
7S
When To Apply
When it is necessary to evaluate the building blocks of an organization that serve to support its mission and allow it to execute its
strategies. Information for this analysis is difficult to obtain in some areas without extensively interviewing company personnel. The model
as a simple description of the status quo; it should move the analysis forward to identify areas in which the organizational building blocks
are not supporting the strategy.
Approach
STEP
1. Document
mission/shared vision
2. Document strategy
DATA REQUIRED
Mission Statement
Company documents
Business plans
SOURCE(S)
Training manuals
Position descriptions
Budgeting process documentation
Performance measures