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MKTG 7027 Marketing Strategy Tutor: Dr Gary Buttriss Semester 2, 2009

Strategic Audit

Sarah Sudewa Sheng Fan

(u4605996) (u4458889) (u4704387) (u4503506)

Preamble

If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.
Sun Tzu Art of War

Agenda
What is strategic audit Purpose of strategic audit

How to do a strategic audit Competitive advantage

Performance objectives
Key success factors and strategic assumptions

Definition
Strategic Audit is the process of evaluating a firms strategy.
-John Kay

1995

Strategic Audit Framework

Source : Ray, S, No Date

Purpose
Analyse firm is going in the right direction with respect to Strategy formulation

Corporate governance tool used by the independent directors in evaluating executive management

How to audit
1. What business are we in? 2. What forces are shaping our competition? 3. What is competitive advantage? 4. Is there money to be made? 5. What is our current strategy? 6. What is our distinctive competence? 7. What about functional area indicators? 8. How do we best compete for the future? 9. What of priorities, timing and resource? 10.What provisions exist for the implementation?

Business Definition
Satisfy the consumer need for a safe, reliable mode of transport Firm A, D and E Satisfy consumer passion for status, style and performance Firm B and C

Competitive advantage
Competitive strategy is the search for a favourable competitive position in an industry -- Porter 1985

Competitive advantage is a status in which one company is able to receive profits above that of the industry average, or even another firm.

Sources of Competitive Advantage

COST ADVANTAGE COMPETITIVE ADVANTAGE DIFFERENTIATION ADVANTAGE

Sources of Competitive Advantage (1) cost advantage

In StratSim, there are generally several aspects relevant to a firms cost: 1.Productive capacity 2.Experience curve 3.Technological capability

1.1 Productive Capacity as an advantage


Cost savings are achieved by doing things more efficiently or differently in volume In Stratsim, firms that have great productive capacity benefit from economies of scale. (presumes full capacity utilization) Rank: 1.D; 2: A; 3: C4: B; 5: E
Period 6:

1.2 Experience as an advantage


In Stratsim, products that have market share leadership positions in a product category have a lower cost position because of the experience effect. (Rank: 1. B&D; 3.A; 4. C; 5: E )

1.3 Technological capabilities as an advantage


In Stratsim, the advantage of a firms technology also contributes to a lower base cost.

Firm D Vs Firm A

Rank: 1.B&D; 3.C; 4. A; 5. E

Sources of Competitive Advantage (2)

Differentiation advantage
Product differentiation Distribution differentiation Advertising and Promotion differentiations

2.1 Product differentiation as an advantage


To demonstrate the unique aspects of your product and create a sense of value Product upgrade
period 6:

Innovation

Product differentiation (cont)

2.2 Distribution differentiation as an advantage


This comes from using different outlets, having a different network or a different coverage of the market.
Firm D

2.3 Advertising and Promotion differentiations


Enhance a products awareness and attractiveness Minivan Market Rank: 1. C; 2: B; 3.A; 4.D; Period 6: 5. E

Summary of firms competitive advantages in industry 5

Competitors Performance Objectives


Understanding the objectives of competitors can give guidance to strategy development on three levels.
What they are trying to achieve?

Assess competitors objectives

Why are they trying to achieve it?

Are they satisfied with their achievement?

Two types of performance objectives


More/same profit Temporary objectives (short term) More/same market share Temporary objectives (short term)

Final objectives (long term)

..
Cumulative net income Market value

Analysis object
Family class: Review the actions different firms have taken in this market and analyze their respective objectives during each round

Alfa, Boffo, Cafav Defy, Efizz

Family class-Period 1:
Name Sales MSRP (000s) 315 $24,084 Adv Pro (mill.) (mill.) $80 $40 size Eng. (hp) 165 Int styl safe qual

Alfa

28

Boffo

98

$35,003

$60

$40

49

200

Cafav

191

$31,361

$60

$40

49

165

Defy

417

$25,921

$80

$40

43

165

Efizz

418

$18,869

$80

$40

35

140

Period 2
Name Sales MSRP (000s) 317 $25,499

Adv (mill.) $90

Pro (mill.) $50

size

Eng. (hp) 165

Int

styl

safe

qual

Alfa*

28

Boffo

105

$35,003

$120

$80

49

200

Cafav * Defy

220

$29,999 $25,922

$70

$40

49

165

449

$80

$40

43

165

Efizz

423

$19,341

$80

$40

35

140

Period 3:
Name Sales MSRP (000s) 382 $25,789 $34,997 $29,999 Adv (mill.) $85 Pro (mill.) $45 size Eng. (hp) 165 Int styl safe qual

Alfa

28

Boffo

88

$65

$40

49

200

Cafav

264

$100 $70 $80

$40

49

165

Defy

465

$25,922

$50

43

165

Efizz

447

$19,631

$40

35

140

Period 4
Name Sales MSRP (000s) 311 $25,99 8 $33,49 7 $29,99 9 $26,00 0 $19,82 8 Adv (mill.) $70 Pro (mill.) $40 size Eng. (hp) 165 Int styl safe qual

Alfa

28

Boffo

98

$65

$40

49

200

Cafav

286

$100

$40

49

165

Defy*

482

$75

$55

43

165

Efizz

414

$80

$40

35

140

Period 5:
Name Sales MSRP (000s) 385 $26,998 Adv (mill.) $75 Pro (mill.) $60 size Eng. (hp) 165 Int styl safe qual

Alfa*

40

Boffo

109

$31,250

$65

$40

49

200

Cafav

210

$29,999

$100

$40

49

165

Defy

536

$26,260

$70

$60

43

165

Efizz

239

$20,224

$80

$40

35

140

Period 6:
Name Sales MSRP (000s) Adv (mill.) Pro (mill.) size Eng. (hp) Int styl safe qual

Alfa

528

$26,99 9 $31,25 0 $29,99 9 $26,26 0 $20,73 0

$75

$65

40

165

Boffo*

100

$65

$40

55

200

Cafav * Defy*

203

$115

$45

49

165

480

$70

$70

45

165

Efizz

190

$80

$40

35

140

Summary of firms competitive advantages in industry 5


Different firms often set different objectives at different round

Objectives reflects their conditions and their external circumstance

Key success factors


What is required for firms to execute their strategy successfully?

Framework (Ralf Boscheck):

Split each of the critical success factors in to three parts: 1. Assets needed to manage the factor 2. Capabilities (people) needed to execute the factor 3. Systems needed for managing the business process of that particular critical part Compare those individual factors to best competitor or to market ideal to find gaps to them Based on the gap analysis, define the precise areas where key strategic initiatives are needed.

If your strategy is a ..., what would you do in Stratsim to execute it successfully?

1. low price strategy 2. high price strategy 3. large distribution strategy

Low price strategy


Costs leadership Price war Invest in technology Minimize upgrades or use it to decrease attributes Economy of scale Little increase of price for each round

High price strategy


Invest in technology Invest in R & D Product development Product differenciation, uniqueness => Upgrade attributes High profit margin Enter new segment => monopole

Large distribution strategy


Increase production capacity Outspend competition in terms of advertisement and promotion Increase dealership, dealer discount Increase dealer training budget New vehicle class, customer segment First to market B2B

Strategic assumptions
What assumptions have been made?
Have they been confirmed?

Strategic assumptions: firm B

High price strategy Not do any upgrades (family segment) Introduce a new car (Hybrid, Delivery)

Strategic assumptions: firm C

High price strategy No upgrades Introduce new car (Sport, Hybrid, Delivery)

Strategic assumptions: firm D

Similar to our firm Large distribution strategy Attributes match Small price increase Introduce a new car (Utility, Hybrid, Delivery)

Strategic assumptions: firm D

Strategic assumptions: firm E


Low price strategy No upgrades Little price increase Risk averse => not introduce new car Managed by a computer

Strategic assumptions: firm E

Conclusion
[Agenda]

Reference:
BAYSINGER, B. & HOSKISSON, R. E. (1990) The Composition of Boards of Directors and Strategic Control: Effects on Corporate Strategy. The Academy of Management Review, 15, 72-87.

Electronic sources: Critical success factor analysis as a tool for strategy execution, viewed 21st September 2009, < http://enduragement.wordpress.com/2008/05/13/critical-successfactor-analysis-as-a-tool-for-strategy-execution/>
Hooley, G, and N.F. Piercy, B. Nicoulad: Marketing Strategy and Competitive Positioning. (2008) 4th KAY, J. A. (1995) Why firms succeed, Oxford, Oxford University Press. RAY, S. (No Year) Strategic Audit. Indian Institute of Management Calcutta.

Questions and comments?


End Thank you

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