Strategic Audit

MKTG 7027 Marketing Strategy Tutor: 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 firm’s

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 firm’s 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: C；4: 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 firm ’s 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 (con’t)

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 product’s 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)

. .

Cumulative net income Final objectives (long term)

Market value

Analysis object 

Family class:

Alfa, Boffo, Cafav Defy, Efizz

Review the actions different firms have taken in this market and analyze their respective objectives during each round



Family class-Period 1:

Name

Sales MSRP (000’s)

Adv Pro (mill.) (mill.)

size

Eng. (hp)

Int

styl

safe

qual

Alfa

315

$24,084

$80

$40

28

165

2

1

3

2

Boffo

98

$35,003

$60

$40

49

200

4

3

2

2

Cafav

191

$31,361

$60

$40

49

165

4

2

2

2

Defy

417

$25,921

$80

$40

43

165

2

1

3

2

Efizz

418

$18,869

$80

$40

35

140

1

1

2

1

Period 2 Name

Sales (000’s)

MSRP

Adv (mill.)

Pro (mill.)

size

Eng. (hp)

Int

styl

safe

qual

Alfa*

317 ↑

$25,499

$90 ↑

$50 ↑

28

165

2

2

4↑

3↑

$80 ↑

49

200

4

3

2

2

↑

Boffo

105 ↑

$35,003

$120

Cafav *

220 ↑

$29,999

$70 ↑

$40

49

165

4

2

3↑

2

Defy

449 ↑

$80

$40

43

165

2

1

3

2

$80

$40

35

140

1

1

2

1

↑

↓

$25,922 ↑

Efizz

423 ↑

$19,341 ↑

Period 3: Name

Sales MSRP (000’s)

Adv (mill.)

Pro (mill.)

size

Eng. (hp)

Int

styl

safe

qual

Alfa

382 ↑

$85↓

$45 ↓

28

165

2

2

4

3

$65 ↓

$40 ↓

49

200

4

3

2

2

$100

$40

49

165

4

2

3

2

$50 ↑

43

165

2

1

3

2

$40

35

140

1

1

2

1

$25,789 ↑

Boffo

88 ↓

$34,997 ↓

Cafav

264 ↑

$29,999

↑

Defy

465 ↑

$25,922

$70 ↓

Efizz

447 ↑

$19,631 ↑

$80

Period 4 Name

Sales MSRP (000’s)

Adv (mill.)

Pro (mill.)

size

Eng. (hp)

Int

styl

safe

qual

Alfa

311 ↓

$25,99 8↑

$70 ↓

$40 ↓

28

165

2

2

4

3

Boffo

98↑

$33,49 7↓

$65

$40

49

200

4

3

2

2

Cafav

286 ↑

$29,99 9

$100

$40

49

165

4

2

3

2

Defy*

482 ↑

$26,00 0↑

$75 ↑

$55 ↑

43

165

2

2↑

4↑

3↑

Efizz

414

$19,82 8↑

$80

$40

35

140

1

1

2

1

↓

Period 5: Name

Sales MSRP (000’s)

Adv (mill.)

Pro (mill.)

size

Eng. (hp)

Int

styl

safe

qual

Alfa*

385 ↑

$26,998 ↑

$75 ↑

$60 ↑

40 ↑

165

3↑

2

5↑

4↑

Boffo

109 ↑

$31,250 ↓

$65

$40

49

200

4

3

2

2

Cafav

210 ↓

$29,999

$100

$40

49

165

4

2

3

2

Defy

536 ↑

$26,260 ↑

$70 ↓

$60 ↑

43

165

2

2

4

3

Efizz

239 ↓

$20,224 ↑

$80

$40

35

140

1

1

2

1

Period 6: Name

Sales MSRP (000’s)

Adv (mill.)

Pro (mill.)

size

Eng. (hp)

Int

styl

safe

qual

Alfa

528 ↑

$26,99 9↑

$75

$65 ↑

40

165

3

2

5

4

Boffo*

100 ↓

$31,25 0

$65

$40

55 ↑

200

6↑

5↑

4↑

4↑

Cafav *

203 ↓

$29,99 9

$115↑

$45↑

49

165

5↑

2↑

4↑

3↑

Defy*

480 ↓

$26,26 0

$70

$70 ↑

45 ↑

165

2

2

5↑

4↑

Efizz

190 ↓

$20,73 0↑

$80

$40

35

140

1

1

2

1

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. 2. 3.

low price strategy high price strategy 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.