Pest ANALYSIS Introduction In analyzing the macro-environment, it is important to identify the factors that might in turn affect a number of vital variables that are likely to influence the organizations supply and demand levels and its costs (Kotter and Schlesinger, 1991; Johnson and Scholes, 1993). The "radical and ongoing changes occurring in society create an uncertain environment and have an impact on the function of the whole organization" (Tsiakkiros, 2002). A number of checklists have been developed as ways of cataloguing the vast number of possible issues that might affect an industry. A PEST analysis is one of them that is merely a framework that categorizes environmental influences as political, economic, social and technological forces. Sometimes two additional factors, environmental and legal, will be added to make a PESTEL analysis, but these themes can easily be subsumed in the others. The analysis examines the impact of each of these factors (and their interplay with each other) on the business. The results can then be used to take advantage of opportunities and to make contingency plans for threats when preparing business and strategic plans (Byars, 1991; Cooper, 2000). Kotler (1998) claims that PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The headings of PEST are a framework for reviewing a situation, and can in addition to SWOT and Porters Five Forces models, be applied by companies to review a strategic directions, including marketing proposition. The use of PEST analysis can be seen effective for business and strategic planning, marketing planning, business and product development and research reports. PEST also ensures that companys performance is aligned positively with the powerful forces of change that are affecting business environment (Porter, 1985). PEST is useful when a company decides to enter its business operations into new markets and new countries. The use of PEST, in this case, helps to break free of unconscious assumptions, and help to effectively adapt to the realities of the new environment. Main Aspects of PEST Analysis Economic conditions affect how easy or how difficult it is to be successful and profitable at any time because they affect both capital availability and cost, and demand (Thompson, 2002). If demand is buyout, for example, and the cost of capital is low, it will be attractive for firms to invest and grow with expectations of being profitable. In opposite circumstances firms might find that profitability throughout the industry is low. The timing and relative success of particular strategies can be influences by economic conditions. When the economy, as a whole or certain sectors of the economy, are growing, demand may exist for a product or service which would not be in demand in more depressed circumstances. Similarity, the opportunity to exploit a particular strategy successfully may depend on demand which exists in growth conditions and does not in recession. Although a depressed economy will generally be a treat which results in a number of organizations going out of business, it can provide opportunities for some (Robinson and et al., 1978; Thompson, 2002). Economic conditions are influenced by political and government policy, being a major influence affecting government decisions. The issue of whether European countries join, or remain outside, the single European currency is a case in point. At any one time either exported or imported goods can seem expensive or inexpensive, dependent upon currency exchange rates. There are many other ways, however, in which government decisions will affect organizations both directly and indirectly, as they provide both opportunities and threats. While economic conditions and government policy are closely related, they both influence a number of other environmental forces that can affect organizations. Capital markets determine the conditions for alternative types of funding for organizations. They tend to be a subject to government controls, and they will be guided by the prevailing economic conditions. The rate of interest charged for loans will be affected by inflation and by international economics and, although the determining rate may be fixed by a central bank, as it is the case with the Bank of England, that

will also be influenced by stated government priorities. According to Thompson (2002), government spending can increase the money supply and make capital markets more buoyant . The expectations of shareholders with regard to company performance, their willingness to provide more equity funding or their willingness to sell their shares will also be affected. The labour market reflects the availability of particular skills at national and regional levels; this is affected by training, which is influenced by government and other regional agencies. Labour costs will be influenced by inflation and by general trends in other industries, and by the role ad power of trade unions. The sociocultural environment encapsulates demand and tastes, which vary with fashion, disposable income, and general changes can again provide both opportunities and threats for particular companies (Thompson, 2002; Pearce and Robinson, 2005). Over-time most products change from being a novelty to a situation of market saturation, and as this happens pricing and promotion strategies have to change. Similarly, some products and services will sell around the world with little variation, but these are relatively unusual. Organizations should be aware of demographics changes as the structure of the population by ages, affluence, regions, numbers working and so on can have an important bearing on demand as a whole and on demand for particular products and services. Threats to existing products might be increasing: opportunities for differentiation and market segmentation might be emerging. Technology is widely recognised by various literature on strategic management (Capron and Glazer, 1987; Johnson and Scholes, 1993; Jan, 2002), as part of the organization and the industry part of the model as it is used for the creation of competitive advantage. However, technology external to the industry can also be captured and used, and this again can be influenced by government support and encouragement. Technological breakthroughs can create new industries which might prove a threat to existing organizations whose products or services might be rendered redundant, and those firms which might be affected in this way should be alert to the possibility. Equally, new technology could provide a useful input, in both manufacturing and service industries, but in turn its purchase will require funding and possibly employee training before it can be used. How to Write a Good PEST Analysis As it was discussed above, PEST analysis incorporates four perspectives, which give a logical structure, providing clear presentation for further discussions and proactive decision-makings. In writing a good PEST, subject should be a clear definition of the market being addressed, which might include the following issues of: a company looking at its market a product looking at its market a brand in relation to its market a local business unit a strategic option, such as entering a new market or launching a new product a potential acquisition a potential partnership an investment opportunity

It is crucial to describe the subject for the PEST analysis clearly so that people, contributing to the analysis, and those interpreting the results from PEST analysis, could understand the purpose of the PEST assessment and its implications (Jan, 2002). Before producing a good PEST analysis, it is of primary importance to, firstly, brainstorm the relevant factors that apply to the company or to its business environment. Second requirement is to identify the information that applies to these factors; and thirdly, to draw conclusions from this information. It is, however, necessary not only to describe factors, but to think through what they mean and how to they impact the business. PEST analysis is only a strategic starting point, and has its own limitations, emphasizing the need to test the conclusions and findings against the reality.

In conducting PEST analysis, it is required to consider each PEST factor as they all play a part in determining the overall business environment. Some examples of topics include the following: Political: (includes legal and regulatory): elections, employment law, consumer protection, environmental regulations, industry-specific regulations, competitive regulations, inter-country relationships/attitudes, war, terrorism, political trends, governmental leadership, taxes, and government structures. Economic: economic growth trends (various countries), taxation, government spending levels, disposable income, job growth/unemployment, exchange rates, tariffs, inflation, consumer confidence index, import/export ratios, and production levels. Social: demographics (age, gender, race, family size, etc.), lifestyle changes, population shifts, education, trends, fads, diversity, immigration/emigration, health, living standards, housing trends, fashion, attitudes to work, leisure activities, occupations, and earning capacity. Technological: inventions, new discoveries, research, energy uses/sources/fuels, communications, rates of obsolescence, health (pharmaceutical, equipment, etc.), manufacturing advances, information technology, internet, transportation, bio-tech, genetics, agri-tech, waste removal/recycling, and so on. After the key trends have been identified, the next step is to analyze the potential each trend has to disrupt the way the company does business. The company is able to determine the changes needed to exploit the opportunities, and blunt the threats (Pearce and Robinson, 2005). When carrying out a PEST analysis it is important to show how and how much the factors that the firm picks out influence the nature of competition. It is this appraisal of the impact of each factor that distinguishes an analysis from a mere list. A common error is to try and devise a single analysis to try and cover the entire history of a firm and an industry. Therefore, the company must keep the analysis of past developments separate from that of the present situation and future trends. When analyzing PEST factors in the present, it is required to make it plain why the present is different from the past, and how the industry may need to change. There is no need to agonise too long over whether a particular item is political, economic, social and technological in nature. Many important factors transcend the simple PEST categories. The advent of the microprocessor is a technological event that has had a broad economic and social impact. The "green" movement my have started as a social-cultural phenomenon, but it has been translated into legislation and has stimulated technological change (Byars, 1991). It is perfectly legitimate when using a checklist like PEST to leave some categories empty. If there are no important political/legal influences on a particular industry, those conducting PEST analysis do not need to waste time trying to find factors that do not exist. There should be a limit to relevant factors. Thompson (2002) states that for any organization certain environmental influences will constitute powerful forces which affect decision making significantly. For some manufacturing and service businesses the most powerful force will be customers; for other it may be competition. In some situations suppliers can be crucial. In the case of some small businesses external forces can dictate whether the business stays solvent or not. A major problem for these businesses concerns the management of cash flow, being able to pay bills when they are due for payment and being strong enough to persuade customers to pay their invoices on time. Finding Information for PEST Analysis To understand what kind of environment the company may compete in the near future, it requires understanding of the forces that will shape the change. For a PEST analysis, that means conducting a scan of the external events outside of the company, such as potential regulatory issues, demographic trends, political upheaval, and cutting-edge technology that could move mainstream. In conducting the analysis it may be essential to look at periodicals, analyst reports, demographics, and anything that will give the exposure to new trends and possibilities. Any reliable secondary data source of current events and projected future trends will provide information for the PEST analysis,

including: Newspapers, periodicals, current books Trade organizations Government agencies Industry analysts Financial analysts

One of the potential disadvantages collecting from the secondary sources is derived from issues of validity, reliability and relevance. The limitation could be present in the nature of market forces that reduce the applicability of the information sources to present situations. The problem could arise based on the past data past events being collected within past environmental conditions. Therefore, the data has to be checked and be applied to the current business conditions. Conclusion PEST analysis looks at the external business environment and is an appropriate strategic tool for understanding the "big picture" of the environment in which business operates, enabling to take the advantage of the opportunities and minimize the threats faced by companys business activities. When strategic planning is done correctly, it provides a solid plan for your company to grow into the future. With a PEST analysis, the company can see a longer horizon of time, and be able to clarify strategic opportunities and threats that the company faces. By looking to the outside environment to see the potential forces of change looming on the horizon, firms can take the strategic planning process out of the arena of today and into the horizon of tomorrow. PEST is not a set of rigid compartments into which ideas need to be sorted. It is better thought of as a set of hooks that can be used to fish for important facts. Once the factors have been "fished out", it does not matter which hook they were attached to. When it comes to writing up the analysis, there is no need to mention the PEST labels at all. If you found this article useful please have a look at the other articles we have written: Ansoff analysis, Porter's 5 Forces analysis, SWOT analysis, BCG Growth-Share Matrix, Porter's Generic Strategies, Scenario Planning, Value chain analysis, BALANCED SCORECARD, Competitor Analysis, Critical Success Factors, Industry Lifecycle, Marketing Mix, McKinsey 7S Framework and Product Life Cycle. ........................................................................................................... SWOT Introduction Environmental opportunities are only potential opportunities unless the organization can utilize resources to take advantage of them and until the strategic leader decides that it is appropriate to pursue the opportunity. It is therefore important to evaluate environment opportunities in relation to the strengths and weaknesses of the organization's resources, and in relation to the organization's resources, and in relation to the organizational culture. Real opportunities exist when there is a close fit between environment, values and resources. An evaluation of an organization's strengths and weaknesses in relation to environmental opportunities and threats is generally referred to as a SWOT analysis. The following report will look closely into the SWOT's concept, its main aspects, and criteria for successful and effective SWOT analysis. Main Aspects of SWOT Analysis SWOT has a long history as a tool of strategic and marketing analysis. No one knows who first invented SWOT analysis. It has features in strategy textbooks since at least 1972 and can now be found in textbooks on marketing and any other business disciplines. It advocates say that it can be

used to gauge the degree of "fit" between the organisation's strategies and its environment, and to suggest ways in which the organisation can profit from strengths and opportunities and shield itself against weaknesses and threats (Adams, 2005). However, SWOT has come under criticism recently. Because it is so simple, both students and managers have a tendency to use it without a great deal of thought, so that the results are often useless. Another problem is that SWOT, having been conceived in simpler times, does not cope very well with some of the subtler aspects of modern strategic theory, such as trade-offs (De Witt and Meyer, 1998). Strengths Determine an organisation's strong points. This should be from both internal and external customers. A strength is a "resource advantage relative to competitors and the needs of the markets a firm serves or expects to serve" (http://www.css.nccu.edu.tw/mepa/mepa_course/2005/kao/ 20060221_1.ppt#1). It is a distinctive competence when it gives the firm a comparative advantage in the marketplace. Strengths arise from the resources and competencies available to the firm. Weaknesses Determine an organisation's weaknesses, not only from its point of view, but also more importantly, from customers. Although it may be difficult for an organisation to acknowledge its weaknesses it is best to handle the bitter reality without procrastination. A weakness is a "limitation or deficiency in one or more resources or competencies relative to competitors that impedes a firm's effective performance" (http://gift.postech.ac.kr/admin/bbs/data/summer_session_2004/ Corporate %20Strategy_ver%5B7%5D_final(1).ppt). Opportunities Another major factor is to determine how organisations can continue to grow within the marketplace. After all, opportunities are everywhere, such as the changes in technology, government policy, social patterns, and so on. An opportunity is a major situation in a firm's environment. Key trends are one source of opportunities. Identification of a previously overlooked market segment, changes in competitive or regulatory circumstances, technological changes, and improved buyer or supplier relationships could represent opportunities fro the firm. Threats No one likes to think about threats, but we still have to face them, despite the fact that they are external factors that are out of our control, for example, the recent economic slump in Asia. It is vital to be prepared and face threats even during turbulent times. A threat is a major unfavourable situation in a firm's environment. Threats are key impediments to the firm's current or desired position. The entrance of new competitors, slow market growth, increased bargaining power of key buyers or suppliers, technological changes, and new or revised regulations could represent threats to a firm's success. Because SWOT is such as familiar and comforting tool, many students use it at the start of their analysis. This is a mistake. In order to arrive at a proper SWOT appraisal, other analyses need to be carrier out first. Since opportunities and threats mostly arise from the environment, SWOT analysis needs to take account of the results of a full environmental analysis. It is impossible to gauge what an organisation's real strengths are until you have assessed its strategic resources - in fact, strategic resources and strength are the same thing. There is a tendency for students to put down anything vaguely favourable that they can think of about a company as a strength. This temptation needs to be resisted - a strength is not a strength unless it makes a genuine difference to an organisation's competitiveness. The same is true of weaknesses. For example, look at Southwest Airlines and Amazon.com. Both companies have important groups of potential customers to whom they offer poor service. Southwest ignores business passengers, and will not accept transfers from other airlines. Amazon makes people wait days to receive books that

they can obtain instantly from their neighbourhood bookstores, and pay a delivery charge for the privilege. Surely, these are major threats. Southwest and Amazon have chosen not to give those customers priority. Serving them would divert resources from the firm's core markets, and dilute service to their main customers. Not serving them is certainly not a weakness; in a paradoxical way, it may be a strength. The wizardry of SWOT is the matching of specific internal and external factors, which creates a strategic matrix and which makes sense. It is essential to note that the internal factors are within the control of organisation, such as operations, finance, marketing, and other areas. On the contrary, the external factors are out of the organisation's control, such as political and economic factors, technology, competition, and other areas. The four combinations are called the maxi-maxi (strengths/opportunities), maxi-mini (strengths/threats), mini-maxi (weaknesses/opportunities), and mini-mini (weaknesses/threats). Weihrich (1982) describes the four combinations as follows: 1. Maxi-maxi (S/O). This combination shows the organisation's strengths and opportunities. In essence, an organisation should strive to maximise its strengths to capitalise on new opportunities. 2. Maxi-mini (S/T). This combination shows the organisation's strengths in consideration of threats, e.g. from competitors. In essence, an organisation should strive to use its strengths to parry or minimise threats. 3. Mini-maxi (W/O). This combination shows the organisation's weaknesses in tandem with opportunities. It is an exertion to conquer the organisation's weaknesses by making the most of any new opportunities. 4. Mini-mini (W/T). This combination shows the organisation's weaknesses by comparison with the current external threats. This is most definitely defensive strategy, to minimise an organisation's internal weaknesses and avoid external threats. How to Write a Good SWOT Analysis A successfully conducted SWOT involves identifying the following: The things an organisation does particularly well (strengths) or badly (weaknesses) at present. The factors that in the future may give the organisation potential to grow and increase its profits (opportunities) or may make its position weaker (threats). Opportunities and threats normally arise from changes in the environment, but sometimes have their origin inside the organisation - for example, if key machinery or people, functioning very effectively at present, are likely to break down or retire in a few years' time, that is a threat. It is important to bear in mind what a SWOT is for. It is intended to summarise a strategic situation, with a view to deciding what the organisation should do next. A SWOT analysis should contain sufficient information for any reader to be able to see why a particular issue counts as a strength, weakness, opportunity or threat, and what the implications are for the firm that you are analysing. For the same reason, there is no room for equivocation in a SWOT analysis - a factor can be a strength or a weakness, but not both. For example, a firm's IT system may provide good management reports but poor production control information. It is pointless to put this down as both a strength and a weakness that partially cancel each other out, since manager have only two choices: either they upgrade the system or they do not (Mintzberg, 1990). This means that you need to come to definite answer to the question: On balance, is the IT system a strength or a weakness? Perhaps the lack of good production information is important, in which case the system needs to be upgraded. Perhaps it is vital to maintain the flow of management information, in which case the system should not be touched (Thompson, 2002). SWOT analysis aims to differentiate factors from being bad or good for the company's performance. In a SWOT analysis, the strengths and weaknesses of resources must be considered in relative and not absolute terms. It is important to consider whether they are being managed effectively as well as efficiently. Resources, therefore, are not strong or weak purely because they exist or do not exist. Rather, their value depends on how

they are being managed, controlled and used. SWOT analyses should only pick out issues that have a substantial effect on a firm's competitive situation. You should avoid the temptation to put down under "Strengths" almost everything you can think of that is vaguely favourable to the firm, and to classify anything remotely unfavourable as a weakness. It is rare for any firm should be rare, difficult to copy and make a genuine difference to the organisations' profitability - a strategic resource. A weakness, similarly, is something that affects the organisation's cost or differentiation advantage. Old-fashioned equipment and authoritarian management styles, for instance, are only weaknesses if they lead to increased costs, poor quality or bad customer service (Thompson, 2002; Adams, 2005). Lists of strengths and weaknesses should not include factors that are common to every firm in an industry. For example, you could not count "well-known brand" as a strength for a firm in the jeans or cosmetic industries such as L'Oreal, since many brands are equally famous. Instead of writing that main opportunities of the company are overseas expansion and brand extension, it is crucial to replace it with a broader definition and explanation. The example of a more successful explanation could be: "Eastern European markets, with developing spending power and proven appetite for Western consumer brands, represent opportunity. 25% of existing sales in airport outlets are to customers travelling to these countries". Another example could involve: "Competing firms have extended brands to cosmetics, spectacles, jeans and stationery. Likely opportunity for this firm to follow suit" (Adams, 2005). Instead of saying that the threat of a firm is in exchange rate fluctuations, the statements of: "Appreciation of euro versus dollar likely to lead to reduce value of US profits (25% of total)" or "This is a specific threat that affects this firm because of its high proportion of US sales" could be appropriate (De Witt and Meyer, 1998). In order to write a good SWOT the following criteria must be taken into account: Make your points long enough, and include enough detail, to make it plain why a particular factor is important, and why it can be considered as a strength, weakness, opportunity or threat. Include precise evidence, and cite figures, where possible. Be a specific as you can about the precise nature of a firm's strength and weakness. Do not be content with general factors like economies of scale. Avoid vague, general opportunities and threats that could be put forward for just about any organisation under any circumstances. Do not mistake the outcomes of strength (such as profits and market share) for strengths in their won right; Improvements is not the same as strength - do not confuse the two; Avoid contradicting yourself in the course of the analysis, by having strengths and weaknesses that are essentially different aspects of the same strategy of resource. Come to a reasoned conclusion about whether the good points outweigh the bad ones, or vice versa. Where to Find Information for SWOT Analysis Students, when finding the essential information for conducting SWOT analysis, would have to look at company's business reports, annual reviews, published performance data on financial resources, marketing and operations, including current suppliers and key stakeholders groups. It can also be helpful to search various journals on marketing, strategy, human resources to find out more published and referenced information on the company's past experience, its current position and future objectives. SWOT Analysis Limitations A key element of strategic option formulation is the matching of organizational strengths and weaknesses with opportunities and threats which exist in the marketplace. SWOT analysis is widely recognized in the marketing and strategic management literature as a systematic way of achieving

this end. A number of critics however have claimed that the output from a SWOT analysis is often either trivial or so broad as to be relatively meaningless in the context of making actual marketing decisions. Mintzberg (1990), for example, states that the assessment of strengths and weaknesses may be unreliable, being bound up with aspirations, biases and hopes. Therefore, it is important for strengths and weaknesses to be defined in the context of a situation. As a consequence, a creative problem-solving tool such as brainstorming may thus be a useful help in overcoming this difficulty. SWOT analysis can be used in many ways to aid strategic analysis. The most common way is to use it as a logical framework guiding systematic discussion of a firm's resources and the basic alternatives that emerge from this resource-based view. What one manager sees as an opportunity, another may see as a potential threat. Likewise, a strength to one manager can be a weakness to another. Different assessments may reflect underlying power considerations within the firm or differing factual perspectives. Systematic analysis of these issues facilitates objectives internal analysis (Hill and Westbrook, 1997; Markides, 1999). Understanding the key opportunities and threats facing a firm helps its managers identify realistic options from which to choose an appropriate strategy and clarifies the most effective niche for the firm. One of the historical deficiencies of SWOT analysis was the tendency to rely on a very general, categorical assessment of internal capabilities. The resource-based view came to exist in part as a remedy to this void in the strategic management field. It is an excellent way to identify internal strengths and weaknesses and use that information to enhance the quality of a SWOT analysis. Similarly, value chain analysis identifies elements of a company's capabilities and operations that are useful in conducting a SWOT analysis. Conclusion SWOT helps a company to see itself for better and for worse. Companies are inherently insular and inward looking SWOTs are a means by which a company can better understand what it does very well and where its shortcomings are. SWOTs will help the company size up the competitive landscape and get some insight into the vagaries of the marketplace. SWOT analysis has been a framework of choice among many managers for along time because of its simplicity and its portrayal of the essence of sound strategy formulation - matching a firm's opportunities and threats wit its strengths and weaknesses. Central to making SWOT analysis effective is accurate internal analysis - the identification of specific strengths and weaknesses around which sound strategy can be built. ................................................................................... PORTERS FIVE FORCES: Introduction There is continuing interest in the study of the forces that impact on an organisation, particularly those that can be harnessed to provide competitive advantage. The ideas and models which emerged during the period from 1979 to the mid-1980s (Porter, 1998) were based on the idea that competitive advantage came from the ability to earn a return on investment that was better than the average for the industry sector (Thurlby, 1998). As Porter's 5 Forces analysis deals with factors outside an industry that influence the nature of competition within it, the forces inside the industry (microenvironment) that influence the way in which firms compete, and so the industrys likely profitability is conducted in Porters five forces model. A business has to understand the dynamics of its industries and markets in order to compete effectively in the marketplace. Porter (1980a) defined the forces which drive competition, contending that the competitive environment is created by the interaction of five different forces acting on a business. In addition to rivalry among existing firms and the threat of new entrants into the market, there are also the forces of supplier power, the power of the buyers, and the threat of substitute products or services. Porter suggested that the intensity of competition is determined by the relative strengths of these forces.

Main Aspects of Porters Five Forces Analysis The original competitive forces model, as proposed by Porter, identified five forces which would impact on an organizations behaviour in a competitive market. These include the following: The rivalry between existing sellers in the market. The power exerted by the customers in the market. The impact of the suppliers on the sellers. The potential threat of new sellers entering the market. The threat of substitute products becoming available in the market.

Understanding the nature of each of these forces gives organizations the necessary insights to enable them to formulate the appropriate strategies to be successful in their market (Thurlby, 1998). Force 1: The Degree of Rivalry The intensity of rivalry, which is the most obvious of the five forces in an industry, helps determine the extent to which the value created by an industry will be dissipated through head-to-head competition. The most valuable contribution of Porter's five forces framework in this issue may be its suggestion that rivalry, while important, is only one of several forces that determine industry attractiveness. This force is located at the centre of the diagram; Is most likely to be high in those industries where there is a threat of substitute products; and existing power of suppliers and buyers in the market. Force 2: The Threat of Entry Both potential and existing competitors influence average industry profitability. The threat of new entrants is usually based on the market entry barriers. They can take diverse forms and are used to prevent an influx of firms into an industry whenever profits, adjusted for the cost of capital, rise above zero. In contrast, entry barriers exist whenever it is difficult or not economically feasible for an outsider to replicate the incumbents position (Porter, 1980b; Sanderson, 1998) The most common forms of entry barriers, except intrinsic physical or legal obstacles, are as follows: Economies of scale: for example, benefits associated with bulk purchasing; Cost of entry: for example, investment into technology; Distribution channels: for example, ease of access for competitors; Cost advantages not related to the size of the company: for example, contacts and expertise; Government legislations: for example, introduction of new laws might weaken companys competitive position; Differentiation: for example, certain brand that cannot be copied (The Champagne) Force 3: The Threat of Substitutes The threat that substitute products pose to an industry's profitability depends on the relative priceto-performance ratios of the different types of products or services to which customers can turn to satisfy the same basic need. The threat of substitution is also affected by switching costs that is, the costs in areas such as retraining, retooling and redesigning that are incurred when a customer switches to a different type of product or service. It also involves: Product-for-product substitution (email for mail, fax); is based on the substitution of need; Generic substitution (Video suppliers compete with travel companies); Substitution that relates to something that people can do without (cigarettes, alcohol). Force 4: Buyer Power Buyer power is one of the two horizontal forces that influence the appropriation of the value created by an industry (refer to the diagram). The most important determinants of buyer power are the size and the concentration of customers. Other factors are the extent to which the buyers are informed and the concentration or differentiation of the competitors. Kippenberger (1998) states that it is

often useful to distinguish potential buyer power from the buyer's willingness or incentive to use that power, willingness that derives mainly from the risk of failure associated with a product's use. This force is relatively high where there a few, large players in the market, as it is the case with retailers an grocery stores; Present where there is a large number of undifferentiated, small suppliers, such as small farming businesses supplying large grocery companies; Low cost of switching between suppliers, such as from one fleet supplier of trucks to another. Force 5: Supplier Power Supplier power is a mirror image of the buyer power. As a result, the analysis of supplier power typically focuses first on the relative size and concentration of suppliers relative to industry participants and second on the degree of differentiation in the inputs supplied. The ability to charge customers different prices in line with differences in the value created for each of those buyers usually indicates that the market is characterized by high supplier power and at the same time by low buyer power (Porter, 1998). Bargaining power of suppliers exists in the following situations: Where the switching costs are high (switching from one Internet provider to another); High power of brands (McDonalds, British Airways, Tesco); Possibility of forward integration of suppliers (Brewers buying bars); Fragmentation of customers (not in clusters) with a limited bargaining power (Gas/Petrol stations in remote places).

The nature of competition in an industry is strongly affected by suggested five forces. The stronger the power of buyers and suppliers, and the stronger the threats of entry and substitution, the more intense competition is likely to be within the industry. However, these five factors are not the only ones that determine how firms in an industry will compete the structure of the industry itself may play an important role. Indeed, the whole five-forces framework is based on an economic theory know as the Structure-Conduct-Performance (SCP) model: the structure of an industry determines organizations competitive behaviour (conduct), which in turn determines their profitability (performance). In concentrated industries, according to this model, organizations would be expected to compete less fiercely, and make higher profits, than in fragmented ones. However, as Haberberg and Rieple (2001) state, the histories and cultures of the firms in the industry also play a very important role in shaping competitive behaviour, and the predictions of the SCP model need to be modified accordingly. How to write a Good Porter's 5 Forces analysis The Porters Five Forces model is a simple tool that supports strategic understanding where power lies in a business situation. It also helps to understand both the strength of a firms current competitive position, and the strength of a position a company is looking to move into. Despite the fact that the Five Force framework focuses on business concerns rather than public policy, it also emphasizes extended competition for value rather than just competition among existing rivals, and the simpleness of its application inspired numerous companies as well as business schools to adopt its use (Wheelen and Hunger, 1998). With a clear understanding of where power lies, it will enable a company to take fair advantage of its strengths, improve weaknesses, and avoid taking wrong steps. Therefore, to apply this planning tool effectively, it is important to understand the situation and to look at each of the forces individually. In conducting an analysis of Porters Five Forces, it is required to brainstorm all relevant factors for the companys market situation, and then check against the factors presented for each force in the diagram above. The next step is to highlight the key factors on a diagram, and summarize the size and the scale of the force on the diagram. It is suggested to use signs, as for instance, + and --"

signs for the forces moderately in companys favour, or for a force strongly against. After identifying favourable and unfavourable forces for the companys performance and industrys attractiveness, it is important to analyse the situation and examine the impacts of the forces. One of the critical comments made of the Five Forces framework is its static nature, whereas the competitive environment is changing turbulently. Are the five forces able to foresee industry expansion? Is it the corporate strategist's goal to find a position in the industry where his or her company can best defend itself against these forces or can influence them in its favour, or is the goal to become part of the ongoing commerce with the intention to produce innovative ideas that will expand the size of the industry? Is it true that the environment poses a threat to the organisation, leading to the consideration of suppliers and buyers as threats that need to be tackled, or does it offer the ground for a constitutive industry player co-operation? By thinking through how each force affects a company, and by identifying the strength and direction of each force, it provides with an opportunity to identify the strength of the position and the ability to make a sustained profit in the industry (Mind Tools, 2006). Limitations of Porters Five Force Model Porters model is a strategic tool used to identify whether new products, services or businesses have the potential to be profitable. However it can also be very illuminating when used to understand the balance of power in other situations. Porter argues that five forces determine the profitability of an industry. At the heart of industry are rivals and their competitive strategies linked to, for example, pricing or advertising; but, he contends, it is important to look beyond ones immediate competitors as there are other determines of profitability. Specifically, there might be competition from substitutes products or services. These alternatives may be perceived as substitutes by buyers even though they are part of a different industry. An example would be plastic bottles, cans and glass bottle for packaging soft drinks. There may also be potential threat of new entrants, although some competitors will see this as an opportunity to strengthen their position in the market by ensuring, as far as they can, customer loyalty. Finally, it is important to appreciate that companies purchase from suppliers and sell to buyers. If they are powerful they are in a position to bargain profits away through reduced margins, by forcing either cost increases or price decreases. This relates to the strategic option of vertical integration, when the company acquires, or mergers with, a supplier or customer and thereby gains greater control over the chain of activities which leads from basic materials through to final consumption (Luffman and et al., 1996; Wheelen and Hunger, 1998). It is important to be aware that this model has further limitations in today's market environment; as it assumes relatively static market structures. Based originally on the economic situation in the eighties with its strong competition and relatively stable market structures, it is not able to take into account new business models and the dynamism of the industries, such as technological innovations and dynamic market entrants from start-ups that will completely change business models within short times. For instance, the computer and software industry is often considered as being highly competitive. The industry structure is constantly being revolutionized by innovation that indicates Five Forces model being of limited value since it represents no more than snapshots of a moving picture. Therefore, it is not advisable to develop a strategy solely on the basis of Porters models (Kippenberger, 1998; Haberberg and Rieple, 2001), but to examine it in addition to other strategic frameworks of SWOT and PEST analysis. Nevertheless, that does not mean that Porters theories became invalid. What needs to be done is to adopt the model with the knowledge of their limitations and to use them as a part of a larger framework of management tools, techniques and theories. This approach, however, is advisable for the application of every business model (Recklies, 2001). Porter's Six Forces model and its relationship to the standard Five Forces model Porters Five Forces model actually has an extension referred to as Porters Six Forces model. It is

considerably less popular than the Five Forces model as its acceptance has been less positive than the Five Forces model. The Six Forces model though is very similar to the Five Forces model with the only difference being the addition of the sixth force in the framework. This sixth force in the model is termed as the relative power of other stakeholders, and can refer to a number of other groups or entities, depending on the factor which has the greatest influence including: Complementors One school of thought looks at the sixth force to be complementors, which are businesses offering complementary products to the sector in focus and being analysed (Grove 1996). The author states that these complementary businesses, as a sixth factor, affect the industry as changes in these businesses (such as new techniques, approaches or technologies) can impact on the dynamics between the industry and the complementors. The government The sixth force in the framework can also be considered to be the government, and is included in the framework if it has potential to impact on all the other five forces (Gordon, 1997). Thus, the government can have direct impact in the industry as the sixth force, but can also have indirect impact or influence by affecting the other five forces, whether favourably or unfavourably. The public Yet other viewpoints look at the public as the sixth force in the model, particularly if the public has a strong influence in the dynamics of the sector resulting in changes to the other forces or in the sector as a whole. Shareholders This group can also be considered potentially as the sixth force. This is more important in recent years where shareholder activity has increased significantly in the boardroom, and management of firms has been scrutinised much more and even given threats if certain actions favoured by the shareholders were not pursued. Employees Employees could also be considered as the sixth force if they wielded extraordinarily strong influence on the firm in a particular sector. The status of employees seems to follow similar rules in certain sectors, and thus could be considered a strong influence in these sectors. For example, in the automobile sector in the US, a large part of the work force are unionised, and thus could be considered the sixth force instead of the government or complementors. While a sixth force has been added to Porters original Five Forces model, the acceptance of this framework has been somewhat limited. This could be for two reasons. First, is that there is no definite and specific sixth force in all sectors, as it is different for each sector. Second, while a sixth force could be defined for all sectors, the influence of this factor can also be captured in the other five forces and thus the necessity of having it in the framework is less compelling. Where to find information for Porter's 5 Forces analysis In conducting the analysis it is crucial to examine the existing literature: Periodicals, business articles on the industry performance, etc; Analyst reports and trade organisations; Company annual reports and its publications on the main suppliers an distribution network; Anything that will give the exposure to the market situation, competitors present in the market, new emerging companies in the industry.

It is important to make sure that the sources are reliable and relevant to the current condition of the industry. It has to be viable, reliable and valid, in order to make conduct a good analysis of the model. For this purpose, the gathered data and information has to be checked and be applied to the current business conditions. Further limitations could be present in the nature of market forces that reduce the applicability of the information sources to present situations; and the amount of detailed information required. This can be prohibitive to its practical use. For example, the level of competitor information required is very detailed and may not always be available. Conclusion

Any company must seek to understand the nature of its competitive environment if it is to be successful in achieving its objectives and in establishing appropriate strategies. If a company fully understands the nature of the Porters five forces, and particularly appreciates which one is the most important, it will be in a stronger position to defend itself against any threats and to influence the forces with its strategy. The situation is fluid, and the nature and relative power of the forces will change. Consequently, the need to monitor and stay aware is continuous. Some issues during the implementation of these Five Forces are crucially important for organizations to build long-term business strategy and sustaining competitive advantages rather than simply list the forces. Successful use of the Porter Model Analysis includes identifying the sources of competition, the strength and likelihood of that competition existing, and strategic recommendations for the action a company should take to in order to develop barriers to competition. .................................................................................. ANSOFF Introduction The Ansoff matrix presents the product and market choices available to an organisation. Herein markets may be defined as customers, and products as items sold to customers (Lynch, 2003). The Ansoff matrix is also referred to as the market/product matrix in some texts. Some texts refer to the market options matrix, which involves examining the options available to the organisation from a broader perspective. The market options matrix is different from Ansoff matrix in the sense that it not only presents the options of launching new products and moving into new markets, but also involves exploration of possibilities of withdrawing from certain markets and moving into unrelated markets (Lynch, 2003). Ansoff matrix is a useful framework for looking at possible strategies to reduce the gap between where the company may be without a change in strategy and where the company aspires to be (Proctor, 1997). Main aspects of Ansoff Analysis The well known tool of Ansoff matrix was published first in the Harvard Business Review (Ansoff, 1957). It was consequently published in Ansoff's book on Corporate Strategy' in 1965 (Kippenberger, 1988). Organisations have to choose between the options that are available to them, and in the simplest form, organisations make the choice between for example, taking an option and not taking it. Choice is at the heart of the strategy formulation process for if there were no choices, there will be little need to think about strategy. According to Macmillan et al (2000), choice and strategic choice refer to the process of selecting one option for implementation. Organisations in their usual course exercise the option relating to which products or services they may offer in which markets (Macmillan et al, 2000). The Ansoff matrix provides the basis for an organisation's objective setting process and sets the foundation of directional policy for its future (Bennett, 1994). The Ansoff matrix is used as a model for setting objectives along with other models like Porter matrix, BCG, DPM matrix and Gap analysis etc. The Ansoff matrix is also used in marketing audits (Li et al, 1999). The Ansoff matrix entails four possible product/market combinations: Market penetration, product development, market development and diversification (Ansoff 1957, 1989). The four strategies entailed in the matrix are elaborated below. Ansoff Product-Market Growth Matrix

Market penetration Market penetration occurs when a company penetrates a market with its current products. It is

important to note that the market penetration strategy begins with the existing customers of the organisation. This strategy is used by companies in order to increase sales without drifting from the original product-market strategy (Ansoff, 1957). Companies often penetrate markets in one of three ways: by gaining competitors customers, improving the product quality or level of service, attracting non-users of the products or convincing current customers to use more of the company's product, with the use of marketing communications tools like advertising etc. (Ansoff, 1989, Lynch, 2003). This strategy is important for businesses because retaining existing customers is cheaper than attracting new ones, which is why companies like BMW and Toyota (Lynch, 2003), and banks like HSBC engage in relationship marketing activities to retain their high lifetime value customers. Product development Another strategic option for an organisation is to develop new products. Product development occurs when a company develops new products catering to the same market. Note that product development refers to significant new product developments and not minor changes in an existing product of the firm. The reasons that justify the use of this strategy include one or more of the following: to utilise of excess production capacity, counter competitive entry, maintain the company's reputation as a product innovator, exploit new technology, and to protect overall market share (Lynch, 2003). Often one such strategy moves the company into markets and towards customers that are currently not being catered for. Market development When a company follows the market development strategy, it moves beyond its immediate customer base towards attracting new customers for its existing products. This strategy often involves the sale of existing products in new international markets. This may entail exploration of new segments of a market, new uses for the company's products and services, or new geographical areas in order to entice new customers (Lynch, 2003). For example, Arm & Hammer was able to attract new customers when existing consumers identified new uses of their baking soda (Christensen et al, 2005). Diversification Diversification strategy is distinct in the sense that when a company diversifies, it essentially moves out of its current products and markets into new areas. It is important to note that diversification may be into related and unrelated areas. Related diversification may be in the form of backward, forward, and horizontal integration. Backward integration takes place when the company extends its activities towards its inputs such as suppliers of raw materials etc. in the same business. Forward integration differs from backward integration, in that the company extends its activities towards its outputs such as distribution etc. in the same business. Horizontal integration takes place when a company moves into businesses that are related to its existing activities (Lynch, 2003; Macmillan et al, 2000). It is important to note that even unrelated diversification often has some synergy with the original business of the company. The risk of one such manoeuvre is that detailed knowledge of the key success factors may be limited to the company (Lynch, 2003). While diversified businesses seem to grow faster in cases where diversification is unrelated, it is crucial to note that the track record of diversification remains poor as in many cases diversifications have been divested (Porter, 1987). Scholars have argued that related diversification is generally more profitable (Macmillan et al, 2000; Pearson, 1999). Therefore, diversification is a high-risk strategy as it involves taking a step into a territory where the parameters are unknown to the company. The risks of diversification can be minimised by moving into related markets (Ansoff, 1989). How to write a Good Ansoff Analysis It is important for analysts to acknowledge that different strategic options are suitable for companies operating in different types of industries and markets. No one strategic option for growth is appropriate for all types of companies at all times. The business environment, including competitive activity, also plays a key role in determining which strategic choice is most appropriate for a

company. It is not possible to write a good Ansoff analysis without looking at the various factors in the business environment, which impact the choice of a firm's strategic options. Market penetration, for example, may prove to be a wise strategy only when the overall market is growing. In a growing market, companies are often able to increase sales to existing and some new customers without increasing their relative market share. Note that companies with low market share in a growing market can make gains by attacking a competitor head on. For example, Burger King (relatively low market share) to an extent has been successful at attacking McDonald's sales (relatively high market share). However, it is more difficult to reap benefits of market penetration strategy in a declining market. Note that each strategic option brings with it some inherent risks, which can be reduced through careful planning and implementing control mechanisms. Overall, market penetration strategy is a low risk strategy as the business parameters of product and market more or less remain the same. It is important to discuss the benefits and appropriateness of the strategic option for an organisation while mentioning the risks inherent with each strategic option. While writing about the product development strategy, it is important to mention that it is often a part of the natural growth of organisations. Look for the reasons as to why the company selected the strategy and explain the reasons and implications. In many cases, innovation serves as the most important reason as it may present an opportunity to take market share from competitors or a threat to an existing product line. Product development strategy can in some cases be risky, as was the case of the New Coke. While customers liked the taste of the New Coke in the taste tests conducted by Coca Cola, customers of the brand favoured Classic Coke over the new product. Clearly remember the differences between market penetration and product development strategies, as it may be easy to confuse the two strategies if the analysis is not performed carefully. Note that the core competency of a firm becomes crucial in case of the market development strategy. For example, Glaxo has been able to develop new markets for its anti-ulcer drugs by developing and marketing a lower-strength version of the drug in many countries that can be sold without prescription as a stomach remedy. Market development strategy, like other strategic options, entails certain risks also. McDonald's entered a number of new markets in the wake of globalisation with its existing products. Due to the nature of the company's products, McDonald's had to make changes in the ingredients of its burgers in order to cater to the market. It is imperative for analysts who are trying to identify the growth strategies or are formulating proposals for such strategies for a particular firm, that firms in today's fiercely competitive business environment often pursue multiple strategies. In fact, most big businesses today pursue multiple strategies for growth at the same time in order to achieve their strategic objectives. For example, the two Internet incumbents of Amazon and E*Trade are both operating in a fast evolving, uncertain business environment and have pursued multiple and high-risk growth strategies, which include market development, product development and diversification strategies. Amazon focused more on the diversification strategy while E*Trade focused on market development. The differences in strategic choices in this case were due to the differences in the type of markets in which both companies operate. Notably Amazon operates in a wider retail setup while E*Trade operates in a narrower are of financial services retailing. Both companies chose product development as the second most preferred strategic option, which shows commitment to innovation in products and services. Another similarity that comes across in the analysis of the two incumbents is that the low risk strategy of market penetration was the least favourite option for both companies (Constantinides, 2004). Therefore, it is crucial to note that one firm may be pursuing multiple strategies and it is important to write about all the strategic options that the firm is pursuing. A common mistake made while conducting Ansoff analysis is that analysts are not able to acknowledge how different growth strategies are suitable for companies operating in different types of markets, and how changes in business environment make the same company choose a different strategic option at stage time in its organisational life cycle. Perry (1987) identified product

development and market development as appropriate growth strategies (Watts et al, 1998) for small and medium enterprises (SMEs). On the other hand, the IT bluehood of the corporate world, IBM, successfully follows the high-risk diversification strategy. Earlier, IBM followed a vertical integration strategy wherein it had entered new industries to strengthen the core business model. It also enjoyed backward vertical integration into the disk drive industry and forward vertical integration into the consulting services and computer software industries (Hill et al, 2007). IBM's vertical integration was once widely considered a vital source of competitive advantage. However, due to the fiercely competitive business environment, IBM has been acquiring a large number of firms in the last few years and had more than 400 strategic alliances as of 2003 (Thompson et al, 2003). The diversification strategy is deemed as a high risk strategy but IBM has been successful due to business foresight and effective control mechanisms. Therefore, organisations change their strategic options in accordance with changes in competitive scenario, and it is important to mention the transition in the write up of Ansoff analysis. Where to find information for Ansoff Analysis Analysts can explore various sources to find information necessary for conducting Ansoff analysis. Possible sources of information include company and competitor websites as they would highlight the portfolio of products and services and how the company may have diversified over time. Up to three years of annual reports of the company can be analysed to see how the company has changed its business focus, according to changes in the business environment. Marketing communications tools used by the company can reflect which growth strategy is being pursued by the company. For example, corporate advertisements along with adverts of products and services can show whether the company is targeting existing or new customers and/or existing or new markets. Press releases are also a useful source for evaluating the growth strategy that a firm is pursuing or should pursue. Journal articles, trade publications and magazines are useful sources of information to identify growth strategies. Limitations of Ansoff Analysis While Ansoff analysis helps in mapping the strategic options for companies, it is important to note that like all models, it has some limitations. By itself, the matrix can tell one part of the strategy story but it is imperative to look at other strategic models like SWOT analysis and PESTLE in order to view how the strategy of an organisation is formulating and might change in the course of its future. For example, the Ansoff analysis of Virgin Cola shows that the brand has been launched in the UK and USA using a market penetration strategy, which essentially reflects that the brand needs to increase its brand recognition (Vignali, 2001). The SWOT analysis conducted by Vignali (2001) showed an opportunity that Virgin Cola could explore diversification into new ranges of Virgin Cola products. PESTEL analysis of Virgin Cola showed that there was need to constantly evaluate the soft drinks industry in all countries, in order to reflect customer trends, thereby allowing the brand to gain market share and also predict trends faster than the competition. Therefore, the steps to be taken while conducting a strategic analysis of an organisation include SWOT analysis, PESTEL and Ansoff matrix as fundamental models of analyses, which should be used in conjunction and not in isolation, to view the complete strategic scenario. Also, recommendations made on the basis on only one of the models are not concrete and lack in depth. The above is also supported by the example of M&S where the company was not able to keep up with the trends and suffered from decline in sales due to competitors like Next, which were relatively more aware of customer trends and needs. Marks and Spencer came up with the Per Una range of clothing in order to compete effectively and gained market share. M&S would not have been able to identify which strategy to opt for growth, if a PESTEL analysis was not conducted. While the role of analysis in making strategic choices cannot be undermined, it is imperative to note that judgement plays a crucial role in making critical strategic choices that may change the future of the firm (Macmillan et al, 2000). Lastly, the use of Ansoff matrix as a marketing tool may not be really useful as the matrix is critical for analysing the strategic path that the brand may be

following, and does not essentially identify marketing options. Conclusion Ansoff matrix is one of the most well known frameworks for deciding upon growth strategies of an organisation. Strategic options relating to which products or services an organisation may offer in which markets are critical to the success of companies. The Ansoff matrix is a useful, though not an exhaustive, framework for an organisation's objective setting process and marketing audits. The differences in strategic choices of organisations can often be attributed to the type of market in which the company operates. Changes in business environment play a crucial role in the strategic options that an organisation may pursue over its life stages. There are risks associated with all of the four strategic options entailed in the Ansoff matrix. Market penetration is generally considered as a low risk strategy while diversification, on the other hand, is deemed as a high risk growth strategy as it involves moving simultaneously into new products and new markets. Diversification remains a popular strategic option for firms in today's competitive business arena, and if the diversification strategy is consistent and well though-out, like the case of IBM, significant improvements in profitability can be experienced. Sources of finding information for Ansoff analysis include company websites, marketing communications activities, company's annual reports, journal articles, trade publications and well reputed business magazines. Lastly, Ansoff matrix as a strategic model has certain limitations. The use of SWOT and PESTEL analysis is recommended, along with Ansoff analysis, to be able to capture a holistic view of the strategic scenario of an organisation. BCG: No strategic management or marketing text appears to be complete without the inclusion of the Boston Consulting Group (BCG) growth-share matrix. When used effectively, this model provides guidance for resource allocation. And despite its inherent weaknesses, is probably one of the most widely used management instrument as far as portfolio management is concern. For instant, each SBU (strategic business unit) of large companies such as General Electric, Siemens, and Centrica require different strategies to compete effectively and efficiently. It is not a question of one strategy fits all SBUs since the likelihood for each of them experiencing the same market growth rate, industry-threats and leverage is very slim. This is where the BCG model comes into play as a management analytical tool. The ensuing examines the underpinnings of the model, for what it is used, how to use it and why it is used. INTRODUCTION WHAT IS THE BCG GROWTH-SHARE MATRIX? To begin with, BCG is the acronym for Boston Consulting Groupa general management consulting firm highly respected in business strategy consulting. BCG Growth-Share Matrix (see figure 1) happens to be one of many of BCG's strategic concepts the organisation developed in the late 1970s, and is being taught at leading business schools and executive education programmes around the world. It is a management tool that serves four distinct purposes (McDonald 2003; Kotler 2003; Cipher 2006): it can be used to classify product portfolio in four business types based on four graphic labels including Stars, Cash Cows, Question Marks and Dogs; it can be used to determine what priorities should be given in the product portfolio of a company; to classify an organisations product portfolio according to their cash usage and generation; and offers management available strategies to tackle various product lines. Consider companies like Apple Computer, General Electric, Unilever, Siemens, Centrica and many more, engaging in diversified product lines. The BCG model therefore becomes an invaluable analytical tool to evaluate an organisations diversified product lines as later seen in the ensuing sections.

WHAT ARE THE MAIN ASPECTS OF THE BCG GROWTH-SHARE MATRIX? The BCG Growth-Share Matrix is based on two dimensional variables: relative market share and market growth. They often are pointers to healthiness of a business (Kotler 2003; McDonald 2003). In other words, products with greater market share or within a fast growing market are expected to wield relatively greater profit margins. The reverse is also true. Lets look at the following components of the model: Figure 1

Relative Market Share According to the proponents of the BCG (Herndemson 1972), It captures the relative market share of a business unit or product. But that is not all! It allows the analysed business unit be pitted against its competitors. As earlier emphasized above, this is due to the sometime correlation between relative market share and the products cash generation. This phenomenon is often likened to the experience curve paradigm that when an organisation enjoys lower costs, improved efficiency from conducting business operations overtime. The basic tenet of this postulation is that the more an organisation performs a task often; it tends to develop new ways in performing those tasks better which results in lower operating cost (Cipher 2006). What that suggests is that the experience curve effect requires that market share is increased to be able to drive down costs in the long run and at the same time a company with a dominant market share will inevitably have a cost advantage over competitor companies because they have the greater share of the market. Hence, market share is correlated with experience. A case in point is Apple Computers flagship product called the iPod, which occupies a dominant 73% share the portable music player market (Cantrell 2006). Analysts believe it is the impetus for Apple's financial rebirth 40% of Apple's sales is attributed to the iPod product line (Cantrell 2006). Similarly, Dells PC line shares the same market dominance theory as the iPod. The PC manufacture giant occupies a worldwide market share of 18.1%, which is commensurate to its large market revenue above its competitors (see figure 2). Figure 2

Market Growth Market growth axis, correlates with the product life cycle paradigm, and predicates the cash requirement a product needs relative to the growth of that market. A fast growing market is generally considered attractive, and pulls a lot of organisations resources in an effort to increase gains. A case in point is the technological market widely consider by experts as a fast growing market, and tends to attract a lot of competition. Therefore, a product life cycle and its associated market play a key role in decision-making. Cash Cows These products are said to have high profitability, and require low investment for the fact that they are market leaders in a low-growth market. This viewpoint is captured by the founders themselves thus: The cash cows fund their own growth. They pay the corporate dividend. They pay the corporate overhead. They pay the corporate interest charges. They supply the funds for R&D. They supply the investment resource for other products. They justify the debt capacity for the whole company. Protect them (Henderson 1976). According to experts (Drummond & Ensor 2004; Kotler 2003; McDonald 2003), surplus cash from cash cow products should be channelled into Stars and Questions in order to create the future Cash Cows.

Stars Stars are leaders in high growth markets. They tend to/should generate large amounts of cash but also use a lot of cash because of growth market conditions. For example, Apple Computer has a large share in the rapidly growing market for portable digital music players (Cantrell 2006). Question Marks Question Marks have not achieved a dominant market position, and hence do not generate much cash. They tend to use a lot of cash because of growth market conditions. Consider HewlettPackards small share of the digital camera market, behind industry leader Canons 21% (Canon 2006). However, this is a rapidly growing market. Dogs Dogs often have little future and are big cash drainers on the company as they generate very little cash by virtue of their low market share in a highly low growth market. Consider Pfizers Inspra (Gibson 2006): Pfizer launched this drug in Q4 2003 and continues to pump money into this problem child, despite anaemic sales of roughly $40 million in the $2.7 billion heart-failure market dominated by Toprol-XL (metoprolol). It was thought to gain market share and become a star, and eventually a cash cow when the market growth slowed. But, according to industrys experts, Inspra is likely to remain a dog, despite any amount of promotion, given its perceived safety issues and a cheaper, more effective spironolactone in the same Pfizer portfolio. Because Pfizer invested heavily in promotion early on with Inspra, the drug's earnings potential and positive cash flow is elusive at best. A portfolio analysis of Pfizer's cardiovascular franchise would suggest redeploying promotional spend on Inspra to up-and-coming stars like Caduet (amlodipine/atorvastatin) or torcetrapib to ensure those drugs reach their sales potential. HOW TO DEVELOP GOOD BCG GROWTH-SHARE MATRIX OF A COMPANY? SBUs or products are represented on the model by circles and fall into one of the four cells of the matrix already described above. Mathematically, the mid-point of the axis on the scale of Low-High is represented by 1.0 (Drummond & Ensor 2004; Kotler 2003). At this point, the SBUs or products market share equals that of its largest competitors market share (Drummond & Ensor 2004; Kotler 2003). Next, calculate the relative market share and market growth for each SBU and product. Figure 3 depicts the formulas to calculate the relative market share and market growth. Figure 3

Oftentimes, if you are versed with a particular industry and companies operating in it, you could draw up a BCG matrix for any company without necessarily computing figures for the relative market share and market growth. Figure 4 depicts a fairly accurate BCG growth-share matrix for Apple Computer developed in the spring of 2005 without the author calculating the relative market share and market growth. Figure 4

Once the products or SBUs have been plotted, the planner then has to decide on the objective, strategy and budget for the business lines. Basically, at this juncture the organisations should strive to maintain a balanced portfolio. Cash generated from Cash Cows should flow into Stars and Question Marks in an effort to create future Cash Cows. Moreover, there are 4 major strategies that can be pursued at this stage as described in the ensuing section. AVAILABLE STRATEGIES TO PURSUE Build

The product or SBUs market share needs to be increased to strengthen its position. Short-term earnings and profits are deliberately forfeited because it is hoped that the long-term gains will be higher than this. This strategy is suited to Question Marks if they are to become stars. Hold The objective is to maintain the current share position and this strategy is often used for Cash Cows so that they continue to generate large amounts of cash. Harvest Here management tries to increase short-term cash flows as far as possible (e.g. price increase, cutting costs) even at the expense of the products or SBUs longer-term future. It is a strategy suited to weak Cash Cows or Cash Cows that are in a market with a limited future. Harvesting is also used for Question Marks where there is no possibility of turning them into Stars, and for Dogs. Divest The objective of this strategy is to rid the organisation of the products or SBUs that are a drain on profits and to utilize these resources elsewhere in the business where they will be of greater benefit. This strategy is typically used for Question Marks that will not become Stars and for Dogs. WHERE TO FIND INFORMATION FOR THE BCG GROWTH-SHARE MATRIX? Information for the BCG Growth-Share matrix is generated from multiple sources including companys annual reports, sec fillings and a host of specialised research organisations such as IDC, Hoover, Edgar, Forrester and many more. Armed with this information, developing a BCG growthshare matrix should pose less of a problem. Limitations The BCG model is criticised for having a number of limitations (Kotler 2003; McDonald 2003): There are other reasons other than relative market share and market growth that could influence the allocation of resources to a product or SBU: reasons such as the need for strong brand name and product positioning could compel resource allocation to an SBU or product (Drummond & Ensor 2004). What is more, the model rests on net cash consumption or generation as the fundamental portfolio balancing criterion. That is appropriate only in a capital constrained environment. In modern economies, with relatively frictionless capital flows, this is not the appropriate metric to apply rather, risk-adjusted discounted cash flows should be used (ManyWorlds 2005). Also, the matrix assumes products/business units are independent of each other, and independent of assets outside of the business. In other words, there is no provision for synergy among products/business units. This is rarely realistic. The relationship between cash flow and market share may be weak due to a number of factors including (Cipher 2006): competitors may have access to lower cost materials unrelated to their relative share position; low market share producers may be on steeper experience curves due to superior production technology; and strategic factors other than relative market share may affect profit margins. In addition, the growth-share matrix is based on the assumption that high rates of growth use large cash resources and that maturity of the life cycle brings about the expected profit returns. This may be incorrect due to various reasons (Cipher 2006): capital intensity may be low and the business/product could be grown without major cash outlay; high entry barriers may exist so margins may be sustainable and big enough to produce a positive cash flow and a growth at the same time; and industry overcapacity and price competition may depress prices in maturity. Furthermore, market growth is not the only factor or necessarily the most important factor when assessing the attractiveness of a market. A fast growing market is not necessarily an attractive one. Growth markets attract new entrants and if capacity exceeds demand then the

market may become a low margin one and therefore unattractive. A high growth market may lack size and stability. Given the aforementioned weaknesses, the BCG Growth-Share matrix must be used with care; nonetheless, it is a best-known business portfolio evaluation model (Kotler 2003).

MCKINSEY 7S Introduction This paper discusses McKinsey's 7S Model that was created by the consulting company McKinsey and Company in the early 1980s. Since then it has been widely used by practitioners and academics alike in analysing hundreds of organisations. The paper explains each of the seven components of the model and the links between them. It also includes practical guidance and advice for the students to analyse organisations using this model. At the end, some sources for further information on the model and case studies available on this website are mentioned. The McKinsey 7S model was named after a consulting company, McKinsey and Company, which has conducted applied research in business and industry (Pascale & Athos, 1981; Peters & Waterman, 1982). All of the authors worked as consultants at McKinsey and Company; in the 1980s, they used the model to analyse over 70 large organisations. The McKinsey 7S Framework was created as a recognisable and easily remembered model in business. The seven variables, which the authors term "levers", all begin with the letter "S":

Figure 1: McKinsey's 7S Model These seven variables include structure, strategy, systems, skills, style, staff and shared values. Structure is defined as the skeleton of the organisation or the organisational chart. The authors describe strategy as the plan or course of action in allocating resources to achieve identified goals over time. The systems are the routine processes and procedures followed within the organisation. Staff are described in terms of personnel categories within the organisation (e.g. engineers), whereas the skills variable refers to the capabilities of the staff within the organisation as a whole. The way in which key managers behave in achieving organisational goals is considered to be the style variable; this variable is thought to encompass the cultural style of the organisation. The shared values variable, originally termed superordinate goals, refers to the significant meanings or guiding concepts that organisational members share (Peters and Waterman, 1982). The shape of the model (as shown in figure 1) was also designed to illustrate the interdependency of the variables. This is illustrated by the model also being termed as the "Managerial Molecule". While the authors thought that other variables existed within complex organisations, the variables represented in the model were considered to be of crucial importance to managers and practitioners (Peters and Waterman, 1982). The analysis of several organisations using the model revealed that American companies tend to focus on those variables which they feel they can change (e.g. structure, strategy and systems) while neglecting the other variables. These other variables (e.g. skills, style, staff and shared values) are considered to be "soft" variables. Japanese and a few excellent American companies are reportedly successful at linking their structure, strategy and systems with the soft variables. The authors have concluded that a company cannot merely change one or two variables to change the whole organisation. For long-term benefit, they feel that the variables should be changed to become more congruent as a system. The external environment is not mentioned in the McKinsey 7S Framework, although the authors do acknowledge that other variables exist and that they depict only the most crucial

variables in the model. While alluded to in their discussion of the model, the notion of performance or effectiveness is not made explicit in the model. Description of 7 Ss Strategy: Strategy is the plan of action an organisation prepares in response to, or anticipation of, changes in its external environment. Strategy is differentiated by tactics or operational actions by its nature of being premeditated, well thought through and often practically rehearsed. It deals with essentially three questions (as shown in figure 2): 1) where the organisation is at this moment in time, 2) where the organisation wants to be in a particular length of time and 3) how to get there. Thus, strategy is designed to transform the firm from the present position to the new position described by objectives, subject to constraints of the capabilities or the potential (Ansoff, 1965). Structure: Business needs to be organised in a specific form of shape that is generally referred to as organisational structure. Organisations are structured in a variety of ways, dependent on their objectives and culture. The structure of the company often dictates the way it operates and performs (Waterman et al., 1980). Traditionally, the businesses have been structured in a hierarchical way with several divisions and departments, each responsible for a specific task such as human resources management, production or marketing. Many layers of management controlled the operations, with each answerable to the upper layer of management. Although this is still the most widely used organisational structure, the recent trend is increasingly towards a flat structure where the work is done in teams of specialists rather than fixed departments. The idea is to make the organisation more flexible and devolve the power by empowering the employees and eliminate the middle management layers (Boyle, 2007). Systems: Every organisation has some systems or internal processes to support and implement the strategy and run day-to-day affairs. For example, a company may follow a particular process for recruitment. These processes are normally strictly followed and are designed to achieve maximum effectiveness. Traditionally the organisations have been following a bureaucratic-style process model where most decisions are taken at the higher management level and there are various and sometimes unnecessary requirements for a specific decision (e.g. procurement of daily use goods) to be taken. Increasingly, the organisations are simplifying and modernising their process by innovation and use of new technology to make the decision-making process quicker. Special emphasis is on the customers with the intention to make the processes that involve customers as user friendly as possible (Lynch, 2005). Style/Culture: All organisations have their own distinct culture and management style. It includes the dominant values, beliefs and norms which develop over time and become relatively enduring features of the organisational life. It also entails the way managers interact with the employees and the way they spend their time. The businesses have traditionally been influenced by the military style of management and culture where strict adherence to the upper management and procedures was expected from the lower-rank employees. However, there have been extensive efforts in the past couple of decades to change to culture to a more open, innovative and friendly environment with fewer hierarchies and smaller chain of command. Culture remains an important consideration in the implementation of any strategy in the organisation (Martins and Terblanche, 2003). Staff: Organisations are made up of humans and it's the people who make the real difference to the success of the organisation in the increasingly knowledge-based society. The importance of human resources has thus got the central position in the strategy of the organisation, away from the traditional model of capital and land. All leading organisations such as IBM, Microsoft, Cisco, etc put extraordinary emphasis on hiring the best staff, providing them with rigorous training and mentoring support, and pushing their staff to limits in achieving professional excellence, and this forms the basis of these organisations' strategy and competitive advantage over their competitors. It is also important for the organisation to instil confidence among the employees about their future in the organisation and future career growth as an incentive for hard work (Purcell and Boxal, 2003).

Shared Values/Superordinate Goals: All members of the organisation share some common fundamental ideas or guiding concepts around which the business is built. This may be to make money or to achieve excellence in a particular field. These values and common goals keep the employees working towards a common destination as a coherent team and are important to keep the team spirit alive. The organisations with weak values and common goals often find their employees following their own personal goals that may be different or even in conflict with those of the organisation or their fellow colleagues (Martins and Terblanche, 2003). Using the 7S Model to Analyse an Organisation A detailed case study or comprehensive material on the organisation under study is required to analyse it using the 7S model. This is because the model covers almost all aspects of the business and all major parts of the organisation. It is therefore highly important to gather as much information about the organisation as possible from all available sources such as organisational reports, news and press rel