Assignment 06: Life Cycles in Healthcare

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Strategic Analysis for Healthcare

Chapter 15

Health Administration Press

Life Cycle Analysis

Life cycle analysis assesses products, organizations, or industries by analyzing the current stage in their life cycle.

Although numerous life cycle models exist, researchers have generally identified five main phases in a life cycle:

Birth

Growth

Maturity

Revival

Decline

Health Administration Press

Life Cycle Analysis

Health Administration Press

Life Cycle Analysis: Birth

Organizations in the birth stage are attempting to establish for the first time a viable product-market strategy.

This is achieved mainly by trial and error as efforts are made to change products and services in a manner that generates distinctive competences.

This generally involves major and frequent product or service innovations and the conscious pursuit of a niche strategy.

Because companies in the birth phase are small and have no established reputation, they do not directly confront their more powerful competitors.

Instead, they find gaps, or niches, in the market that are not being filled, and they fill and defend these niches by making innovations.

Health Administration Press

Life Cycle Analysis: Birth

Phase	Situation	Organization	Innovation & Strategy

Birth Phase:	Small firm	Informal structure	Considerable innovation in product lines
	Young	Undifferentiated	Niche Strategy
	Dominated by owner/ manager	Power highly centralized	Substantial risk taking
	Homogenous/ placid environment	Crude information processing & decision making methods

Health Administration Press

Life Cycle Analysis: Growth

The emphasis of the growth phase is growth and early diversification:

Product lines are broadened.

Efforts are also devoted to incrementally tailoring products to new markets.

Less stress is placed on major or dramatic product innovations.

“Market segmentation begins to play a role, with managers trying to identify specific subgroups of customers and to make small product or service modifications in order to better serve them.”

“In other words, the niche strategy is often abandoned as broader markets are addressed.”

(Miller and Friesen 1948)

Health Administration Press

Life Cycle Analysis: Growth

Organizations in the growth phase are bigger and stronger than those in the birth phase, and they are better able to lobby with various levels of government.

They may also acquire subsidiaries in their efforts to diversify.

An acquisition of this nature “generally takes the form of buying out much smaller competing enterprises in the same industry rather than diversifying into new industries.”

“The acquired firms are usually integrated into the functionally-based structure rather than left as independent divisions” (Miller and Friesen 1984).

Health Administration Press

Life Cycle Analysis: Growth

Phase	Situation	Organization	Innovation & Strategy

Growth Phase:	Medium sized	Some formalization of structure	Broadening of product-market scope into closely related areas
	Older	Functional basis of organization	Incremental innovation in product lines
	Multiple share holders	Moderate differentiation	Rapid growth
	A more heterogeneous & competitive environment	Somewhat less centralized

Health Administration Press

Life Cycle Analysis: Maturity

Firms in the maturity phase are conservative, “do not perform many major innovations, engage in very few efforts at diversification or acquisition, and fail even to make many incremental changes to the products or services being offered.”

“The tendency, more than in any other phase, is to follow the competition; to wait for competitors to lead the way in innovating and, then, to imitate the innovations if they prove to be necessary” (Miller and Friesen 1984).

Markets in the maturity phase are slightly broader than in the growth phase, and fewer firms opt for a niche strategy.

Firms try to arrange for a stable, negotiated environment by fixing prices and lobbying with the government.

Health Administration Press

Life Cycle Analysis: Maturity

The goal appears to be to improve the efficiency and profitability of operations.

This is achieved by

avoiding costly changes in product lines,

ensuring favorable prices via collusion, and

lobbying for barriers to foreign competition.

“A stable and circumscribed product line is sold in traditional markets, the emphasis being upon economical production and the preservation of sales volume” (Miller and Friesen 1984).

Health Administration Press

Life Cycle Analysis: Maturity

Phase	Situation	Organization	Innovation & Strategy

Maturity Phase:	Larger	Formal, bureaucratic structure	Consolidation of product- market strategy
	Even older	Functional basis of organization	Focus on efficiently supplying a well defined market
	Dispersed ownership	Moderate differentiation	Conservatism
	Heterogeneous & competitive environment	Moderate centralization	Slow growth

Health Administration Press

Life Cycle Analysis: Revival

The revival phase is in many ways the most exciting of the five.

Changes begin to take place in the product-market strategies being followed.

“For example, there are more major and minor product-line and service innovations than in any other period.”

“New markets are entered for the first time as firms become more diversified” (Miller and Friesen 1984).

This diversification sometimes involves the acquisition of firms in different industries.

Health Administration Press

Life Cycle Analysis: Revival

Market segmentation further defines discrete parts of the environment, and firms differentiate product lines accordingly.

“Essentially, firms experience dramatic diversification in their products and markets. Their growth does not simply result in an increase in size but an expansion of product-market scope. There is a movement from one market to many, reversing the stagnation of the maturity phase” (Miller and Friesen 1984).

Because of their size, market power, visibility, and occasional acquisitions, some firms in the revival phase lobby with the government to avoid interference with expansion, to obtain protection against imports, and to avoid antitrust lawsuits.

Health Administration Press

Life Cycle Analysis: Revival

Phase	Situation	Organization	Innovation & Strategy

Revival Phase:	Very large	Divisional basis of organization	Strategy of product- market diversification; movement into some unrelated markets
	Very heterogeneous, competitive, dynamic	High differentiation	High level of risk taking & planning
		Sophisticated control, scanning, and communications in info. processing; more formal analysis in decision making	Substantial innovation
			Rapid growth

Health Administration Press

Life Cycle Analysis: Decline

Firms in the decline stage react to adversity in their markets by becoming stagnant.

“They try to conserve resources depleted by poor performance by abstaining from product or service innovation. Product lines are rendered antiquated so that it becomes necessary to cut prices to maintain sales” (Miller and Friesen 1984).

Health Administration Press

Life Cycle Analysis: Decline

Firms seem to be caught in a vicious circle:

“Their sales are poor because their product lines are unappealing.

This reduces profits and makes for scarcer financial resources,

which in turn cause any significant product line changes to seem too expensive” (Miller and Friesen 1984).

As a result, changes are avoided, and product lines become even more outdated.

Health Administration Press

Life Cycle Analysis: Decline

Phase	Situation	Organization	Innovation & Strategy
Decline Phase:	Market size	Formal, bureaucratic structure	Low level of innovation
	Homogeneous and competitive environment	Mostly functional basis of organization	Price cutting
		Moderate differentiation and centralization	Consolidation of product- market
		Less sophisticated info processing systems and decision making methods	Liquidation of subsidiaries
			Risk aversion & conservatism Slow growth

Health Administration Press

Life Cycle Analysis: Decline

Reasons for Decline

Too much debt 28%

Inadequate leadership 17%

Poor planning 14%

Failure to change 11%

Inexperienced management 9%

Not enough revenue 8%

(Business Week 2003)

What do these reasons have in common?

Health Administration Press

Life Cycle / Competition Matrix

Dodge, Fullerton, and Robbins (1994) suggest a different way to consider the organizational life cycle.

First, they group organizations into either early stages of development or late stages of development.

They then consider the level of competition the organizations are experiencing.

The resulting four-block matrix displays common critical problems faced by companies in each block.

Strategies can be developed to address the critical problems.

Health Administration Press

Life Cycle / Competition Matrix

Health Administration Press

Life Cycle / Competition Matrix

Health Administration Press

Life Cycle / Competition Matrix

Note that the life cycle chart reflects Toyota, the parent company, and its divisions.

Even though Toyota overall is in maturity, some of its other divisions are still in the growth stage.

Overlaying the life cycle / competition matrix to the life cycle chart reveals that overall Toyota is in “late stage” life cycle with “intense competition.” This suggests “critical problems” of

(a) maintaining market position,

(b) furthering its image via focus & differentiation strategies, and

Health Administration Press

Exercise

Divide up into groups and create a life cycle chart for your project organization. Include the parent company and any divisions (if there are any).

What are the implications for strategy?

Health Administration Press

Birth Growth Maturity Revival Decline

Size of organization

Time

EARLY STAGELATE STAGE

1. Lack of dependencies and2. Environment neither

LITTLE OR NOconstraints in pursuing goalsthreatening or constraining

COMPETITION

Critical Problems:Critical Problems:

a) Resourcesa) Stabilizing firms position

b) marketing approachb) Formalization & control

c) Formalization of structurec) Stability

d) marketing approach

3. Turbulent environment- may4. Muddling behavior, simply

INTENSEconstrain or dictate actionsreacting

COMPETITION

Critical Problems:Critical Problems:

a) Identify nichesa) Maintain market position

b) Monitor competitionb) Further image via focus &

c) Realignment of the firm differentiation strategies

vis-a-vis the competitionc) Cost control

Source: Dodge, Fullerton & Robbins, Strategic Management Journal, Vol. 15, 121-134 (1994)

5 Forces

FIVE FORCES	ISSUE	IMPACT ON COMPANY	IMPLICATION FOR STRATEGY
Threat of Entry	1.
	2.
	3.
	4.
	5.
Threat of Substitutes	1.
	2.
	3.
	4.
	5.
Power of buyers	1.
	2.
	3.
	4.
	5.
Power of Suppliers	1.
	2.
	3.
	4.
	5.
Intensity of Rivalry	1.
	2.
	3.
	4.
	5.
FORCE	ISSUE	IMPACT ON COMPANY	IMPLICATION FOR STRATEGY
Threat of Entry	1. Government regulation requires licensing and agency approval prior to manufacturing or sale of product.	Company needs a three year lead time in order to obtain approval	Must include strategies to address legal and political issues; keeping competitors at bay during approval lag time, technological obsolescence and leapfrogging during approval period
	2. Raw material currently must be sourced from Asia which limits the ability of companies to enter due to higher logistics and transportation costs	Cost, timing, transportation, quality control, political opposition to Asian product may hinder approval process	Must include strategies to address cost, timing, transportation, quality control, political opposition, and sourcing in the US
	3. Existing competitors have high profit margins and a willingness and capability to engage in a prolonged price war designed to drive a new entrant in the market out.	A price war would reduce the projected profit margins and make the market undesirable to enter	Strategy must address a method to develop a low cost manufacturing and distribution system and provide funding to survive a price war
	4. Ability of dominant players to buy smaller players, thus consolidating costs and expanding market share.	Industry consolidation could create one or two "10,000 lb gorillas" that could dominate the industry and our ability to obtain contracts	Strategy must address proactive defense to industry consolidation or develop a method to compete in a consolidated industry
	5. Exclusive supplier contracts are in place with major buyers which currently lock out new suppliers	Company may not be immediately able to enter into contracts to supply until existing exclusive contracts by competitors expire	Must include strategies to challenge the propriety of the exclusive supplier agreements, find a way around such contracts, or enable company to jump in when such contracts expire
Threat of Substitutes	1.
	2.
	3.
	4.
	5.
Power of buyers	1.
	2.
	3.
	4.
	5.
Power of Suppliers	1.
	2.
	3.
	4.
	5.
Intensity of Rivalry	1.
	2.
	3.
	4.
	5.

PEST

P.E.S.T.	ISSUE	IMPACT ON COMPANY	IMPLICATION FOR STRATEGY
Political	1.
	2.
	3.
	4.
	5.
Economic	1.
	2.
	3.
	4.
	5.
Social	1.
	2.
	3.
	4.
	5.
Technological	1.
	2.
	3.
	4.
	5.
P.E.S.T.	ISSUE	IMPACT ON COMPANY	IMPLICATION FOR STRATEGY
Social	1.
	2.
	3.
	4.
	5.

Competative

Some Possible Broad Categories and Sub-Catagories

Analysis example using a "YES" / "NO" method

Identify the key broad catagories for your industry

Your Company

Competator

Industry

Product related

Financial

Distribution System:

Our Co.

Alpha Co.

Beta Co

Omega Co.

Industry

SWOT

								Your company	Competitor 1	Competitor 2	Competitor 3		EFE Analysis					EFE Analysis					IFE Analysis					IFE Analysis
Internal:	Strengths	Weaknesses	Internal:	Strengths	Weaknesses	IMPLICATIONS FOR STRATEGY	Strengths					Opportunities		Weight	Rating	Score	Opportunities		Weight	Rating	Score	Strengths		Weight	Rating	Score	Strengths		Weight	Rating	Score
				1	1	1		1	1	1	1	1	Products expansion	0.100	4	0.400	1					1	Marketing Philosophy	0.100	4	0.400	1
External:	Opportunities	Threats		2	2	2		2	2	2	2	2	Stock growth	0.025	2	0.050	2					2	Social Responsibility	0.100	3	0.300	2
				3	3	3		3	3	3	3	3	More exposure	0.100	2	0.200	3					3	Creative Products	0.100	4	0.400	3
				4	4	4		4	4	4	4	4	Move towards globalization	0.025	1	0.025	4					4	Diverse Product Line	0.025	4	0.100	4
				5	5	5		5	5	5	5	5	More stadium contracts	0.025	2	0.050	5					5	Mass Customization	0.050	3	0.150	5
				6	6	6		6	6	6	6	6	Expand target market	0.100	2	0.200	6					6	Product Specialization	0.030	4	0.120	6
				7	7	7		7	7	7	7	7	License agreements	0.050	3	0.150	7					7	Ethics Program	0.005	3	0.015	7
				8	8	8		8	8	8	8	8	Company growth	0.025	2	0.050	8					8	Quality Products	0.090	3	0.270	8
				9	9	9		9	9	9	9	9					9					9				0.000	9
				10	10	10		10	10	10	10	10					10					10				0.000	10
			External:	Opportunities	Threats		Weaknesses																Rating Scale: 4= major strength; 3= minor strength					Rating Scale: 4= major strenght; 3= minor strenght
				1	1			1	1	1	1	Threats					Threats					Weaknesses					Weaknesses
				2	2			2	2	2	2	1	Multiple competitors	0.100	2	0.200	1					1	Inexperienced mgmt team	0.050	1	0.050	1
				3	3			3	3	3	3	2	Dependency on sugar cane	0.075	3	0.225	2					2	Expensive Retail price structure	0.025	2	0.050	2
				4	4			4	4	4	4	3	Suppliers have the power	0.025	2	0.050	3					3	Weak marketing processes	0.075	1	0.075	3
				5	5			5	5	5	5	4	Recent lawsuit	0.025	2	0.050	4					4	Limited Distribution	0.075	1	0.075	4
				6	6			6	6	6	6	5	License agreements	0.075	3	0.225	5					5	Limited Financial Capability	0.025	2	0.050	5
				7	7			7	7	7	7	6	Seasonality of sales	0.050	1	0.050	6					6	Small company	0.025	2	0.050	6
				8	8			8	8	8	8	7	Dependence on suppliers	0.050	3	0.150	7					7	Informalities of Company	0.050	1	0.050	7
				9	9			9	9	9	9	8	Dependence on contract packers	0.100	3	0.300	8					8	Little Brand Recognition	0.100	1	0.100	8
				10	10			10	10	10	10	9	Dependence on distributors	0.050	3	0.150	9					9	Collection Practices for receivables	0.075	1	0.075	9
							Opportunities					10					10					10				0.000	10
								1	1	1	1		Total Weight:	1.000	Total Score:	2.525		Total Weight:		Total Score:			Rating Scale: 1= major weakness 2= minor weakness					Rating Scale: 1= major weakness 2= minor weakness
				STRENGHTS	WEAKNESSES			2	2	2	2	Rating Scale:					Rating Scale:						Total Weight:	1.000	Total Score:	2.330		Total Weight:		Total Score:
				OPPORTUNITIES	THREATS			3	3	3	3	4 = Current Response is Superior					4 = Current Response is Superior
								4	4	4	4	3 = Current Response is Above Average					3 = Current Response is Above Average
								5	5	5	5	2 = Current Response is Average					2 = Current Response is Average
								6	6	6	6	1 = Current Response is Poor					1 = Current Response is Poor
								7	7	7	7
								8	8	8	8
								9	9	9	9
								10	10	10	10
							Threats
								1	1	1	1
								2	2	2	2
								3	3	3	3
								4	4	4	4
								5	5	5	5
								6	6	6	6
								7	7	7	7
								8	8	8	8
								9	9	9	9
								10	10	10	10

IE Matrix

			Weighted IFE Score					Weighted IFE Score
		Strong 3.0- 4.0	Average 2.0 to 2.99	Weak 1.0 to 1.99			Strong 3.0- 4.0	Average 2.0 to 2.99	Weak 1.0 to 1.99
Weighted EFE Score	High 3.0- 4.0	A	A	B	Weighted EFE Score	High 3.0- 4.0	A	A	B
	Medium 2.0 to 2.99	A	B	C		Medium 2.0 to 2.99	A	B	C
	Low 1.0 to 1.99	B	C	C		Low 1.0 to 1.99	B	C	C
	Implied Strategies-
	A	Grow and Build	Integration strategies, intensive strategies
	B	Hold and Maintain	Market penetration, product development, joint venture
	C	Harvest or divest	Retrenchment, divesturature , liquidation
	Integration Strategies
	Forward integration- Ownership or increased control over distributors or retailers.
	Backward integration- Ownership or increased control over suppliers.
	Horizontal integration- Ownership or increased control over competitors.
	Intensive Strategies
	Market Development- New or present products into new areas.
	Product Development- Improving or Modification of product for increased sales.
	Market Penetration- Increased share for present products by increased effort.
	Defensive Strategies
	Joint Venture- When two or more firms join & create a third co-owned firm
	Retrenchment- Organization regroups using cost and asset reduction techniques
	Divestiture- Selling a product line, division, or business unit
	Liquidation- Selling all of the company assets.
		Diversification Strategies
		Concentric Diversification Adding new but related products.
		Horizontal Diversification Adding new Unrelated products for present customers. Firm knows customers.
		Conglomerate Diversification Adding new unrelated products. Firm not familiar with customer base.
	Summary
	Mergers/Buyouts.
	Mergers Buy similar sized companies.
	Leveraged Buyouts Shareholders are bought out.
	Generic Strategies
	Cost Leadership strategies Striving to be the low cost provider. ~WalMart
	Differentiation Strategies To stand out,~service,performance,useful life,ease of use.
	Focus Strategies Concentration after certain customer or area attributes.

Financial

RATIO

CALCULATION

WHAT IT TELLS US

RATIO

Year 1

Year 2

% + / -

Year 3

% + / -

Year 4

% + / -

Year 5

% + / -

RATIO

Company

Industry

% + / -

Competitor 1

% + / -

Competitor 2

% + / -

Competator3

% + / -

Liquidity Ratios

Current Ratio

Current assets

If a Firm's short-term assets are readily available to pay off its short-term liabilities

Current Ratio

Current liabilities

Quick or Acid-Test Ratio

Leverage Ratios

Quick or Acid-Test Ratio

Current assets – inventory

The amount of the most liquid current assets available to cover current liabilities

Debt-to-Total-Asset Ratio

Current liabilities

Debt-to-Equity Ratio

Leverage Ratios

Long-Term Debt-to-Equity

Debt-to-Total-Asset Ratio

Total liabilities

The amount of leverage being used by a company.

Times-Interest-Earned Ratio

Total assets

Activity Ratios

Inventory-Turnover Ratio

Debt-to-Equity Ratio

Total liabilities

Measures how much debt a firm has compared to shareholders equity

Total-Asset Turnover

Shareholders Equity

Fixed-Asset Turnover

Average Collection Period

Long-Term Debt-to-Equity

long term liabilities

Measures how much long term debt a firm has compared to shareholders equity

Profitability Ratios

Shareholders Equity

Gross Profit Margin

Operating Profit Margin

Times-Interest-Earned Ratio

EBIT

Determines how easily a company can pay interest expenses on outstanding debt

Net Profit Margin

Interest charges

Return on Total Asset (ROA)

Activity Ratios

Return on Stockholders’ Equity

Inventory-Turnover Ratio

Sales

How long sales inventory waits to be sold

Return on Capital Employed

Inventory

Earnings per Share

EBITDA

Total-Asset Turnover

Sales

The relationship between assets and revenue

Growth Ratios

Total assets

Sales increase

Earnings per Share

Fixed-Asset Turnover

Sales

The relationship between fixed assets and revenue

Dividends payout ratio

Fixed assets

Valuation

P/E Ratio

Average Collection Period

Receivables

How long it takes a firm to collect payment from it's customers

Price to Book ratio

Sales per day

PEG Ratio

Profitability Ratios

Profit margin on sales

Gross Profit Margin

Gross profit

The amount of gross profit as a percent of sales

Return on net worth

Net sales

January 1st stock price

Net Income

Operating Profit Margin

Operating profit

The amount of operating profit as a percent of sales

Gross income

Net sales

Net Profit Margin

Net income

The amount of net profit as a percent of sales

Net sales

Return on Total Asset (ROA)

Net income

How well management is using the company's assets to earn a profit.

Total assets

Return on Stockholders’ Equity

Net income

Measures how much shareholders earned on their investment in the firm

Shareholders equity

Return on Capital Employed

EBIT

Indicates the efficiency and profitability of a company's capital investments

Total assets-current liabilities

Earnings per Share

Net income- preferred stock dividends

profit per share of common stock outstanding

Shares outstanding

EBITDA

profit per share of common stock outstanding adjusted for interest, taxes, depreciation & amortization

Growth Ratios

Sales increase

Current year sales

Percent increase in sales year over year

Prior year sale

Earnings per Share

Net income- preferred stock dividends

How much profit is earned for each share of common stock

Average outstanding shares

Dividends payout ratio

Dividends per common share

The portion of a company's earnings paid relative to each common share

Earnings per share

Valuation

P/E Ratio

Price per share

how much investors are willing to pay per dollar of earnings.

Earnings per share

Price to Book ratio

Price per share

Compares a firm's market value to its book value

Total assets-intangible assets & liabilities

PEG Ratio

P/E Ratio

Determines a stock's value while taking into account earnings growth (<1= undervalued)

Annual EPS growth

Profit margin on sales

Net income

How much profit a company makes on it's sales

Sales

Return on net worth

Net income

Profit as related to the firm's net worth

Net worth

BCG

High

STAR

QUESTION MARK

High

MARKET

GROWTH

RATE

MARKET

ATTRACTIVENESS

Medium

Low

CASH COWS

DOGS

High

Low

RELATIVE MARKET SHARE

High

Low

High

Low

High

Medium

Low

BUSINESS STRENGTH

MARKET

GROWTH

RATE

General Strategies Based on Matrix Location:

Grow & Build:

Integration strategies, intensive strategies

Hold & Maintain:

Market penetration, product development, joint venture

Harvest & divest:

Retrenchment, divesturature , liquidation

Low

High

Low

RELATIVE MARKET SHARE

Life Cycle

EARLY STAGE

LATE STAGE

Reasons For Decline

1. Lack of dependencies and

2. Environment neither

Too much Debt

28%

LITTLE OR NO

constraints in pursuing goals

threatening or constraining

Inadequate Leadership

17%

COMPETITION

Poor Planning

14%

Critical Problems:

Failure to Change

11%

a) Resources

a) Stabilizing firms position

Inexperienced Management

b) marketing approach

b) Formalization & control

Not Enough Revenue

c) Formalization of structure

c) Stability

d) marketing approach

*Source: Buccino and Associates: Seton Hall University, as reported in August 25, 2003, Business Week.

3. Turbulent environment- may

4. Muddling behavior, simply

INTENSE

constrain or dictate actions

reacting

COMPETITION

Critical Problems:

a) Identify niches

a) Maintain market position

b) Monitor competition

b) Further image via focus &

c) Realignment of the firm

differentiation strategies

vis-a-vis the competition

c) Cost control

Source: Dodge, Fullerton & Robbins, Strategic Management Journal, Vol. 15, 121-134 (1994)

CORPORATE LIFE CYCLE

Phase

Situation

Organization

Innovation & Strategy

Birth Phase:

Small firm

Informal structure

Considerable innovation in product lines

Young

Undifferiented

Niche Strategy

Dominated by owner/ manager

Power highly centralized

Substantial risk taking

Homogenous/ placid environment

Crude information processing & decision making methods

Growth Phase:

Medium sized

Some formalization of structure

Broadening of product-market scope into closely related areas

Older

Functional basis of organization

Incremental innovation in product lines

Multiple share holders

Moderate differentiation

Rapid growth

A more heterogeneous & competitive environment

Somewhat less centralized

Initial development of formal information processing & decision making tools

Maturity Phase:

Larger

Formal, bureaucratic structure

Consolidation of product- market strategy

Even older

Functional basis of organization

Focus on efficiently supplying a well defined market

Dispersed ownership

Moderate differentiation

Conservatism

heterogeneous & competitive environment

Moderate centralization

Slow growth

Information processing & decision making same as growth stage

Revival Phase:

Very large

Divisional basis of organization

Strategy of product- market diversification; movement into some unrelated markets

Very heterogeneous, competitive, dynamic

High differentiation

High level of risk taking & planning

Sophisticated control, scanning, and communications in info. processing; more formal analysis in decision making

Substantial innovation

Rapid growth

Decline Phase:

Market size

Formal, bureaucratic structure

Low level of innovation

Homogeneous and competitive environment

Mostly functional basis of organization

Price cutting

Moderate differentiation and centralization

Consolidation of product- market

Less sophisticated info processing systems and decision making methods

Liquidation of subsidiaries

Risk aversion & conservatism

Slow growth

Source: Miler and Friesen, Management Science, Vol. 30, No. 10 (Oct., 1984), pp. 1161-1183

Culture

CULTURAL ASPECT	SCORE (+5 TO -5)
Are control and reward mechanisms effective?
Are job responsibilities clearly understood?
Are company policies & procedures appropriate and effective?
Capacity for retaining personnel		New
Clearly articulated and shared mission
Cohesiveness and collaboration
Degree of innovation
Do employees have latitude in job execution?
Do managers delegate authority?
Do the leaders live the values and walk the talk?		Existing
Does the organization aggressively pursue change and innovation?
Does the organization effectively deploy employee teams through the company?
Employee attitudes
Employee empowerment
Employee Motivation
Employee participation in decisions
Enabling others to act
Encouraging the heart
Enforcement of policies
Effective Human Resource Management
Innovation and change to process
Is employee compensation fair / competitive?
Is employee morale high?
Is power centralized or shared throughout the organization
Is the organization’s structure appropriate for the proposed strategy?
Is there open and constant communication from management to employees
Key executive’s style
Lifecycle stage of organization
Openness and trust
Opportunities for employee growth & development
Organizational climate
Organizational Structure
Passion for the product or company
Perception of job security
Recognition of individuals
Rewards for performance
Risk tolerance
Sense of belonging
Sense of urgency
Shared Vision
Union Relations
What are the founder’s beliefs & what influence do they have?

Ansoff


New		New	Market Development		Diversification
			(Risk=Moderate)		(Risk=High)
			1		1
			2		2
			3		3
			4		4
	Markets		5		5
			Market Penetration		Product Development
Existing		Existing	(Risk= Low)		(Risk=Moderate)
			1		1
			2		2
			3		3
			4		4
			5		5
			Existing		New
				Products & Services

Sheet1


			European Expansion		Product Expansion					European Expansion		Product Expansion					Strategy 1		Strategy 2		Strategy 3		Strategy 4
Opportunities		Weight	Attractiveness Score	Total Attractiveness Score	Attractiveness Score	Total Attractiveness Score	Opportunities		Weight	Attractiveness Score	Total Attractiveness Score	Attractiveness Score	Total Attractiveness Score	Opportunities		Weight	Attractiveness Score	Total Attractiveness Score	Attractiveness Score	Total Attractiveness Score	Attractiveness Score	Total Attractiveness Score	Attractiveness Score	Total Attractiveness Score
1	Products expansion	0.100	2	0.200	4	0.400	3	More exposure	0.100	4	0.400	2	0.200	1
2	Stock growth	0.025	4	0.100	4	0.100								2
3	More exposure	0.100	4	0.400	2	0.200								3
4	Move towards globalization	0.025	4	0.100	0	0.000								4
5	More stadium contracts	0.025	1	0.025	1	0.025								5
6	Expand target market	0.100	4	0.400	3	0.300								6
7	License agreements	0.050	2	0.100	1	0.050								7
8	Company growth	0.025	4	0.100	4	0.100								8
														9
Threats														Threats
1	Multiple competitors	0.100	2	0.200	3	0.300								1
2	Dependency on sugar cane	0.075	0	0.000	0	0.000								2
3	Suppliers have the power	0.025	2	0.050	2	0.050								3
4	Recent lawsuit	0.025	0	0.000	0	0.000								4
5	License agreements	0.075	2	0.150	2	0.150								5
6	Seasonality of sales	0.050	4	0.200	3	0.150								6
7	Dependence on suppliers	0.050	2	0.100	1	0.050								7
8	Dependence on contract packers	0.100	3	0.300	0	0.000								8
9	Dependence on distributors	0.050	3	0.150	2	0.100								9
														10
	Total Weight:	1.000													Total Weight:
Strengths														Strengths
1	Marketing Philosophy	0.100	3	0.300	4	0.400								1
2	Social Responsibility	0.100	2	0.200	2	0.200								2
3	Creative Products	0.100	4	0.400	4	0.400								3
4	Diverse Product Line	0.025	4	0.100	4	0.100								4
5	Mass Customization	0.050	3	0.150	2	0.100								5
6	Product Specialization	0.030	3	0.090	3	0.090								6
7	Ethics Program	0.005	1	0.005	1	0.005								7
8	Quality Products	0.090	3	0.270	3	0.270								8
														9
Weaknesses														Weaknesses
1	Inexperienced mgmt team	0.050	1	0.050	1	0.050								1
2	Expensive Retail price structure	0.025	2	0.050	2	0.050								2
3	Weak marketing processes	0.075	2	0.150	1	0.075								3
4	Limited Distribution	0.075	4	0.300	2	0.150								4
5	Limited Financial Capability	0.025	1	0.025	2	0.050								5
6	Small company	0.025	2	0.050	3	0.075								6
7	Informalities of Company	0.050	1	0.050	2	0.100								7
8	Little Brand Recognition	0.100	2	0.200	4	0.400								8
9	Collection Practices for receivables	0.075	0	0.000	0	0.000								9
														10
	Total Weight:	1.000		4.965		4.490									Total Weight:		TAS:		TAS:	0.000	TAS:	0.000	TAS:	0.000

Finance

Data	Description	Data	Description	Data	Description
10%	Annual discount rate	10%	Annual discount rate	10%	Annual discount rate
$ (10,000,000)	Initial cost of investment one year from today	$ (10,000,000)	Initial cost of investment one year from today	$ (10,000,000)	Initial cost of investment one year from today
$ 3,000,000	Return (less costs) from first year	$ 3,000,000	Return (less costs) from first year	$ 3,000,000	Return (less costs) from first year
$ 4,200,000	Return (less costs) from second year	$ 4,200,000	Return (less costs) from second year	$ 4,200,000	Return (less costs) from second year
$ 6,800,000	Return (less costs) from third year	$ 6,800,000	Return (less costs) from third year	$ 6,800,000	Return (less costs) from third year
$ 4,000,000	Total Return	$ 4,000,000	Total Return	$ 4,000,000	Total Return
$ 1,188,443	NPV	16%	IRR	$ 1,188,443	NPV
				1.12	PI
		8%
		Year	Cash Flows
		0	($10,000)
		1	$1,500
		2	$2,500
		3	$4,000
		4	$3,000
		5	$3,000
		6	$3,000
		$2,634.18	npv
		1.26	PI

Example: TOYOTA MOTOR COMPANY

Birth Growth Maturity Revival Decline

Size of Company

Time

DAIAHATSU

TOYOTA

HINO

LEXUS

Overall Toyota is in “Late Stage” lifecyc le

with “Intense Competition.” This suggests

“Critical Problems” of a) Maintain market

position, b) Furthering its image via focus &

differentiation strategies and c) Cost

control

Exhibit 15.6