read the case and answer the question

Financial Analysis is contained in separate modules on the SAM-tw CD-Rom. Use the Launch Pad to open them or simply look for them on the CD-Rom. There is a separate file for either 3, 4, or 5 years of financial data.

There is a separate Strategic Group Map for either 4, 5, or 6 groups. Choose the appropriate sheet for your particular industry / company's situation.

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Write in the name of the company being analyzed here.

Industries are typically divided into segments that are highly related to one another. The entertainment industry, for example, is divided into segments of radio, TV, movies, movie-theaters, pro sports, concerts, theaters, cabarets, etc. Insurance has segments of auto, health, dental, whole/universal life, housing, commercial, marine, earthquake, etc. The key is to label the segment in which the company competes accurately and precisely. Sometimes, you will have to label the segment yourself, i.e., there is no recognized label in existence. If a company does compete in a segment, it's OK later to refer to it as "the industry." Whatever it's ultimately called, it's the arena in which the company competes.

This is the general name given to the category in which you and your rivals compete, for example, auto, health care, leisure products, entertainment, defense, aerospace, general manufacturing, etc. A more specific label usually connotes the segment in which the company competes. An industry (or segment) is defined as the collection of competitors who produce similar or substitute products or services to a defined market.

This is you. Write your name here.

Stands for Chief Executive Officer. If there isn't one in the company, write in the name of the president.

How would you characterize the CEO's style? Write in 3-5 adjectives that best describe it, e.g., aggressive, democratic, ambitious, knowledgeable, caretaker, charismatic, personable, etc.

Write in how long the company has been in business, if you know it.

How many locations does the company have? You might break this down by number of manufacturing plants, number of sales offices, number of warehouses, etc. For multidivisional companies, count the locations of all subsidiaries and divisions.

Complete this only if the company in question is a division or subsidiary of a parent corporation.

Complete this only for a public company.

This is the trading symbol for publicly held companies.

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Publicly Held

Privately Held

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Industries have lifecycle curves similar to products, divided into 5 major lifecycle stages. "Emerging" characterizes an industry before market acceptance of its product. Once a market is established, it enters a "growth" period when demand exceeds supply and other competitors enter the industry. Growth wanes when supply exceeds demand, customers are harder to find and prices drop. Weak competitors fail or are acquired by stronger ones during a period called "shakeout." When growth drops to 5% or less, the industry is said to be "mature." With negative growth rates year after year, the industry is said to be in "decline." In what lifecycle stage is this industry?

Being vertically integrated means controlling at least one additional stage of the value chain. Vertical integration also means either making what you used to buy, or buying a supplier (backward vertical integration), or competing with or acquiring a customer (forward vertical integration). For this industry, state your perception of the extent of vertical integration in the industry by selecting one of the choices listed.

Estimate the extent to which the industry depends on technological innovation for its growth, and the extent to which technological innvovation forms the basis of competition in the industry. Choose one of the descriptors here that best describes the situation in your industry.

Some industries are able to achieve scale economies, i.e., to lower unit manufacturing, purchasing, and distribution costs as volume increases. Is this one of them? Enter all areas in which companies in the industry are achieving scale economies.

This refers to the average profitability of the industry or segment, as measured by return on sales (NIAT/revenues) expressed as a percentage. Industries with fairly high average profitability typically have bargaining power over their suppliers and customers, while those with low average profitability do not. The former contain companies with highly differentiated products, while the latter's products are more like commodities. Choose one of the listed ranges that best describes your industry.

When a large proportion of an industry's sales are produced by a small number of companies, the industry is said to be concentrated, e.g., the Big Six accounting firms auditing over 95% of all U.S. public companies, or Boeing and Airbus Industrie being the only manufacturers of large commercial aircraft in the world. At the other extreme, a fragmented industry is one in which no competitor holds more than 0.5% market share. A moderately concentrated industry is somewhere in between, e.g., where ten competitors account for 50% of industry sales. Estimate how concentrated your industry is.

Driving Forces are factors that cause the industry to change. Examples include: Changes in the industry growth rate Changes in buyers or uses of the product Product/marketing innovations Entry or exit of major firms Increasing globalization Buyer preferences for differentiation Changes in regulation or government policies Changing societal concerns, attitudes, lifestyles Reductions/increases in uncertainty and risk

Industry attractiveness depends on several factors. To help you identify these factors, imagine the ideal industry you would like to be in or enter, e.g., large market, high industry growth, no regulation, little competition, low or high entry barriers if outside or inside the industry, and high profitability. With such factors in place, one could then assess the attractiveness of a particular industry by weighting the factors (allocating 100 points among them--the weights will be automatically totaled), and rating them from your company's point of view (between 0-1.0, 1.0 being highest). The weights will be multiplied automatically by the ratings in the last column, and the last column totaled automatically to give an I.A. index (%).

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PURCHASING

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Choose from among: Monopoly--the only competitor in the business (true if first to market, or if granted an exclusive territory) Duopoly--only two competitors in the industry Oligopoly--a small number of independent rivals Monopolistic Competition--a small number of rivals having strongly differentiated and branded products Monopsony--a monopoly on the buyer's side, i.e., the whole industry serving one customer Pure Competition--a large number of competitors.

You may choose from the following, or indicate one that is more appropriate for your company: Price--typical in commodity industries, or where people sacrifice quality or service for a lower price Quality--where people will pay more for higher perceived quality Service--where customers go because of how well they're treated Technology--where advantages accrue through superior technology or patents Low-Cost Leadership--power through having the lowest costs in the industry.

Market share is calculated typically using total dollar sales in the industry, taking into account not only number of units sold but also their price. Sometimes, market share is calculated on a different basis, e.g., number of screens in the movie-theater industry, or installed base in the telecommunications-switching industry, or # beds in hospitals. Enter top five competitors below your company and market share percentages.

A critical success factor in an industry is something a company must do well in order to succeed in the industry. They attach to an industry and not to a company. Think of these as "rules of the game" for a particular industry. Every industry has its own rules, which a company must "play by" if it wants to succeed in the industry.

A competitive advantage is an edge over your competitors that your company possesses. It could take the form of a proprietary product or process, a developmental lead-time, or a discipline or level of service that cannot easily be emulated. Companies that have a core competence usually have a sustainable competitive advantage. A competitive advantage can erode over time if the company does not work at sustaining it.

This has to do with market shares and changing or defending your ranking in the industry. For example, if you are the market leader, you should maintain your leadership position; if not the leader, you might want to overtake the leader, or overtake #4 from #5, or maintain your #2 position, or defend against #8 who is creeping up to challenge you, etc. Note that maintaining one’s market share means growing at the same rate as the industry (rather than not growing at all).

Replace the words "Generic Strategy" with something that makes sense for your company. Generic strategies include differentiation, cost-leadership, and focus (differentiated or specialized for a narrow market segment), developed originally by Michael Porter in the early 1980s

Does the company compete very locally (1-2 mi. radius), locally (to include several zip codes), narrow-regionally (several counties within a state, e.g., Southern California), broad-regionally (e.g., West or East Coast of the U.S., Central America), nationally, or internationally?

Is the company positioned at the high end of the market, typically highest prices and best products, the low end, typically lowest prices and mass produced, or somewhere in the middle, typically priced relatively low for the value offered? With which end does it want its brand identified?

Is there a competitor rapidly gaining market share? Is the market-share gap between established competitors growing or shrinking? Is a rival making a concerted bid for market share?

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Make sure to input names of competitors here. They are used in numerous instances within the model.

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To help you identify substitutes in an industry, imagine being a customer and ask, "What are my alternatives to buying the industry's product?"

Potential entrants include any company that may enter the industry at any time. Because this happens without warning, they are difficult to identify. However, don't worry about potential entrants if barriers to entering the industry are high.

Is the intensity of competition among rivals low? Medium? High? Is it getting stronger? Weaker? Why?

Who has bargaining power in the industry--the producers (rivals) or customers? Who dictates terms? Who needs the other more? Are buyers' switching costs high? Typically, in a commodity industry where all rivals produce identical products and buyers choose the lowest price, the buyer has bargaining power. When all rivals are differentiated, the industry has bargaining power.

A similar logic exists for ascertaining who has the bargaining power between the industry and its suppliers. Typically, if suppliers are aplenty, the industry has bargaining power; if only one supplier can fulfill the company's needs, then the supplier has the bargaining power.

The threat is high if there is a high likelihood the industry will adopt the substitute or if substitute sales are increasing, and low if opposite conditions exist.

High barriers to enter an industry deter potential entrants from entering the industry. Barriers to entry include capital investment required, the need to set up a distribution system, the time it takes to develop a brand identity (especially if companies compete on the basis of brands) and loyal customers, technological know-how, and manufacturing expertise. A common mistake is to imagine barriers to entry to be very high, whereas certain companies deciding to enter would find the barriers much lower. For example, a company wanting to enter the U.S. motorcycle industry would find the barriers to entry very high, but a foreign motorcycle manufacturer would find the barriers to entry very low.

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Firms in same strategic group have one or more competitive characteristics in common . . . Sell in same price/quality range Cover same geographic areas Be vertically integrated to same degree Have comparable product line breadth Emphasize same types of distribution channels Offer buyers similar services Use identical technological approaches

Variables selected as axes should NOT be highly correlated Variables chosen as axes should expose BIG differences in how rivals compete. Variables do NOT have to be either quantitative or continuous

Indicating sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group. Indicate circle sizes for each strategic group, making circles proportional to size of group's respective share of total industry sales. An example would be to have the total add to 10 or 100, indicating the relative share for each group.

STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics STEP 3: Assign firms that fall in about the same strategy space to same strategic group STEP 4: Indicate circle sizes for each strategic group, making circles proportional to size of group's respective share of total industry sales INTERPRETING STRATEGIC GROUP MAPS Driving forces & competitive pressures often favor some strategic groups & hurt others. Profit potential of different strategic groups varies due to strengths & weaknesses in each group's market position. The closer strategic groups are on map, the stronger the competitive rivalry among member firms tends to be.

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Strategic Group Map

Firms in same strategic group have one or more competitive characteristics in common . . . Sell in same price/quality range Cover same geographic areas Be vertically integrated to same degree Have comparable product line breadth Emphasize same types of distribution channels Offer buyers similar services Use identical technological approaches

Variables selected as axes should NOT be highly correlated Variables chosen as axes should expose BIG differences in how rivals compete. Variables do NOT have to be either quantitative or continuous

Indicating sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group. Indicate circle sizes for each strategic group, making circles proportional to size of group's respective share of total industry sales. An example would be to have the total add to 10 or 100, indicating the relative share for each group.

STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics STEP 3: Assign firms that fall in about the same strategy space to same strategic group STEP 4: Indicate circle sizes for each strategic group, making circles proportional to size of group's respective share of total industry sales INTERPRETING STRATEGIC GROUP MAPS Driving forces & competitive pressures often favor some strategic groups & hurt others. Profit potential of different strategic groups varies due to strengths & weaknesses in each group's market position. The closer strategic groups are on map, the stronger the competitive rivalry among member firms tends to be.

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Strategic Group Map

STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics STEP 3: Assign firms that fall in about the same strategy space to same strategic group STEP 4: Indicate circle sizes for each strategic group, making circles proportional to size of group's respective share of total industry sales INTERPRETING STRATEGIC GROUP MAPS Driving forces & competitive pressures often favor some strategic groups & hurt others. Profit potential of different strategic groups varies due to strengths & weaknesses in each group's market position. The closer strategic groups are on map, the stronger the competitive rivalry among member firms tends to be.

Firms in same strategic group have one or more competitive characteristics in common . . . Sell in same price/quality range Cover same geographic areas Be vertically integrated to same degree Have comparable product line breadth Emphasize same types of distribution channels Offer buyers similar services Use identical technological approaches

Indicating sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group. Indicate circle sizes for each strategic group, making circles proportional to size of group's respective share of total industry sales. An example would be to have the total add to 10 or 100, indicating the relative share for each group.

Variables selected as axes should NOT be highly correlated Variables chosen as axes should expose BIG differences in how rivals compete. Variables do NOT have to be either quantitative or continuous

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Strategic Group Map

NO DATA ENTRY REQUIRED HERE!! This table is duplicated from the "Industry" Worksheet Industry attractiveness depends on several factors. To help you identify these factors, imagine the ideal industry you would like to be in or enter, e.g., large market, high industry growth, no regulation, little competition, low or high entry barriers if outside or inside the industry, and high profitability. With such factors in place, one could then assess the attractiveness of a particular industry by weighting the factors (allocating 100 points among them--the weights will be automatically totaled), and rating them from your company's point of view (between 0-1.0, 1.0 being highest). The weights will be multiplied automatically by the ratings in the last column, and the last column totaled automatically to give an I.A. index (%).

Just as you did for Industry Attractiveness in the Industry Analysis, do a similar analysis here, only the factors involved are different. Here, the factors are similar to critical success factors. Think of 5-8 factors that account for a company's competitive strength in the industry, enter them in the table, assign weights as before (they will be automatically totaled--just make sure they add to 100), and rate your company on each one (on a scale of 0-1.0, 1.0 being best). The weights will be automatically multiplied by the ratings and the products shown in the last column, which is also totaled automatically to yield a C.S. index (%). The CS Index is plotted automatically below against the IA Index in the G.E. Matrix.

I.A.

C.S. Index

I.A. Index

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Who are the firm's customers? Describe them precisely and concisely, including their geographic scope, e.g., not just banks, but banks worldwide.

This is a subset of the total market that the firm wants to reach or target over the next three years (e.g., if your market is banks, your target market could be California banks, instead of a total market of U.S. banks).

Using the same example of California banks as the target market, how many such banks are there? In other words, how many customers in your target market?

Don't confuse this with industry growth. E.g., if your market is California banks, how fast are they growing in numbers of banks/yr or in the total dollar sales of California banks? In a consumer market, how fast are your target consumers growing per year?

A brand new market for an industry is 0% penetrated, while a saturated market is 100% penetrated. How far is your target market penetrated, not by you but by your industry? If your product is unique, then answer this question for your company.

Distribution channels are how your product reaches your market. Choices typically include sales people, sales reps, distributors, wholesalers, retailers (independents, chains, boutiques, mass merchandisers).

What is your price out of the factory, what is the retail (final) price, and what are the various in-between prices to wholesalers and distributors, if applicable?

Customers are extremely price-sensitive if they view the industry's products as commodities (i.e., all products are alike), hence go for the lowest price. However, if the industry's products are differentiated, customers will seek the products they want without regard to price. Another test to apply is: If you lowered your price a little, how many more customers would buy your product? If a lot, they are price-sensitive; if very few, they aren't.

Pricing strategy is complex. For now, consider one of the following options: Low-price leader, pricing to allow for a reasonable profit, pricing to position the company in the marketplace (esp. high end), pricing to force competitors out of business, monopoly pricing (esp. for introducing a first-time product), or pricing what the market will bear.

What changes are occurring with your customers or your market? Do they now buy differently? Do they use the product differently? Are their needs changing? Write down here any changes you're aware of.

This is a subset of the target market that can be realistically served. For example: California banks with not more than 20 branches or $1B in deposits. Another example: a company targeting young adults with high-end fashion products (target market) would consider as the served market only the more wealthy among them that could afford the product.

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For each category of trend below, write down the trends, i.e., something must be getting smaller or larger, slower or faster, higher or lower. Describe the trends and HOW it is changing. Finally, estimate the severity of the impact on the company by choosing either a positive (H, M, or L), neutral, or negative (H, M, or L) impact. The larger the potential impact, either positive or negative, the more data may need to be collected about the trend or change.

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Strengths are special capabilities or expertise, things a company does well that has enabled it to be successful to this point, and how it has prepared itself to compete in the future.

Weaknesses are internal. They include problems that need to be corrected, deficiencies recognized only through a comparison with competitors, or deficiencies relative to proposed strategies (e.g., not enough resources to grow)

Opportunities are product-market issues, i.e., current, improved, or new product (or service) for an existing, expanded, or new market.

A threat is an external force or impending event that may slow or prevent you from achieving your objectives.

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Strategies that use strengths to take advantage of opportunities

Strategies that take advantage of opportunities by overcoming or mitigating weaknesses.

Strategies that use strengths to avoid or mitigate threats

Strategies that minimize weaknesses and avoid or mitigate threats

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INTERNAL FACTORS

EXTERNAL FACTORS

Strengths (S)

Weaknesses (W)

Opportunities (O)

Threats (T)

Strategy can always be inferred from what a company is doing. Sometimes it's very clear, e.g., acquisition, market expansion, or new product development. Sometimes, it's less clear, e.g., differentiation, low-cost leadership, or strategic alliances. Other strategies include vertical integration (forwards or backwards), retrenchment (or downsizing), turnaround, joint venture (a form of strategic alliance), diversification (entering another industry), focus (being specialized and serving a narrow market), and liquidation.

What's worth noting is whether the company's strategies have been changing a lot or steadfast over a period of time. If changed recently, what was it before? Why did it change?

Companies that record and review their strategic-planning process and decisions every year tend to improve the quality of those decisions. If a written strategic plan does not exist, it may be time to put one in writing.

What is it like to "do business in this company?" What is the atmosphere like? Are people innovative, approachable, competitive, cost-conscious, or customer-focused? What adjectives would you use? How would you characterize the company's culture?"

Planned change programs include producing products based on a new technology, using radically different manufacturing processes, installing highly integrated IT systems, changing the culture to one that is innovative, or customer-focused, or market-driven, or cost-conscious, etc. Such programs typically take more than a year to implement, are costly, and involve outside consultants using a planned, phased approach.

Constraints include anything the board or CEO imposes on the company. When Edwin Land was CEO of Polaroid Corp., he would not let the company borrow any money or acquire any other company. Rand Corp., the Santa Monica, CA "think tank," for many years refused to take on nongovernmental clients (and turned away millions of dollars in business by so doing). These are examples of constraints. Does this company have any constraints around which planning must take place?"

The quality of control and decision-making in a company depends almost entirely on the right information getting into the hands of those that most need it when they need it. How good is the company's management information system and use of IT.

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Alternative entries for this column: Competitive disadvantage Competitive parity Temporary competitive disadvantage Sustainable competitive advantage

Alternative entries for this column: Below-average returns Average returns Average to above-average returns Above-average returns

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Rate from 1 to 5, which value disciplines the company's industry seems to be shifing towards (1=industry shifing towards, 5=industry shifing away from)

Operational excellence is a strategic approach that focuses on improving production and delivery mechanisms. Companies that have successfully developed operational excellence include Dell, Wal-Mart, Southwest Airlines and Federal Express.

Product leadership is the continuous production of innovative products and services. These companies are driven by product improvement and constantly raise the standard by offering better products and solutions to service problems. Companies that are successful at product leadership include Johnson & Johnson and Microsoft

Customer intimacy focuses on obtaining customer loyalty and the foundations of customer service which includes employee satisfaction. These companies tailor services to customers' changing needs. Companies that have focused on and have been successful at customer intimacy include Nordstrom and Home Depot.

Value-Based Management is a framework that encourages management to create value by providing incentives to pursueprojects that provide capital at returns that exceed the cost of capital. It also includes incentives for management approaches that promote an environment of learning, empowerment, collaboration and continuous change. Companies that have focused on value-based management include Westinghouse and Marriott.

Indicate the presence or non-presence of the following categories within the industry.

Ranking: 1=No, 5=To a large extent. Have competitors or participant in an existing value chain* taken the place of traditional participants in that value chain? *Value Chain: The entire sequence of value-added processes that transform raw materials into end-user products in stages. The sequence of value-added activities a company performs to produce a product or service from R&D through production to after-sales service.

Ranking: 1=No, 5= To a large extent. Have new competitors from completely different industries entered the industry's market?

Rank the company, competitors and industry on the following value disciplines listed, from 1 to 10 with 1=worst and 10=best.

Operational excellence is a strategic approach that focuses on improving production and delivery mechanisms. Companies that have successfully developed operational excellence include Dell, Wal-Mart, Southwest Airlines and Federal Express.

Companies with updated information systems allow their operations to run more effectively and add value to the overall efficiency of operations.

The operation that is set up for efficiency will streamline the production process, thus adding value to the company's bottom line. Extensive and ongoing use of continuous quality improvement, statistical process control, and automation are examples of ensuring production efficiency. To what extent does the company implement tools to ensure production efficiency?

Reducing non-value added activities could reduce the cycle time of an operation without requiring any increased use of information systems, personnel or other company resources. To what extent does the company implement work simplification methods?

The integration of increased workforce empowerment and better use of information and automation systems will improve the operation and reduce labor. This step integrates functions within a single core process.

Multiple core processes within a business are integrated to include extended enterprises, e.g., SCM (supply-chain management) and CRM (customer-relationship management) systems, where appropriate.

To what degree do production leaders implement the strategic plan at the operational level? This includes the "more is better" approach in regard to implementation of work teams, employee empowerment, downward delegation, and the promotion of collaboration, learning and change.

Include other relevant performance measures within the Operational Excellence section.

Product leadership is the continuous production of innovative products and services. These companies are driven by product improvement and constantly raise the standard by offering better products and solutions to service problems. Companies that are successful at product leadership include Johnson & Johnson and Microsoft

The degree of continual innovation of products and services and the extent of the ability to come up with innovative ideas, technologies, and processes.

The ability to improve existing products and develop new ones for specific markets.

The extent to which a company is innovative, using non-traditional methods for marketing and selling products and services.

The degree of close integration with downstream value chain participants

The extent to which the company develops, strengthens, and manages its brand equity.

The extent to which enterprise networks develop upstream and downstream value chain participants

Include other relevant performance measures within the Product Leadership section.

Customer intimacy focuses on obtaining customer loyalty and the foundations of customer service which includes employee satisfaction. These companies tailor services to customers' changing needs. Companies that have focused on and have been successful at customer intimacy include Nordstrom and Home Depot.

Consumers are value-oriented and seek results and service quality that exceed the price and acquisition costs they incur for a service. If services are difficult to obtain, a cut-rate price will not produce high value to the customer. On the other hand, a service may be of high value if it is convenient enough for the customer. In this case, s/he may be willing to pay a relatively high price and any other costs to acquire the service. The extent to which a company places a high emphasis on service is the extent to which it satisfies the customer.

Customer satisfaction factors may vary among industries, but may include factors such as speed, efficiency, quality of service, quality of product, perceived value, pleasantness, follow-through and problem resolution. High levels of customer satisfaction are closely correlated with high levels of customer loyalty.

Customer loyalty is the degree to which customers repurchase a company’s services or products. Customer loyalty is a more important determinant of profit than market share in a wide range of industries according to a study by Reicheld and Sasser*. How loyal are your customers to your services or products? *Frederick F Reichheld and W. Earl Sasser, Jr., Zero Defections: Quality Comes to Services, Harvard Business Review, September-October 1990, pp105-111.

Employee capability is the extent to which employees believe they can accomplish their jobs. It is also the extent to which employees are given the resources, tools and autonomy to accomplish their responsibilities. Employee capability is strongly linked to employee satisfaction.

Employee satisfaction is influenced by the internal quality of life, which is the feeling employees have toward their jobs, colleagues, and companies. This feeling can be shaped by factors such as attitudes employees have toward one another, how they serve each other within the company, physical surroundings, workplace safety and, in general, “how things get done”. High levels of employee satisfaction in most industries are associated with high levels of employee loyalty.

One measure of employee loyalty is employee turnover. Highly successful companies typically have annual turnover rates of less than 5%. High employee retention rates are associated with high levels of employee satisfaction, high productivity and high profits.

High levels of productivity are strongly correlated with customer service value (as in #1). How does the company’s employee productivity stack up to competitors and to internal standards? Is there room for improvement? If so, start by examining employee capability.

Include other relevant performance measures within the Customer Intimacy section

Value-Based Management is a framework that encourages management to create value by providing incentives to pursue projects that yield returns that exceed the cost of capital. It also includes incentives for management approaches that promote an environment of learning, empowerment, collaboration and continuous change. Companies that have focused on value-based management include Westinghouse and Marriott.

The management teams in a company are what make up the character and success of a company. To what extent is the company investing in the knowledge and skills of good management teams? Does management promote overall (personal and organizational) learning, creativity, collaboration and change?

To revitalize and redirect managerial incentives, companies should give managers bonuses that are a share of EVA. This helps to motivate them to create value and make them think and behave like owners. Basing bonuses on attainment of planned level of performance only makes managers manage earnings and expectations of the corporate office instead of maximizing value.

Do the performance ratings for managers include the degree to which they choose and successfully implement projects that provide returns that exceed the cost of capital? Do they take into the account the extent to which management successfully develops and implements competitive strategies?

Include other relevant performance measures within the Value-Based Management section.

The term "value disciplines" was developed by Treacy and Wiersema* to describe different ways companies create value for customers. They describe three general strategies that have been successfully used by many companies: Product Leadership, Operational Excellence, and Customer Intimacy. A fourth strategy not included in Treacy and Wiersema's model, involves the dimension of Value-Based Management. Most successful companies excel in at least one of these dimensions and have, as a result, strengthened their strategic focus. By fully developing at least one of these value disciplines, a company can create a gap between itself and its competitors. By fully developing two or more of these disciplines, an even wider gap can be attained. Based on these concepts, this spreadsheet assists a company to rate its performance in these four value disciplines and compare it to the industry, competitors, and itself. It will help the company identify where its strengths and weaknesses lie and provide a frame of reference from which to focus desired value-added activities. *Cornelis A. de Kluyver, Strategic Thinking, An Executive Perspective, 2000, Prentice Hall.

Competitive pressures coming from the market attempts of outsiders to win buyers over to their products.

Competitive pressures coming from the threat of entry of new rivals.

Competitive pressures growing out of ability to exercise bargaining power and leverage.

Competitive pressures growing out of ability to exercise bargaining power and leverage.

Industry Value Analysis - Relative Scores

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0 = Easy 6 = Difficult

0 = Low 6 = High

Add additional factor if appropriate. Keep in mind that higher score is relatively positive or "good." Make sure if you do not use the "Other" factor, that there is not a zero in the score field, as this will affect the average. Simply leave it blank.

Add additional factor if appropriate. Keep in mind that higher score is relatively positive or "good." Make sure if you do not use the "Other" factor, that there is not a zero in the score field, as this will affect the average. Simply leave it blank.

Add additional factor if appropriate. Keep in mind that higher score is relatively positive or "good." Make sure if you do not use the "Other" factor, that there is not a zero in the score field, as this will affect the average. Simply leave it blank.

Add additional factor if appropriate. Keep in mind that higher score is relatively positive or "good." Make sure if you do not use the "Other" factor, that there is not a zero in the score field, as this will affect the average. Simply leave it blank.

Stands for Strategic Position and ACtion Evaluation. A tool to help determine the appropriate strategic posture of a firm. Involves plotting competitive advantage, industry strength, financial strength, and environmental stability on a two-dimensional graph. Each of these four dimensions itself comprises a number of factors that are evaluated independently and then combined to yield an average score. The resulting plot could end up favoring one of four quadrants (the strategic postures), which are aggressive, competitive, defensive, and conservative

Aggressive - Strength on all dimensions

Competitive - Comp. advantage in good industry, but weak in financial and environmental stability

Defensive - Relative weakness on most dimensions

Conservative - Financially sound, but market is very competitive and is waning

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(High)

(High)

(Low)

(Low)

A key internal strategic issue is a decision the company might make about its future that would have a strategic impact on it, e.g., merge with or acquire another company, focus on technological development, expand internationally, diversify, etc. Think of strategic issues also as something that keeps the CEO up at night or that is constantly on his or her mind. List up to 12 strategic issues. Many come from your earlier listings of weaknesses, opportunities, and threats.

A key external strategic issue is an external force or impending event that could impact the company dramatically, e.g., an economic downturn, upcoming regulation, or an advance in a new technology.

Create "bundles" of strategic alternatives based on the strategic issues identified above. You may choose to use two, three or four bundles. As you develop them, check that they are mutually exclusive (doing any one means you cannot do the others) and plausible (both feasible and leading to a successful outcome). Bundles may contain elements of strategic intent, strategies, programs, or other components. Everything you intend to do if adopting a bundle must be in it at this time. To distinguish the bundles, choose a label for each one that captures the essence of it and write it on the gold-highlighted line.

A number of criteria are listed here to assist you in choosing which bundle the company should adopt and pursue. All the criteria may not be relevant in your case. Use only those (plus any additional ones you can think of) that pertain to your situation.

Tell here which bundle you chose and why. Don't just tell why the bundle you chose was good. You must ARGUE for why it is better than the others, or WHY you specifically rejected the ones you did not choose.

These strategies will automatically appear based on input from "TOWS Matrix."

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Bundle 1

Bundle 2

Bundle 3

Indicate Selection

Click to Update Matrix Before Entering Scores

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Bundle 4

Express the objectives for Revenues and NIAT as either an absolute $ figure or a percentage increase over the previous year. Use the appropriate section (either $ or %) for your input -- do not enter data in both sections. This allows Excel to chart your results. For financial ratio objectives, it is best to state the value of the ratio itself as the objective.

This has to do with market shares and changing or defending your ranking in the industry. E.g., if the market leader, you should elect to maintain your leadership position; if not, you might want to become #4 from #5, or overtake the leader, or maintain your #2 position, or defend against #8 who is creeping up on you to challenge you, etc.

These are actual activities the company should do in order to achieve the objectives set for a particular year. Remember that programs which take several years to implement must be started in the next year, even though they would not be completed that year.

Murphy's Law ("if anything can go wrong it will") is alive and well. Therefore we should acknowledge it. A trigger is something that might go wrong in the future, such as a key result not being achieved, loss of a key manager, an assumption being proved wrong, etc. In order to know precisely when the back-up plan (contingency) should be invoked, the trigger should be quantitatively expressed.

A contingency plan is a back-up plan. Use it only when a trigger point is reached. It must be something the company would do differently if the trigger occurred. Two types of contingency are not acceptable: (1) changing the strategy to one you have previously rejected, and (2) doing something you do regularly that gave rise to the trigger in the first place. When things go wrong, a good manager tries first to correct or improve implementation of the strategy, i.e., operations or programs. Only when those have been tried and failed should you consider changing the strategy.

For financial ratio objectives, it is best to state the value of the ratio itself as the objective.

For financial ratio objectives, it is best to state the value of the ratio itself as the objective.

Enter in absolute dollar values

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A mission statement is a concise statement of a company's reason for being. It should contain what products or services the company produces for which target market, as well as how it considers itself different or unique. Avoid statements of values, strategies, or objectives. Typically, once formulated, it should guide and constrain the activities and strategies of a company. However, only after a thorough strategic analysis of a company is someone able to decide whether an existing mission statement is still relevant or ought to be changed. If it should be changed, make sure it embraces what the company does now and what it is going to do over the next few years. Try not to formulate it too broadly (it will fail to guide) or too narrowly (it will force the company to miss out on opportunities). Make it accurate, short, and memorable.

A mission statement is a concise statement of a company's reason for being. It should contain what products or services the company produces for which target market, as well as how it considers itself different or unique. Avoid statements of values, strategies, or objectives. Typically, once formulated, it should guide and constrain the activities and strategies of a company. However, only after a thorough strategic analysis of a company is someone able to decide whether an existing mission statement is still relevant or ought to be changed. If it should be changed, make sure it embraces what the company does now and what it is going to do over the next few years. Try not to formulate it too broadly (it will fail to guide) or too narrowly (it will force the company to miss out on opportunities). Make it accurate, short, and memorable.

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This is a concise statement of where you would like to see your company 5-10 years from now. A vision statement, in many ways, is more important as a direction-setter for a company than is a mission statement. It answers the question of where a company aspires to go and what it aspires to become in the future (5-10 years). It embodies the vision articulated by the company's leader. To be more effective, a vision statement should contain numbers that give it greater precision. Like a mission statement, a vision statement should be short and memorable, but in addition should be inspiring and achievable. Remember it's the VISION that drives the company, not the mission.

This is a concise statement of where you would like to see your company 5-10 years from now. A vision statement, in many ways, is more important as a direction-setter for a company than is a mission statement. It answers the question of where a company aspires to go and what it aspires to become in the future (5-10 years). It embodies the vision articulated by the company's leader. To be more effective, a vision statement should contain numbers that give it greater precision. Like a mission statement, a vision statement should be short and memorable, but in addition should be inspiring and achievable. Remember it's the VISION that drives the company, not the mission.

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Market share is calculated typically using total dollar sales in the industry, taking into account not only number of units sold but also their price. Sometimes, market share is calculated on a different basis, e.g., number of screens in the movie-theater industry, or installed base in the telecommunications-switching industry, or # beds in hospitals. Enter top five competitors below your company and market share percentages.

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Competitive Advantage

Core Competence

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Critical Success Factors - Total Weighted Scores

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Companies used to engage in five-year planning exercises but, because of the rapid pace of change, have now switched to a three-year planning horizon, viewed as the "long term" in terms of decision-making. Of course, depending on the industry and company in question, the planning horizon could be considerably longer, in which case you should feel free to make the necessary changes, e.g., instead of Years 2 and 3, you might want to substitute Years 5 and 10.

Revenues

Net Income After Taxes (NIAT)