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21
Business Ratio
Environment. Analysis.
Financial Statements
Analysis:
Analytical
Coping With Tools. Cash Flow
Manipulation. Analysis.
Cross-border
Differences In
Reporting Std.
Evaluating &
Compensating Company
Managerial Valuation.
Performance.
Financial
Statements
Business
Analysis:
Analysis Operational Credit
& Evaluating USE Analysis.
Business
Growth.
ECONOMIC ENVIRONMENT
AND POLICY
CORPORATES BUSINESS:
FINANCIAL STATEMENT
24
CORPORATE BUSINESS:
FINANCIAL STATEMENT
STRATEGIC POSITION
AND
ACTION EVALUATION
( SPACE)
25
The Strategic Position and Action Evaluation or
the SPACE Matrix is a four-quadrant framework
which indicates whether aggressive,
conservative, defensive, or competitive
strategies are most appropriate for a given
company. The SPACE Matrix Analysis is most
often employed during market analysis of a
firm.
26
A generic SPACE Matrix is detailed below:
27
The axes of the SPACE Matrix represent the two
internal dimensions of a competitive firm which
are its financial strength [FS] and its competitive
advantage or [CA] and two external dimensions
which are environmental stability [ES] and
industry strength or IS.
STRATEGIC
POSITION
AND ACTION
EVALUATION
( SPACE)
Factors Determining Factors Determining
Industry Strength. Environmental Stability.
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9.Economies of 1. Return on
Scale. Investment.
Leverage.
Inventory
Turnover. FACTORS
DETERMINING Liquidity.
FINANCIAL
Risk Involved
In Business. STRENGTH: Capital Reqd.
vs.
Capital Avalbe
Ease Of Exit
From Market Cash Flow.
30
1.Market Share. Product Quality.
Customer Loyalty.
9. Speed of
New Product
FACTORS
Introductions. DETERMINING
Technological
COMPETITIVE Know-How.
Competitions ADVANTAGE (Generic
Capacity
Utilization.
Strategy).
Vertical
Integration.
Product
Replacement Product
Cycle. Life Cycle.
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1. Growth
Potential.
Profit
8. Productivity/
Potential.
Capacity
Utilization. FACTORS
DETERMINING
INDUSTRY Financial
Stability.
Easy Of Entry STRENGTH (Five
Into Market. Competitive
Forces):
Technological
Capital Know-How.
Intensity.
Resource
Utilization.
32
FACTORS DETERMINING
ENVIRONMENTAL STABILITY.
34
Environmental Factors - Cont.
35
Environmental Factors - Cont.
36
Environmental Factors - Cont.
37
Environmental Factors - Cont.
38
Depending upon the type of firm and its industry, a
number of variables could make up each of the
dimensions represented on the axes of the typical SPACE
Matrix.
Factors that are typically included are those found in the
firm's External Factor Analysis and its Internal Factor
Analysis (EFA & IFA) and these should be considered in
developing a SPACE Matrix.
39
Other important variables that can be included
in a SPACE Matrix examination are a firm's
financial performance such as return on
investment, leverage, liquidity, working capital,
and cash flow commonly are considered
determining factors of an organization's
financial strength.
40
The SPACE Matrix should be completely
customized to the particular firm /
company being studied and based on
factual information derived from industry
and market data.
41
The steps required to develop a SPACE Matrix are
listed below:
1. Select a set of variables to define financial
strength (FS), competitive advantage (CA),
environmental stability (ES), and industry
strength (IS)
42
2. Assign a numerical value ranging from +1
(worst) to +6 (best) to each of the variables that
make up the FS and IS dimensions.
43
3. Compute an average score for FS, CA, IS, and
ES by summing the values given to the variables
of each dimension and dividing by the number of
variables included in the respective dimension.
44
5. Add the two scores on the x-axis and plot the
resultant point on X. Add the two scores on they-
axis and plot the resultant point on Y. Plot the
intersection of the new xy point.
45
6. Draw a directional vector from the
origin of the SPACE Matrix through the
new intersection point. This vector
reveals the type of strategies
recommended for the organization:
aggressive, competitive, defensive, or
conservative.
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Some examples of strategy profiles that can
emerge from a SPACE analysis are shown
below:
FS
+4, +4
CA IS
ES
47
Some examples of strategy profiles that can
emerge from a SPACE analysis are shown
below:
Aggressive Profiles
48
Some examples of strategy profiles that can
emerge from a SPACE analysis are shown
below:
FS
+1, +5
CA IS
ES
49
Aggressive Profiles
50
Conservative Profile
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Some examples of strategy profiles that can
emerge from a SPACE analysis are shown
below:
FS
-5, +2
CA IS
ES
52
Conservative Profile
53
Some examples of strategy profiles that can
emerge from a SPACE analysis are shown
below:
FS
CA IS
+5, -1
ES
54
Competitive Profile
55
Some examples of strategy profiles that can
emerge from a SPACE analysis are shown
below:
FS
CA IS
+1, -2
ES
56
Competitive Profile
57
Some examples of strategy profiles that can
emerge from a SPACE analysis are shown
below:
FS
CA IS
-5, -1
ES
58
Defensive Profile
59
Some examples of strategy profiles that can
emerge from a SPACE analysis are shown
below:
FS
CA IS
-1, -5
ES
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Defensive Profile
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The directional vector associated with each
given profile suggests the type of strategies to
pursue which are: aggressive, conservative,
defensive, or competitive. When an
organization's directional vector is located in
the aggressive quadrant (upper-right quadrant)
of the SPACE Matrix, an firm is in an excellent
position to use its internal strengths to
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(1)take advantage of external opportunities, (2)
overcome internal weaknesses, and (3) avoid
external threats.
Therefore, market penetration, market
development, product development,
backward integration, forward integration,
horizontal integration, conglomerate
diversification, concentric diversification,
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horizontal diversification, or a combination
strategy all can be feasible, depending on
the specific circumstances that the
company is facing at the time.
64
Blindspots Analysis
is a method aimed at uncovering obsolete
assumptions in a decision makers mental
scheme of the environment.
74
Reasons for these Flaws or Blind Spots?
86
Pharmaceutical companies have been
surprised at the increased entry of
chemical firms into their industry.
Faced with industry maturity, fierce
competition, and declining margins, several
leading chemical companies entered the
profitable pharmaceutical industry by
forming strategic alliances with upstart
biotechnology companies.
For years, pharmaceutical companies
fiercely jockeyed for position within
their traditionally defined industry,
and ignored the threat posed by young
biotechnology companies.
Recognizing the significant changes
in their industry, some
pharmaceutical companies have
recently created their own
biotechnology divisions or formed
strategic alliances with start-up
biotechnology firms.
89
Clearly, the alliance between
chemical and biotechnology
companies has profoundly
transformed the pharmaceutical
industry, forcing incumbents to
rethink their industry's definition.
90
Blindspot 2. Poor Identification of
Competitors.
92
We were shipping tens of thousands of
machines a monthmore computers than
IBM.
Apple underestimated IBM's excellent skills
and strong commitment to the industry.
Apple could not see IBM as a credible rival,
who within five years emerged as the
industry's leader.
Blindspot 3. Emphasis on
Competitors' Visible Functions.
95
In a study of 308 firms, Sutton found that
companies were interested primarily in
collecting information on competitors'
pricing, sales, strategic plans, market
share, key customers, new products, and
expansion plans Production Cost.
Conventional cost accounting focuses only on the Tip-of-the-
Iceberg costs...
Production Product
Overhead Management
Administrati Customer Service
ve Support
Sales/
Quality Marketing
Service Support
Companies need to understand the size & depth of their cost structures in
order to survive in todays competitive waters
Overhead
Components of
business costs
Material
Direct labour
Technology
Time
structure of business costs is changing from
primarily variable to predominantly fixed the
importance of overhead functions is increasing
The companies paid little attention to their
competitors' less visible aspects such as
organization, structure, and culture, possibly
leading to an incomplete assessment of their
strengths and weaknesses.
102
The new technology was cheaper, easier to
process and more reliable.
105
Nike capitalized on a major flaw in the
way the industry leaders (Adidas and
Puma) marketed their products.
For decades, they designed their
shoes and pushed them through the
distribution channels without close
contact with distributors.
In contrast, Nike listened to distributors'
suggestions in developing company
production plans and even made special
financial arrangements to reduce their
inventory cost (Reducing inventories across
value chain). Adidas and Puma ignored
Nike's innovative competitive approach.
These examples show that competitive
analyses sometimes fail to determine their
rivals' strategic intent, defined as
competitors' approach to winning in the
marketplace and plans for allocating
resources over time to build or acquire
capabilities.
Blindspot 5. Faulty Assumptions
about the Competition.
114
Consequence of Blindspots
123