GUIDE TO SOLVING CASES

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Contents
Porter five forces model ............................................................................................. 3 SWOT analysis ......................................................................................................... 5 Product Life Cycle ..................................................................................................... 6 The Four Ps............................................................................................................... 7 The Four Cs .............................................................................................................. 9 The Five Cs ............................................................................................................. 10 Core Competencies .................................................................................................. 11 Financial Analysis .................................................................................................. 12

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Porter five forces model

Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The five forces are: 1. Supplier Power This would include Supplier concentration, importance of volume to supplier, differentiation of inputs, impact of inputs on cost or differentiation, switching costs of firms in the industry, presence of substitute inputs, threat of forward integration and cost relative to total purchase in industry. 2. Barriers to entry This would include absolute cost advantage, access to inputs, government policy, economies of scale, capital requirement, brand identity, switching costs, access to distribution, expected retaliation, proprietary products. 3. Threats of substitutes This would be a function of high switching costs, buyer inclination to substitute, price performance trade off of substitutes. 4. Buying Power This would be governed by buying leverage, brand identity, price sensitivity, product differentiation, buyer concentration, and substitutes available. 5. Degree of rivalry This is related to exit barriers, industry concentration, industry growth, intermittent overcapacity, product differences, switching costs, brand identity, diversity of rivals etc.

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Porters model of Five Competitive Forces allows a systematic and structured analysis of market structure and competitive situation. The model can be applied to particular companies, market segments, industries or regions. Based on microeconomics, it takes into account supply and demand, complementary products and substitutes, the relationship between volume of production and cost of production, and market structures like monopoly, oligopoly or perfect competition.

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SWOT analysis
Strength Weakness Opportunity Threats Analysis - The SWOT analysis compiles the most important results from the analysis of external drivers and internal competences of an organization. The objective of SWOT is to determine to what degree the actual strategy is suitable and appropriate to meet the challenges and changes in the organizations environment.

1. The SW-Part comprises internal factors the strengths and weaknesses of the organization. These are competences and resources that the organization possesses and that are under its control. Strengths and weaknesses can relate to a variety of aspects and may depend on the actual situation. 2. The OT-Part of the SWOT identifies Opportunities and Threats that the organizations face from trends and changes in its environment. These external factors are not under the control or influence of the organization.

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Product Life Cycle

PLC or Product Life Cycle model is based on four stages of a product, namely introduction, growth, maturity and decline. 1. Introduction - The product is introduced in the market and promoted to create awareness. Limited numbers of product are available in few channels of distribution. 2. Growth - Competitors are attracted into the market. Products become more profitable. This stage generally sees a lot of companies form alliances, joint ventures and take each other over. Advertising spend is high and focus is on building brand. 3. Maturity This is the longest phase. Sales grow at a decreasing rate and then stabilize. Producers attempt to differentiate products and brands is the key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. 4. Decline - At this point there is a downturn in the market. There is intense price-cutting and many more products are withdrawn from the market. Profits can be improved by reducing marketing spend and cost cutting.

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The Four Ps
This framework is commonly used in assessing the effectiveness of a products marketing campaign. The 4Ps stand for Product, Place, Price, Promotion- the four key dimensions in marketing any product or service. 1. Product: In some cases the product/service can be a source of competitive advantage for the firm if it is unique and one of its kind. In cases where the product is similar to competitor offerings, competitive advantage is derived from the other 3Ps. Some important questions to be asked are What is the products differentiating attribute? What value does the consumer derive from this product? The physical position of the product can provide a competitive

2. Place:

advantage if it is more convenient to consume, more easily available or more visible than competitor offerings. The key questions to be asked are How the product is currently distributed vis--vis competitors

distribution structure? How is the product placed at various selling outlets?

3. Price: Pricing can be an important source of advantage in an environment where customers are price sensitive, where products are similar and when entering a new market (predatory). Many times price can be a source of competitive advantage if superior production techniques can help lower cost of production. The important questions to be asked are How the product is priced vis--vis competitors? Can currently available technology help lower prices?

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4. Promotion: With increasing competition and commoditization, it is important to increase awareness about the product and the brand. This happens through effective promotions aimed at increasing brand recall, breaking clutter, developing a market and creating an image for the brand. Some key questions to be asked are What advertising medium is currently being used? What are the discounts and other incentive being offered?

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The Four Cs
The framework is commonly used in assessing market positioning for a product and for industry analysis. They are: 1. Costs: The Cost analysis involves understanding the fixed and variable cost structure of the company, estimating the competitors cost structure and analysing the future cost trends in the industry. Key questions to be asked are What kind of economies of scale does the client have? What are the factors that can help reduce costs - increased production, technology etc? 2. Customer: The Customer analysis involves segmenting the companys customer base into new/ retained/ loyal and examining the profitability from each segment. The key questions to be asked are How is the market segmented? What is the purchase criterion for each segment?

3. Competition: The analysis involves identifying major competitors new/established, establishing their market shares and analysing their strengths and weaknesses. The idea is to replicate the strength in ones own products and use competitor weaknesses to ones strengths. The key questions to be asked are Do competitors have any market advantages? How is the client placed vis--vis its competitors in terms of market position and cost position? 4. Channels: The analysis involves identifying the competitive advantage ones channel provides, the sustainability of the channel and how the channel impacts market positioning strategies. The key questions to be asked are How is the client organised? What resources can the client draw from?

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The Five Cs
This framework is applied to understand the market value and financial stability of a company. They are:

1. Character: This is used to analyse the market perception of the company in terms of dedication, track record and dealings. The key questions to be asked are Does the company have a clean legal record? Does the company care about all its stakeholders including society at large? 2. Capacity: Here the emphasis is on understanding the capacity that the company can deliver. The key questions to be asked are Are the factories/ manufacturing units running above or below capacity? Are there plans to add new plants or bring in new technology? Are there plans to shut down underperforming units?

3. Capital: Here the emphasis is on understanding the cash flow condition of the company. The key questions to be asked are What is the companys cost of capital relative to competitors? How healthy is the companys cash flow, debt and revenue?

4. Conditions: The emphasis is on understanding the broad environment the company operates in. The key questions to be asked are What is the current business climate the company faces? What is the short and long term growth potential in the industry?

5. Competitive advantage: Here the emphasis is on understanding the unique advantage the company has over its competitors. It could be the companys processes, its people, its leadership, the guiding vision or the product itself. This is something sustainable and difficult to replicate and often companies try to project this competitive advantage through their advertising as well.

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Core Competencies
Each organisation has some strengths and key areas where it is good and better than competition. These areas then become the core competencies of the firm. A company should leverage on its core competency and try to make it a competitive advantage. The key importance of identifying core competencies is It is the leverage a company has, to win over customers During restructuring, it is helpful to sell off businesses that are not the core competency of the firm It provides the company focus on certain areas where the company can further strengthen its expertise

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Financial Analysis
Financial analysis is a key decision parameter in cases of M&As and new investments. The following are some of the parameters that should be explored-

1. Cash flow Analysis: Cash flow analysis helps establish the liquidity position of a company. It is a detailed summary of all cash inflow and outflow during a given period. Cash flows from three activities- operating activities, investing activities and financing activities are analysed. 2. Net present value: The net present value of an investment is the present value of a series of cash flows generated from the investment minus the initial expenditure. By rule, only those investments with a positive NPV should be made. Though in some cases a negative NPV may be acceptable depending on the strategic relevance of the project.

Besides these factors there are many synergies that should be considered before making a final investment decision.

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