Steps in Preparing a Comprehensive Written Analysis

Steps in Preparing a Comprehensive Written Analysis

In preparing a written case analysis, you could follow the steps outlined here, which correlate
to the stages in the strategic-management process and the chapters in the textbook.

Step 1 Identify the firm’s existing vision, mission, objectives, and strategies.

Step 2 Develop vision and mission statements for the organization.

Step 3 Identify the organization’s external opportunities and threats.

Step 4 Construct a Competitive Profile Matrix (CPM).

Step 5 Construct an External Factor Evaluation (EFE) Matrix.

Step 6 Identify the organization’s internal strengths and weaknesses.

Step 7 Construct an Internal Factor Evaluation (IFE) Matrix.

Step 8 Prepare a Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix, Strategic Position and Action Evaluation (SPACE) Matrix, Boston Consulting Group (BCG) Matrix, Internal-External (IE) Matrix, Grand Strategy Matrix, and Quantitative Strategic Planning Matrix (QSPM) as appropriate. Give advantages and disadvantages of alternative strategies.

Step 9 Recommend specific strategies and long-term objectives. Show how much your recommendations will cost. Clearly itemize these costs for each projected year. Compare your recommendations to actual strategies planned by the company.

Step 10 Specify how your recommendations can be implemented and what results you can expect. Prepare forecasted ratios and projected financial statements. Present a timetable or agenda for action.

Step 11 Recommend specific annual objectives and policies.

Step 12 Recommend procedures for strategy review and evaluation.
The report template is given below.

Company name
A.    Case Abstract
Describe in the brief about the company and what the case is about

B.    Vision Statement

State the vision statement as mentioned in the case or as understood by you from the mission statement

C.    Mission Statement

State the mission statement and identify the following components of the mission. Mention the components in brackets.

1.    Customers
2.    Products or services
3.    Markets
4.    Technology
5.    Concern for survival, growth, and profitability
6.    Philosophy
7.    Self-concept
8.    Concern for public image
9.    Concern for employees

D.    External Audit
PESTEL Analysis
Identify the important external forces affecting the company:
Following websites are useful:
http://marketwatch.multexinvestor.com
https://us.etrade.com/e/t/invest/markets
http://www.prb.org/pdf15/2015-world-population-data-sheet_eng.pdf
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
http://biz.yahoo.com/ic/m/mcd.html
http://www.argaam.com/en
1.    Economic forces
i.    Availability of credit
ii.    Disposable income
iii.    Spending ability of people, Consumption patterns, Per capita income
iv.    Interest rates, Money market rates
v.    Inflation rates
vi.    Unemployment rates
vii.    GDP
viii.    Dollar value (currency rates) in global market
ix.    Labour productivity
x.    Stock market trends
xi.    Unemployment trends
xii.    Foreign country’s economic condition
xiii.    Monetary & Fiscal policies, Tax rates
xiv.    Price fluctuations and demand shifts
xv.    Import/Export taxes and duties
2.    Social, cultural, demographic and natural environmental forces
i.    Population growth rate
ii.    Number of marriages, divorces etc.
iii.    Number of child births per year
iv.    Average life expectancy
v.    Life style of the population, Food habits, tastes and preferences
vi.    Attitude towards product quality, customer service, leisure activities
vii.    Buying habits, attitude towards saving
viii.    Demographic status: religion, ethnicity
ix.    Attitude towards water pollution, air pollution, endangered species, waste management
x.    Attitude towards education, number of schools and colleges
xi.    Number of women workers
xii.    Distribution of population in cities, towns, villages
xiii.    Attitude towards careers, authority, entrepreneurship
xiv.    Attitude towards social responsibility
xv.    Natural calamities, season changes
3.    Political, governmental and legal forces
i.    Government regulations regarding industries and products
ii.    Changes in governing parties
iii.    Patent laws and changes in them
iv.    Import-Export regulations
v.    Special local and state laws
vi.    Level of defense expenditure
vii.    Various kinds of threats and disturbances
viii.    Environmental regulations
4.    Technological forces
i.    New products, services, or inventions affecting the industry
ii.    Frequency of technology upgrades
iii.    New manufacturing technologies
iv.    Use of internet applications
v.    Type of industry that the company is into, e.g. communications, pharma, steel etc
5.    Competitive forces
i.    Competitors’ strengths, weaknesses, goals, strategies
ii.    How competitors respond to various trends: social, political, technological, cultural etc.
iii.    How many new firms are entering the market?
iv.    To what extent substitute products are a threat to the industry?
v.    How are our products positioned relative to the competitors
Gathering industry data
Standard & Poor’s Industry Analysis
http://marketwatch.multexinvestor.com
https://us.etrade.com/e/t/invest/markets

Based on the External audit and Competitive analysis, perform the SWOT analysis.
Opportunities
1.    Xxx
2.    Yyy
3.    Zzz
Threats
1.    Xxx
2.    Yyy
3.    Zzz

Competitive Profile Matrix (CPM Matrix)
Critical success factors    Weight    Company under consideration
Rating       Score    Competitor 1

Rating      Score    Competitor 2

Rating      Score    …

Rating  Score
Advertising    0.10
Market share    0.30
Global presence    0.25
…    …
…    …

Decide the weight of each factor (the total of all weights must be 1). Now rate each factor on a scale of 1 to 4. Higher rating indicates that the company is doing well on the success factor. 1 – Major weakness, 2 – Minor weakness, 3 – Minor strength, 4 – Major strength

Example of critical success factor: Advertising abilities, Store locations, Brand name, Global presence, Product quality, Maintainability, Market share etc.

Comment upon the company’s score in comparison with its competitors

EFE Matrix (External factor evaluation)
Sr.    Opportunities    Weight    Rating    Weighted score
1    Opp 1    0.10
2    Opp 2    0.05
3    Opp 3    0.30
4    Opp 4    0.27
…    ….    ….
…    ….    ….
Sr.    Threats    Weight    Rating    –
1    Threat 1    0.18
2    Threat 2    0.11
3    Threat 3    0.07
4    Threat 4    0.04
…    ….    ….
Total    1.00    …    …

Decide the weight of each opportunity and threat. The total of all weights should be 1. Now, rate each opportunity and threat on a scale of 1 to 4. For opportunities the rating should be based on the company’s potential ability to capitalize on the opportunity and for threat, the rating should be based on the company’s ability to mitigate the threat. A total score of 2 and above may be considered as a good sign for the company.
Example of opportunity: The market for your particular product is growing at a rate of 10% per annum
Example of threat: The government has raised import duty on some of the raw materials of your product.
Make a comment about how the company is performing in dealing with the opportunities and threats.

E.    Internal Audit
Go to www.finance.yahoo.com and look up the company’s data. You will get information about strengths and weaknesses of the company.
Strengths: List down the perceived strengths of the company
1.    Xxx
2.    Yyy
3.    Zzz
4.    ….
5.    …

Examples: Domino’s operates stores in 70 different nations; PULSE touch screen ordering system allows for increased order accuracy and provides driving directions to drivers.
Weaknesses: List down the perceived weaknesses of the company
1.    Xxx
2.    Yyy
3.    Zzz
4.    …
5.    …

Examples: While many fast food restaurants have added healthy options, Domino’s offers little with respect to healthy food options such as salads or fruit.

Now go to the company’s website and download the annual report, for performing Financial ratio analysis.
Financial Ratio Analysis (example)

Profit Margin (%)    Company    Industry    S&P 500
Gross Margin    29.87    31.98    37.55
Pre-Tax Margin    10.79    17.46    16.89
Net Profit Margin    6.7    11.88    12.42

Liquidity Ratios
Debt/Equity Ratio    NA    0.7    0.97
Current Ratio    1.3    0.7    1.2
Quick Ratio    1.2    0.6    0.8

Profitability Ratios
Return On Equity    NA    36.7    20.88
Return On Assets    23.4    13.4    7.7
Return On Capital    42.2    16.3    10.2

Efficiency Ratios
Income/Employee    11,239    16,959    129,395
Revenue/Employee    167,844    138,523    1.05 Mil
Receivable Turnover    18.5    49.3    14.2
Inventory Turnover    38.1    93    13.5
Asset Turnover    3.5    1.1    0.8

Make a comment upon company’s financial health in absolute sense and with respect to the industry averages and the stock market records (Standard and Poor’s 500 market capitalization).

Now construct the IFE matrix as follows.

IFE Matrix (Internal Factor Evaluation)

Sr.    Strengths    Weight    Rating    Weighted score
1    Opp 1    0.10
2    Opp 2    0.05
3    Opp 3    0.30
4    Opp 4    0.27
…    ….    ….
…    ….    ….
Sr.    Weaknesses    Weight    Rating    –
1    Threat 1    0.18
2    Threat 2    0.11
3    Threat 3    0.07
4    Threat 4    0.04
…    ….    ….
Total    1.00    …    …

Decide the weight of each strength and weakness. The total of all weights should be 1. Now, rate each strength and weakness on a scale of 1 to 4. For strength the rating should be based on the company’s competitive advantages over others and for weaknesses, the rating should be based on the company’s relative disadvantage over others. Remember that a high weakness rating indicates lesser weakness and vice versa. Thus a higher total score would indicate that the company is in a better position as compared to its opponents. A total score of 2 and above may be considered as a good sign for the company.
Example of strength: The market for your particular product is growing at a rate of 10% per annum
Example of threat: The government has raised import duty on some of the raw materials of your product.
Make a comment about how the company is performing with respect to its competitors.
Some examples of strengths and weaknesses for Domino’s pizza

Strengths
1.    The company has 500 global locations
2.    The company has a 40% market share which is the highest
3.    The company can take orders on mobile SMS
Weaknesses
1.    The operations are on a too large scale to allow flexibility
2.    Specialized technology makes the product expensive
3.    The company has a low quality image
4.    The product is not so environment friendly

Comment: With a score of 2.88, the company is doing an above  average job based on internal factors.  One area of improvement would be to develop an environment friendly product.

F.    Develop strategies based on SWOT analysis

Develop various strategies based on the SWOT analysis. Link the specific strength, weakness, opportunity or threat against each strategy.

SO Strategies (Strategies based on Strength and Opportunities)
Examples
1.    Add 500 new stores over the next 3 years in China, India, and Brazil.
2.    Add 500 new stores over the next 3 years in traditional European and Middle Eastern Markets.
3.    Increase advertising expenses from $40M to match Pizza Hut’s $75M over the next 3 years to market the new Artisan pizzas and other new products.
4.    Offer 15 percent off all takeout orders.

WO Strategies (Strategies based on Weaknesses and Opportunities)
Examples
1.    Create and market a new Artisan salad.
2.    Add 500 new stores over the next 3 years in traditional European and Middle Eastern Markets.
3.    Open 10 restaurants with a dining area as a pilot study near college campuses.
4.    Restructure by division to further capitalize on any differences in consumption preferences in international markets.

ST Strategies (Strategies based on Strength and Threats)
Examples
1.    Hire a market research firm to determine the value in offering discounts or other marketing strategies to combat against new competitors in select markets.
2.    Market to consumers more readily the healthier aspects of Domino’s pizza’s.

WT Strategies  (Strategies based on Weaknesses and Threats)
Examples
1.    Create and market a new Artisan salad and pizza with lower-fat cheese.
2.    Offer complimentary pizza at events around the world as a means of introducing customers to the new Artisan pizza recipe.

Strategy Formulation Framework (Strategy Analysis & Choice)
Now evaluate different strategy options in order to formulate a strategy. The framework helps to examine the strategic position of the company with respect to the competitors.

BCG Matrix

Construct the BCG Matrix which graphically portrays differences among divisions in terms of relative market share position and industry growth rate. BCG : Boston Consulting Group
Examples

Construct the SPACE matrix to determine the strategic position of the company with respect to the competitors.
G.    SPACE Matrix
The space matrix is plotted with the help of Internal and External Analysis. See the example below.

In order to plot the Matrix, rate the different parameters on a scale of 1 to 7 and then compute the average scores FP, SP, CP and IP.
The space matrix is constructed by plotting the points along the 4 axes. For getting the coordinate position on the horizontal axis, calculate the difference between the IP score and CP score. For getting the coordinate position on the vertical axis, calculate the difference between the FP score and SP score.
Then comment upon the position of the company with respect to the competitors and make recommendation e.g. whether the company should add a new product line or an enhancement in the existing product.

H.    Grand Strategy Matrix
The Grand Strategy Matrix helps in formulating strategies based on two dimensions: Market growth rate (vertical axis: High or Low) and Competitive position of the company (horizontal axis: Strong or Weak). Any industry whose annual growth in sales exceeds 5 percent could be considered to have rapid growth. The various strategies for firms belonging to different quadrants are listed below:

Quadrant I : these firms  can afford to take advantage of external opportunities in several areas. They can take risks aggressively when necessary.
1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal integration
7. Related diversification

Quadrant II : these firms need to evaluate their present approach to the marketplace seriously. Although their industry is growing, they are unable to compete effectively, and they need to determine why the firm’s current approach is ineffective and how the company can best change to improve its competitiveness.
1. Market development
2. Market penetration
3. Product development
4. Horizontal integration
5. Divestiture
6. Liquidation

Quadrant III : these organizations compete in slow-growth industries and have weak competitive positions. These firms must make some drastic changes quickly to avoid further decline and possible liquidation.
1. Retrenchment
2. Related diversification
3. Unrelated diversification
4. Divestiture
5. Liquidation

Quadrant IV : these businesses have a strong competitive position but are in a slow growth industry. These firms have the strength to launch diversified programs into more promising growth areas
1. Related diversification
2. Unrelated diversification
3. Joint ventures

Following is an example of Domino’s Corporation

Comment: Domino’s is clearly experiencing rapid growth, especially internationally; however, their competitive position is unclear lying somewhere between Quadrant I and II.  While the company has many more locations and a much better international presence than Papa John’s, Pizza Inn, and Little Caesars, the overriding debt problem is a concern.  Yum Brand’s Pizza Hut still remains supreme among pizza chains.  Paying off debt would be a viable strategy for Domino’s management.
I.    The Internal-External (IE) Matrix
To plot the IE Matrix, we need to calculate the weighted IFE and EFE scores. The IFE scores are along the horizontal axis and EFE scores are along the vertical axis. It helps in recommending strategies.

Example:

Domino’s example

Business Segment    Revenue
2013      Revenue
2012       Revenue
2011
(1) Domestic Company Owned Stores    $324    $336    $345
(2) Domestic Franchise    195    187    173
(3) Domestic Supply Chain    942    928    876
(4) International    218    201    176
TOTAL    $1,679    $1,652    $1,571

Domino’s Domestic Supply Chain segment is the true gem of all the segments.  Backward integrated and serving 99% of domestic franchisees with their products is a recipe for an enduring revenue stream.  While company owned stores have more revenue than either domestic or international franchises, much of Domino’s long term debt problem is associated with these stores.  Finding franchisees to place into these stores would be a viable strategy for Domino’s.

J.    QSPM (Quantitative Strategic Planning Matrix)
This matrix helps in quantitative analysis of strategies to determine their relative attractiveness.
The QSPM uses input from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies. That is, the EFE Matrix, IFE Matrix, and Competitive Profile Matrix that make up Stage 1, coupled with the SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and Grand Strategy Matrix that make up Stage 2, provide the needed information for setting up the QSPM (Stage 3).
Example

Strategy Implementation

Acquiring capital to implement strategies

K.    Recommendations/Suggestions – Example

1.    Increase advertising expenses by $35M over the next 3 years to market the new Artisan pizzas and other new products.
2.    Establish new franchisees for 1000 new stores over the next 3 years; (200 in Russia, 200 in India, 200 in China, and 400 in Europe/Middle East) for a cost of $100M.  (many of these connections are already established).
3.    Hire a market research firm to assess the feasibility of adding new healthy options to the menu for a cost of $5 million.
Total Amount of Funds Needed = $140M
L.    EPS/EBIT Analysis (in millions expect for EPS and Share Price) –

Example
Amount Needed: $140
Stock Price: $55
Shares Outstanding: 57
Interest Rate: 5%
Tax Rate: 37%

The EPS/EBIT chart reveals debt financing as the most attractive alternative for all economic conditions.  However, it is unclear if Domino’s could acquire debt capital at 5%, given the firm’s current $1.5 billion of long- term debt on the 2013 balance sheet.  With the high stock price, and all recommendations (in this note) suggest having franchisees provide the capital for new stores, acquiring $140 million through equity would only increase total shares outstanding from 57 million to 59 million, so dilution of ownership is not a concern.

L.    Epilogue – Final conclusion/recommendations – Example

As of first quarter March 2013, Domino’s continues to carry $1.5 billion in long-term debt on the balance sheet resulting in over $1.3 billion in negative stockholders’ equity.  Despite the continued troubles with debt, one interesting strategic change is as of March 2013.  Domino’s has changed their principle strategy of delivery speed to taking extra time to produce a top-quality pizza.  Down are the advertisements of yester year, promising free pizzas if not at your door in 30 minutes and in is a nation-wide marketing campaign claiming Domino’s pizzas are made fresh from never frozen dough, and it just takes a bit longer to make a better pizza. This campaign comes on the heels of Domino’s starting their Artisan Pizzas and new recipes just a few years earlier.  The new buzz word/slogan for Domino’s newest marketing campaign is simply “try our Handmade Pan Pizza.”

In addition to the new Handmade Pan Pizza, Domino’s is rolling out a new $5.99 value menu that offers Penne Pastas, Stuffed Cheesy Breads, 8-piece chicken varieties, and Oven Baked Sandwiches.  All of these products are in addition to the $5.99 medium two topping pizza pick-up special Domino’s has offered in recent years.  With the new products (and change in pizza recipe), Domino’s is claiming through advertisements that 80 percent of their menu items are new since 2008.