Strategic Analysis - Markets

This part of the analysis is concerned with finding attractive segments in which we can compete. What makes a segment attractive: size, competitive position, risk, fit with exising business, cyclicality etc.

How do we bring all this analysis together? I like to use weighted matrices in my strategy development workshops. The process consists of identifying the factors that are important in winning in this sector - the critical market success factors. There should be healthy debate around these!

The next step is to ‘weight’ these. Each factor should be given a percentage weighting - the higher the percentage the more important the factor is. The total weightings must add up to 100.

Since this is a competitive market, we now score ourselves and our competitors (out of 10) on each factor. For instance, if a distribution network is considered to be very important it may get a weighting of 20%. Our distribution network is not good, scoring only 5 out 10. Our major competitor on the other hand has a very good distribution network and scores 8 out of 10. This process is completed for each factor for ourselves and our major competitors.

The final stage is to calculate the scores for each factor and in total for ourselves and our competitors. The weighting for the factor, 20% for distribution, is multiplied by the score, 5 for us, 8 for our competitor. This gives us a score of 1 and our competitor a score of 1.6 (20% is the same as 0.20). We do the same for every factor, then add up the totals.

We now have view of how a view of how competitive we are likely to be in a particular market, based on how important several factors are in achieving customer satisfaction and our relative strength. Sounds perfect!

But it’s all made up - we don’t know half of these things?

True. Most of the data is hardly scientific. But that is to miss the point of the activitly. The value lies in the discussion, not the scores. The discussion forces the strategy development team to identify what is really important to success in the market and highlights strengths and weaknesses. It heightens awareness and makes the organisation more sensitive to competitor actions and changes in the market place.(back to our learning organisation again).

And, finally, the lack of information argument fails on the simple question - "So how will you make the decision on where you will compete?" Any answer is usually based on some implicit understanding of the market that either falls down under rational analysis or uses the same reasoning as I have just outlined. The advantage of the weighted matrix is that the assumptions are explicit and it helps the strategy team to gain a real understanding of what is important to success.

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