COMPANIES CRITICAL ISSUES
 

 

 

 

 

 

 

 

 

 

 

 

Some critical issues are immediately apparent in many companies. For example, a company in a highly concentrated industry might find it difficult to hold on to its market share if a stronger, larger competitor were to launch a new low- priced product with intensive promotional support. Also, in a capital-intensive industry, the cyclical pattern and possible pressures on pricing are usually criti- cal. If a product’s transport costs are high, preemptive investments in regional manufacturing facilities may be desirable. Other important issues may be con- cerned with threats of backward integration by customers or forward integration by suppliers, technological upset, new regulatory action, or the entry of foreign competition into the home market. Most strategy teams supplement this brain- storming exercise with certain basic analyses that often lead to fresh insights and a more focused list of critical business issues. Three such issues that may be men- tioned here are profit economics analysis, market segmentation analysis, and competitor profiling.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit Economics Analysis. Profit economics analysis indicates how product costs are physically generated and where economic leverage lies. The contribution of the product to fixed costs and profits may be calculated by classifying the elements of cost as fixed, variable, or semivariable and by subtracting variable cost from product price to yield contribution per item sold. It is then possible to test the sensitivity of profits to possible variations in volume, price, and cost elements. Similar computations may be made for manufacturing facilities, distribution channels, and customers. Market Segmentation Analysis. Market segmentation analysis shows alternate methods of segmentation and whether there are any segments not being properly cultivated. Once the appropriate segment is determined, efforts should be made to project the determinants of demand (including cyclical factors and any constraints on market size or growth rate) and to explain pricing patterns, relative market shares, and other determinants of profitability. Competitor Profiling. Profiling competitors may involve examining their sales literature, talking with experts or representatives of industry associations, and interviewing shared customers and any known former employees of competitors. If more information is needed, the team may acquire and analyze competing products and perhaps even arrange to have competitors interviewed by a third party. With these data, competitors may be compared in terms of product features and performance, pricing, likely product costs and profitability, marketing and service efforts, manufacturing facilities and efficiency, and technology and prod- uct development capabilities. Finally, each competitor ’s basic strategy may be inferred from these comparisons.