Case Study: dentify the industry in which the firm operates

1. Overall
• To identify the industry in which the firm operates. This is to facilitate and scope their analysis. In some cases, for highly diversified companies, there will be multiple unrelated industries (e.g. Samsung). Other cases may need students to focus on certain segments of an industry; for example, Porsche operates in a specific segment of the broad automobile industry.
2. External Analysis
A. PESTEL (Political, Economic, Social, Technological, Ecological & Legal )
• This macro-environment analysis is meant to apply to all firms in the industry.
• Avoid overt references to the specific firm being analysed to minimise the mistake of introducing firm-specific features into this analysis.
• Each case is different and not all cases provide information and case evidences for all PESTEL factors. In some cases, some of the PESTEL factors are not sufficiently articulated in the case. In such cases, there is no obligation to cover these factors in the analysis.
• For every PESTEL factor that has sufficient articulation in the case, analysis of the factor should be done. For each of these factor, it is to be determined if there are an opportunity or threat.
• Provide a sub-conclusion for the overall PESTEL analysis. This will help students to reflect and draw insights from the analysis. The sub-conclusion should state what is/are the key/dominant factor(s), and whether the industry is favourable or unfavourable. (NOTE: It is pre-mature to conclude on whether it is favourable for the firm at this juncture as the internal analysis may still not be done). This sub-conclusion will have to be aligned with the (i) SWOT analysis, (ii) issues and (iii) recommendations subsequently.
Environment T O Justification to Threats (T) or Opportunities (O)
1. Political

2. Economic T O

3. Social T O

4. Technological T O

5. Ecological T O

6. Legal T O

Conclusion

B. Porter’s 5 Forces in “Auto-mobile industry in Malaysian”
• Provide a sub-conclusion for each industry force, stating whether the industry force is high, low or moderate. In analysing each industry force, the list of factors stated in Chapter 2 of the Textbook may be considered.
• When assessing the industry forces of “bargaining power of buyers” and “bargaining power of suppliers”, the identity of the buyers and suppliers (i.e. who are the buyers and suppliers) being assessed should be specified. Similarly, the type of substitutes (i.e. what is/are the substitutes) being assessed should also be specified. It is also important for students to clarify the differences between substitutes and competitors in assessing the threat of substitutes.
• Provide an overall conclusion for the industry after analysing the five industry forces, stating whether the industry is attractive or unattractive. The dominant industry force(s) should also be identified. This sub-conclusion will have to be aligned with the (i) SWOT analysis, (ii) issues and (iii) recommendations subsequently.
• The overall conclusion should not be based simply on the numbers of high or low industry forces. For example, out of the five industry forces, two are low, two are high and one is neutral. The overall conclusion can still be attractive if the two low forces are significantly more dominant than the two high forces.

1. Threat of New Entrants
Scale and Experience L/M/H
Product Differentiation
Access to distribution channel
Expected retaliation
Legislation / Government
Subconclusion

2. The Power of Buyers
Concentration of buyers relative to suppliers
L/M/H
Switching cost
Threat of backward integration by buyers
Subconclusion
3. The Power of Suppliers
Number of suppliers L/M/H
Switching cost
Suppliers competition threat
Subconclusion

4. Threat of Substitutes
Price / Performance ratio L/M/H
Extra industry effect
Subconclusion
5. Competitive Rivalry
Competitor balance L/M/H
Industry Growth rate
Fixed cost
Exit Barrier
Differentiation
Subconclusion
Conclusion

3. Internal Analysis
A. Strategic Capability Analysis

• The relationship among Strategic Capability, Competency and Resources is understood to be: Competencies + Resources = Strategic Capabilities.
• The Table 1 below shows the nine categories of Resources that is adopted in this course. Students may use this to identify resources in a systematic manner. [Note that there are other possible ways to categorise resources.]
• Competencies and Resources are combined to produce Strategic Capabilities, as indicated in Table 2 below. The relationship need not be linear (i.e. one Strategic Capability to one Competency to one Resource). Very often, different categories of Resources (Financial and HR and Technology) have to be combined with different Competencies to produce a Strategic Capability.
• The analysis of what are the Strategic Capabilities, Competencies and Resources are to be backed by case evidence and reasoning. Depending on the case, some cases will showcase all the relevant resources, competencies and strategic capabilities, and some may showcase only one or two of the three (i.e. resources, competencies and strategic capabilities). In there is a lack of direct case evidence, students may need to make inference based on the case in conducting their Strategic Capability Analysis.
• It is advisable to phrase resources using nouns as these are assets and things.
• It is advisable to phrase competencies using verbs as these are actions.
• It is advisable to phrase Strategic Capability as “Ability to ……”

Competencies
• How the firm use its resources
• There is often more than one competency involved in generating a strategic capability Strategic Capabilities
• What a firm is able to do exceptionally well and differently from its competitors)
V R I O Competitive Advantage and performance implication
1. Physical Resources: (Plants, logistics, distribution)

2. Technological & Innovation Resources: (IP, Patents)

3. Financial Resources: (Performance, ratios, sources)

4. Human Resources: (Recruitment, selection, training, development)

5. Reputation & Brand Resources: (Brand and image)
6. Management & Leadership Resources, (Leadership style, top management team, Organisation Resources: (Organisation Structures) & Organisational Culture: (Organisation’s history or culture web)

* V – Value, R – Rarity, I – Inimitability & O – Organisation support

Conclusion:

B. Financial Resource Analysis

• In analysing the Financial Resource, the following are to be considered where relevant case evidence exists:
• Liquidity and Solvency Indicators (i.e. Current Ratio, Financial Leverage, Interest Coverage),
• Efficiency Indicators (i.e. Days in Inventory, Days in Receivables),
• Profitability Indicators (i.e. ROE, ROA, Profit Margin, Asset Turnover),
• Market Prospects Indicators (i.e. P/E Ratio, EPS).
4. SWOT Analysis
• The SWOT analysis is NOT a laundry list of all strengths, weaknesses, opportunities and threats, but will consist of the KEY strengths, MAJOR weaknesses, opportunities and threats.
1. Strength
• Strengths are to be derived from the Internal Analysis. In particular, Strategic Capabilities that provides Sustainable or Temporary Competitive Advantages and Competitive Parity.
2. Weakness
• Weaknesses are to be derived from (a.) the case directly, and (b.) the Internal Analysis of Strategic Capabilities that resulted in Competitive Disadvantage outcome.
3. Opportunity
• Opportunities are to be derived from the External Analysis. In particular, from the PESTEL Analysis and Porter’s Five Forces Analysis.
4. Threats
• Threats are to be derived from the External Analysis. In particular, from the PESTEL Analysis and Porter’s Five Forces Analysis.
Conclusion:

5. Issues
• Issues can be taken as the key Threats and Weaknesses a firm faces. Nonetheless, it would be even better if students are able to identify underlying ‘issues’ that gave rise to the Threats and Weaknesses

• Issues can be immediate, medium term or long term.

6. Recommendations
• Recommendations should address the key issues identified. Students are advised to make use of the TOWs framework as a guide when making recommendations, based on the SWOT analysis conducted earlier.

• Sound recommendations need to be justified using the SAFe framework.

• The number of recommendations varies according to each case. Students are advised not to treat recommendations as being the “more being merrier”. Instead, they should ensure that all the key issues identified are appropriately address by the recommendations.

• Recommendations are to include not only high-level strategies (e.g. upstream integration), but also strategic actions which layout how the strategies are to be implemented (e.g. raise funds through selling the subsidiaries that have no strategic alignment with the core business and acquire the supplier that is currently experiencing financial duress to achieve upstream integration).

Return of Investment Net Income / Average Owner’s Equity
Year 1 0 0 #DIV/0!
Year 1 Year 2 Year 3 Year 2 0 0 #DIV/0!
Net Income Year 3 0 0 #DIV/0!
Average Owner’s Equity
Average Total Assests
Sales Return on Assets Net Income / Average Total Asset
Current Assests Year 1 0 0 #DIV/0!
Current Liabilities Year 2 0 0 #DIV/0!
Inventories Year 3 0 0 #DIV/0!
Total Debt
Total Equity
Operating Cash Flow Net Profit Margin Net Income / Sales
Total Liabilities Year 1 0 0 #DIV/0!
Year 2 0 0 #DIV/0!
Year 3 0 0 #DIV/0!

Asset Turnover Ratio Sales / Average Total Asset
Year 1 0 0 #DIV/0!
Year 2 0 0 #DIV/0!
Year 3 0 0 #DIV/0!

Current Ratio Current Assets / Current Liabilities
Year 1 0 0 #DIV/0!
Year 2 0 0 #DIV/0!
Year 3 0 0 #DIV/0!

Quick Ratio (Current Assets – Inventories) / Current Liabilities
Year 1 0 0 0 #DIV/0!
Year 2 0 0 0 #DIV/0!
Year 3 0 0 0 #DIV/0!

Debt Equite Ratio Total Debt / Total Equity
Year 1 0 0 #DIV/0!
Year 2 0 0 #DIV/0!
Year 3 0 0 #DIV/0!

Cash Flow to Liabilities Operating Cash Flow / Total Liabilities
Year 1 0 0 #DIV/0!
Year 2 0 0 #DIV/0!
Year 3 0 0 #DIV/0!

1. Overall
• To identify the industry in which the firm operates. This is to facilitate and scope their analysis. In some cases, for highly diversified companies, there will be multiple unrelated industries (e.g. Samsung). Other cases may need students to focus on certain segments of an industry; for example, Porsche operates in a specific segment of the broad automobile industry.
2. External Analysis
A. PESTEL (Political, Economic, Social, Technological, Ecological & Legal )
• This macro-environment analysis is meant to apply to all firms in the industry.
• Avoid overt references to the specific firm being analysed to minimise the mistake of introducing firm-specific features into this analysis.
• Each case is different and not all cases provide information and case evidences for all PESTEL factors. In some cases, some of the PESTEL factors are not sufficiently articulated in the case. In such cases, there is no obligation to cover these factors in the analysis.
• For every PESTEL factor that has sufficient articulation in the case, analysis of the factor should be done. For each of these factor, it is to be determined if there are an opportunity or threat.
• Provide a sub-conclusion for the overall PESTEL analysis. This will help students to reflect and draw insights from the analysis. The sub-conclusion should state what is/are the key/dominant factor(s), and whether the industry is favourable or unfavourable. (NOTE: It is pre-mature to conclude on whether it is favourable for the firm at this juncture as the internal analysis may still not be done). This sub-conclusion will have to be aligned with the (i) SWOT analysis, (ii) issues and (iii) recommendations subsequently.
Environment T O Justification to Threats (T) or Opportunities (O)
1. Political

2. Economic T O

3. Social T O

4. Technological T O

5. Ecological T O

6. Legal T O

Conclusion

B. Porter’s 5 Forces in “Auto-mobile industry in Malaysian”
• Provide a sub-conclusion for each industry force, stating whether the industry force is high, low or moderate. In analysing each industry force, the list of factors stated in Chapter 2 of the Textbook may be considered.
• When assessing the industry forces of “bargaining power of buyers” and “bargaining power of suppliers”, the identity of the buyers and suppliers (i.e. who are the buyers and suppliers) being assessed should be specified. Similarly, the type of substitutes (i.e. what is/are the substitutes) being assessed should also be specified. It is also important for students to clarify the differences between substitutes and competitors in assessing the threat of substitutes.
• Provide an overall conclusion for the industry after analysing the five industry forces, stating whether the industry is attractive or unattractive. The dominant industry force(s) should also be identified. This sub-conclusion will have to be aligned with the (i) SWOT analysis, (ii) issues and (iii) recommendations subsequently.
• The overall conclusion should not be based simply on the numbers of high or low industry forces. For example, out of the five industry forces, two are low, two are high and one is neutral. The overall conclusion can still be attractive if the two low forces are significantly more dominant than the two high forces.

1. Threat of New Entrants
Scale and Experience L/M/H
Product Differentiation
Access to distribution channel
Expected retaliation
Legislation / Government
Subconclusion

2. The Power of Buyers
Concentration of buyers relative to suppliers
L/M/H
Switching cost
Threat of backward integration by buyers
Subconclusion
3. The Power of Suppliers
Number of suppliers L/M/H
Switching cost
Suppliers competition threat
Subconclusion

4. Threat of Substitutes
Price / Performance ratio L/M/H
Extra industry effect
Subconclusion
5. Competitive Rivalry
Competitor balance L/M/H
Industry Growth rate
Fixed cost
Exit Barrier
Differentiation
Subconclusion
Conclusion

3. Internal Analysis
A. Strategic Capability Analysis

• The relationship among Strategic Capability, Competency and Resources is understood to be: Competencies + Resources = Strategic Capabilities.
• The Table 1 below shows the nine categories of Resources that is adopted in this course. Students may use this to identify resources in a systematic manner. [Note that there are other possible ways to categorise resources.]
• Competencies and Resources are combined to produce Strategic Capabilities, as indicated in Table 2 below. The relationship need not be linear (i.e. one Strategic Capability to one Competency to one Resource). Very often, different categories of Resources (Financial and HR and Technology) have to be combined with different Competencies to produce a Strategic Capability.
• The analysis of what are the Strategic Capabilities, Competencies and Resources are to be backed by case evidence and reasoning. Depending on the case, some cases will showcase all the relevant resources, competencies and strategic capabilities, and some may showcase only one or two of the three (i.e. resources, competencies and strategic capabilities). In there is a lack of direct case evidence, students may need to make inference based on the case in conducting their Strategic Capability Analysis.
• It is advisable to phrase resources using nouns as these are assets and things.
• It is advisable to phrase competencies using verbs as these are actions.
• It is advisable to phrase Strategic Capability as “Ability to ……”

Competencies
• How the firm use its resources
• There is often more than one competency involved in generating a strategic capability Strategic Capabilities
• What a firm is able to do exceptionally well and differently from its competitors)
V R I O Competitive Advantage and performance implication
1. Physical Resources: (Plants, logistics, distribution)

2. Technological & Innovation Resources: (IP, Patents)

3. Financial Resources: (Performance, ratios, sources)

4. Human Resources: (Recruitment, selection, training, development)

5. Reputation & Brand Resources: (Brand and image)
6. Management & Leadership Resources, (Leadership style, top management team, Organisation Resources: (Organisation Structures) & Organisational Culture: (Organisation’s history or culture web)

* V – Value, R – Rarity, I – Inimitability & O – Organisation support

Conclusion:

B. Financial Resource Analysis

• In analysing the Financial Resource, the following are to be considered where relevant case evidence exists:
• Liquidity and Solvency Indicators (i.e. Current Ratio, Financial Leverage, Interest Coverage),
• Efficiency Indicators (i.e. Days in Inventory, Days in Receivables),
• Profitability Indicators (i.e. ROE, ROA, Profit Margin, Asset Turnover),
• Market Prospects Indicators (i.e. P/E Ratio, EPS).
4. SWOT Analysis
• The SWOT analysis is NOT a laundry list of all strengths, weaknesses, opportunities and threats, but will consist of the KEY strengths, MAJOR weaknesses, opportunities and threats.
1. Strength
• Strengths are to be derived from the Internal Analysis. In particular, Strategic Capabilities that provides Sustainable or Temporary Competitive Advantages and Competitive Parity.
2. Weakness
• Weaknesses are to be derived from (a.) the case directly, and (b.) the Internal Analysis of Strategic Capabilities that resulted in Competitive Disadvantage outcome.
3. Opportunity
• Opportunities are to be derived from the External Analysis. In particular, from the PESTEL Analysis and Porter’s Five Forces Analysis.
4. Threats
• Threats are to be derived from the External Analysis. In particular, from the PESTEL Analysis and Porter’s Five Forces Analysis.
Conclusion:

5. Issues
• Issues can be taken as the key Threats and Weaknesses a firm faces. Nonetheless, it would be even better if students are able to identify underlying ‘issues’ that gave rise to the Threats and Weaknesses

• Issues can be immediate, medium term or long term.

6. Recommendations
• Recommendations should address the key issues identified. Students are advised to make use of the TOWs framework as a guide when making recommendations, based on the SWOT analysis conducted earlier.

• Sound recommendations need to be justified using the SAFe framework.

• The number of recommendations varies according to each case. Students are advised not to treat recommendations as being the “more being merrier”. Instead, they should ensure that all the key issues identified are appropriately address by the recommendations.

• Recommendations are to include not only high-level strategies (e.g. upstream integration), but also strategic actions which layout how the strategies are to be implemented (e.g. raise funds through selling the subsidiaries that have no strategic alignment with the core business and acquire the supplier that is currently experiencing financial duress to achieve upstream integration).

Return of Investment Net Income / Average Owner’s Equity
Year 1 0 0 #DIV/0!
Year 1 Year 2 Year 3 Year 2 0 0 #DIV/0!
Net Income Year 3 0 0 #DIV/0!
Average Owner’s Equity
Average Total Assests
Sales Return on Assets Net Income / Average Total Asset
Current Assests Year 1 0 0 #DIV/0!
Current Liabilities Year 2 0 0 #DIV/0!
Inventories Year 3 0 0 #DIV/0!
Total Debt
Total Equity
Operating Cash Flow Net Profit Margin Net Income / Sales
Total Liabilities Year 1 0 0 #DIV/0!
Year 2 0 0 #DIV/0!
Year 3 0 0 #DIV/0!

Asset Turnover Ratio Sales / Average Total Asset
Year 1 0 0 #DIV/0!
Year 2 0 0 #DIV/0!
Year 3 0 0 #DIV/0!

Current Ratio Current Assets / Current Liabilities
Year 1 0 0 #DIV/0!
Year 2 0 0 #DIV/0!
Year 3 0 0 #DIV/0!

Quick Ratio (Current Assets – Inventories) / Current Liabilities
Year 1 0 0 0 #DIV/0!
Year 2 0 0 0 #DIV/0!
Year 3 0 0 0 #DIV/0!

Debt Equite Ratio Total Debt / Total Equity
Year 1 0 0 #DIV/0!
Year 2 0 0 #DIV/0!
Year 3 0 0 #DIV/0!

Cash Flow to Liabilities Operating Cash Flow / Total Liabilities
Year 1 0 0 #DIV/0!
Year 2 0 0 #DIV/0!
Year 3 0 0 #DIV/0!