McKinsey Email: Business Strategy Analysis in a Red Ocean

A great exercise used in business strategy is scenario planning analysis business strategy. An crucial activity in the scenario planning framework is choosing the primary axes of uncertainty within the context of a scenario map. Usually, the business strategy is performed in an off site workshop environment, whereby key stakeholders, executives, subject matter experts, and third party consultants, are gathered in a 4 day off-site conference to decide on numerous future state situations. Scenario planning techniques is also called scenario thinking and scenario analysis.

All the financial statements are linked together and relate back to the periodic activities of the business blue ocean strategy. Profit-loss statements compare cost line items to associated revenues in a calendar year to give a complete picture of financial performance. The cash flow statement shows the actual cash flows linked with sales and expenses in a fiscal year, to convey the true adjustment in cash position. The statement is initialized at a specified point in time . The balance sheet summarizes the value of what a organization‘s business strategy has in the books less what the business owes, and balances them with the sources of financing (debt). Financial statements depict an ongoing stream of events, which compromise of all the transactions for the year, trading, and other financial events.

Financial comparables are measures of a firm’s specific financial features business strategy. Comparable ratios usually fall into four areas: profitability ratios, liquidity ratios, solvency ratios, and investment ratios. Investment comparable ratios are good indicators of the public’s perspective of a business. Comparables help us diagnose the health of a firm. These ratios are mainly use by investors to value a firm. They assess the mix of funds in the balance sheet and assess company’s ability to undertake operating setbacks. A frequently used solvency ratio is P/E ratio. Comparable ratios are typically used to identify potential areas of improvement for the firm. Solvency ratios are indicators of a firm’s financial strength. Book values for fixed assets may be out of date when conducting financial ratio analysis. Profitability comparable ratios depict how well a business uses its assets to create profits/value.

Skimming the market releases the new product at a relatively high price point business strategy. Price skimming strategy allows the organization to maximize its margin by getting the maximum amount customers are willing to pay for. Next, as competition increases, the price is eroded. As more the landscape becomes more competitive and drive up supply, pricing will organically erode. Price penetration is to introduce a product at a low initial entry price, usually less than existing substitutive products in the market. This strategy allows the company to quickly capture market share and top line growth via appealing to the majority of the market.

For traditional growth strategy thinking, most people rely on the time-tested business framework Porter’s Five Forces, developed by Michael Porter blue ocean strategy. In Porter’s Five Forces, we look into 5 industry forces that affect any competitive environment, which include internal rivalry, threat of new entrants, buyer power, supplier negotiation power, and threat of substitution products.

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