Analyzing Business Environment

sunandaC

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Arthur D. Little Life Cycle Approach

Analyzing the business environment

Steps of application

Identify each line of business

Assessing the life cycle stage of each business

Identify the competitive position of the firm

Identify the strategy for the SBU, based on its life cycle stage & competitive position

Assigning the strategic thrust to the natural strategy

Selection of one of the 24 generic strategies.

Arthur D. Little (ADL), a consulting firm

Methodology draws directly upon the concept of industry life cycles to develop a structural approach.

The approach uses the dimensions of environmental assessment and business strength assessment.

The environmental measure is an identification of the industry's life cycle.

Arthur D. Little (ADL), a consulting firm

The business strengths measure is a categorization of the corporation's SBU's into one of six competitive positions: dominant, strong, favorable, tenable, weak, and non-viable.

This yields a 6 (competitive positions) by 4 (life cycle stages) matrix.
Positioning in the matrix identifies a general strategy.

Step 1.

Identify each line of business.
In the ADL approach, the line of business or SBU is not especially defined by a product or organizational unit.

The strategist must identify discrete businesses by finding commonalties among products and business lines using the following criteria as guidelines
a) Common rivals
c) Customers
e) Substitutability
b) Prices
d) Quality/Style
f) Divestment or liquidation

Step 2.

For each business, assess the life cycle stage. This assessment is made on the basis of business market share, investment, and profitability or cash flow. The three matrices - Market Share, Investment Required, and Profitability and Cash Flow - are used as guides in this process

Step 3.

Identify the competitive position of a firm. This is a subjective assessment, based on the following criteria:

a) Dominant
These are rare.
Dominance often results from a near monopoly or protected leadership

b) Strong:
A strong SBU can usually follow a strategy without consideration of rival counter moves.

c) Favorable:
The industry is fragmented. There is no clear leader among stronger rivals.

d) Tenable:
Typically the SBU has a niche, either geographical or defined by the product.

e) Weak:
Typically too small to be profitable or survive over the long term. May be a large firm, but suffers from prior mistakes or a critical weakness.


Step 4.

Assess what is the natural strategy for the SBU, based on its life cycle stage and competitive position. This is determined by the table below:

Natural Strategies

Natural Development strategies are appropriate when the SBU is in a mature industry and is competitive. The SBU deserves strong support.
Selective Development refers to strategies that concentrate on industries that are attractive or on SBU's that have competitive competencies.
Prove Viability is transitional strategy that cannot be sustained. The situation must be changed.

Out is a strategy for withdrawal.

Step 5.

Assign a strategic thrust to the natural strategy. This is a set of specific actions that support the general direction in Step 4.

For example, within a Natural Development strategy, a SBU can pursue:
Start-Up: the embryonic stage for business with strong competitive potential
Growth with Industry: a strong or dominant business in a mature industry seeks to maintain position

Gain Position Gradually: to attain a stronger position, market share is increased incrementally

Defend: in early stages of industry maturity, a strong or dominant business needs to combat rivals

Harvest: in the aging stage, the resources of the business are reallocated to strong SBU's and exit is planned

Step 6.

Using the strategic thrust identified in Step 5, one of twenty four generic strategies is selected.

limitations

There is no standard life cycle length
To determine the current life cycle stage is difficult.
Competitors may influence the length of life cycle.
 
Arthur D. Little Life Cycle Approach

Analyzing the business environment

Steps of application

Identify each line of business

Assessing the life cycle stage of each business

Identify the competitive position of the firm

Identify the strategy for the SBU, based on its life cycle stage & competitive position

Assigning the strategic thrust to the natural strategy

Selection of one of the 24 generic strategies.

Arthur D. Little (ADL), a consulting firm

Methodology draws directly upon the concept of industry life cycles to develop a structural approach.

The approach uses the dimensions of environmental assessment and business strength assessment.

The environmental measure is an identification of the industry's life cycle.

Arthur D. Little (ADL), a consulting firm

The business strengths measure is a categorization of the corporation's SBU's into one of six competitive positions: dominant, strong, favorable, tenable, weak, and non-viable.

This yields a 6 (competitive positions) by 4 (life cycle stages) matrix.
Positioning in the matrix identifies a general strategy.

Step 1.

Identify each line of business.
In the ADL approach, the line of business or SBU is not especially defined by a product or organizational unit.

The strategist must identify discrete businesses by finding commonalties among products and business lines using the following criteria as guidelines
a) Common rivals
c) Customers
e) Substitutability
b) Prices
d) Quality/Style
f) Divestment or liquidation

Step 2.

For each business, assess the life cycle stage. This assessment is made on the basis of business market share, investment, and profitability or cash flow. The three matrices - Market Share, Investment Required, and Profitability and Cash Flow - are used as guides in this process

Step 3.

Identify the competitive position of a firm. This is a subjective assessment, based on the following criteria:

a) Dominant
These are rare.
Dominance often results from a near monopoly or protected leadership

b) Strong:
A strong SBU can usually follow a strategy without consideration of rival counter moves.

c) Favorable:
The industry is fragmented. There is no clear leader among stronger rivals.

d) Tenable:
Typically the SBU has a niche, either geographical or defined by the product.

e) Weak:
Typically too small to be profitable or survive over the long term. May be a large firm, but suffers from prior mistakes or a critical weakness.


Step 4.

Assess what is the natural strategy for the SBU, based on its life cycle stage and competitive position. This is determined by the table below:

Natural Strategies

Natural Development strategies are appropriate when the SBU is in a mature industry and is competitive. The SBU deserves strong support.
Selective Development refers to strategies that concentrate on industries that are attractive or on SBU's that have competitive competencies.
Prove Viability is transitional strategy that cannot be sustained. The situation must be changed.

Out is a strategy for withdrawal.

Step 5.

Assign a strategic thrust to the natural strategy. This is a set of specific actions that support the general direction in Step 4.

For example, within a Natural Development strategy, a SBU can pursue:
Start-Up: the embryonic stage for business with strong competitive potential
Growth with Industry: a strong or dominant business in a mature industry seeks to maintain position

Gain Position Gradually: to attain a stronger position, market share is increased incrementally

Defend: in early stages of industry maturity, a strong or dominant business needs to combat rivals

Harvest: in the aging stage, the resources of the business are reallocated to strong SBU's and exit is planned

Step 6.

Using the strategic thrust identified in Step 5, one of twenty four generic strategies is selected.

limitations

There is no standard life cycle length
To determine the current life cycle stage is difficult.
Competitors may influence the length of life cycle.

Hey sunanda, thanks for sharing the information and explaining about the concept of business environment analysis. Well, i have also got a document on business environment and its analysis and would like to share it with you.
 

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