Chapter 5: The Strategic Filter


THE STRATEGIC FILTER is the second screen for evaluating Strategic Alternatives (SAs) in the StepWise Approach to Value (SWAV). In Chapter 4 we discussed the economic filter, which looks at an SA from the demand perspective. The take-away from the economic filter is that you know that you have sufficient market demand to support an SA and that it can provide equivalence of action. The next logical step is to validate whether the SA creates a competitive advantage. This validation occurs by first performing a strategic analysis—identifying competitive weaknesses and determining if the value proposition offsets the weaknesses.

This chapter discusses two tools, the Porter Model and the Balanced Scorecard, that can be used to analyze strategy. The tools are used to determine areas of improvement in your competitive position. Enhancement in these areas should result in a stronger competitive advantage. We will look at the competitive factors from an industry perspective using the Porter Model. This model analyzes change within an industry based on five forces: rivalry among competitors, pressure from buyers, pressure from suppliers, barriers to entry, and substitute products. The Balanced Scorecard brings nonfinancial metrics into the analytical tool kit. We will describe how the Balanced Scorecard is a central framework for assessing your strategy. The Balanced Scorecard takes a company-specific perspective that stresses measurement of four key quadrants: financial, customer, internal business process, and learning and growth.

Introduction to the Strategic Filter

The following consulting experience demonstrates the importance of this screen. We were engaged to assist with a merger integration of two financial services companies. The scope of our work was to evaluate the resource capabilities of a specific division.

The transaction had already been consummated, and the value proposition communicated to the investment community was that the merger would result in increased revenue and improved efficiency. The acquiring company felt the merger would give it a stronger presence in two major metropolitan markets, with the ability to increase revenue. The revenue lift would be an increase over the combined revenues of both entities. It also felt that it could reduce expenses by consolidating branches and administrative functions in accounting, marketing, and human resources. The acquiring company was no stranger to M&A. It had made numerous acquisitions of numerous smaller competitors over a number of years, but this was by far the largest acquisition. In the past, the acquiring company was able to increase sales in new markets, through the use of aggressive pricing strategies. In our conversations with the executives, they indicated that they felt a similar strategy was the key to success with this merger. The company would use its increased presence and lower prices to boost revenue. Yet this strategy was not viable in the major markets that were targeted. There were numerous competitors with much greater pricing power that already had a significant presence in these markets. The combined company struggled to increase revenues. This resulted in the departure of the CEO. How does all of this demonstrate the importance of the strategic filter? Had the due diligence team focused on the strategic issues, more specifically the competitive rivalry in the target markets, they would have seen that the value proposition from the merger would not deliver shareholder value.




Translating Strategy into Shareholder Value. A Company-Wide Approach to Value Creation
Translating Strategy into Shareholder Value: A Company-Wide Approach to Value Creation
ISBN: 0814405649
EAN: 2147483647
Year: 2003
Pages: 117

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