Key Formulas & Frameworks
Internal: Strengths & Weaknesses | External: Opportunities & Threats
1. Threat of New Entrants
2. Bargaining Power of Suppliers
3. Bargaining Power of Buyers
4. Threat of Substitutes
5. Competitive Rivalry
Industry Profitability = f(all five forces)
Stars: High growth, High share โ Invest heavily
Cash Cows: Low growth, High share โ Milk for cash
Question Marks: High growth, Low share โ Selective investment
Dogs: Low growth, Low share โ Divest or harvest
Market Penetration: Existing products, Existing markets
Market Development: Existing products, New markets
Product Development: New products, Existing markets
Diversification: New products, New markets
Margin of Safety: MOS = (Actual Sales โ Break-Even Sales) รท Actual Sales ร 100%
Return on Marketing Investment (ROMI): ROMI = (Incremental Revenue ร Contribution Margin โ Marketing Cost) รท Marketing Cost
CLV (with discount rate): CLV = ฮฃ [(Margin ร Retention Ratet) รท (1 + d)t]
Promoters: 9-10 | Passives: 7-8 | Detractors: 0-6
All seven elements must be aligned for organizational effectiveness
Strategy Map: Cause-and-effect links across four perspectives
VRIO Framework: Value, Rarity, Imitability, Organization โ Competitive Advantage
Core Concepts
Business Model Canvas
A strategic management tool consisting of 9 building blocks: Customer Segments, Value Propositions, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships, and Cost Structure. It provides a visual chart for developing or documenting business models.
Organizational Structure
The framework that determines how tasks are divided, grouped, and coordinated. Common types: Functional (by department), Divisional (by product/region), Matrix (dual reporting), Flat (few hierarchy levels), and Network (outsourced functions).
Corporate Social Responsibility (CSR)
A business model where companies integrate social and environmental concerns into their operations. The Triple Bottom Line framework measures success across three dimensions: People (social), Planet (environmental), and Profit (economic).
Supply Chain Management
The management of the flow of goods and services from raw materials to end customers. Key components: Procurement, Operations, Distribution, and Integration. Objectives include cost reduction, quality improvement, and lead time reduction.
Change Management
The structured approach for transitioning individuals, teams, and organizations from a current state to a desired future state. Kotter's 8-Step Model: Create urgency, form coalition, create vision, communicate vision, empower action, create short-term wins, build on change, anchor changes.
Stakeholder Theory
A theory of organizational management that addresses morals and values in managing an organization. Stakeholders include shareholders, employees, customers, suppliers, communities, and governments. The firm should create value for all stakeholders, not just shareholders.
Lean Management
A systematic method for waste minimization without sacrificing productivity. The 5S framework: Sort, Set in Order, Shine, Standardize, Sustain. Key principles: Value identification, Value stream mapping, Flow, Pull, and Perfection.
Business Process Reengineering (BPR)
The analysis and design of workflows and processes within an organization. BPR aims to help organizations fundamentally rethink how they do their work to improve customer service, cut operational costs, and become world-class competitors.
Worked Examples & Case Studies
Example 1: SWOT Analysis โ Starbucks
Strengths: Strong brand recognition, global presence (35,000+ stores), premium product quality, loyal customer base, ethical sourcing reputation.
Weaknesses: High prices, dependence on US market, product customization complexity, labor cost pressures.
Opportunities: Expansion in China/India, digital ordering growth, plant-based product line, ready-to-drink market.
Threats: Competition (Dunkin', McDonald's), coffee bean price volatility, shifting consumer preferences, economic downturns.
Example 2: BCG Matrix Application
Company Portfolio:
โข iPhone (Apple): Star โ High growth smartphone market, dominant market share โ Invest in innovation
โข Windows (Microsoft): Cash Cow โ Mature OS market, high market share โ Maintain, generate cash for cloud/AI
โข Electric Vehicles (Tesla): Question Mark โ High growth EV market, but facing intense competition โ Invest selectively in differentiation
โข Kodak Film: Dog โ Declining market, minimal share โ Divest
Example 3: Customer Lifetime Value Calculation
Problem: A subscription service charges $30/month. Average customer stays for 3 years. Gross margin is 70%. Calculate CLV.
Solution: Average Purchase Value = $30/month. Frequency = 12 months/year. Lifespan = 3 years. CLV = $30 ร 12 ร 3 ร 0.70 = $30 ร 36 ร 0.70 = $756. If acquisition cost is $200, the CLV:CAC ratio is 3.78:1 (healthy ratio is 3:1 or higher).
Case Study: Netflix Business Model Transformation
Background: Netflix started as a DVD-by-mail rental service (1997), pivoted to streaming (2007), and became a content creator (2013 with House of Cards).
Strategic Analysis: (1) First-mover advantage in streaming, (2) Data-driven content decisions (viewing patterns inform production), (3) Global expansion (190+ countries), (4) Subscription model provides recurring revenue, (5) Network effects: more content โ more subscribers โ more revenue โ more content investment. Revenue grew from $1.36B (2007) to $31.6B (2023).
Case Study: Toyota Production System (TPS)
Background: Toyota developed TPS post-WWII to compete with larger automakers. Core concepts: Just-in-Time (JIT) production and Jidoka (automation with a human touch).
Business Impact: (1) Waste elimination (muda): overproduction, waiting, transport, over-processing, inventory, motion, defects; (2) Kanban pull system reduces inventory costs; (3) Kaizen continuous improvement culture; (4) Result: Toyota became world's largest automaker by volume, with industry-leading profit margins and quality ratings.
Practice Problems
Problem 1: A company has fixed costs of $200,000, sells products at $100 each with variable costs of $60 per unit. Calculate the break-even point in units and dollars.
Answer: BEP (units) = 200,000 รท (100 โ 60) = 200,000 รท 40 = 5,000 units. BEP (dollars) = 5,000 ร 100 = $500,000.
Problem 2: A marketing campaign costs $50,000 and generates $200,000 in incremental revenue with a 40% contribution margin. Calculate ROMI.
Answer: ROMI = (200,000 ร 0.40 โ 50,000) รท 50,000 = (80,000 โ 50,000) รท 50,000 = 60%.
Problem 3: In a survey of 200 customers: 100 are Promoters (9-10), 50 are Passives (7-8), 50 are Detractors (0-6). Calculate NPS.
Answer: NPS = (100/200 ร 100) โ (50/200 ร 100) = 50% โ 25% = +25.
Problem 4: A company has actual sales of $800,000 and break-even sales of $500,000. Calculate the Margin of Safety.
Answer: MOS = (800,000 โ 500,000) รท 800,000 ร 100 = 37.5%.
Problem 5: Using Porter's Five Forces, analyze the airline industry. Rank each force from 1 (weak) to 5 (strong) and explain your reasoning.
Answer: (1) Competitive Rivalry: 5 โ Intense price competition, excess capacity. (2) Buyer Power: 4 โ Price-sensitive customers, comparison shopping. (3) Supplier Power: 4 โ Duopoly (Boeing/Airport), unionized labor. (4) Threat of Substitutes: 3 โ High-speed rail, video conferencing. (5) Threat of New Entrants: 2 โ High capital requirements, regulatory barriers.
Problem 6: A project costs $500,000 and is expected to generate after-tax cash flows of $150,000 per year for 5 years. The company's cost of capital is 12%. Calculate ROI.
Answer: Total gain = 150,000 ร 5 = $750,000. ROI = (750,000 โ 500,000) รท 500,000 ร 100 = 50%.
Problem 7: Apply the Ansoff Matrix to recommend growth strategies for a coffee shop chain. Provide one example for each quadrant.
Answer: (1) Market Penetration: Loyalty program to increase repeat visits. (2) Market Development: Expand to new cities/countries. (3) Product Development: Introduce seasonal beverages or food items. (4) Diversification: Launch a line of packaged coffee beans for retail sale.
Problem 8: A company has 4 business units with the following market growth rates and relative market shares. Classify each using the BCG Matrix: A (15%, 0.5x), B (3%, 2.0x), C (12%, 1.5x), D (2%, 0.3x).
Answer: A = Question Mark (high growth, low share), B = Cash Cow (low growth, high share), C = Star (high growth, high share), D = Dog (low growth, low share).