Note 1

How to Analyze a Business Situation

Real business situations are complex and confusing. They’re often more difficult to
analyze than most problems you confront in academic life. To make sense of them and
come to conclusions that will help you succeed in the long run, it helps to develop a
discipline in sorting out facts. This handout is designed to help you create that discipline.
The basic process outlined here will help you prepare for discussion of a case in class,
prepare an essay on an exam, prepare a paper on a business question, or prepare to
present a recommendation or make a decision in many (probably most) real-world
business situations.

Start by stating clearly (to yourself) what question you are trying to answer. Write it at
the top of the page or computer file where you are taking notes. For analysis of a case in
a business school class, it is appropriate to select one of the “study questions” from the
syllabus that is most interesting to you.

Step 1. Analyze the history and development of the company and the
situation. You are likely to receive information on the situation from confusing
sources. Many different facts and dates will be out of chronological order. Usually
the best first step for understanding the situation is simply to list the key events in
chronological order. For example, the following list of facts was created in an
effort to make sense of a Sun Microsystems case in a previous edition of the Hill
& Jones text:

1980 – Scott McNealy graduates from Stanford, takes job at FMC Corp. as
manufacturing trainee working on Bradley fighting vehicle.

1982 – Vinod Khosla, Stanford classmate, asks McNealy to join w Khosla, Andreas
Bechtolsheim in founding Sun, acronym for Stanford University Network. Bill Joy joins
too. Produce Sun-1 – high-powered workstation based on standard components.
McNealy is vp manufacturing and operations.

1983 – sales $9 mil.

1984 – sales soar to $39 mil; McNealy keeps up. McNealy asks Kodak for $20 mil
investment. Kodak demands McNealy be president/CEO. Khosla leaves; McNealy
appointed president.

1986 – IPO

1988 – outgrow production facilities, quarterly loss. McNealy moves from president’s
office to floor of biggest factory.
- McNealy prunes product line, sharpens focus on workstatgion built on processor of
Sun’s own design.
- Motto is ‘kick butt and have fun’

1990 – Oak programming language invented to allow devices to run programs distributed
over network.

Business 189 – Prof. Wood How to Analyze a Business Situation - Page 1

 1994 – Worldwide Web expands, validating Sun claim that ‘the network is the
computer.’

1994 – in presentation on apparently-dying Oak, McNealy sees way to harness Internet to

stop Microsoft from taking over world. Language is renamed Java.

Step 2. Identify the company’s internal strengths and weaknesses. No

company is good at everything, and almost every company is good at something.
Central to strategic analysis is identifying what the organization you are studying
is currently good at and what it does not do well. So the second step in analyzing
a business situation is to list strengths of the company being studied in one
column (usually with emphasis on strengths relevant to the particular issue under
study) and weaknesses in the other column.

Some of the strengths listed should be what we call “distinctive competences” –

competences that are difficult for others to imitate because of the complex of
resources and capabilities that support them. These can serve as the basis for solid
long-term profit opportunities.

Remember that in listing strengths and weaknesses you are analyzing what is
inside the firm. List strengths and weaknesses relative to what the company is
trying to do now. Something that is a weakness today (for example, high-cost
shopping-center leases for a discount retailer) may become a strength if the
organization adopts a new strategy. If that is the case, list the high cost leases
under weaknesses and then list the chance to make them into strengths under
opportunities in Step 3 (to be discussed on the next page).

The following are lists of strengths and weaknesses prepared on the Sun
Microsystems case.

Strengths Weaknesses
McNealy is able to rally people, prep Traditional business being eaten away
them for fight by PCs.
Servers crash less often than Haven’t made persuasive case for
Microsoft’s. Reliability=distinctive usefulness of Java
competence Haven’t clearly articulated why
Good at repositioning products Microsoft shouldn’t take over
Built organization around network- world.
centric approach to computing from Open standards commitment is less
beginning, recognized possibilities of open than Linux
worldwide network earlier than
others.
Technology addresses all key parts of
large-systems value-chain
Customers view Sun as repository of
wisdom and competence in network
computing. Distinctive competence

Business 189 – Prof. Wood How to Analyze a Business Situation - Page 2

 Step 3. Analyze the company’s external environment and identify
opportunities and threats it faces. List the opportunities and threats the
company faces in two columns just as you listed strengths and weaknesses in two
columns. Once we’ve studied the industry life-cycle model and the Porter 5-
forces model in Chapter 3, try using them to analyze the situation your company
faces.

If you think of additional strengths and weaknesses as you are listing

opportunities and threats, add them to the lists you created in Step 2.

Here is a list of opportunities and threats developed from the Sun Microsystems
case. Note that this list, based on the case published in 2001, shows more threats
than opportunities. The threats shown here played a significant role in the serious
problems that Sun experienced in 2001 and 2002.

Opportunities Threats
Sales of networking equipment for web, Many competitors can make Unix
other large-scale applications are servers
growing Microsoft Windows NT can in theory
Digital contents creation business is do everything Solaris does and offer
growing much wider compatibility
  Linux offers strong competition for
  Solaris and is more open
 

Step 4. Evaluate your SWOT analysis. Look at the lists of strengths,

weaknesses, opportunities, and threats and consider what these findings mean.
Does the company have a strong competitive position? What does the company
have to do to address its weaknesses and threats? Which opportunities are most
important and what must it do to capitalize on them?

At this point it’s worthwhile to create a preliminary answers to the questions that
caused you to begin your analysis in the first place. But try to keep an open mind
as you continue your analysis.

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 Step 5. Analyze the company’s strategy/business model. Now you have
enough analysis to begin examining the company’s strategy and business model.
What (roughly) are the firm’s mission and goals? (Do you think the firm
understands them clearly enough?) What is the company currently trying to do,
and why is it trying to do it? How has its strategy (what it has been trying to do
and the actions it was trying to take to do it) changed over time? What parts of
the company seem most crucial to the strategy? Do any parts of the company
seem to be a drag on the firm?

After we have studied generic competitive strategies in Chapter 4, you will want
to consider whether the company’s strategy can be summarized with one of the
three generic strategies: differentiation, low-cost, or focus.

Identify the strategies of key parts of the business.

Once you have analyzed what the key strategies of the company are, ask: Do
these strategies make sense? How should they be changed?

Step 6. Analyze structure and control systems of the firm. The “bosses” in an
organization have only limited control over what goes on in it. The CEO can
order people to do things, but often they do not (or cannot) do everything he or
she says. If the activities the CEO wants are complex (as they often are), it is very
difficult to coordinate people in the organization to ensure that what is desired
actually happens.

To do solid strategic analysis, it’s essential to recognize these facts and consider
whether the structure and control systems of the organization you are examining
can allow the organization to carry out the strategies being proposed. A key issue
in strategic analysis is whether the structure of the organization is suitable for
getting people to work together to implement a proposed strategy. Another is
whether the control and incentive systems of the organization (everything from
how people are paid to the norms in the company’s corporate culture) can
encourage the behavior the strategy requires.

Unfortunately, it is often difficult to obtain good information on a company’s

structure and control systems (and we won’t discuss them in much detail in this
course). But in any strategic analysis it is worthwhile to consider whether the
information you have on the organization’s structure and control systems suggests
they can really support the strategy the firm is trying to implement. And it is

Aot quite half way through Business 189, we will discuss the difference between business-level strategy
(strategy for a particular business within a company) and corporate-level strategy (strategy for a company
as a whole). This distinction is very important for firms that do more than one business. When you
analyze such firms, you should if possible analyze corporate-level and business-level strategy separately.

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 worthwhile to consider whether a search for more information on structure and
control systems would be a good investment.
Analysis of the Sun case suggests that a key element of Sun’s structure is that it gives
considerable profit-and-loss responsibility to business units and subunits, but that it has a
top-level vision driven aggressively by its chief executive. This can make it difficult for
small-scale innovations to grow in the organization (since innovations often lose money
for the first few years and may therefore make the heads of business subunits that contain
them look bad). But the fact that the company has long been driven by the chief
executive’s vision makes it likely that new large-scale innovations supported by the CEO
can take hold quickly throughout the organization.

Step 7. Make recommendations. You now have enough data and analysis to
credibly answer the business questions that caused you to start this process. What
should the people in this situation do?

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