Chap06exp

Ch 6 -1

Chapter 6Strategy Analysis & Choice

Ch 6 -2

To acquire or not to acquire, that is the question –Robert J. Terry

Strategy Analysis & Choice

Life is full of lousy options -- General P.X. Kelley

Ch 6 -3

-- Establishing long-term objectives-- Generating alternative strategies-- Selecting strategies to pursue-- Best alternative - achieve mission & objectives

Nature of Strategy Analysis & Choice


Ch 6 -4

Vision Mission Objectives External audit Internal audit Past successful strategies


Alternative Strategies Derive From --

Ch 6 -5


Generating Alternatives --

Participation in generating alternative strategies should be as broad as possible

Ch 6 -6

Comprehensive Strategy-Formulation Framework

Stage 1:The Input Stage

Stage 2:The Matching Stage

Stage 3:The Decision Stage

Ch 6 -7

Strategy-Formulation Analytical Framework

Internal Factor EvaluationMatrix (IFE)

External Factor EvaluationMatrix (EFE)

Competitive Profile Matrix(CPM)

Stage 1:The Input Stage

Ch 6 -8

Stage 1: The Input Stage

Basic input information for the matching & decision stage matrices

Requires strategists to quantify subjectivity early in the process

Good intuitive judgment always needed

Ch 6 -9


SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix


Ch 6 -10

Stage 2: The Matching Stage

Match between organization’s internal resources & skills and the opportunities & risks created by its external factors

Ch 6 -11

Stage 2: The Matching Stage

Strengths

Weaknesses

Opportunities

Threats

SWOT Matrix

Ch 6 -12

SWOT Matrix

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of Strategies

Ch 6 -13

SO Strategies

Use a firm’sinternal strengthsto take advantage

of external opportunities

SOStrategies

StrengthsWeaknesses

OpportunitiesThreats

SWOT

Ch 6 -14

WO Strategies

Improving internalweaknesses by

taking advantageof external

opportunities

WOStrategies

StrengthsWeaknesses


SWOT

Ch 6 -15

ST Strategies

Use a firm’s strengthsto avoid or

reduce the impactof external

threats

STStrategies

StrengthsWeaknesses


SWOT

Ch 6 -16

WT Strategies

Defensive tacticsaimed at reducing

internal weaknesses &

avoidingenvironmental

threats

WTStrategies

StrengthsWeaknesses


SWOT

Ch 6 -17

SWOT Matrix

Developing the SWOT

List firm’s key internal Strengths

List firm’s key internal Weaknesses

List firm’s key external Opportunities

List firm’s key external Threats

Ch 6 -18

SWOT Matrix

Leave Blank

Strengths – S

List Strengths

Weaknesses – W

List Weaknesses

Opportunities – O

List Opportunities

SO Strategies

Use strengths to take advantage of opportunities

WO Strategies

Overcoming weaknesses by taking advantage of

opportunities

Threats – T

List Threats

ST Strategies

Use strengths to avoid threats

WT Strategies

Minimize weaknesses and avoid threats

Ch 6 -19

Develop a new employee benefits package

= Strong union activity (threat)

+Poor employee morale (weakness)

Develop new products for older adults

=Decreasing numbers of young adults (threat)

+Strong R&D (strength)

Pursue horizontal integration by buying competitor's facilities

=Exit of two major foreign competitors form the industry (opportunity)

+Insufficient capacity (weakness)

Acquire Cellfone, Inc.=20% annual growth in the cell phone industry (opportunity)

+Excess working capital (strength)

Key Internal Factor Key External Factor Resultant Strategy

Matching Key Factors to Formulate Alternative Strategies

Ch 6 -20


SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix



Ch 6 -21

SPACE Matrix

Strategic Position & Action Evaluation Matrix

Aggressive

Conservative

Defensive

Competitive

Ch 6 -22

SPACE Matrix

Two Internal Dimensions

Financial Strength (FS)

Competitive Advantage (CA)

Ch 6 -23

SPACE Matrix

Two External Dimensions

Environmental Stability (ES)

Industry Strength (IS)

Ch 6 -24

SPACE Factors

Environmental Stability (ES)

Technological changes

Rate of inflation

Demand variability

Price range of competing products

Barriers to entry

Competitive pressure

Price elasticity of demandEase of exit from market Risk involved in business

Financial Strength (FS)

Return on investment

Leverage

Liquidity

Working capital

Cash flow

External Strategic PositionInternal Strategic Position

Ch 6 -25

SPACE Factors

Industry Strength (IS)

Growth potential

Profit potential

Financial stability

Technological know-how

Resource utilization

Ease of entry into market

Productivity, capacity utilization

Competitive Advantage CA

Market share

Product quality

Product life cycle

Customer loyalty

Competition’s capacity utilization

Technological know-how

Control over suppliers & distributors

External Strategic PositionInternal Strategic Position

Ch 6 -26

SPACE MatrixFS

+6

+1

+5+4+3

+2

-6

-5

-4

-3

-2

-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6

ES

CA IS

Conservative Aggressive

Defensive Competitive

Ch 6 -27


SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix



Ch 6 -28

BCG Matrix

Boston Consulting Group Matrix

Enhances multi-divisional firm in formulating strategies

Autonomous divisions = business portfolio

Divisions may compete in different industries

Focus on market-share position & industry growth rate

Ch 6 -29

BCG Matrix

Relative Market Share Position

Ratio of a division’s own market share in an industry to the market share held by the largest rival firm in that industry.

Ch 6 -30

BCG Matrix

Dogs

IV

Cash Cows

III

Question Marks

I

Stars

II

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

Ind

us

try

Sa

les

Gro

wth

Ra

te

High+20

Low-20

Medium0

Ch 6 -31

BCG Matrix

Question Marks

Low relative market share – compete in high-growth industry

Cash needs are high

Case generation is low

Decision to strengthen (intensive strategies) or divest

Ch 6 -32

BCG Matrix

Stars

High relative market share and high growth rate

Best long-run opportunities for growth & profitability

Substantial investment to maintain or strengthen dominant position

Integration strategies, intensive strategies, joint ventures

Ch 6 -33

BCG Matrix

Cash Cows

High relative market share, competes in low-growth industry

Generate cash in excess of their needs

Milked for other purposes

Maintain strong position as long as possible

Product development, concentric diversification

If weakens—retrenchment or divestiture

Ch 6 -34

BCG Matrix

Dogs

Low relative market share & compete in slow or no market growth

Weak internal & external position

Liquidation, divestiture, retrenchment

Ch 6 -35


SWOT Matrix

SPACE Matrix

BCG Matrix



Ch 6 -36


Tool for formulating alternative strategies

Based on two dimensions

Competitive position

Market growth

Ch 6 -37

Quadrant IV

1. Concentric diversification

2. Horizontal diversification

3. Conglomerate diversification

4. Joint ventures

Quadrant III

1. Retrenchment


3. Horizontal diversification

4. Conglomerate diversification

5. Liquidation

Quadrant I

1. Market development

2. Market penetration

3. Product development

4. Forward integration

5. Backward integration

6. Horizontal integration


Quadrant II

1. Market development

2. Market penetration

3. Product development

4. Horizontal integration

5. Divestiture

6. Liquidation

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAK COMPETITIVE

POSITION

STRONGCOMPETITIVE

POSITION

Ch 6 -38


Excellent strategic position

Concentration on current markets/products

Take risks aggressively when necessary

Quadrant I

Ch 6 -39


Evaluate present approach

How to improve competitiveness

Rapid market growth requires intensive strategy

Quadrant II

Ch 6 -40


Compete in slow-growth industries

Weak competitive position

Drastic changes quickly

Cost & asset reduction (retrenchment)

Quadrant III

Ch 6 -41


Strong competitive position

Slow-growth industry

Diversification to more promising growth areas

Quadrant IV

Ch 6 -42


Stage 3:The Decision Stage

Quantitative StrategicPlanning Matrix

(QSPM)

Ch 6 -43

QSPM

Technique designed to determine the relative attractiveness of feasible alternative actions

Quantitative Strategic Planning Matrix

Ch 6 -44

QSPM

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Computer Information Systems

Strategy 3Strategy 2Strategy 1WeightKey External Factors

Economy

Political/Legal/Governmental

Social/Cultural/Demographic/Environmental

Technological

Competitive

Strategic Alternatives

Ch 6 -45

QSPM

Requires intuitive judgments & educated assumptions

Only as good as the prerequisite inputs

Limitations

Ch 6 -46

QSPM

Sets of strategies considered simultaneously or sequentially

Integration of pertinent external & internal factors in the decision making process

Advantages

Ch 6 -47

Cultural Aspects of Strategy Choice

Successful strategies depend on the degree of consistency with the firm’s culture

Organization Culture

Ch 6 -48

Politics of Strategy Choice

Management hierarchy

Career aspirations

Allocation of scarce resources

Politics in Organizations

Ch 6 -49

Politics of Strategy Choice

Equifinality

Satisfying

Generalization

Higher-order issues

Political access on important issues

Political tactics for strategists

Business

Chap06exp