Business Strategy 5

7/26/2019 Business Strategy 5

1/24


2/24

Stage I Input Stage

External Factor Evaluation

(EFE) Matrix and

Internal Factor Evaluation

(IFE) Matrix

OR

Competitive Profile Matrix

Stage II Matching Stage

TOWS Analysis

BCG Matrix Strategic Position and Action

Evaluation (SPACE) Matrix

Stage III Decision Stage

Quantitative Strategic Planning Matrix

(QSPM)


3/24

External Audit

External Forces

Socio,Cultural,

DemographicEnvironmental

Political,Governmental

LegalTechnological CompetitiveEconomic

Interest Rates

Value of Rupee

Profile of Population

Standard of living

Habits and preferences

Changes in laws and

tax rates

Regulatory agencies

Special interest groups

New Discoveries

Type of sector

Profile sales, profits

SWOT Analysis


4/24

Industry Analysis

I. External Factor Evaluation Matrix EFE) Matrix

1. List key external factors (Opportunities and threats)

2. Assign to each factor a weight ranging from 0.0 (notimportant) to 1.0 ( Very important). The sum of allweights assigned to the factors must equal to 1.0

3. Assign a 1 to 4 rating to each critical success factorwhere 4 = the response is superior, 3= response isabove average, 2= the response is average and 1=response is poor. Ratings are based uponeffectiveness of firmsstrategies.

4. Multiply each factors weight by its rating todetermine a weighted score.

5. Sum the weighted score for each variable todetermine the total weighted score for the

organization.


5/24

Internal Audit

Research &

Development

Computer

Information

SystemsProductionFinanceMarketingManagement

PlanningOrganizingMotivatingStaffingControlling

Customer AnalysisBuying SuppliesSelling productsProduct & service-planningPricingDistributionMarketing Research

Opportunity AnalysisSocial Responsibility

Investment decisionFinancing decisionDividend decision

ProcessCapacityInventoryWorkforceQuality

R&D BudgetInternal or External-R&D

UsageUpdatedRival firmsUser friendlyTraining


6/24

Internal Factor Evaluation Matrix IFE) Matrix

1. List critical success factors ( strengths andweaknesses)

2. Assign to each factor a weight ranging from 0.0 (notimportant) to 1.0 ( Very important). The sum of allweights assigned to the factors must equal to 1.0

3. Assign a 1 to 4 rating to each critical success factor

where 4 = the response is superior, 3= response isabove average, 2= the response is average and 1=response is poor. Ratings are based uponeffectiveness of firmsstrategies.

4. Multiply each factors weight by its rating to

determine a weighted score.

5. Sum the weighted score for each variable todetermine the total weighted score for theorganization.

The total weighted score 2.5 and above indicates strong internal position


7/24

II. Competitive Profile Matrix CPM)

The CPM identifies a firms major competitors and their

particular strengths and weaknesses in relation to a

sample firms strategic position

The critical success factors in CPM method are broader

and these are not grouped into opportunities and threats

rather may focus on internal issues.


8/24

A competitive profile Matrix

AVON LOREAL P & G

Critical Success

Factor

Weight Rating

Score Rating Score Rating Score

Advertisement 0.20 1 0.20 4 0.80 3 0.60

Product Quality 0.10 4 0.40 4 0.40 3 0.30

PriceCompetitiveness

0.10 3 0.30 3 0.30 4 0.40

Management 0.10 4 0.40 3 0.30 3 0.30

Financial Position 0.15 4 0.60 3 0.45 3 0.45

Customer Loyalty 0.10 4 0.40 4 0.40 2 0.20

Global Expansion 0.20 4 0.80 2 0.40 2 0.40

Market share 0.05 1 0.05 4 0.20 3 0.15

TOTAL 1.00 3.15 3.25 2.80


9/24

On 20 October 2006 the board of directors of Anglo-Dutchsteelmaker Corusaccepted a $7.6 billion takeover bid from Tata

Steel, the Indian steel company, at 455 pence per share of

Corus. The following months saw a lot of negotiations from both

sides of the deal. Tata Steel's bid to acquire Corus Group was

challenged by CSN, the Brazilian steel maker. Finally, on

January 30, 2007, Tata Steel purchased a 100% stake in the

Corus Group at 608 pence per share in an all cash deal,cumulatively valued at USD 12.04 Billion. The deal is the

largest Indian takeover of a foreign company and made Tata

Steel the world's fifth-largest steel group.

T T CORUS cquisition
http://en.wikipedia.org/wiki/Corus_Grouphttp://en.wikipedia.org/wiki/Companhia_Sider%C3%BArgica_Nacionalhttp://en.wikipedia.org/wiki/Companhia_Sider%C3%BArgica_Nacionalhttp://en.wikipedia.org/wiki/Corus_Group


10/24

TATA STEEL V. CSN

TATA STEEL

Strengths:

Better structured deal with lower risk to Tata

SteelsBalance Sheet since the takeover would

be through a separate entity

Better financing with substantial backing from

Banks and Tata Sons

Lower outstanding debt of Rs. 2516 Crore

Weaknesses:

May not be able to extract

synergies from the merger from

day one.

Does not have the iron ore to

achieve cost savings.

CSN

Strengths:Well laid out synergies with Corusin terms of raw material linkages

$450 Million synergies from dayone by supply of iron ore to Corus.

Can supply slabs to Corus fromexisting capacity of 5.6 mt.

Debt financing already tied up forthe deal with $5.3 billion equity and$8.8 billion debt tied up for Corus.

Weaknesses:

Higher risk to the Company sincethe debt is on the books.

Higher level of debt of $4.3

billion.Sou rce: ET Jan . 30, 08


11/24

TIMES OF INDIACorus asset sale may lift Tata Steel earnings

Reeba Zachariah, TNN |Feb 27, 2013, 12.41AM IST

MUMBAI: Tata Steel may look at the possibilities of the sale of part orall of Corus assets, which would provide a 'meaningful ' uplift to thecompany's earnings and valuations, said international brokerage houseCLSA. Tata Steel acquired Corus in 2007 for $13 billion and the Europeanfirm has been a problem child for the Indian owner.The economic slowdown in the eurozone, sliding demand and shrinkingnumber of projects impacted Corus (now known asTata Steel Europe),dragging the overall performance of Tata Steel down. Tata Steel'sconsolidated loss in the December quarter of FY 13 went up by 27%year-on-year to Rs 763 crore.

The news sent Tata Steel's shares southwards, with the scrip

closing at Rs 349.85 on Tuesday, down 3% on the BSE. The HongKong based CLSArecommended a sell rating on the stock with a

target price of Rs 310.
http://timesofindia.indiatimes.com/toireporter/author-Reeba-Zachariah.cmshttp://timesofindia.indiatimes.com/topic/Tata-Steel-Europehttp://timesofindia.indiatimes.com/topic/Clsahttp://timesofindia.indiatimes.com/topic/Clsahttp://timesofindia.indiatimes.com/topic/Tata-Steel-Europehttp://timesofindia.indiatimes.com/topic/Tata-Steel-Europehttp://timesofindia.indiatimes.com/topic/Tata-Steel-Europehttp://timesofindia.indiatimes.com/topic/Tata-Steel-Europehttp://timesofindia.indiatimes.com/topic/Tata-Steel-Europehttp://timesofindia.indiatimes.com/toireporter/author-Reeba-Zachariah.cms


12/24

TOWS Matrix

Always leave blank

Strengths (S)List Strengths:

1.

2

Weaknesses (W)List Weaknesses:

1.

2

Opportunities (O)List opportunities

1.

2.

S O Strategies

Use strengths to

take advantage

of opportunities

W O StrategiesOvercome

Weaknesses by

taking advantage

of opportunities

Threats (T)

List threats

S T Strategies

Use strengths

to avoid threats

W T Strategies

Minimise

Weaknesses and

avoid threats


13/24

RELATIVE MARKET SHARE POSITION

High1.0

Medium.50

Low0.0

STARSII

QUESTION MARKS

I

CASH COWS

III

DOGS

IV

INDUST

RY

SALES

G

ROWTH

RATE

High+20

Medium0

Low

-20

The BCG Matrix


14/24

Strategic position and action evaluation

SPACE Matrix)

+6+5+4+3+2

+100

-1-2-3

-4-5-6

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

Conservative Aggressive

DefensiveCompetitive

F S (Financial Strength)

E S Environmental Strength

C ACompetitiveAdvantage

I SIndustry Strength


15/24

Internal Strategic Position

Financial Strengths (FS )

Return on InvestmentLeverageLiquidityWorking CapitalCash FlowEase of exit from market

Risk involved in business

Competitive Advantage (CA):

Market ShareProduct QualityProduct Life CycleCustomer loyaltyCompetition capacity utilizationTechnological know-howControl over suppliers and distributors

External Strategic Position

Environmental Stability (ES):

Technological changesRate of inflationDemand variabilityPrice range of competing productsBarriers to entry into marketCompetitive pressure

Price elasticity of demand

Industry Strengths IS):

Growth potentialProfit potential

Financial stabilityTechnological know-howResource utilizationCapital intensityEase of entry into marketProductivity, capacity utilization


16/24

STEPS TO DEVELOP A SPACE MATRIX

1. Select a set of variables to define financial strength (FS), competitive advantage

(CA), environmental stability (ES), and industry strength (IS)

2. Assign a numerical value ranging from +1 (worst) to +6 (best) to each of thevariables that make up the FS and IS dimensions. Assign a numerical value

ranging from -1 (best) to -6 (worst) to each of the variables that make up the ES

and CA dimensions

3. Compute an average score for FS, CA, IS and ES by summing the values given

to the variables of each dimension and dividing by the number of variables

included in the respective dimension4. Plot the average scores for FS, CA, IS and ES on the appropriate axis in the

SPACE Matrix

5. Add the two scores on the x-axis and plot the resultant point on X. Add the two

scores on the y-axis and plot the resultant point on Y. Plot the intersection of the

new XY point

6. Draw a directional vector from the origin of the SPACE Matrix through the newintersection point. This vector reveals the type of strategies recommended for the

organization: aggressive, competitive, defensive or conservative.


17/24

SPACE MATRIX ANALYSIS FOR A BANK


18/24

Strategy Profiles

I. Aggressive Profiles

F S

E S

CA IS

FS

ES

ISCA

(+4, +4)(+1, +5)

A financially strong firm that has

achieved major competitive

advantages in a growing and stable

industry

A firm whose financial strength

is a dominating factor in the

industry


19/24

II. Conservative Profiles

FS

ES

FS

ES

CA IS CA IS

A firm that has achieved financial

strength in a stable industry that

is not growing: the firm has no

major competitive advantages

A firm that suffers from major

competitive disadvantages in

an industry that is

technologically stable but

declining in sales

(-2, +4)(-5,+2)


20/24

III. Competitive Profiles

FS

ES

FS

ES

CA IS

A firm with major competitiveadvantages in a high-growth industry A firm that is competingfairly well in an unstable

industry

CA IS

(+5, -1) (+1, -2)


21/24

IV. Defensive Profiles

FS

ES

FS

ES

ISCA

CA IS

A firm that has a very weak

competitive position in a

negative growth, stable industry

A financially troubled firm ina very unstable Industry

(-5, -1)

(-1, -5)


22/24

DECISION STAGE

Quantative strategic planning matrix (QSPM)

Step 1:

List the firm's key external opportunities / threats and internal

strengths / weaknesses ( May be based upon EFE and IFE)Step 2:

Assign weights to each external and internal critical success factors

(Weights may be identical to EFE and IFE)

Step 3:

Examine the stage 2 (matching) matrices and identify alternative

strategies that the organization should consider implementing.


23/24

Step 4:

Determine the Attractiveness Scores (AS)

ASare determined by examining each external or internal critical

success factor, one at a time, and asking the question, Does this

factor affect the choice of strategies being made?

Step 5:

Compute the Total attractiveness scores (TAS):

TAS are defined as the product of multiplying the weights (step 2) by

the attractiveness scores (step 4) in each row.

Step 6:

Compute the sum total attractiveness score


24/24

CRITICAL SUCCESS FACTORS

Strategic Alternative

Option (A) Option (B)

I. Opportunities Weight AS TAS AS TAS

II. Threats

1.0

III. Strengths

IV. Weaknesses

1.0

SUM TOTAL ATTRACTIVENESS SCORE

QSPM FOR A COMPANY

Documents

Business Strategy 5