Strategic Analysis and Planning Mohshin Habib

Strategic Analysis and Planning

Dr. Mohshin Habib

Discipline Leader, Management

Swinburne University of Technology

What is management?

• It is a process

▫ A series of activities: planning, deciding & evaluating

• Of assembling and using sets of resources

▫ Physical, financial & Human

• In a goal directed manner to accomplish tasks

▫ A purposeful activity

• In an organisational setting

▫ intentionally structured and coordinated to achieve

common purposes

Imp

ort

an

ce

High

Low

Front line

Managers Mid-level

Managers Top-level

Managers

Interpersonal skills

Technical skills

Conceptual skills

Managerial Skills at Different Organisational Levels

Instructions:

Rate each questions (1-18) according to the scale

Subtract your score for questions 6,10,14 & 17 from

number 6: Q.6 = (6- 4(q.6 score))= 2

Q.10 = (6- 2)(q.10 score))=4

Q.14 = (6- 3)(q.14 score))=3

Q.17 = (6- 5)(q.17 score))=1

Conceptual Skills = Q1+Q3+Q6+Q9+Q12+Q15= (____)

Human Skills = Q2+Q5+Q8+Q10+Q14+Q17 = (____)

Technical Skills = Q4+Q7+Q11+Q13+Q16+Q18) = (___)

Exercise 1: Management in Practice

Rate each questions (0-4) according to the scale Very accurate description of me = 4

Moderately accurate = 3

Neither accurate nor inaccurate = 2

Moderately inaccurate = 1

Very inaccurate description of me = 0

Need achievement: _____ + _____ + _____ + _____ + _____ + _____ + _____ =

(Q.2) (Q. 3) (Q.6) (Q.7) (Q.9) (Q.12) (Q14)

Need social approval: _____ + _____ + _____ + _____ + _____ + _____ + _____ +______ =

(Q.1) (Q. 4) (Q.5) (Q.8) (Q.10) (Q.11) (Q13) (Q.15)

Exercise 2: Need strength

Score Interpretation in Achievement Interpretation in social approval

28-32 High level of need High need

20-27 Above average level of need Above average need

12-19 Average level of need Average need

6-11 Below Average level of need Below average need

0-5 Low level of need Low need

What is Strategy

Plan of action

Resource allocation

Activities for dealing with the environment

Achieving competitive advantage

‘..a pattern in a stream of decisions’

‘..the long-term direction of an organisation’

../../../../../../Program Files/TurningPoint/2003/Questions.html

Vision

Mission

Objectives

External audit

Internal audit

Past successful strategies

Strategies derive from or influenced by:

What is Strategy Continued..

Plan should have a Vision

Now

Future

What is Strategy Continued..

Resources and Capabilities:

fundamental building blocks of strategy

The tangible and intangible inputs that firms use to deliver services

A firm’s skill in using its resources to deliver services.

Strategy

Component of Strategic capabilities

Exercise 3: Innkeepers America

Innkeepers of America's position in the economy segment of the lodging industry. Locating properties next to a restaurant rather than having food and beverage in-house. Price of rooms lowered further to meet competition. New advertising campaign with discount coupons for weekend stays Three new customer service positions. Shares of company stock issued for employee bonuses. Providing continental breakfast in the lobby. Room service (for continental breakfast only). Computerized reservation system. Training program for front-desk employees. Web site where reservations can be booked online. New hotel properties built with additional features to appeal to an upscale market. Merger with Economy Lodge, Inc. Rewrite mission statement. Contracting cleaning and landscaping services.

s

s/o

o o o o o o

s/o o o

o s s

s

Strategic Analysis: Why??

Generating Alternatives –

Participation in generating alternative

strategies should be as broad as

possible

Establishing long-term objectives

Generating alternative strategies

Selecting strategies to pursue

Develop Best alternatives

Ensures effective use of resources

Provides base to measure progress

Builds strong teams

Purpose of Strategic Analysis

Strategy’s three branches

CONTEXT – internal and external.

CONTENT – strategic options.

PROCESS – formation and implementation.

Strategic planning systems

Strategic planning systems take the form

of systematised & step-by-step procedures to

develop an organisation’s strategy.

Managerial equivalent of scientific analysis

The role of strategic planning

Strategic planning play several roles within an organisation:

Formulating strategy - managers can understand strategic issues and involve in developing alternative

Learning – questioning and challenging the taken-for-granted.

Co-ordinating - business-level strategies within an overall corporate strategy.

Communicating - providing agreed objectives or strategic milestones.

Strategic Planning Process

Benefits of strategic planning

There are psychological benefits of planning:

can provide opportunities for involvement,

leading to a sense of ownership,

provides security to managers and

re-assures managers that the strategy is

‘logical’.

Perceptions of strategy development

Strategy will be seen differently by different people:

Senior executives: see strategy in terms of intended, rational, analytic planned processes

Middle managers: see strategy as the result of cultural and political processes.

Managers in public-sector organisations: see strategy as externally imposed.

People who work in family businesses see strategy as the influence of powerful individuals (owners of the

businesses).

Develop

vision and

mission

statements

Perform Internal Analysis

Perform external analysis

Establish long term objectives

Generate evaluate &

select Strategy

Implement Strategy –

Management issues

Implement Strategy –

Marketing, finance, Accounting, MIS

issues

Measure and evaluate performance

Strategy

formulation

Strategy

Implementation

Strategy

Evaluation

Comprehensive Strategic Management Model

STAGE 1: THE INPUT STAGE

External Factor Evaluation (EFE)

Matrix

Competitive Profile Matrix (CPM)

Internal Factor Evaluation (IFE)

Matrix

STAGE 2: THE FORMULATION STAGE

GAP Analysis

SWOT Matrix

SPACE Matrix

BCG Matrix

STAGE 3: THE DECISION STAGE

Quantitative Strategic Planning Matrix (QSPM)

Strategy formulation Analytical Framework

Comprehensive Strategy-Formulation Framework

Stage 1:

The Input Stage

Stage 2:

The Formulation Stage

Stage 3:

The Decision Stage

Strategy-Formulation Analytical Framework

Internal Factor Evaluation

Matrix (IFE)

External Factor Evaluation

Matrix (EFE)

Competitive Profile Matrix

(CPM)

Stage 1:

The Input Stage

Stage 1: The Input Stage

Basic input information for the formulation & decision

stage matrices

Requires strategists to quantify subjectivity early in

the process

Good intuitive judgment always needed


GAP Analysis

SWOT Matrix

SPACE Matrix

BCG Matrix

Stage 2:


Stage 2: The Formulation Stage

Match between organisation's internal

resources & skills and the opportunities &

risks created by its external factors

Stage 2: Gap analysis

Assesses the ‘fit’ between an organisation’s strategy and:

its environment (external)

its capabilities (internal)

Assesses fit between strategy, performance and stakeholder expectations

Aims to ensure that all elements of strategic analysis are considered

Both positive and negative ‘gaps’ can be revealed

Stage 2: Gap analysis

Environment–business strategy gaps

Macro-environment Identify the growth trends

Estimate when these trends take effect

Establish whether business strategy will fit new environment (match / mismatch)

Industry environment Compares consistency between business strategy and

industry environment e.g. business strategy & expected profitability

Key competitor gaps The organisation’s performance relative to

competitors’

financial performance

market position and performance

technological performance

service performance

Analyse inconsistencies for possible danger signals

e.g. good financial performance but lagging in service or technology

Environment–business strategy gaps

Assess how well existing capabilities match business strategy (comparative analysis)

What may affect competitive strengths?

e.g. legal or economic barriers, complacency, regulator’s role, changes in competitor strategy, changes in technology,

Key goals or objectives are compared with actual results (under / over performance)

Compare performance with stakeholder expectations

Gaps identified should influence future strategy choices

Large gaps = New business strategy

Small gaps = Focus on implementation (functional strategies)

Business strategy: current to future options

Gap analysis summary

How does strategy match the macro-environment?

How does strategy match the industry environment?

How does strategy match performance?

How does strategy match capabilities and those of competitors? (Now and in the future)

To be able to answer these, must identify current business strategy.


SWOT Matrix

GAP Analysis

SPACE Matrix

BCG Matrix

Stage 2:


Strengths

Weaknesses

Opportunities

Threats

SWOT Matrix

Stage 2: The Formulation Stage

SWOT Matrix

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of Strategies

SO Strategies

Use a firm’s

internal strengths

to take advantage

of external

opportunities SO

Strategies

Strengths

Weaknesses

Opportunities

Threats

SWOT

WO Strategies

Improving internal

weaknesses by

taking advantage

of external

opportunities WO

Strategies

Strengths

Weaknesses

Opportunities

Threats

SWOT

ST Strategies

Use a firm’s

strengths

to avoid or

reduce the impact

of external

threats

ST

Strategies

Strengths

Weaknesses

Opportunities

Threats

SWOT

WT Strategies

Defensive tactics

aimed at reducing

internal

weaknesses &

avoiding

threats

WT

Strategies

Strengths

Weaknesses

Opportunities

Threats

SWOT

SWOT Matrix

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

Exercise 4: Robin Hood

Limitations with SWOT Matrix

Does not show how to achieve a competitive

advantage

Provides a static assessment in time

May lead the firm to overemphasise a single

internal or external factor in formulating

strategies


SPACE Matrix

SWOT Matrix

GAP Analysis

BCG Matrix

Stage 2:


SPACE Matrix

Strategic Position & Action Evaluation Matrix

Aggressive

Conservative

Defensive

Competitive

SPACE Matrix

Two Internal Dimensions

Financial Strength (FS)

Competitive Advantage (CA)

Two External Dimensions

Environmental Stability (ES)

Industry Strength (IS)

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 demand

Ease of exit from market

Risk involved in business

Financial Strength (FS)

Return on investment

Leverage

Liquidity

Working capital

Cash flow

Earnings per share

Price earnings ratio

External Strategic Position Internal Strategic Position

SPACE Factors

Industry Strength (IS)

Growth potential

Profit potential

Financial stability

Technological know-how

Resource utilization

Ease of entry into market

Productivity, capacity utilisation

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 Position Internal Strategic Position

Exercise 5: Winter Survival

Item Expert ranking

Ball of steel wool 2

Newspaper 8

Compass 12

Hand Axe 6

Cigarette lighter 1

45 calibre pistol 9

Section air map 11

Canvas 5

Shirt and Pants 3

Can of shortening 4

Whisky 10

Chocolate bar 7


BCG Matrix

SWOT Matrix

SPACE Matrix

GAP Analysis

Stage 2:


BCG Matrix

Boston Consulting Group Matrix

Enhances multidivisional firm in formulating

strategies

Autonomous divisions = business portfolio

Divisions may compete in different industries

Focus on market-share position & industry growth

rate

BCG Matrix

BCG Matrix

Question Marks

Low relative market share, competes in

high-growth industry

Cash needs are high

Case generation is low

Decision to strengthen (intensive strategies)

or divest

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

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

BCG Matrix

Dogs

Low relative market share, competes in

slow or no market growth

Weak internal & external position

Liquidation, divestiture, retrenchment

BCG Matrix

Stage 3:

The Decision Stage

Quantitative Strategic

Planning Matrix

(QSPM)


QSPM

Technique designed to determine

the relative attractiveness of feasible

alternative actions

Quantitative Strategic Planning Matrix

QSPM

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Computer Information

Systems

Strategy 3 Strategy 2 Strategy 1 Weight Key External Factors

Economy

Political/Legal/Governmental

Social/Cultural/Demographic/

Environmental

Technological

Competitive

Strategic Alternatives

Steps to Develop a QSPM

1. Make a list of the firm’s key external

opportunities/ threats and internal

strengths/weaknesses in the left column.

2. Assign weights to each key external and internal

factor.

3. Examine the Stage 2 (formulation) matrices, and

identify alternative strategies that the

organisation should consider implementing.

4. Determine the Attractiveness Scores.

5. Compare the Total Attractiveness Scores.

6. Compute the Sum Total Attractiveness

Score.

Steps to Develop a QSPM

QSPM

Requires intuitive judgments & educated

assumptions

Only as good as the prerequisite inputs

Limitations

Cultural Aspects of Strategy Choice

Successful strategies depend on the degree

of consistency with the firm’s culture

Organisational Culture ?

Politics of Strategy Choice

Management hierarchy

Career aspirations

Allocation of scarce resources

Politics in Organisations

Satisfying

Generalisation

Higher-order issues

Political access on important issues

Political Tactics for Strategists

Politics of Strategy Choice

Governance & Strategy Choice

Control & oversight over management

Adherence to legal prescriptions

Consideration of stakeholder interests

Advancement of stockholder rights

Board of Directors Roles & Responsibilities

“Principles of Good Governance”


1. No more than 2 directors are current or former company

executives

2. No directors do business with the company

3. Audit, compensation, and nominating committees made up

of outside directors

4. Each director owns a large equity stake in the company

5. At least one outside director with extensive experience

6. Fully employed directors sit on no more than 4 boards,

retirees on no more than 7

7. Each director attends at least 75% of all meetings

“Principles of good governance”

8. Board meets regularly without management present

9. Audit committee meets at least four times a year

10.Board is frugal on executive pay, diligent in CEO

succession, and prompt to act when trouble arises

11.CEO is not also the chairperson of the board

12.Shareholders have considerable power and

information to choose & replace directors

13.Stock options are considered a corporate expense

14.No interlocking directorships


Yielding: _____ + _____ + _____ + _____ = _______

(Q.1) (Q. 6) (Q.11) (Q.16)

Compromising: _____ + _____ + _____ + _____ = ______

(Q.2) (Q. 7) (Q.12) (Q.17)

Forcing: _____ + _____ + _____ + _____ = _______

(Q.3) (Q. 8) (Q.13) (Q.18)

Problem solving: _____ + _____ + _____ + _____ = _______

(Q.4) (Q. 9) (Q.14) (Q.19)

Avoiding: _____ + _____ + _____ + _____ = _______

(Q.5) (Q. 10) (Q.15) (Q.20)

Exercise 6: Conflict handling

Strategic Analysis and Planning Mohshin Habib

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