Strategic Management Concepts

1. Chapter 6 Strategy Analysis And Choice

Strategic Management:

Concepts and Cases .9 thedition

Fred R. David

PowerPoint Slides by

Anthony F. Chelte

Western New England College

2. Chapter Outline

The Nature of Strategy Analysis and Choice

A Comprehensive Strategy-Formulation Framework

The Input Stage

3. Chapter Outline

The Matching Stage

The Decision Stage

Cultural Aspects of Strategy Choice

4. Chapter Outline

The Politics of Strategy Choice

The Role of a Board of Directors

5. Strategy Analysis &Choice

Whether its broke or not, fix itmake it better.Not just products, but the whole company if necessary.

--Bill Saporito

Strategic analysis and choice largely involves making subjective decisions based on objective information .

The Nature of Strategy Analysis and Choice

Establishing long-term objectives

Generating alternative strategies

Selecting strategies to pursue

Best alternative to achieve mission and objectives

Alternative strategies derive from

Vision

Mission

Objectives

External audit

Internal audit

Past successful strategies

Participation in generating alternative strategies should be broad

10. Strategy-FormulationAnalytical Framework Stage 1:The Input Stage Stage 2: The Matching Stage Stage 3: The Decision Stage 11. Formulation Framework External Factor Evaluation Matrix (EFE) Competitive Profile Matrix Internal Factor Evaluation Matrix (IFE) Stage 1: The Input Stage 12. Input Stage

Provides basic input information for the matching and decision stage matrices

Requires strategists to quantify subjectivity early in the process

Good intuitive judgment always needed

13. Formulation Framework SPACE Matrix Stage 2: The Matching Stage TOWS Matrix BCG Matrix IE Matrix Grand Strategy Matrix 14. Matching Stage

Match between organizations internal resources and skills and the opportunities and risks created by its external factors.

15. Matching Key Factors to Formulate Alternative Strategies Resultant Strategy Key External Factor Key Internal Factor 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 capacity (strength) 16. Formulation Framework SPACE Matrix Stage 2: The Matching Stage TOWS Matrix BCG Matrix IE Matrix Grand Strategy Matrix 17. Matching Stage

TOWS Matrix

Threats

Opportunities

Strengths

Weaknesses

18. TOWS Matrix

Develop four types of strategies

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

19. SO Strategies Threats Opportunities Weaknesses Strengths (TOWS) SO Strategies Use a firms internal strengths to take advantage of external opportunities 20. WO Strategies Threats Opportunities Weaknesses Strengths (TOWS) WO Strategies Improving internal weaknesses by taking advantage of external opportunities 21. ST Strategies Threats Opportunities Weaknesses Strengths (TOWS) ST Strategies Using firms strengths to avoid or reduce the impact of external threats. 22. WT Strategies Threats Opportunities Weaknesses Strengths (TOWS) WT Strategies Defensive tactics aimed at reducing internal weaknesses and avoiding environmental threats. 23. TOWS Matrix

Steps in developing the TOWS Matrix

List the firms key external opportunities

List the firms key external threats

List the firms key internal strengths

List the firms key internal weaknesses

24. TOWS Matrix

Developing the TOWS Matrix

Match internal strengths with external opportunities and record the resultant SO Strategies

Match internal weaknesses with external opportunities and record the resultant WO Strategies

Match internal strengths with external threats and record the resultant ST Strategies

Match internal weaknesses with external threats and record the resultant WT Strategies

25. TOWS Matrix WT Strategies Minimize weaknesses and avoid threats ST Strategies Use strengths to avoid threats Threats-T List Threats WO Strategies Overcome weaknesses by taking advantage of opportunities SO Strategies Use strengths to take advantage of opportunities Opportunities-O List Opportunities Weaknesses-W List Weaknesses Strengths-S List Strengths Leave Blank 26. Formulation Framework SPACE Matrix Stage 2: The Matching Stage TOWS Matrix BCG Matrix IE Matrix Grand Strategy Matrix 27. SPACE Matrix

Strategic Position and Action Evaluation Matrix

Four quadrant framework

Determines appropriate strategies

Aggressive

Conservative

Defensive

Competitive

28. SPACE Matrix

Two Internal Dimensions

Financial Strength [FS]

Competitive Advantage [CA]

Two External Dimensions

Environmental Stability [ES]

Industry Strength [IS]

29. SPACE Matrix

Overall Strategic position determined by:

Financial Strength [FS]

Competitive Advantage [CA]

Environmental Stability [ES]

Industry Strength [IS]

30. SPACE Matrix

Developing the SPACE Matrix:

EFE Matrix

IFE Matrix

Financial Strength

Competitive Advantage

Environmental Stability

Industry Strength

31. SPACE Matrix

Select variables to define FS, CA, ES, & IS

Assign numerical ranking from +1 (worst) to +6 (best) for FS and IS; Assign numerical ranking from 1 (best) to 6 (worst) for ES and CA.

Compute average score for FS, CA, ES, & IS

32. SPACE Matrix

Plot the average scores on the Matrix

Add the two scores on the x-axis and plot point on X.Add the scores on the y-axis and plot Y.Plot the intersection of the new xy point.

Draw a directional vector from origin through the new intersection point.

33. 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 Financial Strength (FS) Return on investment Leverage Liquidity Working capital Cash flow Ease of exit from market Risk involved in business External Strategic Position Internal Strategic Position 34. SPACE Factors Industry Strength (IS) Growth potential Profit potential Financial stability Technological know-how Resource utilization Capital intensify Ease of entry into market Productivity, capacity utilization Competitive Advantage CA Market share Product quality Product life cycle Customer loyalty Competitions capacity utilization Technological know-how Control over suppliers & distributors External Strategic Position Internal Strategic Position 35. SPACE Matrix FS +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 36. Formulation Framework SPACE Matrix Stage 2: The Matching Stage TOWS Matrix BCG Matrix IE Matrix Grand Strategy Matrix 37. BCG Matrix

Boston Consulting Group Matrix

Enhances multidivisional firms efforts to formulate strategies

Autonomous divisions (or profit centers) constitute the business portfolio

Firms divisions may compete in different industries requiring separate strategy

38. BCG Matrix

Boston Consulting Group Matrix

Graphically portrays differences among divisions

Focuses on market share position and industry growth rate

Manage business portfolio through relative market share position and industry growth rate

39. BCG Matrix

Relative market share position defined:

Ratio of a divisions own market share in a particular industry to the market share held by the largest rival firm in that industry.

40. BCG Matrix Relative Market Share Position High 1.0 Medium .50 Low 0.0 Industry Sales Growth Rate High +20 Low -20 Medium 0 Dogs IV Cash Cows III Question Marks I Stars II 41. BCG Matrix

Question Marks

Cash Cows

42. BCG Matrix

Question Marks

Low relative market share position yet compete in high-growth industry.

Cash needs are high

Case generation is low

Decision to strengthen (intensive strategies) or divest

43. BCG Matrix

High relative market share and high industry growth rate.

Best long-run opportunities for growth and profitability

Substantial investment to maintain or strengthen dominant position

Integration strategies, intensive strategies, joint ventures

44. BCG Matrix

Cash Cows

High relative market share position, but compete 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 becomes weakretrenchment or divestiture

45. BCG Matrix

Low relative market share position and compete in slow or no market growth

Weak internal and external position

Decision to liquidate, divest, retrenchment

46. Formulation Framework SPACE Matrix Stage 2: The Matching Stage TOWS Matrix BCG Matrix IE Matrix Grand Strategy Matrix 47. Grand Strategy Matrix

Popular tool for formulating alternative strategies

All organizations (or divisions) can be positioned in one of four quadrants

Based on two evaluative dimensions:

Competitive position

Market growth

Quadrant IV

Concentric diversification

Horizontal diversification

Conglomerate diversification

Joint ventures

Quadrant III

Retrenchment

Horizontal diversification

Conglomerate diversification

Liquidation

Quadrant I

Market development

Market penetration

Product development

Forward integration

Backward integration

Horizontal integration

Quadrant II

Market development

Market penetration

Product development

Horizontal integration

Divestiture

Liquidation

RAPID MARKET GROWTH SLOW MARKET GROWTH WEAKCOMPETITIVEPOSITION STRONG COMPETITIVEPOSITION 49. Grand Strategy Matrix

Quadrant I

Excellent strategic position

Concentration on current markets and products

Take risks aggressively when necessary

50. Grand Strategy Matrix

Quadrant II

Evaluate present approach seriously

How to change to improve competitiveness

Rapid market growth requires intensive strategy

Quadrant III

Compete in slow-growth industries

Weak competitive position

Drastic changes quickly

Cost and asset reduction indicated (retrenchment)

Quadrant IV

Strong competitive position

Slow-growth industry

Diversification indicated to more promising growth areas

53. Formulation Framework Quantitative StrategicPlanning Matrix (QSPM) Stage 3: The Decision Stage 54. QSPM

Quantitative Strategic Planning Matrix

Only technique designed to determine the relative attractiveness of feasible alternative actions

55. QSPM

Tool for objective evaluation of alternative strategies

Based on identified external and internal crucial success factors

Requires good intuitive judgment

56. QSPM

List the firms key external opportunities & threats; list the firms key internal strengths and weaknesses

Assign weights to each external and internal critical success factor

57. QSPM

Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementing

Determine the Attractiveness Scores (AS)

58. QSPM

Compute the total Attractiveness Scores

Compute the Sum Total Attractiveness Score

59. QSPM Strategic Alternatives 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 60. QSPM

Limitations:

Requires intuitive judgments and educated assumptions

Only as good as the prerequisite inputs

61. QSPM

Positives:

Sets of strategies examined simultaneously or sequentially

Requires the integration of pertinent external and internal factors in the decision-making process

62. Cultural Aspects of Strategy Choice

Culture:

The set of shared values, beliefs, attitudes, customs, norms, personalities, heroes, and heroines that describe a firm

63. Cultural Aspects of Strategy Choice

Culture:

Successful strategies depend on degree of support from a firms culture

64. Politics of Strategy Choice

Politics in organizations:

Management hierarchy

Career aspirations

Allocation of scarce resources

65. Politics of Strategy Choice

Political tactics for strategists:

Equifinality

Satisfying

Generalization

Focus on Higher-Order Issues

Provide Political Access on Important Issues

66. Role of A Board of Directors

Duties and Responsibilities:

Control and oversight over management

Adherence to legal prescriptions

Consideration of stakeholder interests

Advancement of stockholders rights

67. Key Terms

Aggressive quadrant

Attractiveness Scores (AS)

Board of Directors

Boston Consulting Group (BCG) Matrix

Business portfolio

Cash cows

Champions

Competitive Advantage (CA)

68. Key Terms

Competitive quadrant

Conservative quadrant

Culture

Decision stage

Defensive quadrant

Directional vector

Environmental Stability (ES)

Financial Strength (FS)

69. Key Terms

Grand Strategy Matrix

Halo error

Industry Strength (IS)

Input stage

Internal-External (IE) Matrix

Long-term objectives

Matching

Matching stage

Quantitative Strategic Planning Matrix (QSPM)

70. Key Terms

Question marks

Relative market share position

SO strategies

ST strategies

Strategic Position and Action Evaluation (SPACE) Matrix

Strategy-formulation framework

71. Key Terms

Sum total attractiveness scores

Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix

Total Attractiveness Scores (TAS)

WO strategies

WT strategies

Strategic Management Concepts

Business

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