Strategic Slides-6

7/24/2019 Strategic Slides-6

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Do.Dr.Mustafa KILI Ch 6-1

Chapter 6Chapter 6

Strategy Analysis And ChoiceStrategy Analysis And Choice


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Strategy Analysis & ChoiceStrategy Analysis & Choice

Strategic analysis and choice largelyStrategic analysis and choice largely

involves making subjective decisionsinvolves making subjective decisionsbased on objective informationbased on objective information..


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The Nature of Strategy Analysis and ChoiceThe Nature of Strategy Analysis and Choice

Establishing longEstablishing long--term objectivesterm objectives Generating alternative strategiesGenerating alternative strategies

Selecting strategies to pursueSelecting strategies to pursue

Best alternative to achieve mission and objectivesBest alternative to achieve mission and objectives


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Alternative strategies derive fromAlternative strategies derive from

VisionVision

MissionMission

ObjectivesObjectives

External auditExternal audit Internal auditInternal audit

Past successful strategiesPast successful strategies


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Participation in generating alternativeParticipation in generating alternative

strategies should be broadstrategies should be broad


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StrategyStrategy--FormulationFormulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage


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Formulation FrameworkFormulation Framework

Internal Factor EvaluationMatrix (IFE)

External Factor Evaluation

Matrix (EFE)Stage 1:

The Input Stage

Competitive Profile

Matrix


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Input StageInput Stage

Provides basic input information for theProvides basic input information for the

matching and decision stage matricesmatching and decision stage matrices

Requires strategists to quantifyRequires strategists to quantifysubjectivity early in the processsubjectivity early in the process

Good intuitive judgment always neededGood intuitive judgment always needed


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Matching StageMatching Stage

Match between organizations internalMatch between organizations internal

resources and skills and the opportunitiesresources and skills and the opportunitiesand risks created by its external factors.and risks created by its external factors.


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SWOT Matrix

SPACE Matrix

Stage 2:The Matching Stage BCG Matrix

IE Matrix

Grand Strategy Matrix


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Matching StageMatching Stage

SWOT MatrixSWOT Matrix

ThreatsThreats OpportunitiesOpportunities

StrengthsStrengths WeaknessesWeaknesses


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SWOTSWOT MatrixMatrix

Develop four types of strategiesDevelop four types of strategies

StrengthsStrengths--Opportunities (SO)Opportunities (SO) WeaknessesWeaknesses--Opportunities (WO)Opportunities (WO)

StrengthsStrengths--Threats (ST)Threats (ST) WeaknessesWeaknesses--Threats (WT)Threats (WT)


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SOSOStrategiesStrategies

Use a firms

internal strengths

to take advantage

of externalopportunities

StrengthsWeaknesses

Opportunities

Threats

SWOT

SO

Strategies


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WOWOStrategiesStrategies

Improving internal

weaknesses by

taking advantage

of externalopportunities

StrengthsWeaknesses

Opportunities

Threats

SWOT

WO

Strategies


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STSTStrategiesStrategies

Use a firms

strengths

to avoid or

reduce the impactof external

threats

StrengthsWeaknesses

Opportunities

Threats

SWOT

ST

Strategies


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WTWTStrategiesStrategies

Defensive tactics

aimed at reducing

internal

weaknesses &

avoidingenvironmental

threats

WT

Strategies

StrengthsWeaknesses

Opportunities

Threats

SWOT


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SWOTSWOT MatrixMatrix

Steps in developing the SWOT Matrix

1. List the firms key external opportunities

2. List the firms key external threats

3. List the firms key internal strengths

4. List the firms key internal weaknesses


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Developing the SWOT Matrix

5. Match internal strengths with external opportunitiesand record the resultant SO Strategies

6. Match internal weaknesses with externalopportunities and record the resultant WO Strategies

7. Match internal strengths with external threats andrecord the resultant ST Strategies

8. Match internal weaknesses with external threats andrecord the resultant WT Strategies

SWOT M i


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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


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Matching Key Factors to Formulate Alternative StrategiesMatching Key Factors to Formulate Alternative Strategies

Acquire Cellfone, Inc.=

20% annual growth in the

cell phone industry

(opportunity)

+Excess working capacity

(strength)

Key Internal Factor Key External Factor Resultant Strategy

Pursue horizontal integration

by buying competitor's

facilities

=

Exit of two major foreign

competitors from the

industry (opportunity)

+Insufficient capacity

(weakness)

Develop new products for

older adults=

Decreasing numbers of

young adults (threat)+Strong R&D (strength)

Develop a new employee

benefits package=Strong union activity

(threat)

+Poor employee morale

(weakness)

F l ti F kF l ti F k


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SWOT Matrix

SPACE Matrix

Stage 2:The Matching Stage BCG Matrix

IE Matrix



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SPACE MatrixSPACE Matrix

Developing the SPACE Matrix:

EFE Matrix

IFE Matrix Financial Strength

Competitive Advantage

Environmental Stability

Industry Strength


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Two Internal Dimensions

Financial Strength [FS] Competitive Advantage [CA]

Two External Dimensions

Environmental Stability [ES]

Industry Strength [IS]


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Overall Strategic position determined by:

Financial Strength [FS]

Competitive Advantage [CA]

Environmental Stability [ES]

Industry Strength [IS]

SPACE F tSPACE F t


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SPACE FactorsSPACE Factors

Environmental Stability (ES)

Technological changes

Rate of inflation

Demand variabilityPrice range of competing products

Barriers to entry

Competitive pressure

Price elasticity of demand

Financial Strength (FS)

Return on investment

Leverage

LiquidityWorking capital

Cash flow

Ease of exit from market

Risk involved in business

External Strategic PositionInternal Strategic Position

SPACE F tSPACE F t


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SPACE FactorsSPACE Factors

Industry Strength (IS)

Growth potential

Profit potential

Financial stabilityTechnological know-how

Resource utilization

Capital intensify

Ease of entry into market

Productivity, capacity utilization

Competitive Advantage CA

Market share

Product quality

Product life cycleCustomer loyalty

Competitions capacity utilization

Technological know-how

Control over suppliers & distributors

External Strategic PositionInternal Strategic Position


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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


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Plot the average scores on the Matrix

Add the two scores on the x-axis andplot point on X. Add the scores on the

y-axis and plot Y. Plot the intersectionof the new xy point.

Draw a directional vector from origin

through the new intersection point.



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FS

+6

+1

+5

+4

+3+2

-6

-5

-4

-3

-2

-1

ES

Conservative Aggressive

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

CompetitiveDefensive

SPACE M i


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Strategic Position and Action Evaluation Matrix

Four quadrant framework

Determines appropriate strategies

Aggressive

Conservative

Defensive Competitive



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SWOT Matrix

SPACE Matrix

Stage 2:

The Matching Stage BCG Matrix

IE Matrix


BCG M t iBCG Matrix


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BCG MatrixBCG Matrix

Boston Consulting Group Matrix

Enhances multidivisional firms effortsto formulate strategies

Autonomous divisions (or profit centers)constitute the business portfolio

Firms divisions may compete indifferent industries requiring separatestrategy

BCG MatriBCG Matrix


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Boston Consulting Group Matrix

Graphically portrays differences amongdivisions

Focuses on market share position andindustry growth rate

Manage business portfolio throughrelative market share position andindustry growth rate



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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 inthat industry.



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Relative Market Share Position

DogsDogsIVIV

Cash CowsCash CowsIIIIII

Question MarksQuestion Marks

II

StarsStars

IIII

??

High

1.0

Medium

.50

Low

0.0

Industry

SalesGrowthRa

te

Medium

High

+20

0

Low-20



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Question Marks Stars

Cash Cows

Dogs



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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



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Stars

High relative market share and highindustry growth rate. Best long-run opportunities for growth and

profitability

Substantial investment to maintain orstrengthen dominant position Integration strategies, intensive strategies, joint

ventures



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Cash Cows

High relative market share position, but competein 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



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Dogs

Low relative market share position and

compete in slow or no market growth

Weak internal and external position

Decision to liquidate, divest, retrenchment



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SWOT Matrix

SPACE Matrix

Stage 2:

The Matching Stage BCG Matrix

IE Matrix


Grand Strategy MatrixGrand Strategy Matrix


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Popular tool for formulating alternativestrategies

All organizations (or divisions) can be

positioned in one of four quadrants

Based on two evaluative dimensions:

Competitive position

Market growth

RAPID MARKET GROWTH


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Quadrant IV

1. Concentric diversification

2. Horizontal diversification

3. Conglomeratediversification

4. Joint ventures

Quadrant III

1. Retrenchment


3. Horizontal diversification4. Conglomerate

diversification

5. Liquidation

Quadrant I

1. Market development

2. Market penetration

3. Product development

4. Forward integration5. Backward integration

6. Horizontal integration


Quadrant II

1. Market development

2. Market penetration

3. Product development

4. Horizontal integration5. Divestiture

6. Liquidation

RAPID MARKET GROWTH

WEAK

COMPETITIVEPOSITION

STRONG

COMPETITIVE

POSITION

SLOW MARKET GROWTH



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Quadrant I

Excellent strategic position

Concentration on current markets andproducts

Take risks aggressively when necessary



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Quadrant II

Evaluate present approach seriously

How to change to improve competitiveness Rapid market growth requires intensive

strategy



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Quadrant III

Compete in slow-growth industries

Weak competitive position

Drastic changes quickly

Cost and asset reduction indicated(retrenchment)



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Quadrant IV

Strong competitive position

Slow-growth industry

Diversification indicated to more promising

growth areas



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Quantitative StrategicPlanning Matrix

(QSPM)

Stage 3:The Decision Stage

QSPMQSPM


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QSPMQ

Quantitative Strategic Planning Matrix

Only technique designed to determine the

relative attractiveness of feasiblealternative actions

QSPMQSPM


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QSQ


Tool for objective evaluation of

alternative strategies Based on identified external and

internal crucial success factors

Requires good intuitive judgment

QSPMQSPM


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Q


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

and weaknesses

Assign weights to each external and internalcritical success factor

QSPMQSPM


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Examine the Stage 2 (matching) matrices

and identify alternative strategies that theorganization should consider implementing

Determine the Attractiveness Scores (AS)

QSPMQSPM


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Compute the total Attractiveness

Scores

Compute the Sum Total AttractivenessScore

QSPMQSPM Strategic Alternatives


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Key Internal Factors

ManagementMarketing

Finance/Accounting

Production/Operations

Research and Development

Computer InformationSystems

Strategy 3Strategy 2Strategy 1WeightKey External Factors

Economy

Political/Legal/Governmental

Social/Cultural/Demographic/Environmental

Technological

Competitive

QSPMQSPM


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Limitations:

Requires intuitive judgments and

educated assumptions

Only as good as the prerequisite inputs

QSPMQSPM


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Positives:

Sets of strategies examined simultaneouslyor sequentially

Requires the integration of pertinent external

and internal factors in the decision-makingprocess

Cultural Aspects of StrategyCultural Aspects of Strategy


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ChoiceChoice

Culture:

The set of shared values, beliefs,

attitudes, customs, norms,

personalities, heroes, and heroines thatdescribe a firm

Cultural Aspects of StrategyCultural Aspects of Strategy


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ChoiceChoice

Culture:

Successful strategies depend on

degree of support from a firms culture

Politics of Strategy ChoicePolitics of Strategy Choice


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Politics in organizations:

Management hierarchy

Career aspirations

Allocation of scarce resources



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Politics of Strategy Choicegy

Political tactics for strategists:

Equifinality

Satisfying

Generalization

Focus on Higher-Order Issues Provide Political Access on Important Issues

Role of A Board of DirectorsRole of A Board of Directors


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o e o oa d o ecto s

Duties and Responsibilities:

1. Control and oversight over management

2. Adherence to legal prescriptions

3. Consideration of stakeholder interests4. Advancement of stockholders rights

Strategic Slides-6

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