Strategy Analysis And Choice

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Strategy Analysis And Choice

• Strategic Management

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Strategy Analysis Choice

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

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Strategy Analysis Choice

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

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Strategy Analysis Choice

• 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

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Strategy Analysis Choice

• Alternative strategies derive from
• Vision
• Mission
• Objectives
• External audit
• Internal audit
• Past successful strategies

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Strategy Analysis Choice

• Participation in generating alternative
  strategies should be broad

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Strategy-Formulation Analytical Framework
Stage 1 The Input Stage
Stage 2 The Matching Stage
Stage 3 The Decision Stage
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Formulation Framework
Internal Factor Evaluation Matrix (IFE)
Stage 1 The Input Stage
External Factor Evaluation Matrix (EFE)
Competitive Profile Matrix
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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

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Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2 The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
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Matching Stage

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

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Matching Key Factors to Formulate Alternative
Strategies
Resultant Strategy
Key External Factor
Key Internal Factor
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Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2 The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
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Matching Stage

• TOWS Matrix
• Threats
• Opportunities
• Strengths
• Weaknesses

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TOWS Matrix

• Develop four types of strategies
• Strengths-Opportunities (SO)
• Weaknesses-Opportunities (WO)
• Strengths-Threats (ST)
• Weaknesses-Threats (WT)

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SO Strategies
Threats Opportunities Weaknesses Strengths (TOWS)
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WO Strategies
Threats Opportunities Weaknesses Strengths (TOWS)
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ST Strategies
Threats Opportunities Weaknesses Strengths (TOWS)
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WT Strategies
Threats Opportunities Weaknesses Strengths (TOWS)
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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

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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

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TOWS Matrix
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Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2 The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
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SPACE Matrix

• Strategic Position and Action Evaluation Matrix
• Four quadrant framework
• Determines appropriate strategies
• Aggressive
• Conservative
• Defensive
• Competitive

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SPACE Matrix

• Two Internal Dimensions
• Financial Strength FS
• Competitive Advantage CA
• Two External Dimensions
• Environmental Stability ES
• Industry Strength IS

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SPACE Matrix

• Overall Strategic position determined by
• Financial Strength FS
• Competitive Advantage CA
• Environmental Stability ES
• Industry Strength IS

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SPACE Matrix

• Developing the SPACE Matrix
• EFE Matrix
• IFE Matrix
• Financial Strength
• Competitive Advantage
• Environmental Stability
• Industry Strength

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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

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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.

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SPACE Factors
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SPACE Factors
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SPACE Matrix
FS
Conservative
Aggressive
6
5
4
3
2
1
CA
IS
-6
-5
-4
-3
-2
-1
1
2
3
4
5
6
-1
-2
-3
-4
-5
Competitive
Defensive
-6
ES
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Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2 The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
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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

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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

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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.

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BCG Matrix
Relative Market Share Position
High 1.0
Medium .50
Low 0.0
Industry Sales Growth Rate
High 20
Medium 0
Low -20
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BCG Matrix

• Question Marks
• Stars
• Cash Cows
• Dogs

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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

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BCG Matrix

• Stars
• 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

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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

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BCG Matrix

• 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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Formulation Framework
TOWS Matrix
SPACE Matrix
Stage 2 The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
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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

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RAPID MARKET GROWTH

• Quadrant I
• Market development
• Market penetration
• Product development
• Forward integration
• Backward integration
• Horizontal integration
• Concentric diversification

• Quadrant II
• Market development
• Market penetration
• Product development
• Horizontal integration
• Divestiture
• Liquidation

WEAK COMPETITIVE POSITION
STRONG COMPETITIVE POSITION

• Quadrant IV
• Concentric diversification
• Horizontal diversification
• Conglomerate diversification
• Joint ventures

• Quadrant III
• Retrenchment
• Concentric diversification
• Horizontal diversification
• Conglomerate diversification
• Liquidation

SLOW MARKET GROWTH
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Grand Strategy Matrix

• Quadrant I
• Excellent strategic position
• Concentration on current markets and products
• Take risks aggressively when necessary

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Grand Strategy Matrix

• Quadrant II
• Evaluate present approach seriously
• How to change to improve competitiveness
• Rapid market growth requires intensive strategy

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Grand Strategy Matrix

• Quadrant III
• Compete in slow-growth industries
• Weak competitive position
• Drastic changes quickly
• Cost and asset reduction indicated (retrenchment)

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Grand Strategy Matrix

• Quadrant IV
• Strong competitive position
• Slow-growth industry
• Diversification indicated to more promising
  growth areas

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Formulation Framework
Stage 3 The Decision Stage
Quantitative Strategic Planning Matrix (QSPM)
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QSPM

• Quantitative Strategic Planning Matrix
• Only technique designed to determine the relative
  attractiveness of feasible alternative actions

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QSPM

• Quantitative Strategic Planning Matrix
• Tool for objective evaluation of alternative
  strategies
• Based on identified external and internal crucial
  success factors
• Requires good intuitive judgment

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QSPM

• Quantitative Strategic Planning Matrix
• 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

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QSPM

• Quantitative Strategic Planning Matrix
• Examine the Stage 2 (matching) matrices and
  identify alternative strategies that the
  organization should consider implementing
• Determine the Attractiveness Scores (AS)

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QSPM

• Quantitative Strategic Planning Matrix
• Compute the total Attractiveness Scores
• Compute the Sum Total Attractiveness Score

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QSPM
Strategic Alternatives
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QSPM

• Limitations
• Requires intuitive judgments and educated
  assumptions
• Only as good as the prerequisite inputs

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QSPM

• Positives
• Sets of strategies examined simultaneously or
  sequentially
• Requires the integration of pertinent external
  and internal factors in the decision-making
  process

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Cultural Aspects of Strategy Choice

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

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Cultural Aspects of Strategy Choice

• Culture
• Successful strategies depend on degree of support
  from a firms culture

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Politics of Strategy Choice

• Politics in organizations
• Management hierarchy
• Career aspirations
• Allocation of scarce resources

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Politics of Strategy Choice

• Political tactics for strategists
• Equifinality
• Satisfying
• Generalization
• Focus on Higher-Order Issues
• Provide Political Access on Important Issues

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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