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Chapter 6 Strategy Analysis and Choice. Strategic Analysis & Choice n Re-visit the Mission u Revise, create, or maintain mission n Set Long-Term Objectives.

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Presentation on theme: "Chapter 6 Strategy Analysis and Choice. Strategic Analysis & Choice n Re-visit the Mission u Revise, create, or maintain mission n Set Long-Term Objectives."— Presentation transcript:

1 Chapter 6 Strategy Analysis and Choice

2 Strategic Analysis & Choice n Re-visit the Mission u Revise, create, or maintain mission n Set Long-Term Objectives n Generate feasible alternatives n Evaluate alternatives n Choose courses of action

3 The Strategy Formulation Analytical Framework (Figure 6-2) Stage 1: The Input Stage External Analysis Internal Analysis SWOT Analysis Stage 2: The Matching Stage Re-visit Mission and Set Long Term Objectives Generate feasible alternative Corporate Strategies Stage 3: The Decision Stage Evaluate and Choose Corporate Strategies

4 Why Are Clear Objectives Needed? To Provide DirectionTo Provide Purpose To Allow SynergyTo Aid in Evaluations To Establish PrioritiesTo Reduce Uncertainty To Minimize ConflictsTo Stimulate Exertion To Allocate ResourcesTo Design Jobs To Motivate Managers & Employees Measurable Quantitative Realistic Understandable

5 Create, revise Mission Statement n Statement of the purpose of the organization n Describes the organization in terms of: u Customers u Products or services u Markets u Basic beliefs about growth, public image, employees n Remember Hershey’s evolving Mission Statement n Purpose of Mission: u Communication Tool u Decision-Making Tool

6 Long Term Objectives - Areas n Quantitative Areas u Profitability u Productivity u Growth u Shareholder Wealth u Market Position u Technological Leadership n Qualitative Areas u Reputation u Social Responsibility u Employees

7 Quantitative Areas n Profitability u Net profit margin; ROI; ROE n Productivity u Lower costs (% of sales CGS, S&A) u Activity ratios n Growth u Increases in sales, assets, net income n Competitive Position u Market Share

8 n Technological Leadership n Shareholder Wealth u EPS; Dividends; Shareholder Value (stock) n Industry specific metrics

9 Qualitative Areas n Employee Relations n Social Responsibility n Reputation n These areas have long term objectives that can be measured.

10 Corporate Strategies n The overall managerial game plan. n How management plans to achieve mission and objectives.

11 Alternatives for Growth Alternatives for Growth Expansion of existing Businesses Diversification into new Businesses Market Penetration Market Development Product Development Vertical Integration - Forward & Backward Related Unrelated

12 Modes of Growth n Internal development n Acquiring firms/businesses n Collaborative arrangements u Strategic Alliances u Joint Ventures u Licensing

13 Repositioning Strategies n Retrenchment u Assets and/or costs n Divestiture n Spin-offs

14 Termination Strategies n Liquidation n Merger n Being acquired

15 Tools for Formulating and Choosing Corporate Strategies 1. Portfolio Analysis

16 The BCG Matrix Relative Market Share Position in the Industry Industry Sales Growth Rate (Percent) High +20 Medium 0 Low -20 High Medium Low Question Marks (I) Dogs (IV) Stars (II) Cash Cows (III) ?

17 Competitive Position (1. Market Share; 2. Technological Know-How; 3. Product Quality; 4. Service Network; 5. Price Competitiveness; 6. Operating Costs GoodMediumPoor High Medium Low Industry Attractiveness Winner Profit Producer Average Business ??????? Loser 1. Market growth; 2. market size; 3. Capital requirements; 4. Competitive Intensity GE MATRIX

18 Competitive Position Market Share; Technological Know-How; Product Quality Service Network; Price competitiveness; operating costs StrongAverage Weak Development Growth Shakeout Maturity/ Saturation Decline B1 B2 B3 B4 PRODUCT/MARKET EVOLUTION PORTFOLIO MATRIX Stage of Industry

19 Advantages of Portfolio Analyses n Encourages top management to evaluate each business individually; to set objectives; and consider resources. n It stimulates use of external data to supplement management’s judgment. n Its graphic representation makes interpretation and communication easier.

20 Limitations of Portfolio Analyses n Defining product/market segments isn’t easy. n Using standard strategies may miss opportunities or be impractical. n Providing an illusion of scientific rigor masks the reality that positions are based on subjective judgments. n Determining what makes an industry attractive isn’t always possible.

21 More Tools u 2. Past Performance u % increase in sales u Contribution Margin F Sales or profit (gross, operating, net) u Continue to do what doing u 3. Mission and Long Term Objectives

22 More Tools 4. Matrices

23 SWOT or TOWS Matrix Internal Analysis External Analysis StrengthsOpportunities Weaknesses Threats SO Strategies WT Strategies ST Strategies WO Strategies

24 Matching Key External and Internal Factors to Formulate Alternative Strategies (Table 6-2) Key Internal FactorKey External Factor Excess working capacity (an internal strength) Insufficient capacity (an internal weakness) Strong R & D expertise (an internal strength) Poor employee morale (an internal weakness) = = = = Resultant Strategy 20% annual growth in the cablevision industry (an external opportunity) Exit of two major foreign competitors from the industry (an external opportunity Decreasing numbers of young adults (an external threat) Strong union activity (an external threat) Acquire Visioncable Buy competitors’ facilities Develop new products for older adults Develop a new employee-benefits package

25 The TOWS Matrix (Figure 6-3) List strengthsList weaknesses STRENGTHS - SWEAKNESSES - W OPPORTUNITIES - OSO STRATEGIESWO STRATEGIES THREATS - TST STRATEGIES WT STRATEGIES List opportunities Use strengths to take advantage of opportunities Overcome weaknesses by taking advantage of opportunities List threats Use strengths to avoid threats Minimize weaknesses and avoid threats

26 Other Matrices n Internal Factor Evaluation (IFE) p.165 n External Factor Evaluation (EFE) p. 130 n Competitive Profile Matrix (CPM) p. 131 n Strategic Position and Action Evaluation (SPACE) p. 184 n Internal-External p. 190 n Grand Strategy p. 192

27 Other Tools Con’t n 5. Economic Value Added (EVA) n 6. Scenario Analysis n 7. Game Theory n 8. Quantitative Decision Techniques u Linear Programming, etc. n 9. Computer Assisted u Decision Support Systems (DSS) u Artificial Intelligence (AI)

28 Behavioral Aspects/Tools n Propensity for risk n Personal Agendas n Personalities n Time Pressures n Reputation/Integrity n Imagination/Conceptualizations n Support/Coalitions

29 Core Competencies

30 Core Competencies of the Corporation n Real sources of advantage - not based on businesses. n Core competencies are collective learning in the organization, especially: u how to coordinate diverse production skills by integrating multiple streams of technologies.

31 Tests to identify core competencies n Provide potential access to a wide variety of markets/products/services. n Are difficult to imitate. n Are driven by knowledge and learning.

32 examples n Engines n Powertrains n Optics n Imaging n Microprocessor controls n Cars; motorcycles; lawn mowers; generators n Copiers; laser printers; cameras; image scanners; medical imaging Core CompetenciesProducts/businesses

33 More kinds of core competencies: n Systems Integration n Virtual reality n Bioengineering n Delighting the customer

34 Strategic Analysis and Choice Summary Making subjective decisions based on objective information, and subjective interpretation

35 Johnson Controls An example

36 Financial Strength Competitive AdvantageIndustry Strength Environmental Stability

37 Example Strategy Profiles (Figure 6-6) Aggressive Profiles ISCA ES FS ( +4, +4) A financially strong firm with major competitive advantages in a growing industry CA ES FS ( +1, +5) A firm whose financial strength is a dominating factor in the industry IS

38 Example Strategy Profiles (Figure 6-6) Conservative Profiles ISCA ES FS A firm with financial strength; the firm has no major competitive advantages CA ES FS A firm that suffers from major competitive disadvantages in an industry that has declining sales (-2, +4) (-5, +2) IS

39 The Grand Strategy Matrix (Figure 6-11) Rapid Market Growth 1. Market development2. Market penetration3. Product development 4. Horizontal integration 4. Forward integration 5. Divestiture5. Backward integration 6. Liquidation6. Horizontal integration 7. Concentric diversification 1. Retrenchment1. Concentric diversification 2. Concentric diversification2. Horizontal diversification 3. Horizontal diversification3. Conglomerate diversification 4. Conglomerate diversification4. Joint ventures 5. Divestiture 6. Liquidation Slow Market Growth Weak Competitive Position Strong Competitive Position

40 Example Strategy Profiles (Figure 6-6) Competitive Profiles Backward, forward and horizontal integration Intensive strategies; Joint Ventures ISCA ES FS A firm with major competitive advantages in a high-growth industry CA ES FS An organization that is competing fairly well in an unstable industry (+5, -1) (+1, -2) IS

41 Example Strategy Profiles (Figure 6-6) Defensive Profiles ISCA ES FS A firm that has a very weak competitive position in a negative growth, stable industry CA ES FS An financially troubled firm in a very unstable industry (-5, -1) (-1, -5) IS

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