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Strategy Analysis and Choice

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Presentation on theme: "Strategy Analysis and Choice"— Presentation transcript:

1 Strategy Analysis and Choice
Chapter 6 Strategy Analysis and Choice

2 Strategic Analysis & Choice
Re-visit the Mission Revise, create, or maintain mission Set Long-Term Objectives Generate feasible alternatives Evaluate alternatives 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 Direction To Provide Purpose To Allow Synergy To Aid in Evaluations To Establish Priorities To Reduce Uncertainty To Minimize Conflicts To Stimulate Exertion To Allocate Resources To Design Jobs To Motivate Managers & Employees Realistic Measurable Understandable Quantitative

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

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

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

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

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

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

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

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

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

14 Termination Strategies
Liquidation Merger Being acquired

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

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

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

Development B1 Growth Stage of Industry B4 Shakeout Maturity/ Saturation B2 B3 Decline Competitive Position Market Share; Technological Know-How; Product Quality Service Network; Price competitiveness; operating costs Strong Average Weak

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

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

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

22 More Tools 4. Matrices

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

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

25 The TOWS Matrix (Figure 6-3)
STRENGTHS - S WEAKNESSES - W List strengths List weaknesses OPPORTUNITIES - O SO STRATEGIES WO STRATEGIES Use strengths to take advantage of opportunities Overcome weaknesses by taking advantage of opportunities List opportunities THREATS - T ST STRATEGIES WT STRATEGIES Use strengths to avoid threats Minimize weaknesses and avoid threats List threats

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

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

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

29 Core Competencies Core Competencies

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

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

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

33 More kinds of core competencies:
Systems Integration Virtual reality Bioengineering 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 Environmental Stability
Financial Strength Competitive Advantage Industry Strength Environmental Stability

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

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

39 The Grand Strategy Matrix (Figure 6-11)
Rapid Market Growth 1. Market development 1. Market development 2. Market penetration Market penetration 3. Product development 3. Product development 4. Horizontal integration Forward integration 5. Divestiture Backward integration 6. Liquidation Horizontal integration 7. Concentric diversification 1. Retrenchment Concentric diversification 2. Concentric diversification 2. Horizontal diversification 3. Horizontal diversification 3. Conglomerate diversification 4. Conglomerate diversification 4. Joint ventures 5. Divestiture 6. Liquidation Weak Competitive Position Strong Competitive Position Slow Market Growth

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

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

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