2Strategy Analysis & Choice Strategic analysis and choice largely involves making subjective decisions based on objective information.
3Strategy Analysis & Choice The Nature of Strategy Analysis and Choice –Establishing long-term objectivesGenerating alternative strategiesSelecting strategies to pursueBest alternative to achieve mission and objectives
4Strategy Analysis & Choice Alternative strategies derive from –VisionMissionObjectivesExternal auditInternal auditPast successful strategies
5Strategy Analysis & Choice Participation in generating alternative strategies should be broad –
6Strategy-Formulation Analytical Framework Stage 1: The Input StageStage 2: The Matching StageStage 3: The Decision Stage
10Matching StageMatch between organization’s internal resources and skills and the opportunities and risks created by its external factors.
11Matching Key Factors to Formulate Alternative Strategies Key Internal FactorKey External FactorResultant StrategyDevelop a new employee benefits package=Strong union activity (threat)+Poor employee morale (weakness)Develop new products for older adultsDecreasing numbers of young adults (threat)Strong R&D (strength)Pursue horizontal integration by buying competitor's facilitiesExit 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)
14TOWS Matrix Develop four types of strategies Strengths-Opportunities (SO)Weaknesses-Opportunities (WO)Strengths-Threats (ST)Weaknesses-Threats (WT)
15SO Strategies Threats Opportunities Weaknesses Strengths (TOWS) Use a firm’s internal strengths to take advantage of external opportunities
16WO Strategies Threats Opportunities Weaknesses Strengths (TOWS) Improving internal weaknesses by taking advantage of external opportunities
17ST Strategies Threats Opportunities Weaknesses Strengths (TOWS) Using firm’s strengths to avoid or reduce the impact of external threats.
18WT Strategies Threats Opportunities Weaknesses Strengths (TOWS) Defensive tactics aimed at reducing internal weaknesses and avoiding environmental threats.
19TOWS Matrix Steps in developing the TOWS Matrix List the firm’s key external opportunitiesList the firm’s key external threatsList the firm’s key internal strengthsList the firm’s key internal weaknesses
20TOWS Matrix Developing the TOWS Matrix Match internal strengths with external opportunities and record the resultant SO StrategiesMatch internal weaknesses with external opportunities and record the resultant WO StrategiesMatch internal strengths with external threats and record the resultant ST StrategiesMatch internal weaknesses with external threats and record the resultant WT Strategies
21TOWS Matrix WT Strategies ST Strategies Threats-T WO Strategies Minimize weaknesses and avoid threatsST StrategiesUse strengths to avoid threatsThreats-TList ThreatsWO StrategiesOvercome weaknesses by taking advantage of opportunitiesSO StrategiesUse strengths to take advantage of opportunitiesOpportunities-OList OpportunitiesWeaknesses-WList WeaknessesStrengths-SList StrengthsLeave Blank
26SPACE Matrix Developing the SPACE Matrix: EFE Matrix IFE Matrix Financial StrengthCompetitive AdvantageEnvironmental StabilityIndustry Strength
27SPACE 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
28SPACE 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.
29External Strategic Position Internal Strategic Position SPACE FactorsEnvironmental Stability (ES)Technological changesRate of inflationDemand variabilityPrice range of competing productsBarriers to entryCompetitive pressurePrice elasticity of demandFinancial Strength (FS)Return on investmentLeverageLiquidityWorking capitalCash flowEase of exit from marketRisk involved in businessExternal Strategic PositionInternal Strategic Position
30External Strategic Position Internal Strategic Position SPACE FactorsIndustry Strength (IS)Growth potentialProfit potentialFinancial stabilityTechnological know-howResource utilizationCapital intensifyEase of entry into marketProductivity, capacity utilizationCompetitive Advantage CAMarket shareProduct qualityProduct life cycleCustomer loyaltyCompetition’s capacity utilizationControl over suppliers & distributorsExternal Strategic PositionInternal Strategic Position
31SPACE Matrix FS Conservative Aggressive CA IS Competitive Defensive ES +6+5+4+3+2+1CAIS-6-5-4-3-2-1+1+2+3+4+5+6-1-2-3-4-5CompetitiveDefensive-6ES
33BCG Matrix Boston Consulting Group Matrix Enhances multidivisional firms’ efforts to formulate strategiesAutonomous divisions (or profit centers) constitute the business portfolioFirm’s divisions may compete in different industries requiring separate strategy
34BCG Matrix Boston Consulting Group Matrix Graphically portrays differences among divisionsFocuses on market share position and industry growth rateManage business portfolio through relative market share position and industry growth rate
35BCG Matrix Relative market share position defined: Ratio of a division’s own market share in a particular industry to the market share held by the largest rival firm in that industry.
36Relative Market Share Position Industry Sales Growth Rate BCG MatrixRelative Market Share PositionHigh1.0Medium.50Low0.0Industry Sales Growth RateDogsIVCash CowsIIIQuestion MarksIStarsIIHigh+20MediumLow-20
38BCG Matrix Question Marks Low relative market share position yet compete in high-growth industry.Cash needs are highCash generation is lowDecision to strengthen (intensive strategies) or divest
39BCG MatrixStarsHigh relative market share and high industry growth rate.Best long-run opportunities for growth and profitabilitySubstantial investment to maintain or strengthen dominant positionIntegration strategies, intensive strategies, joint ventures
40BCG MatrixCash CowsHigh relative market share position, but compete in low-growth industryGenerate cash in excess of their needsMilked for other purposesMaintain strong position as long as possibleProduct development, concentric diversificationIf becomes weak—retrenchment or divestiture
41BCG MatrixDogsLow relative market share position and compete in slow or no market growthWeak internal and external positionDecision to liquidate, divest, retrenchment
43Grand Strategy MatrixPopular tool for formulating alternative strategiesAll organizations (or divisions) can be positioned in one of four quadrantsBased on two evaluative dimensions:Competitive positionMarket growth
50QSPM Quantitative Strategic Planning Matrix Only technique designed to determine the relative attractiveness of feasible alternative actions
51QSPM Quantitative Strategic Planning Matrix Tool for objective evaluation of alternative strategiesBased on identified external and internal crucial success factorsRequires good intuitive judgment
52QSPM Quantitative Strategic Planning Matrix List the firm’s key external opportunities & threats; list the firm’s key internal strengths and weaknessesAssign weights to each external and internal critical success factor
53QSPM Quantitative Strategic Planning Matrix Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementingDetermine the Attractiveness Scores (AS)
54QSPM Quantitative Strategic Planning Matrix Compute the total Attractiveness ScoresCompute the Sum Total Attractiveness Score
55Strategic Alternatives QSPMStrategic AlternativesKey Internal FactorsManagementMarketingFinance/AccountingProduction/OperationsResearch and DevelopmentComputer Information SystemsStrategy 3Strategy 2Strategy 1WeightKey External FactorsEconomyPolitical/Legal/GovernmentalSocial/Cultural/Demographic/EnvironmentalTechnologicalCompetitive
56QSPMLimitations:Requires intuitive judgments and educated assumptionsOnly as good as the prerequisite inputs
57QSPMPositives:Sets of strategies examined simultaneously or sequentiallyRequires the integration of pertinent external and internal factors in the decision-making process