1. Copyright 2005 Prentice Hall1 Bus 411 Day 11

2. Copyright 2007 Prentice Hall Ch 6 -2 Agenda Assignment 3 Corrected  1 A, 3 B’s, 3 C’s and 1 D Assignment 4 posted (next Slide)  Due March 6 One more assignment which will due after Spring Break. Will be posted by March 3 Mid term Exam will be right after Spring break and will be a take home exam covering the first 9 chapters of the text.  20-25 Short essays  Intense-- ~10 hours Finish Discussion of Strategic Analysis and Choice

3. Copyright 2007 Prentice Hall Ch 6 -3 Assignment 4 For assignment 4, complete Experiential Exercise 5A on page 210 of your text.  Change the name of your report to "Strategies for Google in 2008".  A three page (single-spaced) report is about 1300-1500 words, so if you are double-spacing your report, I expect about five to six pages.  Refer to the strategies listed in table 5-3 (page 173) and/or to Porter’s five generic strategies (figure 5-3 on page 189) when selecting and justifying strategies for Google.  This assignment will be due on March 3 at the beginning of class.  Make sure you provide the sources of your information (source attribution does not count towards the length requirement). Grading rubric  Quality of research (20 points) 3-5 quality sources (not web sites)  Quality of writing (20 points) Spelling, grammar, appropriate vocabulary and tone Directed wring not creative writing  In-Depth Analysis of existing and Planned Google Strategies (30 Points What worked, what didn’t, what will and what won’t  Recommendations for NEW Google strategies (30 points) Should be tied to strategies discussed in the chapter

4. Copyright 2007 Prentice Hall Ch 6 -4 Google SWOT (day 5 slides) S&W >> IFE Strengths: 1.Strong brand recognition and recall 2.Brand equity (Ranked #1 among online brands by EquiTrend) 3.Talented employee base 4.Access to Google available to anyone with Internet access 5.Good cash reserves ($426,900,000) 6.Strong revenues (117 percent over previous year) 7.Strong profits (profits increased 106 percent over previous year) 8.Relationships with major corporations like AOL 9.Culture of innovation and accountability 10.Products based on solving consumer needs Weaknesses: 1.Corporate governance minimizes power of nonemployee shareholders 2.Lack of independence on board of directors 3.Vision for company may be unclear 4.Fast growth may be unmanageable and unsustainable 5.Technology that supports targeting advertising can result in inappropriate positioning (e.g., Kraft ad on the Web site for a White Nationalist group) 6.Net profit margin is weak (12.51 percent) compared to Yahoo! (23.00 percent) 7.Company is smaller and less profitable compared to Yahoo! (e.g., Yahoo! revenues were $3,574,517,000 compared to $3,189,223 for Google; Yahoo! spent $368,760,000 on research development while Google spent $225,632,000; Yahoo! net income was $839,553,000 while Google’s was $399,100,000.) 8.Little physical presence (offices) in Asia and none in South America or Africa

5. Copyright 2007 Prentice Hall Ch 6 -5 Google SWOT O&T >> EFE Opportunities: 1.Internet-based technologies and businesses continue to develop 2.Worldwide growth in Internet coverage and use 3.Large market still to be tapped (currently only 15.7 percent of the world has Internet access). Asia, in particular, is a valuable potential market. It makes up 56.4 percent of the world’s population, but only 9.9 percent of its population is online (according to www.internetworldstats.com). 4.Increasing demand for Web-based business and consumer solutions 5.Advertising spending declining in other media but increasing online 6.Potential to expand into other media Threats: 1.Microsoft has stated its plans to threaten Google’s future 2.Other competitors (Yahoo, eBay, MSN, and others) 3.Potential for click fraud 4.Potential for attacks on Google’s servers 5.Legal constraints in the area of intellectual property rights 6.Consumer attitudes toward online advertising

6. Copyright 2007 Prentice Hall Ch 6 -6 GOOGLE IFE Key Internal FactorsWeightRatingWS Strengths Brand recognition and recall.053.15 Brand equity (#1 among online brands).054.20 Talented employee base.104.40 Free to consumers with Internet access.104.40 Cash resources ($426 million).104.40 Strong profits and revenues (up over 100% since previous year).054.20 No reliance on specific software/hardware.053.15 Culture of innovation.104.40 Powerful business relationships.053.15 Weaknesses Lack of presence in key international markets (especially Asia).051 Visionary leadership.102.20 Issues with corporate governance.102 Vulnerability in product applications.051 Weak profitability compared to competition.052.10 Totals1.02.95

7. Copyright 2007 Prentice Hall Ch 6 -7 Google Ratio analysis RatioGoogleYahoo! (2004)Evaluation Current7.912.89Strength Quick7.912.89Strength Fixed assets turnover3.26.70Strength Total assets turnover.96.38Strength Inventory turnover-- Accounts receivable turnover-- Debt to total assets.11.08Neutral Debt to equity.13**.10Neutral Long-term debt to equity.01.10Neutral Times-interest-earned ratio***-- Strength Return on assets12%8.03%Strength Return on equity12%23.99%Neutral Gross profit margin54.29%36.07%Strength Operating profit margin20%33.00%Neutral Net profit margin12.51%23.00%Weakness Revenue per share19.57(dil) 167.85 3.53Strength Price-earnings ratio93.6826.72Weakness EPS1.35(dil) 2.07 1.28Neutral Net Income Growth277.94%28.00%Strength * In this case, the quick ratio and the current ratio are the same because these companies do not carry inventory. ** Neither organization shows any short-term debt. *** Financial statements do not indicate any interest expense. (dil) calculation using diluted share amounts Google Financial Issues 03-04 Assets increase by 2.5 billion on 300 million increase in income?? All income saved in retained earning 2.5 billion capital surplus?? 93 P/E? Effects of stock dilution 54% GPM >> 12.5% NPM? Net income growth?? The assets are the equity, buying GOOG is like buying a Fund that only trades in GOOG http://finance.yahoo.com/q/bs?s=GOO G&annual

8. Copyright 2007 Prentice Hall Ch 6 -8 External Audit Chapter 3 Internal Audit Chapter 4 Long-Term Objectives Chapter 5 Generate, Evaluate, Select Strategies Chapter 6 Implement Strategies: Mgmt Issues Chapter 7 Implement Strategies: Marketing, Fin/Acct, R&D, CIS Chapter 8 Measure & Evaluate Performance Chapter 9 Vision & Mission Chapter 2 Comprehensive strategic management model

9. Copyright 2007 Prentice Hall Ch 6 -9 Comprehensive Strategy-Formulation Framework Stage 1: The Input Stage Stage 2: The Matching Stage Stage 3: The Decision Stage

10. Copyright 2007 Prentice Hall Ch 6 -10 Strategy-Formulation Analytical Framework Internal Factor Evaluation Matrix (IFE) External Factor Evaluation Matrix (EFE) Competitive Profile Matrix (CPM) Stage 1: The Input Stage

11. Copyright 2007 Prentice Hall Ch 6 -11 Stage 1: The Input Stage  Basic input information for the matching & decision stage matrices  Requires strategists to quantify subjectivity early in the process  Good intuitive judgment always needed

12. Copyright 2007 Prentice Hall Ch 6 -12 SWOT Matrix Leave Blank Strengths – S List Strengths Weaknesses – W List Weaknesses Opportunities – O List Opportunities SO Strategies Use strengths to take advantage of opportunities WO Strategies Overcoming weaknesses by taking advantage of opportunities Threats – T List Threats ST Strategies Use strengths to avoid threats WT Strategies Minimize weaknesses and avoid threats

13. Copyright 2007 Prentice Hall Ch 6 -13 Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Stage 2: The Matching Stage

14. Copyright 2007 Prentice Hall Ch 6 -14 SPACE Matrix Strategic Position & Action Evaluation Matrix  Aggressive  Conservative  Defensive  Competitive

15. Copyright 2007 Prentice Hall Ch 6 -15 SPACE Matrix Two Internal Dimensions (compare to competitors)  Financial Strength (FS)  Competitive Advantage (CA)

16. Copyright 2007 Prentice Hall Ch 6 -16 SPACE Matrix Two External Dimensions (compare to other industries)  Environmental Stability (ES)  Industry Strength (IS)

17. Copyright 2007 Prentice Hall Ch 6 -17 SPACE Factors Environmental Stability (ES) Technological changes Rate of inflation Demand variability Price range of competing products Barriers to entry Competitive pressure Price elasticity of demand Ease of exit from market Risk involved in business Financial Strength (FS) Return on investment Leverage Liquidity Working capital Cash flow External Strategic PositionInternal Strategic Position

18. Copyright 2007 Prentice Hall Ch 6 -18 SPACE Factors Industry Strength (IS) Growth potential Profit potential Financial stability Technological know-how Resource utilization Ease of entry into market Productivity, capacity utilization Competitive Advantage CA Market share Product quality Product life cycle Customer loyalty Competition’s capacity utilization Technological know-how Control over suppliers & distributors External Strategic PositionInternal Strategic Position

19. Copyright 2007 Prentice Hall Ch 6 -19 Steps to Developing a SPACE Matrix 1. Select a set of variables to define FS, CA, ES, & IS 2. Assign a numerical value: 1. From +1 to +6 to each FS & IS dimension 2. From -1 to -6 to each ES & CA dimension 3. Compute an average score for each FS, CA, ES, & IS

20. Copyright 2007 Prentice Hall Ch 6 -20 Steps to Developing a SPACE Matrix 1. Plot the average score on the appropriate axis 2. Add the two scores on the x-axis and plot the point. Add the two scores on the y-axis and plot the point. Plot the intersection of the new xy point 3. Draw a directional vector from the origin through the new intersection point.

21. Copyright 2007 Prentice Hall Ch 6 -21 SPACE Matrix FS +6 +1 +5 +4 +3 +2 -6 -5 -4 -3 -2 -6-5-4-3-2+1+2+3+4+5+6 ES CAIS ConservativeAggressive DefensiveCompetitive

22. Copyright 2007 Prentice Hall Ch 6 -22 The steps to develop a SPACE Matrix: Select a set of variables to define financial strength (FS), competitive advantage (CA), environmental stability (ES), and industry strength (IS).  Table 6-2 provides Good examples Assign a numerical value ranging from 1 (worst) to 6 (best) for the variables that make up the FS and IS dimensions. Assign a number between –1 (best) to –6 (worst) for variables that make up the ES and CA dimensions. On the FS and CA axes, make comparison to competitors. On the IS and ES axes, make comparison to other industries. Compute an average score for FS, CA, IS, and ES by summing the values given to the variables and dividing by the number of variables included in each dimension. Plot the average scores for FS, IS, ES, and CA on the appropriate axis in the SPACE Matrix. Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on the y-axis and plot the resultant point on Y. Plot the intersection of the new xy point. Draw a directional vector from the origin of the SPACE matrix through the new intersection point. This vector reveals the type of strategies recommended for the organization.  Aggressive  Competitive  Defensive  Conservative Lets try with Data in table 6-3  templates\Space_matrix.xlt templates\Space_matrix.xlt

23. Copyright 2007 Prentice Hall Ch 6 -23 Results from SPACE Conservative  Market penetration  Market development  Product development  Concentric diversification Defensive  Retrenchment  Divestiture  Liquidation  Concentric diversification Aggressive  Market penetration  Market development  Product development  Integration (all types)  Diversification (all types) Competitive  Integration (all types)  Market penetration  Market development  Product development  Joint ventures

24. Copyright 2007 Prentice Hall Ch 6 -24 Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Stage 2: The Matching Stage

25. Copyright 2007 Prentice Hall Ch 6 -25 BCG Matrix Boston Consulting Group Matrix  Enhances multi-divisional firm in formulating strategies  Autonomous divisions = business portfolio  Divisions may compete in different industries  Focus on market-share position & industry growth rate

26. Copyright 2007 Prentice Hall Ch 6 -26 BCG Matrix Relative Market Share Position  Ratio of a division’s own market share in an industry to the market share held by the largest rival firm in that industry Example: If Acme is market leader with $100M in salesand ABC Corp has $40M in sales then ABC market share Ratio is 40% (0.4)

27. Copyright 2007 Prentice Hall Ch 6 -27 BCG Matrix Data required  Relative market Share for each Division Horizontal axis Compare to leading firm (1 means you are the leading firm)  Industry growth pattern Vertical axis  Percentage of Corporate Revenues generated by division Size of circle  Percentage of Corporate Profits generated by division Size of pie slice

28. Copyright 2007 Prentice Hall Ch 6 -28 BCG Matrix Dogs IV Cash Cows III Question Marks I Stars II Relative Market Share Position High 1.0 Medium.50 Low 0.0 Industry Sales Growth Rate High +20 Low -20 Medium 0

29. Copyright 2007 Prentice Hall Ch 6 -29 BCG Matrix Question Marks  Low relative market share – compete in high- growth industry  Cash needs are high  Case generation is low  Decision to strengthen (intensive strategies) or divest

30. Copyright 2007 Prentice Hall Ch 6 -30 BCG Matrix Stars  High relative market share and high growth rate  Best long-run opportunities for growth & profitability  Substantial investment to maintain or strengthen dominant position  Integration strategies, intensive strategies, joint ventures

31. Copyright 2007 Prentice Hall Ch 6 -31 BCG Matrix Cash Cows  High relative market share, competes 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 weakens—retrenchment or divestiture

32. Copyright 2007 Prentice Hall Ch 6 -32 BCG Matrix Dogs  Low relative market share & compete in slow or no market growth  Weak internal & external position  Liquidation, divestiture, retrenchment

33. Copyright 2007 Prentice Hall Ch 6 -33 Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Stage 2: The Matching Stage

34. Copyright 2007 Prentice Hall Ch 6 -34 The Internal-External Matrix Positions an organization’s various divisions in a nine-cell display Similar to BCG Matrix except the IE Matrix:  Requires more information about the divisions IFE and EFE for EACH division  Strategic implications of each matrix are different

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36. Copyright 2007 Prentice Hall Ch 6 -36 IE Matrix Based on two key dimensions  The IFE total weighted scores on the x-axis  The EFE total weighted scores on the y-axis Divided into three major regions  Grow and build – Cells I, II, or IV  Hold and maintain – Cells III, V, or VII  Harvest or divest – Cells VI, VIII, or IX

37. Copyright 2007 Prentice Hall Ch 6 -37 Steps to Create an IE matrix For each division in the organization  Construct an IFE matrix and record score  Construct an EFE matrix and record score  Creates an circular “Pie” for each division Same technique as BCG Percentage of Corporate Revenues generated by division  Size of circle Percentage of Corporate Profits generated by division  Size of pie slice Place each divisional “pie” in IE matrix based on  EFE score – y axis  IFE score – x axis Use Excel’s Chart Wizard To make Pies Use Green & Gold Pies from http://tonyg.umfk.maine.edu/pies.htm

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39. Copyright 2007 Prentice Hall Ch 6 -39 IE Matrix IIIIII IVVVI VIIVIIIIX IFE Scores StrongAverageWeak 3-42-2.991-1.99 High 3-4 Medium 2-2.99 Low 1-1.99 EFE Scores Grow and Build Hold and Maintain Harvest or Divest 1 2 3

40. Copyright 2007 Prentice Hall Ch 6 -40 Strategy-Formulation Analytical Framework SPACE Matrix BCG Matrix IE Matrix Stage 2: The Matching Stage SWOT Matrix Grand Strategy Matrix

41. Copyright 2007 Prentice Hall Ch 6 -41 Grand Strategy Matrix  Tool for formulating alternative strategies  Based on two dimensions  Competitive position  Market growth

42. Copyright 2007 Prentice Hall Ch 6 -42 Quadrant IV 1. Concentric diversification 2. Horizontal diversification 3. Conglomerate diversification 4. Joint ventures Quadrant III 1. Retrenchment 2. Concentric diversification 3. Horizontal diversification 4. Conglomerate diversification 5. Liquidation Quadrant I 1. Market development 2. Market penetration 3. Product development 4. Forward integration 5. Backward integration 6. Horizontal integration 7. Concentric diversification Quadrant II 1. Market development 2. Market penetration 3. Product development 4. Horizontal integration 5. Divestiture 6. Liquidation RAPID MARKET GROWTH SLOW MARKET GROWTH WEAK COMPETITIVE POSITION STRONG COMPETITIVE POSITION

43. Copyright 2007 Prentice Hall Ch 6 -43 Grand Strategy Matrix  Excellent strategic position  Concentration on current markets/products  Take risks aggressively when necessary Quadrant I

44. Copyright 2007 Prentice Hall Ch 6 -44 Grand Strategy Matrix  Evaluate present approach  How to improve competitiveness  Rapid market growth requires intensive strategy Quadrant II

45. Copyright 2007 Prentice Hall Ch 6 -45 Grand Strategy Matrix  Compete in slow-growth industries  Weak competitive position  Drastic changes quickly  Cost & asset reduction (retrenchment) Quadrant III

46. Copyright 2007 Prentice Hall Ch 6 -46 Grand Strategy Matrix  Strong competitive position  Slow-growth industry  Diversification to more promising growth areas Quadrant IV

47. Copyright 2007 Prentice Hall Ch 6 -47 Matrix Analysis (not in text) Alternative StrategiesBCGIESPACEGRANDCOUNT Forward IntegrationXX2 Backward IntegrationXX2 Horizontal IntegrationXX2 Market PenetrationXXX3 Market DevelopmentXXX3 Product DevelopmentXXXX4 Concentric DiversificationXX2 Conglomerate DiversificationXX2 Horizontal DiversificationXX2 Joint VentureX1 Retrenchment DivestitureX1 Liquidation

48. Copyright 2007 Prentice Hall Ch 6 -48 Strategy-Formulation Analytical Framework Stage 3: The Decision Stage Quantitative Strategic Planning Matrix (QSPM)

49. Copyright 2007 Prentice Hall Ch 6 -49 QSPM  Technique designed to determine the relative attractiveness of feasible alternative actions Quantitative Strategic Planning Matrix

50. Copyright 2007 Prentice Hall Ch 6 -50 QSPM Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Computer Information Systems Strategy 3Strategy 2Strategy 1WeightKey External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/ Environmental Technological Competitive Strategic Alternatives

51. Copyright 2007 Prentice Hall Ch 6 -51 Steps to Develop a QSPM 1. Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column 2. Assign weights to each key external and internal factor (should be the same you used from IFE and EFE matrices) 3. Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing

52. Copyright 2007 Prentice Hall Ch 6 -52 Steps to Develop a QSPM 4. Determine the Attractiveness Scores 5. Compare the Total Attractiveness Scores 6. Compute the Sum Total Attractiveness Score

53. Copyright 2007 Prentice Hall Ch 6 -53 Six steps to developing a QSPM: 1. Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM. 1. From SWOT, IFE and EFE 2. Assign weights to each key external and internal factor. 1. Weights for each category should add up to one. 2. Same as IFE and EFE 3. Examine the Stage 2 matrices and identify alternative strategies that the organization should consider implementing. 4. Determine the Attractiveness Scores (AS). (1-4) 1. 1=not attractive 2. 4=highly attractive 5. Compute the total AS. 1. Weight * AS 6. Compute the sum Total AS. 1. Range should be from 2-8 7. templates\QSPM_Matrix.xlt templates\QSPM_Matrix.xlt

54. Copyright 2007 Prentice Hall Ch 6 -54 QSPM  Requires intuitive judgments & educated assumptions  Only as good as the prerequisite inputs Limitations

55. Copyright 2007 Prentice Hall Ch 6 -55 QSPM  Sets of strategies considered simultaneously or sequentially  Integration of pertinent external & internal factors in the decision making process Advantages

56. Copyright 2007 Prentice Hall Ch 6 -56 Cultural Aspects of Strategy Choice  Successful strategies depend on the degree of consistency with the firm’s culture Organization Culture Mach Test

57. Copyright 2007 Prentice Hall Ch 6 -57 Politics of Strategy Choice  Management hierarchy  Career aspirations  Allocation of scarce resources Politics in Organizations

58. Copyright 2007 Prentice Hall Ch 6 -58 Successful Strategists : Were found to let weakly supported ideas and proposals die through inaction and to establish additional hurdles or tests for strongly supported ideas considered unacceptable but not openly opposed.

59. Copyright 2007 Prentice Hall Ch 6 -59 Politics of Strategy Choice  Equifinality  Same outcomes by different means  Satisfying  Good results with acceptable strategy is better than excellent results with an unpopular strategy  Generalization  Less detail  Higher-order issues  Take care of the big stuff first  Political access on important issues for Middle Managers  Agency and political avenues for redress Political tactics for strategists

60. Copyright 2007 Prentice Hall Ch 6 -60 Governance Issues  Control & oversight over management  Adherence to legal prescriptions  Consideration of stakeholder interests  Advancement of stockholder rights Board of Directors (advisors) Roles & Responsibilities

61. Copyright 2007 Prentice Hall Ch 6 -61 Corporate Governance Issues 1.No more than 2 directors are current or former company executives 2.No directors do business with the company 3.Audit, compensation, and nominating committees made up of outside directors 4.Each director owns a large equity stake in the company 5.At least one outside director with extensive experience 6.Fully employed directors sit on no more than 4 boards – Retirees on no more than 7 7.Each director attends at lest 75% of all meetings Business Week’s “Principles of Good Governance”

62. Copyright 2007 Prentice Hall Ch 6 -62 Corporate Governance Issues 8.Board meets regularly without management present 9.Audit committee meets at least four times a year 10.Board is frugal on executive pay, diligent in CEO succession, and prompt to act when trouble arises 11.CEO is not also the Chairperson of the Board 12.Shareholders have considerable power and information to choose & replace directors 13.Stock options are considered a corporate expense 14.No interlocking directorships Business Week’s “principles of good governance”

63. Copyright 2007 Prentice Hall Ch 6 -63 Corporate Governance Issues 8.Board meets regularly without management present 9.Audit committee meets at least four times a year 10.Board is frugal on executive pay, diligent in CEO succession, and prompt to act when trouble arises 11.CEO is not also the Chairperson of the Board 12.Shareholders have considerable power and information to choose & replace directors 13.Stock options are considered a corporate expense 14.No interlocking directorships Business Week’s “principles of good governance”