STRATEGY ANALYSIS AND CHOICE

The Nature Strategy Analysis and Choices To Achieve Mission & Objective External Env’ Analysis Generate, Evaluate, Select Strategies Vision & Mission Establish Long term Objective Internal Env’ Analysis

The Strategy Formulation Framework STAGE – 1 : The Input Stage External Factor Evaluation (EFE) Competitor Profile Matrix (CPM) Internal Factor Evaluation (IFE) STAGE – 2 : Matching Stage Strategic Position and Action Evaluation Boston Consulting Group (BCG) Internal External (IE) Matrix Grand Strategy Matrix SWOT Matrix STAGE – 3 : Decision Stage Quantitative Strategic Planning Matrix (QSPM)

SWOT Matrix Strength Weaknesses Opportunities Threats Inventory turn over up to 6,7% Average customer purchase up to $ 128 Employee morale is excellent In store promotion = 20% increase in sale Revenue up to 16% Newspaper adv expense down 10% Technical support has MIS degree Debt to total asset down 34% Software revenue down 12% Location of store hurt by new highway Total store revenue down 8% Carpet in store must be repaired Store have no Website Bathroom need refurbishing Supplier time delivery up 2 days Cust’ checkout process too slow Opportunities Population growing 10% Rival store opening 1 km away Vehicle traffic up 12% Computer user growing 8% Small business growth 10% Desire for Website up 18% Vendor average six new product Add 4 new in store promotion monthly (S4, O3) Add 2 new repair/service person (S5, O4) Send flyer to senior over age 55 (S6, O4) Purchase land to built new store (W2, O2) Up Website service by 50% (W5, O6) Launch mail out to all realtors in city (W3, O6) Best buy opening new store Local Univ offer computer repair New bypass hwy will divert traffic New mall being built nearby Vendor raising price 8% Gas prices up 14% Hire 2 more repair person and market the new service (S5, S7, T1) Purchase land to built new store (S8, T3) Raise out-of-store service call from $60 to $80 (S5, T6) Hire 2 new cashier (W8,T1,T4) Install new carpet /paint bath (W4.6, T1) Threats

Strategic Position and Action Evaluation (SPACE) FS Financial Strength +6 Conservative : Market Penetration Market Development Product Development Related Diversification +5 Aggressive : B, F, H Integration Market Penetration Market Development Product Development Diversification +4 +3 Competitive Advantage +2 +1 Industry Strength CA IS -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 +7 -1 Defensive : Retrenchment Divestiture Liquidation -2 Competitive : B, F, H Integration Market Penetration Market Development Product Development -3 -4 -5 -6 Environmental Stability ES

Example Factors of SPACE External Strategic Position Internal Strategic Position Environmental Stability (ES) : Technological change, Rate of Inflation, Demand variability, Price range of competing product, Barrier to entry into market, Competitive pressure, Ease of exit from market, Price elasticity of demand, Risk involve in business. Industry Strength (IS) : Growth potential, Profit potential, Financial Stability, Technological know-how, Resource utilization, Ease to entry into market, Productivity, Capacity Utilization. Financial Strength (FS) : Return on Investment, Leverage, Liquidity, Working Capital, Cash Flow, Inventory turn over, Earning per share, Price earning ratio. Competitive Advantage (CA) : Market share, Product quality, Product Life cycle, Customer Loyalty, Competition’s capacity utilization, Technological know-how, Control over supplier and distributor

The Steps to Develop a SPACE Matrix Select a set of variables to define Financial Position (FP), Competitive Position (CP), Stability Position (SP) and Industry Position (IP) Assign numerical value ranging from +1 (Worst) to +7 (Best) for FP and IP dimension. Assign -1(best) to -7 (Worst) for SP and CP dimension FP and CP makes comparison to competitors, SP and IP compare to other industries. Compute an average score of FP, IP, SP and CP Plot the average scores for FP, IP, SP and CP on the axis in the SPACE Matrix Add the two scores in each x-axis and y-axis and make the resultant Draw a directional vector that reveals the strategies recommended.

SPACE Matrix for a Bank TUGAS : Kerjakan secara kelompok Perhatikan data Financial Position FP, Competitive Position CP, Industry Position IP dan Stability Position SP dari sebuan Bank pada halaman 216, Tabel 6-3 Tentukan besaran vektor FP, CP, IP dan SP Tentukan resultant dari keempat vektor tersebut Tentukan strategi yang harus dijalankan oleh bank tersebut

Boston Consulting Group (BCG) Cash Generation (Market Share) High Low Star Question Mark Backward Integration Forward Integration Horizontal Integration Market Penetration Market Development Product Development Market Penetration Market Development Product Development Divestiture Market Share : Sales relative to those of other competitors in the market (dividing point is usually selected to have only two three largest competitors in any market fall into the high market share region). Growth Rate : Industry Growth rate in constant dollars (dividing point is typically GNP’s growth rate) High ?? * Cash Use (Growth Rate) Cash Cow Dog Rp X Low Diversification Product Development Divestiture Retrenchment Retrenchment Liquidation Divestiture

BCG Matrix Example Tugas Kelompok : Buatlah BCG Matrix nya Division Sales (MilyardRp) % Sales Profit (Juta Rp) % Profit Market Share Growth Rate (%) 1. Victoria Secret 5,139 51,5 799 68,0 0,8 10 2. Bath & Body Works 2,556 25,6 400 39,0 0,4 05 3. Express 1,749 17,5 12 1,2 0,2 00 4. Limited Stores 0,493 4,9 4 0,1 0,5 -0,5 5. Henri Bendel & Mast 0,042 -188 -18,3 0.02 -10 TOTAL 9,979 100 1,027

The Internal-External (IE) Matrix B, F, H Integration Market Penetration Market Development Product Development The IFE Total Weighted Score Strong 3.0 – 4.0 Average 2.0 – 3.0 Weak 1.0 – 2.0 3.0 2.0 1.0 4.0 I II III High 3.0 – 4.0 3.0 IV V VI The EFE Total Weighted Score Medium 2.0 – 3.0 2.0 VII VIII IX Low 1.0 – 2.0 1.0 Hold and Maintain Market Penetration Product Development Harvest or Divest Retrenchment Divestiture

IE Matrix Example Division Sales (MilyardRp) % Sales Profit (Juta Rp) % Profit IFE Score EFE I 100 25.0 10 50 3,6 3,2 II 200 50.0 5 25 2,1 3,5 III 12.5 4 20 3,1 IV 1 1,8 2,5 TOTAL 400 Buatlah IE Matrix nya

Model of Grand Strategy Matrix Grand Strategy Matrix become a popular tool for formulating alternative strategies. Grand Strategy Matrix is based on two evaluative dimension : Competitive Position CP and Market (Industry) Growth. Growth in sales exceeds 5% could be considered to have rapid growth Firm located in Quadrant 1 of the Grand Strategy Matrix are in excellent strategic position

Model of Grand Strategy Matrix Rapid Market Growth Quadrant 1 Market Development Market penetration Product Development Forward Integration Backward Integration Horizontal Integration Vertical Integration Related Diversification Quadrant 2 Market Development Market Penetration Product Development Horizontal Integration Divestiture Liquidation Weak Competitive Position Strong Competitive Position Quadrant 3 Retrenchment Related Diversification Unrelated Diversification Divestiture Liquidation Quadrant 4 Related diversification Unrelated Diversification Joint Venture Slow Market Growth

Factors that Shape Market Attractiveness Forces Competitive Environment Market Access Market Size Number of Competitor Customer Familiarity Growth Rate Price Rivalry Channel Access Buyer Power Ease of Entry Sales Requirements

Market Attractiveness Index Market Forces Factor Importance : 30% Relative Importance Attractiveness Rating Attractiveness Score Market Size 40% 80 32 Growth Rate 30% 60 18 Buyer Power 40 12 Total 100 62 Competitive Env’ Factor Importance : 40% Relative Importance Attractiveness Rating Attractiveness Score Price Rivalry 50% 40 20 Ease of Competitor Entry 30% 12 Number of Competitor 60 Total 100 44

Attractiveness Rating Market Attractiveness Market Access Factor Importance : 30% Relative Importance Attractiveness Rating Attractiveness Score Customer Familiarity 40% 80 32 Channel Access 100 40 Sales/Service Requirement 20% 60 12 Total 84 Market Attractiveness Index = (30% x 62) + (40% x 44) + (30% x 84) = 18.6 + 17.6 + 26.2 = 61 Market Attractiveness 0 20 40 60 80 100 Very Unattractive Somewhat Unattractive Somewhat Attractive Very Attractive Unattractive Attractive

Factors that Influence Competitive Position Differentiation Position Cost Position Marketing Position Product Quality Unit Cost Market Share Service Quality Transaction Cost Brand Awareness Brand Image Marketing Expenses Distribution

Competitive Position Index Differentiation Position Factor Importance : 40% Relative Importance Attractiveness Rating Attractiveness Score Product Quality 40% 80 32 Service Quality 30% 60 18 Brand Image 24 Total 100 74 Cost Position Factor Importance : 40% Relative Importance Attractiveness Rating Attractiveness Score Cost of Good Sold 70% 40 28 Marketing & Sales Exp’ 20% 60 12 Overhead Expenses 10% 6 Total 100 46

Attractiveness Rating Marketing Position Factor Importance : 20% Relative Importance Attractiveness Rating Attractiveness Score Market Share 40% 40 16 Brand Awareness 30% 12 Distribution 20 6 Total 100 34 Competitive Position Index = (40% x 74) + (40% x 46) + (20% x 34) = 29.6 + 18.4 + 6.8 = 55 Competitive Position 0 20 40 60 80 100 Considerably Weak Clearly Weak Somewhat Weak Somewhat Strong Clearly Strong Considerably Strong

The Decision Stage The Quantitative Strategic Planning Matrix QSPM Step 1 : Make a list of the firm’s external opportunities/threats and Internal strength/weaknesses in the left column of the QSPM, information from EFE and IFE minimum 10 key success factor. Step 2 : Assign weights to each external and internal factors Step 3 : Examine the stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing. Step 4 : Identify the attractiveness scores (AS), AS are determined by examining each key factors and asking : “Does this factor effect the choice of strategies being made ?” AS is 1 = not attractive, 2 = somewhat attractive, 3 = reasonably attractive and 4 = highly attractive Step 5 : Compute the Total Attractive Scores (TAS) Step 6 : Compute the Sum Total Attractive Scores

Strategic Alternative The Quantitative Strategic Planning Matrix - QSPM Key Factors Weight Strategic Alternative Strategy 1 Strategy 2 Strategy 3 External Factors Economy Political / Legal / Gov’ Social / Cultural / Demogr’ Technological Competitive Internal Factors Management Marketing Finance / Accounting Production / Operation MIS Perhatikan Tabel QSPM di Buku 1 hal 226.