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 AttractivenessGE
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

18. PRODUCT/MARKET EVOLUTION PORTFOLIO MATRIX
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 ProfilesFS 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