Ch 6. Strategy Analysis and Choice

8/13/2019 Ch 6. Strategy Analysis and Choice

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Strategy Analysis & Choice

Usman Chaudhry



Strategy analysis and choice largely involve making

subjective decisions based on objective information

Participation in generating alternative strategies shouldbe as broad as possible.

How many feasible alternatives should be consideredthat could benefit the firm?

Ch 6 -2


Usman Chaudhry. Strategic Management-FSM



Vision Mission Objectives External audit Internal audit Past successful strategies

Ch 6 -3


Alternative Strategies are derive from…




Ch 6 -4

Comprehensive Strategy-

Formulation Framework

Intuition and

Analysis


Stage 3

The Decision Stage

Stage 2The Matching Stage

Stage 1

The Input Stage



Ch 6 -5

Strategy-Formulation Analytical

Framework

Internal Factor Evaluation

Matrix (IFE)

External Factor Evaluation

Matrix (EFE)

Competitive Profile Matrix

(CPM)


Stage 1The 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

Usman Chaudhry. Strategic Management-FSM Ch 6 -6

Stage 1: The Input Stage



SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix


Stage 2: The Matching Stage

A match between

internal and external

resources



Four Types of Strategies

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)



SWOT Matrix



SWOT Matrix

Strengths – S

List Strengths

Weaknesses – W

List Weaknesses

Opportunities – O

List Opportunities

SO Strategies

Use strength s to take

advantage ofopportuni t ies

WO Strategies

Overcomin g weaknesses

by taking advantage ofopportuni t ies

Threats – T

List Threats

ST Strategies

Use strengths to avoid

threats

WT Strategies

Minimize weaknesses and

avoid th reats

Ch 6 -9Usman Chaudhry. Strategic Management-FSM



Does not show how to achieve a competitive

advantage

Provides a static assessment in time

May lead the firm to overemphasize a single

internal or external factor in formulatingstrategies

Ch 6 -10

Limitations with SWOT Matrix




SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix






Indicates which of the following strategy is

most appropriate for a given organization

Aggressive

Conservative

Defensive

Competitive


SPACE MatrixStrategic Position & Evaluation Matrix



Two Internal Dimensions

Financial Position (FP)

Competitive Position (CP)

Two External Dimensions Stability / Environment Position (SP)

Industry Position (IP)


SPACE Matrix



Ch 6 -14

Environmental Stability (ES)

Technological changes

Rate of inflation

Demand variability

Price range of competing products

Barriers to entryCompetitive pressure

Price elasticity of demandEase of exit from marketRisk involved in business

Financial Strength (FS)

Return on investment

Leverage

Liquidity

Working capital

Cash flow

External Strategic PositionInternal Strategic Position


SPACE Factors



SPACE Factors

Ch 6 -15

Industry Position (IP)

Growth potential

Profit potential

Financial stability

Technological know-how

Resource utilizationEase of entry into market

Productivity, capacity utilization

Competitive Position (CP)

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




1. Select a set of variables to define FP, CP, SP, & IP

2. Assign a numerical value:

a. From +1 to +6 to each FP & IP dimension

b. From -1 to -6 to each SP & CP dimension

3. Compute an average score for each FP, CP, SP, & IP

Ch 6 -16

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 throughthe new intersection point.

Ch 6 -17

Steps to Developing a SPACE Matrix




SPACE Matrix

Ch 6 -18

FP+6

+1

+5

+4

+3

+2

-6

-5-4-3

-2

-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6

SP

CP IP

Conservative Aggressive

Defensive Competitive




SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix






Boston Consulting Group Matrix

Enhances multi-divisional firm to manage its portfolioof businesses by examining the relative market shareposition

Divisions may compete in different industries

Focus on market-share position & industry growthrate


BCG Matrix



Relative Market Share Position

Ratio of a division’s own market share in an industryto the market share held by the largest rival firm inthat industry


BCG Matrix



BCG Matrix

Ch 6 -22

Dogs

IV

Cash Cows

III

Question Marks

I

Stars

II

Relative Market Share Position

High

1.0

Medium

.50

Low

0.0

I n d u s t r y S a l e s

G r o w t h R a t e

High

+20

Low

-20

Medium0




Low relative market share – compete in high-growthindustry

Cash needs are high

Cash generation is low

e.g., IT/Mobile Applications, Sales of Cd’s falling Decision to strengthen (intensive strategies) or divest


BCG Matrix

Question Marks



High relative market share and high growth rate

Best long-run opportunities for growth & profitabilitye.g., IPhone, IPods

Substantial investment to maintain or strengthendominant position

Integration strategies, intensive strategies, jointventures


BCG Matrix

Stars



High relative market share, competes in low-growth

industry/mature market Generate cash in excess of their needs

Milked for other purposes

Maintain strong position as long as possible

Product development, concentric diversification

weakens—retrenchment or divestituree.g., Kellogg’s Corn Flakes, Coca Cola


BCG Matrix

Cash Cows



Dogs

Low relative market share & compete in slow or nomarket growth

Weak internal & external position

Liquidation, divestiture, retrenchment


BCG Matrix



SWOT Matrix

SPACE Matrix

BCG Matrix

IE 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

Strategic implications of each matrix are different

Ch 6 -28

The Internal-External Matrix




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

Ch 6 -30

IE Matrix




IE Matrix




SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix


Usman Chaudhry. Strategic Management-FSMCh 6 -32




Tool for formulating alternative strategies

Based on two dimensions

Competitive position

Market growth







Quadrant IV

1. Concentric diversification

2. Horizontal diversification

3. Conglomerate diversification

4. Joint ventures

Quadr ant III

1. Retrenchment

2. Concentric diversification3. 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



Excellent strategic position

Concentration on current markets/products

Take risks aggressively when necessary



Quadrant I



Evaluate present approach How to improve competitiveness

Rapid market growth requires intensive strategy



Quadrant II



Compete in slow-growth industries Weak competitive position

Drastic changes quickly

Cost & asset reduction (retrenchment)



Quadrant III



Strong competitive position Slow-growth industry

Diversification to more promising growth areas



Quadrant IV



Strategy-Formulation AnalyticalFramework


Stage 3:The Decision Stage

Quantitative StrategicPlanning Matrix

(QSPM)



Quantitative Strategic Planning Matrix

Technique designed to determine the relative

attractiveness of feasible alternative actions

QSPM




QSPM

Ch 6 -41

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Computer Information Systems

Strategy 3Strategy 2Strategy 1Weight

Key External FactorsEconomy

Political/Legal/Governmental

Social/Cultural/Demographic/Environmental

Technological

Competitive

Strategic Alternatives




1. Make a list of the firm’s key external opportunities/threats

and internal strengths/weaknesses in the left column2. Assign weights to each key external and internal factor

3. Examine the Stage 2 (matching) matrices, and identifyalternative strategies that the organization should considerimplementing

4. Determine the Attractiveness Scores

5. Compare the Total Attractiveness Scores

6. Compute the Sum Total Attractiveness Score

Ch 6 -42

Steps to Develop a QSPM




Requires intuitive judgments & educated assumptions

Only as good as the prerequisite inputs

QSPM


Limitations



Sets of strategies considered simultaneously or

sequentially Integration of relevant external & internal

factors in the decision making process

QSPM


Advantages



Successful strategies depend on the degree ofconsistency with the firm’s culture

Cultural Aspects of Strategy Choice


Organization Culture

Documents

Ch 6. Strategy Analysis and Choice