Copyright 2007 Prentice Hall Ch 6 -1 Chapter 6 Strategy Analysis & Choice Strategic Management: Concepts & Cases 11 th Edition Fred David

Copyright 2007 Prentice Hall Ch 6 -1

Chapter 6Strategy Analysis & Choice

Strategic Management:

Concepts & Cases

11th Edition

Fred David


-- Establishing long-term objectives-- Generating alternative strategies-- Selecting strategies to pursue-- Best alternative - achieve mission & objectives

Nature of Strategy Analysis & Choice

Strategy Analysis & Choice


Comprehensive Strategy-Formulation Framework

Stage 1:The Input Stage

Stage 2:The Matching Stage

Stage 3:The Decision Stage


Strategy-Formulation Analytical Framework

SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix

Stage 2:The Matching Stage


SWOT Matrix

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of Strategies


SO Strategies

Use a firm’sinternal strengthsto take advantage

of external opportunities

SOStrategies

StrengthsWeaknesses

OpportunitiesThreats

SWOT


WO Strategies

Improving internalweaknesses by

taking advantageof external

opportunities

WOStrategies

StrengthsWeaknesses


SWOT


ST Strategies

Use a firm’s strengthsto avoid or

reduce the impactof external

threats

STStrategies

StrengthsWeaknesses


SWOT


WT Strategies

Defensive tacticsaimed at reducing

internal weaknesses &

avoidingenvironmental

threats

WTStrategies

StrengthsWeaknesses


SWOT


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


Develop a new employee benefits package

= Strong union activity (threat)

+Poor employee morale (weakness)

Develop new products for older adults

=Decreasing numbers of young adults (threat)

+Strong R&D (strength)

Pursue horizontal integration by buying competitor's facilities

=Exit 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)

Key Internal Factor Key External Factor Resultant Strategy

Matching Key Factors to Formulate Alternative Strategies


SPACE Factors - Strategic Position and Action Evaluation

Environmental Stability (ES)

Technological changes

Rate of inflation

Demand variability

Price range of competing products

Barriers to entry

Competitive pressure

Price elasticity of demandEase 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


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


SPACE 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


SPACE MatrixFS

+6

+1

+5+4+3

+2

-6

-5

-4

-3

-2

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

ES

CA IS

Conservative Aggressive

Defensive Competitive


SPACE 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


SPACE 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.


BCG Matrix - Boston Consulting Group

Dogs

IV

Cash Cows

III

Question Marks

I

Stars

II

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

Ind

us

try

Sa

les

Gro

wth

Ra

te

High+20

Low-20

Medium0


BCG Matrix

Boston Consulting Group Matrix

Graphically portrays differences among divisions

Focuses on market share position and industry growth rate

Manage business portfolio through relative market share position and industry growth rate


BCG 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.


BCG Matrix

Question Marks

• Low relative market share position yet compete in high-growth industry.• Cash needs are high• Case generation is low

• Decision to strengthen (intensive strategies) or divest


BCG Matrix

Stars

• High relative market share and high industry growth rate.• Best long-run opportunities for growth and

profitability

• Substantial investment to maintain or strengthen dominant position• Integration strategies, intensive strategies, joint

ventures


BCG Matrix

Cash Cows

• High relative market share position, but compete 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 becomes weak—retrenchment or divestiture


BCG Matrix

Dogs

• Low relative market share position and compete in slow or no market growth • Weak internal and external position

• Decision to liquidate, divest, retrenchment


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 Strategic implications of each matrix are different



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


Quadrant IV

1. Concentric diversification

2. Horizontal diversification

3. Conglomerate diversification

4. Joint ventures

Quadrant III

1. Retrenchment


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


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

STRONGCOMPETITIVE

POSITION


Strategy-Formulation Analytical Framework

Stage 3:The Decision Stage

Quantitative StrategicPlanning Matrix

(QSPM)


QSPM

Quantitative Strategic Planning Matrix

• Only technique designed to determine the relative attractiveness of feasible alternative actions

Tool for objective evaluation of alternative strategies

Based on identified external and internal crucial success factors

Requires good intuitive judgment


QSPM


List the firm’s key external opportunities & threats; list the firm’s key internal strengths and weaknesses

Assign weights to each external and internal critical success factor

Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementing

Determine the Attractiveness Scores (AS)


QSPM


Compute the total Attractiveness Scores

Compute the Sum Total Attractiveness Score


QSPM

Key Internal FactorsManagementMarketingFinance/AccountingProduction/OperationsResearch and DevelopmentComputer Information Systems

Strategy 3Strategy 2

Strategy 1

WeightKey External FactorsEconomyPolitical/Legal/GovernmentalSocial/Cultural/Demographic/EnvironmentalTechnologicalCompetitive


QSPM

Limitations:

Requires intuitive judgments and educated assumptions

Only as good as the prerequisite inputs

Positives:

Sets of strategies examined simultaneously or sequentially

Requires the integration of pertinent external and internal factors in the decision-making process


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


Corporate Governance Issues

1. No more than 2 directors are current or former company executives

2. No directors do business with the company3. Audit, compensation, and nominating committees are made up

of outside directors4. Each director attends at lest 75% of all meetings5. Audit committee meets at least four times a year6. CEO is not also the Chairperson of the Board7. Shareholders have considerable power and information to

choose & replace directors8. Stock options are considered a corporate expense9. No interlocking directorships

Business Week’s “Principles of Good Governance”

Documents

Copyright 2007 Prentice Hall Ch 6 -1 Chapter 6 Strategy Analysis & Choice Strategic Management: Concepts & Cases 11 th Edition Fred David