Copyright 2005 Prentice Hall1 Bus 411 Day 11

Copyright 2005 Prentice Hall Ch 3 -2 Agenda Assignment 4 posted  Due March 9:30 AM Assignment 5 posted  Due March 9:30 AM Mid term Exam will be right after Spring break and will be a take home exam covering the first 9 chapters of the text.  Available March 20  Due March 27  Short essays  Intense-- ~10 hours No lecture on March 3 Finish Discussion on Strategy Analysis & Choice

Copyright 2007 Prentice Hall Ch 6 -3 Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Stage 2: The Matching Stage

Copyright 2007 Prentice Hall Ch 6 -4 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

Copyright 2007 Prentice Hall Ch 6 -5 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)

Copyright 2007 Prentice Hall Ch 6 -6 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

Copyright 2007 Prentice Hall Ch 6 -7 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 ____ Low _____ Medium 0

Copyright 2007 Prentice Hall Ch 6 -8 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

Copyright 2007 Prentice Hall Ch 6 -9 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

Copyright 2007 Prentice Hall Ch 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

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

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

Copyright 2007 Prentice Hall Ch 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

Copyright 2007 Prentice Hall Ch 6 -14

Copyright 2007 Prentice Hall Ch 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

Copyright 2007 Prentice Hall Ch 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

Copyright 2007 Prentice Hall Ch 6 -17

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

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

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

Copyright 2007 Prentice Hall Ch 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

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

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

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

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

Copyright 2007 Prentice Hall Ch 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

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

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

Copyright 2007 Prentice Hall Ch 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

Copyright 2007 Prentice Hall Ch 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

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

Copyright 2007 Prentice Hall Ch 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 templates\QSPM_Matrix.xlt templates\QSPM_Matrix.xlt

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

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

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

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

Copyright 2007 Prentice Hall Ch 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.

Copyright 2007 Prentice Hall Ch 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

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

Copyright 2007 Prentice Hall Ch 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”

Copyright 2007 Prentice Hall Ch 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”

Copyright 2007 Prentice Hall Ch 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”

Ch Global Perspective Corporate Tax Rates Worldwide – Europe is Lowest Lowest corporate tax rates reside in Europe and European countries Average tax rate in EU countries is 26% Besides tax rates, large markets and affluent markets attract new businesses Taxes can be used to reward or penalize companies for locating locally or moving overseas