Strategic Choice Aids SWOT ANALYSIS At the very least, after the analysis of both the external and internal environments, we should have four lists: Strengths Weaknesses Opportunities Threats The most important of these (especially those that clash with the current strategy) should identify the issues that the company must resolve We have to come up with some alternative ideas of how to resolve these issues Pros and cons of each alternative must be developed Selection criteria should be considered and a choice made, based on those criteria From the internal analysis From the external analysis

Strategic Choice Aids TOWS ANALYSIS A brainstorming technique that forces top executives to think outside of the box Start with your SWOT lists Then come up with any possible strategies that: - make use of the firm’s strengths to take advantage of external opportunities - take advantage of opportunities and reduce the impact of firm’s weaknesses - use a firm’s strengths to eliminate threats in the environment - attempt to reduce weaknesses and avoid threats The industry standard is to identify the rational next to each strategy i.e. Strategy 1 was considered as a result of O1, O3 and S4

Strategic Choice Aids TOWS ANALYSIS STRENGTHS (S) List strengths WEAKNESSES (W) List weaknesses OPPORTUNITIES (O) List opportunities SO STRATEGIES Use strengths to take advantage of opportunities WO STRATEGIES Overcome weaknesses by taking advantage of opportunities THREATS (T) List threats ST STRATEGIES Use strengths to avoid threats WT STRATEGIES Minimize weaknesses and avoid threats

Strategic Choice Aids GRAND STRATEGY MATRIX Strategists believe there is a logical order to consider strategic choices Does not mean there is only one order of choice, there is a best order to consider and eliminate until you arrive at your desired strategy Strategic choices are based on two dimensions - relative competitive position - the rate at which the industry is growing (big players more aggressive, Smaller players more copy strategy) WEAK STRONG RELATIVE COMPETITIVE POSITION RAPID Market Development Market Penetration Product Development Horizontal Integration Divestiture Liquidation Market Development Market Penetration Product Development Forward Integration Backward Integration Horizontal Integration Concentric Diversification MARKET GROWTH Retrenchment Concentric Diversification Horizontal Diversif. Conglomerate Diversif. Divestiture Liquidation Concentric Diversification Horizontal Diversif. Conglomerate Diversif. Joint Ventures SLOW

Horizontal Integration Strategic Choice Aids WEAK STRONG GRAND STRATEGY MATRIX RELATIVE COMPETITIVE POSITION All other things being equal... Firm should not shift from present course, just fine tune Develop the market Penetrate the market Come up with new products RAPID Market Development Market Penetration Product Development Forward Integration Backward Integration Horizontal Integration Concentric Diversification MARKET GROWTH If the firm has excess resources... - Buy distributors Buy suppliers Buy competitors If the firm depends too much on a single product... - Add similar and complementary products SLOW If you find yourself in this position (a market leader in a rapidly growing industry... Be aggressive Take risks Take advantage of opportunities

Conglomerate Diversif. Strategic Choice Aids WEAK STRONG GRAND STRATEGY MATRIX RELATIVE COMPETITIVE POSITION Aggressively look for opportunities in growth industries... - Diversify RAPID If the firm feels it does not have the needed expertise... - Consider a joint venture MARKET GROWTH Concentric Diversification Horizontal Diversif. Conglomerate Diversif. Joint Ventures SLOW If you find yourself in this position (a market leader in an industry that is slowing down... Use excess cash (from milking core products) to find new businesses Find ways to reduce market risk

Horizontal Integration Strategic Choice Aids WEAK STRONG GRAND STRATEGY MATRIX RELATIVE COMPETITIVE POSITION If the firm can figure out what it is doing wrong... Develop the market Penetrate the market Come up with a new product RAPID Market Development Market Penetration Product Development Horizontal Integration Divestiture Liquidation If the firm feels it does not have a distinct competitive advantage... - Buy a competitor that has what is missing MARKET GROWTH If an opportunity arises to get out of this industry and try something else... Divest of underperforming assets Get out of the business all together SLOW Seriously evaluate your position.... The market is taking off and leaving you behind... WHY ??????

Conglomerate Diversif. Strategic Choice Aids WEAK STRONG GRAND STRATEGY MATRIX RELATIVE COMPETITIVE POSITION If there is room to cut costs or sell some assets... Retrench RAPID If an opportunity arises to shift resources out of this industry into something else... Diversify MARKET GROWTH Retrenchment Concentric Diversification Horizontal Diversif. Conglomerate Diversif. Divestiture Liquidation If the firm feels it is backed into a corner... Divest Liquidate SLOW Acquire drastic quick medicine to avoid further demise and forced liquidation

Strategic Choice Aids INTERNAL/EXTERNAL MATRIX IFE MATRIX TOTAL WEIGHTED SCORE Typically used to view a portfolio of businesses (THUS a corporate strategy tool) STRONG 3.0 to 4.0 AVERAGE 2.0 to 2.99 WEAK 1.0 to 1.99 HIGH 3.0 to 4.0 GROW & BUILD Market penetration Market development Product development Backward integration Forward integration Horizontal integration EFE MATRIX TOTAL WEIGHTED SCORE MEDIUM 2.0 to 2.99 LOW 1.0 to 1.99 HOLD & MAINTAIN Market penetration Product development HARVEST & DIVEST Retrenchment Divestiture Liquidation

Strategic Choice Aids INTERNAL/EXTERNAL MATRIX IFE MATRIX TOTAL WEIGHTED SCORE To make this matrix more useful, strategists represent each business by a circle, the size of which represents the relative size of the business (in revenues) within the corporate family STRONG 3.0 to 4.0 AVERAGE 2.0 to 2.99 WEAK 1.0 to 1.99 HIGH 3.0 to 4.0 EFE MATRIX TOTAL WEIGHTED SCORE MEDIUM 2.0 to 2.99 Relative profits are also indicated in the matrix as pie shapes within the circles LOW 1.0 to 1.99

Strategic Choice Aids LIFE CYCLE PORTFOLIO MATRIX BUSINESS UNIT’S COMPETITIVE POSITION Starts with IFE/EFE Matrix STRONG AVERAGE WEAK Combines the two dimensions into one based on the business’s relative competitive position EARLY Adds the dimension of the stage in the life cycle TAKE OFF Let’s you better identify developing business winners GROWTH LIFE CYCLE STAGES Allows you to see the distribution of a diversified firm’s businesses across various stages of an industry’s evolution SHAKE OUT MATURITY SATURATION STAGNATION

Strategic Choice Aids Once you have identified the family of strategies that make sense given the firm’s relative competitive position and the dynamics of the industry.... You have to develop a number of more specific (less generic) strategies that allow the firm to use its strengths to take advantage of opportunities or combat threats No strategy is perfect, each has pros and cons. You must understand these and feel comfortable that you understand the implications of choosing one over the others The next step is to decide what criteria you will use to make the final choice Typical criteria include but are not limited to... adding value to shareholders adding value to customers solves the problem/issue fits with the philosophy/mission of the company company has the resources to make it work ease of implementation gives the firm an extended competitive advantage

Strategic Choice Aids Gives firm long-term advantage Value to shareholders Value to customers Fits company mission Gives firm long-term advantage TOTAL STRATEGIC OPTIONS Open resorts in exotic locales Start a portfolio of senior residences Expand into non-boutique hotels Slow down growth and solve the weaknesses Build a stronger brand and loyalty program 3.5 3.0 3.0 2.5 8.0

Strategic Choice Aids You might also want to test the compatibility of the new strategies with the opportunities, threats, strengths and weaknesses identified earlier and ranked in the IFE/EFE tests performed against the current strategy The new strategy should result in a higher score Copy the IFE and EFE matrices. The relative weights should be as they were previously Come up with new scores for each strategy being considered

EFE Matrix Example – Exotic Locales EXTERNAL ANALYSIS RESULTS WEIGHT GRADE SCORE TOTAL OPPORTUNITIES Population group that travels the most is the 30 – 45 slice .20 3.8 .76 2.64 30 – 45 year olds prefer smaller hotels to larger ones .10 3.8 .38 Above Average Not WOW High immigrant population prefers to travel out of country .08 .16 2.0 Aging population want luxury hotel-like retirement homes .05 0.0 .00 Democrats, in power, tend to support small business .03 2.5 .08 THREATS 2008 financial melt-down dried up sources of capital .25 1.5 .38 Increased competition for older buildings from condo developers .17 3.0 .51 Industry consolidation due to being in later stages of growth .09 3.5 .32 Increased use of communication technology is reducing travel .03 1.5 .05

IFE Matrix Example – Exotic Locales INTERNAL ANALYSIS RESULTS WEIGHT GRADE SCORE TOTAL STRENGTHS We have an excellent brand & customers are always satisfied 3.8 .95 2.75 .25 Room rates are 15% higher than comparable rooms .13 2.0 .26 Above Average Has not solved most of the issues Loyalty programs result in 70% repeat customers .10 .35 3.5 Salaries & fringe benefits are 10% more than industry average .05 2.7 .14 Hotel managers meet every 6 months to share ideas .05 2.0 .10 WEAKNESSES Revenues growing 14% p.a. (4 years) but profits only 3% p.a. .18 2.5 .45 Debt/Equity is 2.5 versus industry average of 0.75 .12 1.5 .18 CEO has just quit and has joined our closest rival .07 2.5 .18 Computer system straining & no internet for customers .05 2.8 .14

Strategic Choice Aids If you redid the EFE/IFE matrices for each of the new strategies, you would find that none of them alone results with an outstanding score card Some combination of strategies is necessary that addresses both the environment and the internal situation Something that moves the business in a new market or industry and that addresses both management and financial issues