Chapter 6 Strategy Analysis & Choice

Strategy Analysis & Choice Nature of Strategy Analysis & Choice -- Establishing long-term objectives -- Generating alternative strategies -- Selecting strategies to pursue -- Best alternative - achieve mission & objectives

Stage 2: The Matching Stage Stage 3: The Decision Stage Comprehensive Strategy-Formulation Framework Stage 1: The Input Stage Stage 2: The Matching Stage Stage 3: The Decision Stage

Strategy-Formulation Analytical Framework Internal Factor Evaluation Matrix (IFE) Stage 1: The Input Stage External Factor Evaluation Matrix (EFE) Competitive Profile Matrix (CPM)

Stage 2: The Matching Stage Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix

Four Types of Strategies SWOT Matrix Four Types of Strategies Strengths-Opportunities (SO) Weaknesses-Opportunities (WO) Strengths-Threats (ST) Weaknesses-Threats (WT)

Strengths Weaknesses Opportunities SO Strategies Strengths Weaknesses Opportunities Threats SWOT Use a firm’s internal strengths to take advantage of external opportunities SO Strategies

Strengths Weaknesses Opportunities WO Strategies Strengths Weaknesses Opportunities Threats SWOT Improving internal weaknesses by taking advantage of external opportunities WO Strategies

Strengths Weaknesses Opportunities ST Strategies Strengths Weaknesses Opportunities Threats SWOT Use a firm’s strengths to avoid or reduce the impact of external threats ST Strategies

Strengths Weaknesses Opportunities WT Strategies Strengths Weaknesses Opportunities Threats SWOT Defensive tactics aimed at reducing internal weaknesses & avoiding environmental threats WT Strategies

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

Matching Key Factors to Formulate Alternative Strategies Key Internal Factor Key External Factor Resultant Strategy 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)

External Strategic Position Internal 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 Control over suppliers & distributors External Strategic Position Internal Strategic Position

SPACE Matrix FS Conservative Aggressive CA IS Defensive Competitive ES +6 +5 +4 +3 +2 +1 CA IS -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 -1 -2 -3 -4 Defensive -5 Competitive -6 ES

Relative Market Share Position Industry Sales Growth Rate BCG Matrix Relative Market Share Position High 1.0 Medium .50 Low 0.0 Dogs IV Cash Cows III Question Marks I Stars II Industry Sales Growth Rate High +20 Medium Low -20

RAPID MARKET GROWTH Quadrant II Market development Market penetration Product development Horizontal integration Divestiture Liquidation Quadrant I Market development Market penetration Product development Forward integration Backward integration Horizontal integration Concentric diversification WEAK COMPETITIVE POSITION STRONG COMPETITIVE POSITION Quadrant III Retrenchment Concentric diversification Horizontal diversification Conglomerate diversification Liquidation Quadrant IV Concentric diversification Horizontal diversification Conglomerate diversification Joint ventures SLOW MARKET GROWTH

Strategy-Formulation Analytical Framework Quantitative Strategic Planning Matrix (QSPM) Stage 3: The Decision Stage

Corporate Governance Issues Business Week’s “principles of good governance” No more than 2 directors current or former company executives No directors do business with the company Audit, compensation, and nominating committees made up of outside directors Each director attends at lest 75% of all meetings Audit committee meets at least four times a year CEO is not also the Chairperson of the Board Shareholders have considerable power and information to choose & replace directors Stock options are considered a corporate expense No interlocking directorships