Ch 6 -1 Chapter 6 Strategy Analysis & Choice

Ch 6 -2 Chapter Outline The Nature of Strategy & Choice A Comprehensive Strategy-Formulation Framework The Input Stage

Ch 6 -3 Chapter Outline ( cont’d ) The Matching Stage The Decision Stage Cultural Aspects of Strategy Choice

Ch 6 -4 Chapter Outline ( cont’d ) The Politics of Strategy Choice

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

Ch 6 -6 Vision Mission Objectives External audit Internal audit Past successful strategies Providing a basis for generating and evaluating feasible alternative strategies Strategy Analysis & Choice Alternative Strategies Derive From --

Ch 6 -7 Strategy Analysis & Choice Generating Alternatives -- Participation in generating alternative strategies should be as broad as possible

Ch 6 -8 Comprehensive Strategy-Formulation Framework Stage 1: The Input Stage Stage 2: The Matching Stage Stage 3: The Decision Stage

Ch 6 -9 Comprehensive Strategy-Formulation Framework All techniques included in the strategy- formulation framework require the integration of intuition and analysis Strategists themselves, not analytic tools, are always responsible and accountable for strategic decisions.

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

Ch Stage 1: The 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

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

Ch Stage 2: The Matching Stage  Match between organization’s internal resources & skills and the opportunities & risks created by its external factors

Ch Stage 2: The Matching Stage  Strengths  Weaknesses  Opportunities  Threats SWOT Matrix

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

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

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

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

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

Ch 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

Ch Limitations with SWOT Matrix 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 formulating strategies

Ch SPACE Matrix Strategic Position & Action Evaluation Matrix  Aggressive  Conservative  Defensive  Competitive

Ch SPACE Matrix Two Internal Dimensions  Financial Strength (FS)  Competitive Advantage (CA)

Ch SPACE Matrix Two External Dimensions  Environmental Stability (ES)  Industry Strength (IS)

Ch Steps to Developing a SPACE Matrix 1. Select a set of variables depending on the type of organizations to define FS, CA, ES, & IS 2. Assign a numerical value: 1. From +1(worst) to +6 (best) to each FS & IS dimensions 2. From -1 (best) to -6 (worst) to each ES & CA dimensions 3. Compute an average score for each FS, CA, ES, & IS

Ch 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 through the new intersection point.

Ch SPACE Matrix FS ES CAIS ConservativeAggressive DefensiveCompetitive

Ch Aggressive Profiles An organization is in an excellent position to use its internal strengths to  Take advantage of external opportunities  Overcome internal weaknesses  Avoid external treats Market penetration ; market development; product development; integration; diversification; combination strategy all can be feasible

Ch Conservative Profiles The directional vector appear in the upper-left quadrant,which implies staying close to the firm’s basic competencies and not taking excessive risks Market penetration; market development; product development; concentric diversification

Ch Defensive Profiles The directional vector may be located in the lower-left quadrant, which suggests that the firm should focus on rectifying internal weaknesses and avoiding external threats Harvest ， Retrenchment; divestiture; liquidation; concentric diversification

Ch Competitive Profiles The directional vector may be located in the lower-right quadrant, indicating that the firm who has financial problem competes in an unstable but growing industry, should focus on strengthening its finance by taking advantage the industry growth Backward, forward, and horizontal integration; Market penetration; market development; product development; and joint venture

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

Ch 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

Ch 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

Ch 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 +20 Low -20 Medium 0

Ch BCG Matrix Question Marks  Low relative market share – compete in high- growth industry  Cash needs are high  Cash generation is low  Decision to strengthen (intensive strategies) or divest

Ch 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

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

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

Ch Limitations of BCG Matrix Viewing every business as either a star, cash cow, dog, or question mark is an oversimplification It is a snapshot of an organization at a given point in time, and has no temporal qualities Other variables besides relative market share and industry growth rate in sales, are important in making strategic decisions about various divisions

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  Strategic implications of each matrix are different

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

Ch QSPM  Technique designed to determine the relative attractiveness of feasible alternative actions The only one analytical technique in the literature Quantitative Strategic Planning Matrix

Ch QSPM The QSPM uses input ( critical success factors) from Stage1 analyses and matching results from Stage2 analyses to decide objectively among alternative strategies The QSPM, like other strategy-formulation analytical tools, requires good intuitive judgment

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 ( this information should be taken directly from the EFE and IFE Matrices) 2. Assign weights to each key external and internal factor ( these weights are identical to those in the EFE and IFE Matrices) 3. Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing

Ch Steps to Develop a QSPM 4. Determine the Attractiveness Scores (AS indicate the relative attractiveness of each strategy in a given set of alternatives) 1. Does this factor affect the choice of strategies being made? 2. The answer—YES, strategies should be compared relative to that key factor, then assign Attractiveness Scores 3. The answer—NO, key factor has not effect upon the specific choice being made, then do not assign Attractiveness Scores to all of the strategies in the same set 4. Double 4s,3s,2s,1s, are never in a give row

Ch QSPM Range for Attractiveness Scores  1= not attractive  2= somewhat attractive  3= reasonably attractive  4= highly attractive

Ch QSPM 5. Compute the Total Attractiveness Scores  M ultiplying the weights by the attractiveness scores  Indicating the relative attractiveness of each alternative strategy, considering only the impact of the adjacent key factor 6. Compute the Sum Total Attractiveness Score  Adding TAS in each strategy column of the QSPM  Revealing which strategy is most attractive in each set of alternatives considering all the factors

Copyright 2007 Prentice Hall Ch 6 -49