1. Chapter 6 Strategy Analysis & Choice

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

3. Strategy Analysis & Choice
Alternative Strategies Derive From --
Vision
Mission
Objectives
External audit
Internal audit
Past successful strategies

5. 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

6. Strategy-Formulation Analytical Framework
Internal Factor Evaluation Matrix (IFE)
Stage 1: The Input Stage
Competitive Profile Matrix (CPM)
External Factor Evaluation Matrix (EFE)
Note: EFE and CPM form external and IFE from internal (assessment)

7. 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

8. Stage 2: The Matching Stage
Strategy-Formulation Analytical Framework
SWOT Matrix
Stage 2: The Matching Stage
BCG Matrix
Grand Strategy Matrix

9. Stage 2: The Matching Stage
Match between organization’s internal resources & skills and the opportunities & risks created by its external factors
E.g. internal: strong R and D function
External changing demographics (population getting older)
Strategy: Develop new products for older adults (related to long term objectives financial or strategic)

10. Stage 2: The Matching Stage: SWOT Matrix
Four Types of Strategies
Strengths-Opportunities (SO):
Use a firm’s internal strengths to take advantage of external opportunities
Weaknesses-Opportunities (WO):
Improving internal weaknesses by taking advantage of external opportunities
Strengths-Threats (ST):
Use a firm’s strengths to avoid or reduce the impact of external threats.
Weaknesses-Threats (WT):
Defensive tactics aimed at reducing internal weaknesses and avoiding external threats

11. 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

12. 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 from the industry (opportunity)
Insufficient capacity (weakness)
Acquire Cellfone, Inc.
20% annual growth in the cell phone industry (opportunity)
Excess working capacity (strength)
Which types of strategies, e.g. intensive diversification…, are referred to above

13. Strengths:
Weaknesses:
R and D almost complete
Basis for strong management team
Key first major customer acquired
Initial product can evolve into range of offerings
Located near a major centre of excellence
Very focused management/staff
Well-rounded and managed business
Over dependent on borrowings - Insufficient cash resources
Board of Directors is too narrow
Lack of awareness amongst prospective customers
Need to relocate to larger premises
Absence of strong sales/marketing expertise
Overdependence on few key staff
Emerging new technologies may move market in new directions
Threats:
Opportunities:
Major player may enter targeted market segment
New technology may make products obsolescent
Economic slowdown could reduce demand
Euro/Yen may move against $
Market may become price sensitive
Market segment's growth could attract major competition
Market segment is poised for rapid growth
Export markets offer great potential
Distribution channels seeking new products
Scope to diversify into related market segments

14. Key Strategies
Accelerate product launches by strengthening R and D team
Extend links with key technology centres
Raise additional venture capital
Expand senior management team in sales/marketing
Recruit non-executive directors
Strengthen human resources function and introduce share options for staff
Appoint advisers for intellectual property and finance
Seek new market segments/applications for products

15. SWOT Matrix Leave Blank Strengths – S List Strengths Weaknesses – W
List Weaknesses
Opportunities – O
List Opportunities
SO Strategies
Match and determine strategy
WO Strategies Match and determine strategy
Threats – T
List Threats
ST Strategies Match and determine strategy
WT Strategies Match and determine strategy
Inset key strategies into correct box element of the Matrix

16. 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

17. Boston Consulting Group Matrix
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

18. Relative Market Share Position
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

19. 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

20. 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

21. 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

22. 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

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

24. Grand Strategy Matrix Tool for formulating alternative strategies
Based on two dimensions
Competitive position
Market growth

25. 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

26. Grand Strategy Matrix Quadrant I Excellent strategic position
Concentration on current markets/products
Take risks aggressively when necessary
Which type of strategy would you suggest?

27. Grand Strategy Matrix Quadrant II Evaluate present approach
How to improve competitiveness
Rapid market growth requires intensive strategy

28. Grand Strategy Matrix Quadrant III Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)

29. Grand Strategy Matrix Quadrant IV Strong competitive position
Slow-growth industry
Diversification to more promising growth areas

30. Strategy-Formulation Analytical Framework
Quantitative Strategic Planning Matrix (QSPM)
Stage 3: The Decision Stage
Technique designed to determine the relative attractiveness of feasible alternative actions

31. Steps to Develop a QSPM
Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column
Assign weights to each key external and internal factor
Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing
Determine the Attractiveness Scores (A.S)
Compare the Total Attractiveness Scores
Compute the Sum Total Attractiveness Score

32. QSPM : information from IFE and EFE
Strategic Alternatives
QSPM : information from IFE and EFE
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information Systems
Sum total A.S.
Strategy 3
Strategy 2
Strategy 1
Weight
Key External Factors Economy
Political/Legal/Governmental
Social/Cultural/Demographic/Environmental
Technological
Competitive
AS 1 to 4 and blank if factor does not effect strategy: TAS = Weight x AS

33. Example of a QSPM for Dell
Limitations
Requires intuitive judgments & educated assumptions
Only as good as the prerequisite inputs
Advantages
Sets of strategies considered simultaneously or sequentially
Integration of pertinent external & internal factors in the decision making process
Example of a QSPM for Dell

34. Questions
Discuss 3 techniques that can be used by organisations to choose alternative paths to achieve their long term objectives.
Discuss how to choose the best of a set of alternative strategies.