Analysis of Strategy

8/3/2019 Analysis of Strategy

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Strategic AnalysisStrategic Analysis & Choice& Choice

The Nature of Strategy Analysis and

Choice

A Comprehensive Strategy-Formulation

Framework

The Input Stage


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Chapter OutlineChapter Outline

The Matching Stage

The Decision Stage

Cultural Aspects of Strategy Choice


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Strategy Analysis & ChoiceStrategy Analysis & Choice

Strategic analysis and choice largelyStrategic analysis and choice largelyinvolves making subjective decisionsinvolves making subjective decisions

based on objective informationbased on objective information..


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The Nature of Strategy Analysis and ChoiceThe Nature of Strategy Analysis and Choice

Establishing longEstablishing long--term objectivesterm objectives

Generating alternative strategiesGenerating alternative strategies

Selecting strategies to pursueSelecting strategies to pursue

Best alternative to achieve mission and objectivesBest alternative to achieve mission and objectives


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Alternative strategies derive fromAlternative strategies derive from

VisionVision

MissionMission

ObjectivesObjectives

External auditExternal audit Internal auditInternal audit

Past successful strategiesPast successful strategies


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Participation in generating alternativeParticipation in generating alternativestrategies should be broadstrategies should be broad


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StrategyStrategy--FormulationFormulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage


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Formulation FrameworkFormulation Framework

External Factor Evaluation

Matrix (EFE)

Competitive Profile

Matrix

Internal Factor Evaluation

Matrix (IFE)

Stage 1:The Input Stage


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Input StageInput Stage

Provides basic input information for theProvides basic input information for the

matching and decision stage matricesmatching and decision stage matrices Requires strategists to quantifyRequires strategists to quantify

subjectivity early in the processsubjectivity early in the process

Good intuitive judgment always neededGood intuitive judgment always needed


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SPACE Matrix

Stage 2:The Matching Stage

TOWS Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix


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Matching StageMatching Stage

Match between organizations internalMatch between organizations internalresources and skills and the opportunitiesresources and skills and the opportunities

and risks created by its external factors.and risks created by its external factors.


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Matching Key Factors to Formulate Alternative StrategiesMatching Key Factors to Formulate Alternative Strategies

Resultant StrategyKey External FactorKey Internal Factor

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)


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SPACE Matrix


TOWS Matrix

BCG Matrix

IE Matrix



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Matching StageMatching Stage

TOWS MatrixTOWS Matrix

ThreatsThreats

OpportunitiesOpportunities

StrengthsStrengthsWeaknessesWeaknesses


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Develop four types of strategiesDevelop four types of strategies

StrengthsStrengths--Opportunities (SO)Opportunities (SO)

WeaknessesWeaknesses--Opportunities (WO)Opportunities (WO)

StrengthsStrengths--Threats (ST)Threats (ST)WeaknessesWeaknesses--Threats (WT)Threats (WT)


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WT Strategies

Minimize weaknesses

and avoid threats

ST Strategies

Use strengths to avoid

threats

Threats-T

List Threats

WO Strategies

Overcome weaknesses

by taking advantage of

opportunities

SO Strategies

Use strengths to take

advantage of opportunities

Opportunities-O

List Opportunities

Weaknesses-W

List Weaknesses

Strengths-S

List Strengths

Leave Blank


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SPACE Matrix


TOWS Matrix

BCG Matrix

IE Matrix



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SPACE MatrixSPACE Matrix

Strategic Position and Action Evaluation Matrix

Four quadrant framework Determines appropriate strategies

Aggressive

Conservative

Defensive Competitive


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Two Internal Dimensions

Financial Strength [FS]

Competitive Advantage [CA]

Two External Dimensions

Environmental Stability [ES]

Industry Strength [IS]


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Overall Strategic position determined by:

Financial Strength [FS]

Competitive Advantage [CA]

Environmental Stability [ES]

Industry Strength [IS]


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Developing the SPACE Matrix:

EFE Matrix IFE Matrix

Financial Strength

Competitive Advantage

Environmental Stability

Industry Strength


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Select variables to define FS, CA, ES,

& IS

Assign numerical ranking from +1(worst) to +6 (best) for FS and IS;

Assign numerical ranking from 1 (best)

to 6 (worst) for ES and CA.

Compute average score for FS, CA,

ES, & IS


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Plot the average scores on the Matrix

Add the two scores on the x-axis and

plot point on X. Add the scores on they-axis and plot Y. Plot the intersection

of the new xy point.

Draw a directional vector from origin

through the new intersection point.


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SPACE FactorsSPACE Factors

Environmental Stability (ES)

Technological changes

Rate of inflation

Demand variability

Price range of competing products

Barriers to entry

Competitive pressurePrice elasticity of demand

Financial Strength (FS)

Return on investment

Leverage

Liquidity

Working capital

Cash flow

Ease of exit from marketRisk involved in business

External Strategic PositionInternal Strategic Position


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SPACE FactorsSPACE Factors

Industry Strength (IS)

Growth potential

Profit potential

Financial stability

Technological know-how

Resource utilization

Capital intensifyEase of entry into market

Productivity, capacity utilization

Competitive Advantage CA

Market share

Product quality

Product life cycle

Customer loyalty

Competitions capacity utilization

Technological know-howControl over suppliers & distributors

External Strategic PositionInternal Strategic Position


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FS

+6

+1

+5

+4

+3

+2

-6

-5

-4

-3

-2

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

ES

CA IS

Conservative Aggressive

Defensive Competitive


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SPACE Matrix


TOWS Matrix

BCG Matrix

IE Matrix



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BCG MatrixBCG Matrix

DogsDogs

IVIV

Cash CowsCash Cows

IIIIII

Question MarksQuestion Marks

II

StarsStars

IIII

Relative Market Share PositionHigh

1.0

Medium

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Low

0.0

IndustrySalesGrowt

hR

ate High

+20

Low

-20

Medium

0


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Question Marks

Low relative market share position yet

compete in high-growth industry. Cash needs are high

Case generation is low

Decision to strengthen (intensive

strategies) or divest


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Stars

High relative market share and high

industry growth rate. Best long-run opportunities for growth and

profitability

Substantial investment to maintain orstrengthen dominant position Integration strategies, intensive strategies, joint

ventures


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Cash Cows

High relative market share position, but compete

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 becomes weakretrenchment or divestiture


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Dogs

Low relative market share position and

compete in slow or no market growth Weak internal and external position

Decision to liquidate, divest, retrenchment


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Grand Strategy MatrixGrand Strategy Matrix

Popular tool for formulating alternativestrategies

All organizations (or divisions) can bepositioned in one of four quadrants

Based on two evaluative dimensions: Competitive position

Market growth


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Quadrant IV

1. Concentric diversification

2. Horizontal diversification

3. Conglomeratediversification

4. Joint ventures

Quadrant III

1. Retrenchment

2. Concentric diversification

3. Horizontal diversification

4. Conglomerate

diversification

5. Liquidation

Quadrant I

1. Market development2. Market penetration

3. Product development

4. Forward integration

5. Backward integration

6. Horizontal integration7. Concentric diversification

Quadrant II

1. Market development2. Market penetration

3. Product development

4. Horizontal integration

5. Divestiture

6. Liquidation

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAK

COMPETITIVE

POSITION

STRONG

COMPETITIVE

POSITION


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Quadrant I

Excellent strategic position

Concentration on current markets andproducts

Take risks aggressively when necessary


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Quadrant II

Evaluate present approach seriously

How to change to improve competitiveness

Rapid market growth requires intensivestrategy


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Quadrant III

Compete in slow-growth industries

Weak competitive position

Drastic changes quickly

Cost and asset reduction indicated

(retrenchment)


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Quadrant IV

Strong competitive position

Slow-growth industry

Diversification indicated to more promising

growth areas


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Quantitative Strategic

Planning Matrix

(QSPM)

Stage 3:The Decision Stage


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QSPMQSPM

Quantitative Strategic Planning Matrix

Only technique designed to determine the

relative attractiveness of feasible

alternative actions


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QSPMQSPM


Tool for objective evaluation ofalternative strategies

Based on identified external and

internal crucial success factors Requires good intuitive judgment


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QSPMQSPM


List the firms key external opportunities &threats; list the firms key internal strengthsand weaknesses

Assign weights to each external and internalcritical success factor


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QSPMQSPM


Examine the Stage 2 (matching) matricesand identify alternative strategies that the

organization should consider implementing

Determine the Attractiveness Scores (AS)


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QSPMQSPM


Compute the total AttractivenessScores

Compute the Sum Total AttractivenessScore


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QSPMQSPM

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/OperationsResearch and Development

Computer InformationSystems

Strategy 3Strategy 2Strategy 1WeightKey External Factors

EconomyPolitical/Legal/Governmental

Social/Cultural/Demographic/Environmental

Technological

Competitive

Strategic Alternatives


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QSPMQSPM

Limitations:

Requires intuitive judgments and

educated assumptions

Only as good as the prerequisite inputs


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QSPMQSPM

Positives:

Sets of strategies examined simultaneouslyor sequentially

Requires the integration of pertinent external

and internal factors in the decision-makingprocess


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Cultural Aspects of StrategyCultural Aspects of Strategy

ChoiceChoice

Culture:

The set of shared values, beliefs,

attitudes, customs, norms,

personalities, heroes, and heroines thatdescribe a firm


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Cultural Aspects of StrategyCultural Aspects of Strategy

ChoiceChoice

Culture:

Successful strategies depend on

degree of support from a firms culture


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Politics of Strategy ChoicePolitics of Strategy Choice

Politics in organizations:

Management hierarchy

Career aspirations

Allocation of scarce resources

Documents

Analysis of Strategy