Bus411 Day 9 and 10

8/2/2019 Bus411 Day 9 and 10

1/83

Copyright 2005 Prentice Hall 1

Bus 411

DAY 9

8/2/2019 Bus411 Day 9 and 10

2/83

8/2/2019 Bus411 Day 9 and 10

3/83

Copyright 2005 Prentice HallCh 6 -3

Michael Porters Generic Strategies

Cost Leadership Strategies

DifferentiationStrategies

Focus Strategies

http://www.quickmba.com/strategy/generic.shtml
http://www.quickmba.com/strategy/generic.shtmlhttp://www.quickmba.com/strategy/generic.shtml

8/2/2019 Bus411 Day 9 and 10

4/83


Generic Strategies

In conjunction with differentiation

Economies or diseconomies ofscale

Capacity utilization achieved

Linkages w/ suppliers & distributors

Cost Leadership

8/2/2019 Bus411 Day 9 and 10

5/83


Generic Strategies

Many price-sensitive buyers

Few ways of achieving differentiation

Buyers not sensitive to brand differences

Large # of buyers w/bargaining power

Examples

Walmart, McDonalds

Low Cost Producer Advantage

8/2/2019 Bus411 Day 9 and 10

6/83


Generic Strategies

Greater product flexibility

Greater compatibility

Improved service

Greater convenience

More features

Examples

LL Bean, BMW

Differentiation

8/2/2019 Bus411 Day 9 and 10

7/83


Generic Strategies

Industry segment of sufficient size

Good growth potential

Not crucial to success of major competitors

ExamplesStarbucks, Illinois Tools

Focus

8/2/2019 Bus411 Day 9 and 10

8/83


Means for Achieving Strategies

Two or more companies form a temporarypartnership or consortium for purpose ofcapitalizing on some opportunity.

Joint Venture/Partnering -

8/2/2019 Bus411 Day 9 and 10

9/83



R&D partnerships Cross-distribution agreements

Cross-licensing agreements

Cross-manufacturing agreements

Joint-bidding consortia

Cooperative Arrangements -

8/2/2019 Bus411 Day 9 and 10

10/83



Managers who must collaborate daily; notinvolved in developing the venture

Benefits the company not the customers

Not supported equally by both partners

May begin to compete with one of thepartners

Why Joint Ventures Fail -

8/2/2019 Bus411 Day 9 and 10

11/83


Joint Ventures

Guidelines --Synergies between private and publicly held

Domestic with foreign firm, local management can

reduce riskComplementary distinctive competencies

Resources & risks where project is highly profitable(e.g. Alaska Pipeline)

Two or more smaller firms competing w/larger firm

Need to introduce new technology quickly

8/2/2019 Bus411 Day 9 and 10

12/83



Provide improved capacity utilization

Better use of existing sales force

Reduce managerial staff

Gain economies of scale

Smooth out seasonal trends in sales

Gain new technology Access to new suppliers, distributors, customers,

products, creditors

Mergers & Acquisitions

8/2/2019 Bus411 Day 9 and 10

13/83


Recent Mergers

Acquiring Firm Acquired FirmIBM Rational Software Corp

Yahoo Inktomi Corp

U.S. Steel National Steel Corp

Pfizer Pharmacia

Krispy Kreme Doughnuts Montana Mills

Oracle People Soft

Palm Handspring

Nike Converse

8/2/2019 Bus411 Day 9 and 10

14/83


First Mover Advantages

Benefits a firm may achieve by entering a

new market or developing a new product orservice prior to rival firms.

8/2/2019 Bus411 Day 9 and 10

15/83


First Mover Advantages

Securing access to rare resources

Gaining new knowledge of key factors &issues

Carving out market share

Easy to defend position & costly for rivalfirms to overtake

Potential Advantages

8/2/2019 Bus411 Day 9 and 10

16/83


Outsourcing

Companies taking over the functionaloperations of other firms

Business-process outsourcing(BPO)

8/2/2019 Bus411 Day 9 and 10

17/83


Outsourcing

Less expensive Allows firm to focus on core business

Enables firm to provide better services

Benefits

8/2/2019 Bus411 Day 9 and 10

18/83


Chapter 6Strategy Analysis & Choice

Strategic Management:Concepts & Cases

10th

EditionFred David

PowerPoint Slides by

Anthony F. ChelteWestern New England College

8/2/2019 Bus411 Day 9 and 10

19/83


Chapter Outline

The Nature of Strategy & Choice

A ComprehensiveStrategy-Formulation Framework

The Input Stage

8/2/2019 Bus411 Day 9 and 10

20/83


Chapter Outline (contd)

The Matching Stage

The Decision Stage

Cultural Aspects of Strategy Choice

8/2/2019 Bus411 Day 9 and 10

21/83


Chapter Outline (contd)

The Politics of Strategy Choice

Governance Issues

8/2/2019 Bus411 Day 9 and 10

22/83


To acquire or not to acquire, that is thequestion

Robert J. Terry

Strategy Analysis & Choice

Life is full of lousy options --

General P.X. Kelley

8/2/2019 Bus411 Day 9 and 10

23/83


--Establishing long-term objectives

-- Generating alternative strategies

-- Selecting strategies to pursue

-- Best alternative - achieve mission & objectives

Nature of Strategy Analysis & Choice


8/2/2019 Bus411 Day 9 and 10

24/83


Vision Mission Objectives External audit Internal audit

Past successful strategies


Alternative Strategies Derive From --

8/2/2019 Bus411 Day 9 and 10

25/83



Generating Alternatives --

Participation in generating alternativestrategies should be as broad aspossible

8/2/2019 Bus411 Day 9 and 10

26/83


Comprehensive Strategy-FormulationFramework

Stage 1:The Input Stage

Stage 2:The Matching Stage

Stage 3:The Decision Stage

8/2/2019 Bus411 Day 9 and 10

27/83


Strategy-Formulation AnalyticalFramework

Internal Factor EvaluationMatrix (IFE)

External Factor EvaluationMatrix (EFE)

Competitive Profile Matrix(CPM)


8/2/2019 Bus411 Day 9 and 10

28/83


Stage 1: The Input Stage

Basic input information for the matching &decision stage matrices

Requires strategists to quantify subjectivityearly in the process

Good intuitive judgment always needed

8/2/2019 Bus411 Day 9 and 10

29/83



SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix


8/2/2019 Bus411 Day 9 and 10

30/83


Stage 2: The Matching Stage

Match between organizations internal

resources & skills and the opportunities & riskscreated by its external factors

8/2/2019 Bus411 Day 9 and 10

31/83


Stage 2: The Matching Stage

Strengths

Weaknesses

Opportunities

Threats

SWOT Matrix

8/2/2019 Bus411 Day 9 and 10

32/83


SWOT Matrix

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of Strategies

8/2/2019 Bus411 Day 9 and 10

33/83


SOStrategies

Use a firmsinternal strengths

to take advantageof external

opportunitiesSO

Strategies

StrengthsWeaknesses

OpportunitiesThreats

SWOT

8/2/2019 Bus411 Day 9 and 10

34/83


WOStrategies

Improving internalweaknesses by

taking advantageof external

opportunitiesWO

Strategies

StrengthsWeaknesses


SWOT

8/2/2019 Bus411 Day 9 and 10

35/83


STStrategies

Use a firmsstrengths

to avoid orreduce the impact

of externalthreats

STStrategies

StrengthsWeaknesses


SWOT

8/2/2019 Bus411 Day 9 and 10

36/83


WTStrategies

Defensive tacticsaimed at reducing

internal

weaknesses &avoiding

environmentalthreats

WTStrategies

StrengthsWeaknesses


SWOT

8/2/2019 Bus411 Day 9 and 10

37/83


SWOT Matrix

Developing the SWOT

List firms key internal Strengths

List firms key internal Weaknesses

List firms key external Opportunities

List firms key external Threats

8/2/2019 Bus411 Day 9 and 10

38/83


SWOT Matrix

Leave BlankStrengthsS

List Strengths

WeaknessesW

List Weaknesses

OpportunitiesO

List Opportunities

SOStrategiesUse strengths to take

advantage ofopportunities

WOStrategiesOvercoming weaknessesby taking advantage of

opportunities

ThreatsT

List Threats

STStrategies

Use strengths to avoidthreats

WTStrategies

Minimize weaknesses andavoid threats

8/2/2019 Bus411 Day 9 and 10

39/83

Ch 6 -39

Develop a newemployee benefitspackage

=Strong unionactivity (threat)

+Poor employee morale(weakness)

Develop new products forolder adults

=Decreasing numbers ofyoung adults (threat)

+Strong R&D (strength)

Pursue horizontal integration

by buying competitor'sfacilities

=

Exit of two major foreign

competitors form theindustry (opportunity)

+

Insufficient capacity

(weakness)

Acquire Cellfone, Inc.=20% annual growth inthe cell phone industry(opportunity)

+Excess working capacity(strength)

Key Internal Factor Key External Factor Resultant Strategy

Matching Key Factors to Formulate Alternative Strategies

8/2/2019 Bus411 Day 9 and 10

40/83

Copyright 2005 Prentice Hall

Ch 6 -40


SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix



8/2/2019 Bus411 Day 9 and 10

41/83


Ch 6 -41

SPACE Matrix

Strategic Position & Action Evaluation Matrix

Aggressive

Conservative

Defensive

Competitive

8/2/2019 Bus411 Day 9 and 10

42/83


Ch 6 -42

SPACE Matrix

Two Internal Dimensions

Financial Strength (FS)

Competitive Advantage (CA)

Two External Dimensions

Environmental Stability (ES)

Industry Strength (IS)

8/2/2019 Bus411 Day 9 and 10

43/83

Ch 6 -43

SPACE Factors

Environmental Stability (ES)

Technological changes

Rate of inflation

Demand variability

Price range of competing products

Barriers to entry

Competitive pressure

Price elasticity of demandEase of exit from marketRisk involved in business

Financial Strength (FS)

Return on investment

LeverageLiquidity

Working capital

Cash flow

External Strategic PositionInternal Strategic Position

8/2/2019 Bus411 Day 9 and 10

44/83

Ch 6 -44

SPACE Factors

Industry Strength (IS)

Growth potential

Profit potentialFinancial stability

Technological know-how

Resource utilization

Ease of entry into market

Productivity, capacity utilization

Competitive Advantage CA

Market share

Product qualityProduct life cycle

Customer loyalty

Competitions capacity utilization

Technological know-how

Control over suppliers & distributors

External Strategic PositionInternal Strategic Position

SPACE M i

8/2/2019 Bus411 Day 9 and 10

45/83

Ch 6 -45

SPACE MatrixFS

+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

8/2/2019 Bus411 Day 9 and 10

46/83


Ch 6 -46

The steps to develop a SPACE Matrix:

Select a set of variables to define financial strength (FS), competitive advantage (CA),environmental stability (ES), and industry strength (IS).

Table 6-2 provides Good examples

Assign a numerical value ranging from 1 (worst) to 6 (best) for the variables that makeup the FS and IS dimensions. Assign a number between1 (best) to6 (worst) forvariables that make up the ES and CA dimensions. On the FS and CA axes, makecomparison to competitors. On the IS and ES axes, make comparison to otherindustries.

Compute an average score for FS, CA, IS, and ES by summing the values given to thevariables and dividing by the number of variables included in each dimension.

Plot the average scores for FS, IS, ES, and CA on the appropriate axis in the SPACEMatrix.

Add the two scores on the x-axis and plot the resultant point on X. Add the two scoreson the y-axis and plot the resultant point on Y. Plot the intersection of the new xy point.

Draw a directional vector from the origin of the SPACE matrix through the newintersection point. This vector reveals the type of strategies recommended for the

organization. Aggressive Competitive Defensive Conservative

Lets try with Data in table 6-3

8/2/2019 Bus411 Day 9 and 10

47/83


Ch 6 -47


SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix


Stage 2:

The Matching Stage

8/2/2019 Bus411 Day 9 and 10

48/83

8/2/2019 Bus411 Day 9 and 10

49/83


Ch 6 -49

BCG Matrix

Relative Market Share Position

Ratio of a divisions own market share in an

industry to the market share held by the largestrival firm in that industry.

8/2/2019 Bus411 Day 9 and 10

50/83


Ch 6 -50

BCG Matrix

Data required

Relative market Share for each Division

Horizontal axis

Compare to leading firm (1 means you are the leading firm)

Industry growth pattern

Vertical axis

Percentage of Corporate Revenues generated by division

Size of circle

Percentage of Corporate Profits generated by division Size of pie slice

8/2/2019 Bus411 Day 9 and 10

51/83

Ch 6 -51

BCG Matrix

Dogs

IV

Cash Cows

III

Question Marks

I

Stars

II

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

IndustrySalesGrowthRate

High+20

Low-20

Medium

0

8/2/2019 Bus411 Day 9 and 10

52/83


Ch 6 -52

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) ordivest

8/2/2019 Bus411 Day 9 and 10

53/83


Ch 6 -53

BCG Matrix

Stars

High relative market share and high growth rate

Best long-run opportunities for growth & profitability

Substantial investment to maintain orstrengthen dominant position

Integration strategies, intensive strategies, jointventures

8/2/2019 Bus411 Day 9 and 10

54/83


Ch 6 -54

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 diversificationIf weakensretrenchment or divestiture

8/2/2019 Bus411 Day 9 and 10

55/83


Ch 6 -55

BCG Matrix

Dogs

Low relative market share & compete in slow or

no market growthWeak internal & external position

Liquidation, divestiture, retrenchment

8/2/2019 Bus411 Day 9 and 10

56/83


Ch 6 -56


SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix


Stage 2:

The Matching Stage

8/2/2019 Bus411 Day 9 and 10

57/83

Copyright 2005 Prentice Hall 57

Bus 411

DAY10

A d

8/2/2019 Bus411 Day 9 and 10

58/83


Ch 6 -58

Agenda

Assignment #3 Not corrected Will be done by next class

PUT your names on the assignments!

Assignment #4 was mailed to in WebCT Templates available in WebCT

Mid-term after Spring Break Handed out Mar. 14 Due Mar 17

Finish Discussion on Strategy Analysis andchoice

8/2/2019 Bus411 Day 9 and 10

59/83


Ch 6 -59





IE M i

8/2/2019 Bus411 Day 9 and 10

60/83


Ch 6 -60

IE Matrix

The IE Matrix positions an organizations variousdivisions in a nine-cell display illustrated in Figure 6-10.

The IE Matrix is similar to the BCG Matrix in thatboth tools involve plotting organization divisions in aschematic diagram; this is why they are calledportfolio matrices.

Differences between the IE Matrix and the BCGMatrix

Axis's are different. IE Matrix requires more information about divisions than

BCG. Strategic implications of each matrix are different.

S C IE i

8/2/2019 Bus411 Day 9 and 10

61/83


Ch 6 -61

Steps to Create an IE matrix

For each division in the organization

Construct an IFE matrix and record score

Construct an EFE matrix and record score

Creates an circular Pie for each division

Percentage of Corporate Revenues generated by division

Size of circle

Percentage of Corporate Profits generated by division

Size of pie slice

Place each divisional pie in IE matrix based on EFE score y axis

IFE score x axis

IE M iGrow and Build

8/2/2019 Bus411 Day 9 and 10

62/83


Ch 6 -62

IE Matrix

I II III

IV V VI

VII VIII IX

IFE Scores

Strong Average Weak3-4 2-2.99 1-1.99

High3-4

Medium2-2.99

Low1-1.99

EFE

Scores

Hold andMaintain

Harvest or Divest

8/2/2019 Bus411 Day 9 and 10

63/83


Ch 6 -63


SWOT Matrix

SPACE Matrix

BCG Matrix


Stage 2:

The Matching Stage

IE Matrix

8/2/2019 Bus411 Day 9 and 10

64/83

Copyright 2005 Prentice Hall Ch 6 -64


Tool for formulating alternative strategies

Based on two dimensionsCompetitive position

Market growth

8/2/2019 Bus411 Day 9 and 10

65/83

Ch 6 -65

Quadrant IV

1. Concentric diversification

2. Horizontal diversification

3. Conglomeratediversification

4. Joint ventures

Quadrant III

1. Retrenchment


3. Horizontal diversification4. Conglomerate

diversification

5. Liquidation

Quadrant I

1. Market development

2. Market penetration3. Product development

4. Forward integration

5. Backward integration

6. Horizontal integration


Quadrant II

1. Market development

2. Market penetration3. Product development

4. Horizontal integration

5. Divestiture

6. Liquidation

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAKCOMPETITIVE

POSITION

STRONGCOMPETITIVE

POSITION

8/2/2019 Bus411 Day 9 and 10

66/83



Excellent strategic position

Concentration on current markets/products

Take risks aggressively when necessary

Quadrant I

8/2/2019 Bus411 Day 9 and 10

67/83



Evaluate present approach

How to improve competitiveness

Rapid market growth requires intensivestrategy

Quadrant II

8/2/2019 Bus411 Day 9 and 10

68/83



Compete in slow-growth industries

Weak competitive position

Drastic changes quickly

Cost & asset reduction (retrenchment)

Quadrant III

8/2/2019 Bus411 Day 9 and 10

69/83



Strong competitive position

Slow-growth industry

Diversification to more promising growth areas

Quadrant IV

8/2/2019 Bus411 Day 9 and 10

70/83






S F l i A l i l

8/2/2019 Bus411 Day 9 and 10

71/83



Stage 3:

The Decision Stage

Quantitative Strategic

Planning Matrix(QSPM)

QS

8/2/2019 Bus411 Day 9 and 10

72/83


QSPM

Technique designed to determine the relativeattractiveness of feasible alternative actions

Quantitative Strategic Planning Matrix

QSPM Strategic Alternatives

8/2/2019 Bus411 Day 9 and 10

73/83

Ch 6 -73

QSPM

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Computer InformationSystems

Strategy 3Strategy 2Strategy 1WeightKey External Factors

Economy

Political/Legal/GovernmentalSocial/Cultural/Demographic/Environmental

Technological

Competitive

Strategic Alternatives

Six steps to developing a QSPM:

8/2/2019 Bus411 Day 9 and 10

74/83


Six steps to developing a QSPM:

1. Make a list of the firms key external opportunities/threats andinternal strengths/weaknesses in the left column of the QSPM.

2. Assign weights to each key external and internal factor.1. Weights for each category should add up to one.

3. Examine the Stage 2 matrices and identify alternative strategiesthat the organization should consider implementing.

4. Determine the Attractiveness Scores (AS). (1-4)1. 1=not attractive2. 4=highly attractive

5. Compute the total AS.

1. Weight * AS6. Compute the sum Total AS.

1. Range should be from 2-8

QSPM Strategic Alternatives

8/2/2019 Bus411 Day 9 and 10

75/83

Ch 6 -75

QSPM

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Computer InformationSystems

Strategy 3Strategy 2Strategy 1WeightKey External Factors

Economy

Political/Legal/GovernmentalSocial/Cultural/Demographic/Environmental

Technological

Competitive

g

QSPM

8/2/2019 Bus411 Day 9 and 10

76/83


QSPM

Requires intuitive judgments & educatedassumptions

Only as good as the prerequisite inputs

Limitations

QSPM

8/2/2019 Bus411 Day 9 and 10

77/83


QSPM

Sets of strategies considered simultaneously orsequentially

Integration of pertinent external & internal factors inthe decision making process

Advantages

C lt l A t f St t

8/2/2019 Bus411 Day 9 and 10

78/83


Cultural Aspects of StrategyChoice

Successful strategies depend on the degree ofconsistency with the firms culture

Organization Culture

P liti f St t Ch i

8/2/2019 Bus411 Day 9 and 10

79/83


Politics of Strategy Choice

Management hierarchyCareer aspirations

Allocation of scarce resources

Politics in Organizations

Successful Strategists :

8/2/2019 Bus411 Day 9 and 10

80/83


Successful Strategists :

Were found to let weakly supported ideasand proposals die through inaction and toestablish additional hurdles or tests for

strongly supported ideas consideredunacceptable but not openly opposed.

Politics of Strateg Choice

8/2/2019 Bus411 Day 9 and 10

81/83


Politics of Strategy Choice

Equifinality

Same outcomes by different means

Satisfying

Good results with acceptable strategy is better than excellent results with anunpopular strategy

Generalization

Less detail

Higher-order issues

Take care of the big stuff first

Political access on important issues for Middle Managers

Agency and political avenues for redress

Political tactics for strategists

Governance Issues

8/2/2019 Bus411 Day 9 and 10

82/83


Governance Issues

Control & oversight over management

Adherence to legal prescriptions

Consideration of stakeholder interests

Advancement of stockholder rights

Board of Directors Roles & Responsibilities

Corporate Governance Issues

8/2/2019 Bus411 Day 9 and 10

83/83

p

1. No more than 2 directors current or former company executives2. No directors do business with the company3. Audit, compensation, and nominating committees made up

of outside directors

4. Each director attends at lest 75% of all meetings5. Audit committee meets at least four times a year6. CEO is not also the Chairperson of the Board7. Shareholders have considerable power and information to

choose & replace directors

8. Stock options are considered a corporate expense9. No interlocking directorships

Business Weeks principles of good governance

Documents

Bus411 Day 9 and 10