Strategic Analysis & Choices

7/31/2019 Strategic Analysis & Choices

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Strategic Analysis & Choices


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The Strategy-Formulation Analytical

Framework

STAGE 3: THE DECISION STAGE

QUANTITATIVE STARTEGIC PLANNING MATRIX (QSPM)

STAGE 2: THE MATCHING STAGE

SWOT MATRIX SPACE MATRIX BCG MATRIX GE9 MATRIX

STAGE 1: THE INPUT STAGE

EFE MATRIX CPM IFE MATRIX


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THE INPUT STAGE


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EXTERNAL FACTOR EVALUATION

External Factor Evaluation (EFE) matrixmethod is a strategic-management tool often

used for assessment of current businessconditions.

The EFE matrix is a good tool to visualize andprioritize the opportunities and threats that abusiness is facing.


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EFE MATRIX

List factors: The first step is to gather a list of external factors. Divide factors into two

groups: opportunities and threats.

Assign weights: Assign a weight to each factor. The value of each weight should bebetween 0 and 1 (or alternatively between 10 and 100 if you use the 10 to 100 scale).Zero means the factor is not important. One or hundred means that the factor is the mostinfluential and critical one. The total value of all weights together should equal 1 or100.

Rate factors: Assign a rating to each factor. Rating should be between 1 and 4. Ratingindicates how effective the firms current strategies respond to the factor. 1 = theresponse is poor. 2 = the response is below average. 3 = above average. 4 = superior.Weights are industry-specific. Ratings are company-specific.

Multiply weights by ratings: Multiply each factor weight with its rating. Thiswill calculate the weighted score for each factor.

Total all weighted scores: Add all weighted scores for each factor. This will calculatethe total weighted score for the company.


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EFE matrix example


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INTERNAL FACTOR EVALUATION

Internal Factor Evaluation (IFE) matrix is a strategic management toolfor auditing or evaluating major strengths and weaknesses infunctional areas of a business. IFE matrix also provides a basis foridentifying and evaluating relationships among those areas. TheInternal Factor Evaluation matrix or short IFE matrix is used instrategy formulation.

The IFE Matrix together with the EFE matrix is a strategy-formulationtool that can be utilized to evaluate how a company is performing inregards to identified internal strengths and weaknesses of acompany. The IFE matrix method conceptually relates to

the Balanced scorecard method in some aspects.


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IFE MATRIX List factors: The first step is to gather a list of internal factors. Divide factors into two

groups: strengths and weaknesses.

Assign weights: Assign a weight to each factor. The value of each weight should be

between 0 and 1 (or alternatively between 10 and 100 if you use the 10 to 100 scale).

Zero means the factor is not important. One or hundred means that the factor is the most

influential and critical one. The total value of all weights together should equal 1 or 100.

Rate factors: Assign a rating to each factor indicating if it is a strength or weakness.

Strength will be rated either 3 or 4, weakness to be rated 1 or 2. Weights are industry-

specific. Ratings are company-specific.

Multiply weights by ratings: Multiply each factor weight with its rating. This

will calculate the weighted score for each factor.

Total all weighted scores: Add all weighted scores for each factor. This will calculate the

total weighted score for the company.


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EXAMPLE OF IFE MATRIX


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COMPETITIVE PROFILE MATRIX

It identifies a firms major competitors and it particular strength andweaknesses in relation to sample firms strategic position.

It includes both the internal & external issues. Rating refers tostrength and weaknesses, where 4=major strength, 3=minor strength,

2=minor weakness, 1=minor weakness.

The critical factors are not grouped into opportunities and threats.

The ratings and total scores for rival firms can be compared to the

sample firm. This comparative analysis provides important internalstrategic information.


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Company 1 Company 2 Company 3

Critical success

Factors

Weight Rating Score Rating Score Rating score

Advertising .20 1 .20 4 .80 3 .60

Product Quality .10 4 .40 3 .30 2 .20

Price

Competitiveness

.10 3 .30 2 .20 4 .40

Management .10 4 .40 3 .30 3 .30

Financial

Position

.15 4 .60 2 .30 3 .45

Customer loyalty .10 4 .40 3 .30 2 .20

Global

Expansion

.20 4 .80 1 .20 2 .40

Market Share .05 1 .05 4 .20 3 .15

Total 1.00 3.15 2.50 2.70


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THE MATCHING STAGE


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GRAPHICAL REPRESENTATION


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THE SWO T MATRIX

Match internal strengths with external opportunities

and record the resultant SO Strategies

Match internal weaknesses with external opportunities

and record the resultant WO Strategies Match internal strengths with external threats and

record the resultant ST Strategies

Match internal weaknesses with external threats and

record the resultant WT Strategies


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MATRIX

Strengths-S

List Strengths

Weaknesses-W

List Weaknesses

Opportunities-O

List Opportunities

SO Strategies

Use strengths to takeadvantage ofopportunities

WO Strategies

Overcome weaknessesby taking advantage of

opportunities

Threats-T

List Threats

ST Strategies

Use strengths to avoidthreats

WT Strategies

Minimize weaknessesand avoid threats


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STRATEGIC POSITION & ACTION

EVALUATION MATRIX

The SPACE matrix is a management tool used to

analyze a company. It is used to determine what type

of a strategy a company should undertake. The

Strategic Position & Action Evaluation matrix orshort a SPACE matrix is a strategic management tool

that focuses on strategy formulation especially as

related to the competitive position of an organization.


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The SPACE matrix is broken down to fourquadrants where each quadrant suggests a

different type or a nature of a strategy:

Aggressive Conservative

Defensive

Competitive


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The axes of the SPACE Matrix represents

two internal dimensions:-

Financial Strength(FS)

Competitive Advantage(CA)

Whereas two external dimensions are:-

Environmental Stability(ES) Industry Strength(IS)


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STEP 1: CHOOSE A SET OF VARIABLES TO BE USED TO GAUGE THE

COMPETITIVE ADVANTAGE (CA), INDUSTRY STRENGTH (IS),ENVIRONMENTAL STABILITY (ES), AND FINANCIAL STRENGTH(FS).

STEP 2: RATE INDIVIDUAL FACTORS USING RATING SYSTEM SPECIFIC TOEACH DIMENSION. RATE COMPETITIVE ADVANTAGE (CA) ANDENVIRONMENTAL STABILITY (ES) USING RATING SCALE FROM -6

(WORST) TO -1 (BEST). RATE INDUSTRY STRENGTH (IS) ANDFINANCIAL STRENGTH (FS) USING RATING SCALE FROM +1(WORST) TO +6 (BEST).

STEP 3: FIND THE AVERAGE SCORESFOR COMPETITIVE ADVANTAGE (CA),INDUSTRY STRENGTH (IS), ENVIRONMENTAL STABILITY (ES),

AND FINANCIAL STRENGTH (FS).

STEP 4: PLOT VALUES FROM STEP 3 FOR EACH DIMENSION ON THE SPACEMATRIX ON THE APPROPRIATE AXIS.

STEP 5: ADD THE AVERAGE SCORE FOR THE COMPETITIVE ADVANTAGE(CA) AND INDUSTRY STRENGTH (IS) DIMENSIONS. THIS WILL BE

YOUR FINAL POINT ON AXIS X ON THE SPACE MATRIX.

STEPS FOR CONSTRUCTING SPACE MATRIX


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Step 6: Add the average score for the SPACE matrix environmental stability (ES)and financial strength (FS) dimensions to find your final point on the axisY.

Step 7: Find intersection of your X and Y points. Draw a line from the center ofthe SPACE matrix to your point. This line reveals the type of strategy the

company should pursue.


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EXAMPLE OF SPACE MATRIX


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FINAL GRAPH


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BOSTON CONSULTANCY GROUP MATRIX

The BCG matrix model is a portfolio planning model

developed by Bruce Henderson of the Boston

Consulting Group in the early 1970's.

The BCG model is based on classification of products

(and implicitly also company business units) into four

categories based on combinations of market growth and

market share relative to the largest competitor.


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WHEN USED??

A high-growth product is for example a new one thatwe are trying to get to some market. It takes someeffort and resources to market it, to build distributionchannels, and to build sales infrastructure, but it is aproduct that is expected to bring the gold in the future.

A low-growth product is for example an establishedproduct known by the market. Characteristics of thisproduct do not change much, customers know what

they are getting, and the price does not change mucheither. This product has only limited budget formarketing. The is the milking cow that brings in theconstant flow of cash.


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WORKING OF BCG MATRIX

Placing products in the BCG matrix results in 4

categories in a portfolio of a company:- QUESTION MARKS(high growth, low market share)

STARS(high growth, high market share)

CASH COWS(low growth, high market share)

DOGS(low growth, low market share)


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BCG STARS (hi h th hi h k t


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BCG STARS (high growth, high market

share)

>Stars are defined by having high market

share in a growing market.

>Stars are the leaders in the business butstill need a lot of support for

promotion al placement.

>If market share is kept, Stars are likely togrow into cash cows.

BCG QUESTION MARKS (hi h th


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BCG QUESTION MARKS (high growth,

low market share)

These products are in growing markets but have low market share. Question marks are essentially new products where buyers have yet

to discover them.

The marketing strategy is to get markets to adopt these products.

Question marks have high demands and low returns due to low

market share. These products need to increase their market share quickly or they

become dogs.

The best way to handle Question marks is to either invest heavily inthem to gain market share or to sell them.

BCG CASH COWS (l th hi h


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BCG CASH COWS (low growth, high

market share)

Cash cows are in a position of high market share in amature market.

If competitive advantage has been achieved, cash cowshave high profit margins and generate a lot of cash

flow. Because of the low growth, promotion and placement

investments are low.

Investments into supporting infrastructure can improveefficiency and increase cash flow more.

Cash cows are the products that businesses strive for.

BCG DOGS (l th l k t


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BCG DOGS (low growth, low market

share)

Dogs are in low growth markets and have low

market share.

Dogs should be avoided and minimized.

Expensive turn-around plans usually do not

help.


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GE NINE CELL MATRIX

This 3 x 3 matrix is an outgrowth of a

framework pioneered by General Electric (GE)

in the 1970s to assess its Strategic Business

Units (SBUs) along two dimensions: industryattractiveness, and business strength. In the

figure below, three possible values of each of

these two dimensions are plotted, resulting in anine-cell 3 x 3 matrix.

A Ni C ll I d t Att ti C titi


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A Nine-Cell Industry Attractiveness-Competitive

Strength Matrix


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Steps

Enter the Business Unit Names. Enter the Industry Sector Names. Each Industry

sector should correspond toa Business Unit.

Enter Business Unit Strength Factors. For each

Factor enter a corresponding weighting as a

percentage. The sum of the weightingsassigned to the

different factors MUST add up to 100%

Enter Industry Attractiveness Factors. For eachFactor enter acorresponding weighting as a

percentage. The sum of the weightings assigned to the

different factors MUST add up to 100%


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Enter Ratings for each Business Unit in terms of the

Strength Factorson ascale of 1 to 9 where 1

Extremely Weak, 5 Industry Average, 9 Extremely

Strong representing industry best practice Enter Ratings for each Industry Sector it terms of the

Attractiveness Factors on a scale of 1 to 9.

The Business Unit Strength and corresponding

Industry Attractiveness values are calculated and the

GE/McKinsey Matrix chart is automatically created.

S I li i f


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Businesses in upper left corner

Accorded top investment priority

Strategic prescriptiongrow and build

Businesses inthree diagonal cells

Given medium investment priority

Invest to maintain position

Businesses in lower right corner Candidates forharvesting or divestiture

May, based on potential for good earnings and ROI, be

candidates for anoverhaul and reposition strategy

Strategy Implications of

Attractiveness/Strength Matrix


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Ch 6 -37


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Stage 3: The Decision Stage


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Quantitative Strategic Planning Matrix

It uses information from both the previous stages to

finally decide between the various alternatives.

It determines the relative attractiveness of various

strategies based on the extent to which key external

and internal critical success factors are capitalized

upon or improved. The relative attractiveness of each

strategy is computed by determining the cumulative

impact of each external and internal critical success

factor.

E l


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Example


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7 S Structure


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Hard S

Strategy: the plan devised to maintain and buildcompetitive advantage over the competition.

Structure: the way the organization is

structured and who reports to whom.

Systems: the daily activities and procedures

that staff members engage in to get the jobdone.


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Soft S

Shared Values: called "superordinate goals" when themodel was first developed, these are the core values of

the company that are evidenced in the corporate culture

and the general work ethic.

Style: the style of leadership adopted.

Staff: the employees and their general capabilities.

Skills: the actual skills and competencies of theemployees working for the company.


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Strategic Analysis & Choices