Strategic Management Process:: Strategy Formulation 3

Strategic Management Process: Strategy formulation 3.
By: Prof. Dr. Andrs Nbrdi PhD, MBA

University of Debrecen
Faculty of Ag. Economics and Rural Development Dept.: Business Management and Marketing HUNGARY
Dr. Nbrdi Andrs DE-AVK
Tasks of strategic management

Outline
Tasks of strategic management Strategy analysis and choice Input stage Matching stage SWOT, SPACE, BCG, IE, GSM Decision stage QSPM
Strategy formulation Strategy Implementation
Strategy Evaluation
First stage of the strategic management

Outline
Develop Vision and Mission Statements Establish long term objectives Generate, evaluate, and select strategies
Strategy formulation (Strategic planning)
Strategy formulation
Outline
Business mission
Internal analysis External analysis
Establishing long term objectives Generating alternative strategies Choosing particular strategies to pursue Deciding what new business to enter
Types of strategies
Outline
Defensive
Retrenchment Divestiture Liquidation
Do nothing Offensive
Integration Forward Backward Horizontal Intensive Market penetration Market development Product Development Diversification
Strategy Analysis and Choice

Outline
Tasks of strategic management Strategy analysis and choice Input stage Matching stage SWOT, SPACE, BCG, IE, GSM Decision stage QSPM STAGE 1: The input stage External factor Competitive Internal Factor Evaluation (EFE) Profile Evaluation (EFE) Matrix Matrix (CPM) Matrix STAGE 2: The matching stage SWOT Matrix Strategic Position and Action Evaluation (SPACE) Matrix Boston InternalConsulting External Group (IE) Matrix (BCG) Matrix Grand Strategy Matrix (GSM)
STAGE 3: The decision stage Quantitative Strategic Planning Matrix (QSPM)
Strategy Analysis Input stage

Outline
Key external factors

Opportunities 1. Demand for prepared food increasing 10 % annually 2. Packaging technology offers 15 % annual cost savings 3 . >>>>..9 or 10 items Threats 1. Increasing governmental regulation in the industry 2. Leading rival firms are more fully integrated 3. >>>>9 or 10 key items Total
Weight
Rating
Weighted score 0,28 0,06
0,07 0,03
4 2
0,04 0,07
2 1
0,08 0,07
1,00
(1 to 4)
External Factor Evaluation Matrix (EFE)


Outline
Tasks of strategic management Strategy analysis and choice Input stage Matching stage SWOT, SPACE, BCG, IE, GSM Decision stage QSPM Internal and External
Critical Success Factors
AVON
Procter&Gambl e Score 0,60 0,30 0,40 0,30 0,45 0,20 0,40 0,15 2,80
Weight Rating Score Ratin g 0,20 0,10 0,10 0,10 0,15 0,10 0,20 0,05 1,00 1 4 3 4 4 4 4 1 0,2 0,4 0,3 0,4 0,6 0,4 0,8 0,05 3,15 3 3 4 3 3 2 2 3
Advertising Product quality Price competitiveness Management Financial position Customer loyalty Global expansion Market share TOTAL
Competitive Profile Matrix (CPM)


Outline
Key internal factors

Strengths 1. Our company provide 24-hour, 7 day services 2. Our company has 50 subsidiary in Europe and Asia 3 . >>>>..9 or 10 items Weaknesses 1. Our company total dept to equity ratio is 0,36 compared to the industry average of 0,9 2. 86 % of the trade revenues come from Europe 3. >>>>9 or 10 key items Total
Weight
Rating
Weighted score 0,24 0,24
0,08 0,06
3 4
0,03
0,06
0,07
0,07
1,00
(1 to 4)
Internal Factor Evaluation (IFE) Matrix
Strategy Analysis Matching Stage

Outline
Tasks of strategic management Strategy analysis and choice Input stage Matching stage
Vision + Mission
Name Resources
Finance Strengths Weaknesses Opportunities Threats
Infrastructure SWOT, SPACE, Management

BCG, IE, GSM QSPM Decision stage
Environment Market share
l a n t r te sen n I e Pr
l a rn e t re x E tu Fu

Outline
Internal, present
Eliminate W
Offensive
External, future
O T
Avoid T
Defensive

+1 +2 +3 +4 +5 +6
Outline
Financial Strength Internal Competitive Advantage
Industry Strength
+1 +2 +3 +4 +5 +6
-6 -5 -4 -3 -2 -1
-6 -5 -4 -3 -2 -1 0
External
Environmental Stability The Strategic Position and Action Evaluation Matrix

Outline
Tasks of strategic management Strategy analysis and choice Input stage Matching stage SWOT, SPACE, BCG, IE, GSM Decision stage QSPM Competitive Advantage (CA) Market share Product quality Product life cycle Consumer royalty Technological know how Control over suppliers and INTERNAL STATEGIC POSITION Financial Strength (FS) Return on investment Leverage Liquidity Working Capital Cash flow EXTERNAL STRATEGIC POSITION Environmental Stability (ES) Technological change Rate of inflation Demand variability Price range of competing products Barriers to entry market Risk involved in business Easy of exit market Industry strengths (IS) Growth potential Profit potential Financial stability Resource utilization Easy of entry into market capacity Step Productivity, 1

Outline
SPACE allows strategists to summarize and evaluate strategy profile in one vector.
1. 2. Select variables to define FS, CA ,ES, and IS. Assign to each variables ranging from +1 (worst) to +6 (best) to FS and IS quadrant. Assign to each variables ranging from -1 (best) to -6 (worst) to CA and ES quadrant. On the FS-CA axes make comparison to competitors, IS-ES make comparison to other industries. Compute each quadrant average. ES-CA negative, IS-FS positive. Add two scores respectively to determine directional vector of xaxis and y axis. CA+IS and ES + FS. Vector reveals the type of strategies recommended: aggressive, competitive, defensive, or conservative.
3. 4. 5.

Outline
Tasks of strategic management Strategy analysis and choice Input stage Matching stage SWOT, SPACE, BCG, IE, GSM Decision stage QSPM Competitive Advantage (CA) Market share -1...-6 Product quality Product life cycle Consumer royalty Technological know how Control over suppliers and INTERNAL STATEGIC POSITION Financial Strength (FS) Return on investment Leverage +1...+6 Liquidity Working Capital Cash flow EXTERNAL STRATEGIC POSITION Environmental Stability (ES) Technological change -1...-6 Rate of inflation Demand variability Price range of competing products Barriers to entry market Risk involved in business Easy of exit market
Industry strengths (IS) Growth potential +1...+6 Profit potential Financial stability Resource utilization Easy of entry into market capacity Step Productivity, 1

Outline
AVERAGE 4,8
INTERNAL STATEGIC POSITION Financial Strength (FS) Rate

Return on investment Leverage Liquidity Working Capital Cash flow 4 5 6 4 5
EXTERNAL STRATEGIC POSITION Environmental Stability (ES) R

Technological change Rate of inflation Demand variability Price range of competing products Barriers to entry market Risk involved in business Easy of exit market AVERAGE -2 -1 -3 -6 -3 -1 -1 -2,4
Competitive Advantage (CA) Rate

Market share Product quality Product life cycle Consumer royalty Technological know how Control over suppliers and distributors AVERAGE -4 -1 -2 -2 -1 -5 -2,5
Industry strengths (IS) R

Growth potential Profit potential Financial stability Resource utilization Easy of entry into market Productivity, capacity AVERAGE 4 5 1 4 6 3 3,8
Step 2, 3

+1 +2 +3 +4 +5 +6
Outline
Financial Strength
A firm has financial strength with a moderate dominating factor in the industry
(+1,3,+2,4)
Competitive Advantage
Industry Strength
+1 +2 +3 +4 +5 +6
-6 -5 -4 -3 -2 -1
-6 -5 -4 -3 -2 -1 0
X-axis=CA+IS =-2,5+ (3,8)= 1,3 y-axis= FS +ES= -2,4+(4,8)= 2,4
Environmental Stability
Step 4,5
The Strategic Position and Action Evaluation Matrix

+1 +2 +3 +4 +5 +6
Outline
Conservative
Tools: MP, MD, PD, Diversification
Financial Strength
Aggressive
Tools: MP, MD, PD,Back.I, Forw.I, Hor.I, and all combination
Competitive Advantage Defensive

Tools: Retrenchment divestiture, liquidation
Industry Strength
+1 +2 +3 +4 +5 +6
-6 -5 -4 -3 -2 -1
-6 -5 -4 -3 -2 -1 0
Competitive
Tools: MD,PD, Back.I, Forw.I, Hor.I,
Environmental Stability The Strategic Position and Action Evaluation Matrix

Outline
Business portfolio analysis BCG Matrix graphically portrays differences among divisions in term of relative market share and industry growth rate. Relative market share is the ratio of a divisions own market share to the market share of the largest rival firm in that industry. The growth rate % on the y axis range from -20 to + 20 %.

Outline
Industry sales growth rate %
Relative market share position

High 20 +
Medium 0
Low 20
1 0,0 High Medium Low 0,5

Division Market share 0,8 0,4 0,1 0,6
Outline
IG rate % 15 10 -1 -18
PERCENT PROFIT REVENUES
1 2 3
Industry sales growth rate
High 20
Medium 0 4 Low 20 1 0,0 High 0,5 Medium
Low market share position Relative

Outline
The Internal-External Matrix (IE) was developed from GE Business Screen Matrix (GE)
The total EFE weighted Scores
The total IFE weighted scores

Strong 3,0 to 4,0 High 3,0, to 4 Medium 2,0 to 2,99 Low 1,0 to 1,99 Average 2,0 to 2,99 Weak 1,0 to 1,99
Combine of External Factor Evaluation and Internal Factor Evaluation


Outline
Grow and build

The total EFE weighted Scores
IE Matrix
The total IFE weighted scores
Strong 3,0 to 4,0 Average 2,0 to 2,99 Weak 1,0 to 1,99
High 3,0, to 4 Medium 2,0 to 2,99 Low 1,0 to 1,99
Hold or maintain
Harvest or divest

Outline
Rapid market growth

Quadrant II 1.Market development. 2. Market penetration 3. Product development 4. Horizontal integration 5. Divestiture 6. Liquidation Quadrant I 1.Market development. 2. Market penetration 3. Product development 4. Forward integration 5. Horizontal integration 6. Backward integration 7. Related diversification
Weak competitive position
Quadrant III 1. Retrenchment 2. Related diversification 3. Unrelated diversification 4. Divestiture 5. Liquidation
Quadrant IV 1. Related diversification 3. Unrelated diversification 4. Joint ventures
Strong competitive position
Slow market growth Grand Strategy Matrix
Strategy Analysis and Choice

Outline
Tasks of strategic management Strategy analysis and choice Input stage Matching stage SWOT, SPACE, BCG, IE, GSM Decision stage QSPM STAGE 1: The input stage External factor Competitive Internal Factor Evaluation (EFE) Profile Evaluation (EFE) Matrix Matrix (CPM) Matrix STAGE 2: The matching stage SWOT Matrix Strategic Position and Action Evaluation (SPACE) Matrix Boston InternalConsulting External Group (IE) Matrix (BCG) Matrix Grand Strategy Matrix (GSM)
STAGE 3: The decision stage Quantitative Strategic Planning Matrix (QSPM)
Quantitative Strategic Planning Matrix

Outline
QSPM is a tool that allows strategists to evaluate alternative strategies objectively but it requires good intuitive judgment.
The Quantitative Strategic Planning Matrix

Outline
Tasks of strategic management Strategy analysis and choice Input stage Matching stage SWOT, SPACE, BCG, IE, GSM Decision stage QSPM Key Factors Key external factors (O/T) Social/cultural/demographic Technological Economy Political/legal Competitive Key internal factors (S/W) Management Marketing Finance/accounting Production/operations R&D 1-8 2,00 1-8 1-8 MIS TOTAL AS= Attractiveness scores: 1 not, 2 somewhat, 3 reasonably 4 high
Strategic alternatives
Name
Weight
STR1 AS TA
STR2 AS TA
STR3 AS TA
Strategy choice at STR 1 Backward

Outline
Key external factors Opportunities
1. Demand for prepared food increasing 10 % annually 2. Packaging technology offers 15 % annual cost savings 3 . >>>>..9 or 10 items 0,07 0,03 1 1 0,07 0,03
Weight
Attractiveness
Total attr.
Threats
1. Increasing governmental regulation in the industry 2. Leading rival firms are more fully integrated 3. >>>>9 or 10 key items Total 1,00 0,04 0,07 4 3 0,28 0,21
Key internal factors Strengths

1. Our company provide 24-hour, 7 day services 2. Our company has 50 subsidiary in Europe and Asia 3 . >>>>..9 or 10 items 0,08 0,06 1 1 0,08 0,06
Weaknesses
1. Our company total dept to equity ratio is 0,36 compared to the industry average of 0,9 2. 86 % of the trade revenues come from Europe 3. >>>>9 or 10 key items Total 1,00 (1 to 8) 0,03 0,07 2 1 0,06 0,07
Strategy choice at STR 2 Forward

Outline
Key external factors Opportunities
1. Demand for prepared food increasing 10 % annually 2. Packaging technology offers 15 % annual cost savings 3 . >>>>..9 or 10 items 0,07 0,03 4 3 0,28 0,09
Weight
Attractiveness
Total attr.
Threats
1. Increasing governmental regulation in the industry 2. Leading rival firms are more fully integrated 3. >>>>9 or 10 key items Total 1,00 0,04 0,07 3 4 0,12 0,28
Key internal factors Strengths

1. Our company provide 24-hour, 7 day services 2. Our company has 50 subsidiary in Europe and Asia 3 . >>>>..9 or 10 items 0,08 0,06 3 4 0,24 0,24
Weaknesses
1. Our company total dept to equity ratio is 0,36 compared to the industry average of 0,9 2. 86 % of the trade revenues come from Europe 3. >>>>9 or 10 key items Total 1,00 (1 to 8) 0,03 0,07 2 4 0,06 0,28

Outline
Strategy formulation Strategy Implementation
Strategy Evaluation

Outline
STRATEGY IMPLEMENTATION
Establish annual objectives Devise policies Motivate emlpoyees Allocate resources Developing strategy-supportive culture Creating organizational structure Redirecting marketing efforts Preparing budgets Developing information system
Part of the business planning

Outline
STRATEGY EVALUATION
All strategies are subject to future modification because external and internal factors are constantly changing!
Reviewing external and internal factors Measuring performance Taking corrective actions
Thank you for your kind attention!

Outline 1. 2. 3. 4. 5. Vision Mission External Internal Long term objectives 6. Analysis 7. Choice

Strategic Management Process:: Strategy Formulation 3

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Strategic Management Process: Strategy formulation 3.

By: Prof. Dr. Andrs Nbrdi PhD, MBA

Tasks of strategic management

Strategy formulation Strategy Implementation

Dr. Nbrdi Andrs DE-AVK

First stage of the strategic management

Strategy formulation (Strategic planning)

Dr. Nbrdi Andrs DE-AVK

Dr. Nbrdi Andrs DE-AVK

Dr. Nbrdi Andrs DE-AVK

Strategy Analysis and Choice

STAGE 3: The decision stage Quantitative Strategic Planning Matrix (QSPM)

Dr. Nbrdi Andrs DE-AVK

Strategy Analysis Input stage

Key external factors

Weighted score 0,28 0,06

External Factor Evaluation Matrix (EFE)

Strategy Analysis Input stage

Competitive Profile Matrix (CPM)

Strategy Analysis Input stage

Key internal factors

Weighted score 0,24 0,24

Dr. Nbrdi Andrs DE-AVK

Internal Factor Evaluation (IFE) Matrix

Strategy Analysis Matching Stage

Infrastructure SWOT, SPACE, Management

Environment Market share

Dr. Nbrdi Andrs DE-AVK

Strategy Analysis Matching Stage

Dr. Nbrdi Andrs DE-AVK

Strategy Analysis Matching Stage

Financial Strength Internal Competitive Advantage

Environmental Stability The Strategic Position and Action Evaluation Matrix

Dr. Nbrdi Andrs DE-AVK

Strategy Analysis Matching Stage

Dr. Nbrdi Andrs DE-AVK

Strategy Analysis Matching Stage

Dr. Nbrdi Andrs DE-AVK

Strategy Analysis Matching Stage

Dr. Nbrdi Andrs DE-AVK

Strategy Analysis Matching Stage

INTERNAL STATEGIC POSITION Financial Strength (FS) Rate

EXTERNAL STRATEGIC POSITION Environmental Stability (ES) R

Competitive Advantage (CA) Rate

Industry strengths (IS) R

Dr. Nbrdi Andrs DE-AVK

Strategy Analysis Matching Stage

X-axis=CA+IS =-2,5+ (3,8)= 1,3 y-axis= FS +ES= -2,4+(4,8)= 2,4

Dr. Nbrdi Andrs DE-AVK

The Strategic Position and Action Evaluation Matrix

Strategy Analysis Matching Stage

Tools: MP, MD, PD,Back.I, Forw.I, Hor.I, and all combination

Competitive Advantage Defensive

Environmental Stability The Strategic Position and Action Evaluation Matrix

Dr. Nbrdi Andrs DE-AVK

Strategy Analysis Matching Stage

Dr. Nbrdi Andrs DE-AVK

Strategy Analysis Matching Stage

Industry sales growth rate %

Relative market share position

1 0,0 High Medium Low 0,5

Dr. Nbrdi Andrs DE-AVK

Strategy Analysis Matching Stage