Strategic Management Process: Strategy formulation 3.

By: Prof. Dr. András Nábrádi PhD, MBA
University of Debrecen
Faculty of Ag. Economics and Rural Development Dept.: Business Management and Marketing HUNGARY
© Dr. Nábrádi András 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

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

Develop Vision and Mission Statements Establish long term objectives Generate, evaluate, and select strategies

Strategy formulation (Strategic planning)

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

Business mission
Internal analysis External analysis

Establishing long term objectives Generating alternative strategies Choosing particular strategies to pursue Deciding what new business to enter

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Types of strategies
Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

Defensive
• Retrenchment • Divestiture • Liquidation

Do nothing Offensive
• Integration • Forward • Backward • Horizontal • Intensive • Market penetration • Market development • Product Development • Diversification

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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)

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Strategy Analysis Input stage
Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

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

Σ (1 to 4)

External Factor Evaluation Matrix (EFE)
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Strategy Analysis Input stage
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)
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Strategy Analysis Input stage
Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

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

2

0,06

0,07

1

0,07

1,00

Σ (1 to 4)

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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

al rn nt e nt ese I Pr

al n er e xt ur E t Fu

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Strategy Analysis Matching Stage
Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

Internal, present
Eliminate W

W

S

Offensive

External, future

O T
Avoid T

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Defensive

Strategy Analysis Matching Stage
+1 +2 +3 +4 +5 +6

Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

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

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Strategy Analysis Matching Stage
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) (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 Step Productivity, capacity 1

© Dr. Nábrádi András DE-AVK

Strategy Analysis Matching Stage
Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

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.

© Dr. Nábrádi András DE-AVK

Strategy Analysis Matching Stage
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) (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

© Dr. Nábrádi András DE-AVK

Industry strengths (IS) Growth potential +1...+6 Profit potential Financial stability Resource utilization Easy of entry into market Step Productivity, capacity 1

Strategy Analysis Matching Stage
Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM
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) (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

© Dr. Nábrádi András DE-AVK

Step 2, 3

Strategy Analysis Matching Stage
+1 +2 +3 +4 +5 +6

Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

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

© Dr. Nábrádi András DE-AVK

The Strategic Position and Action Evaluation Matrix

Strategy Analysis Matching Stage
+1 +2 +3 +4 +5 +6

Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

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

© Dr. Nábrádi András DE-AVK

Strategy Analysis Matching Stage
Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

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 division’s 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 %.

© Dr. Nábrádi András DE-AVK

Strategy Analysis Matching Stage
Outline

Industry sales growth rate %

• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

Relative market share position
High 20 +

Medium 0

Low 20

1 0,0 High Medium Low 0,5

© Dr. Nábrádi András DE-AVK

Strategy Analysis Matching Stage
Division Market share 0,8 0,4 0,1 0,6

Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

IG rate % 15 10 -1 -18

PERCENT PROFIT REVENUES

1 2 3

Industry sales growth rate

High 20

+

4

1

2

Medium 0 4 Low 20 1 0,0 High 0,5 Medium

3

© Dr. Nábrádi András DE-AVK

Low Relative market share position

Strategy Analysis Matching Stage
Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

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
© Dr. Nábrádi András DE-AVK

Strategy Analysis Matching Stage
Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

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

© Dr. Nábrádi András DE-AVK

Hold or maintain

Harvest or divest

Strategy Analysis Matching Stage
Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM

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

© Dr. Nábrádi András DE-AVK

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)

© Dr. Nábrádi András DE-AVK

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

QSPM is a tool that allows strategists to evaluate alternative strategies objectively but it requires good intuitive judgment.

© Dr. Nábrádi András DE-AVK

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

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Strategy choice at STR 1 Backward
Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM
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 Σ (1 to 8) 0,03 0,07 2 1 0,06 0,07

© Dr. Nábrádi András DE-AVK

Strategy choice at STR 2 Forward
Outline
• Tasks of strategic management •Strategy analysis and choice •Input stage •Matching stage •SWOT, SPACE, BCG, IE, GSM •Decision stage •QSPM
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 Σ (1 to 8) 0,03 0,07 2 4 0,06 0,28

© Dr. Nábrádi András 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

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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 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

© Dr. Nábrádi András 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 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

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Thank you for your kind attention!
Outline 1. 2. 3. 4. 5. Vision Mission External Internal Long term objectives 6. Analysis 7. Choice

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