CHAPTER 6 + STRATEGY ANALYSIS AND CHOKE 479 ning on the typeof organization, numerous variables could make up each of the dimen- -sented on the axes ofthe SPACE Matrix, Factors that sre inchided inthe firm's BFE “ces should be considered in developing a SPACE Mix, Other vatiables commonly given ia Table 6-2. For example return on investi, leverage, liquidity, working cash flow are commonly considered to be deems factors of an orgaization’s “rongth. Like the SWOT Matrix, the SPACE Mates should be both tailoved to the anization being studied and based on factual inforsiaion as much as possible 2 cequited to develop 2 SPACE Matrix ace as follows tof variables to define financial position (FP), comoettive position (CP), fy postion (SP), and industry postion (IP) “aeumerical value ranging from +1 (worst) to +7 (best i cach of the variables that pte FP and IP dimensions. Assign a numerical value raging from -1 (best) to -7 io cach of the variables that make up the SP and CP dunensions. On the EP and CP axes, ike coatparzon to competitors. On the IP and SP axes, make comparison to oes inte ipuie an average score for FP, CP IP, and SP by summing te values given tothe te respeet've dimension. ‘the averaze scores for FR, I, SP, and CP on the appropriate axis ta the SPACE Matrix, id the to &5res on the x-axis and plot the resultant point on X. Add the two scores on axis wt pfot the resultant point on ¥ Plot tho intersection ofthe: rew xy point. g Daw a divectianal vector from the origin of the SPACE Matrix thtougi the new fintersection point. This vector reveals the type of strategies recommended for the 5 iggressive, competitive, defensive, or conservati ' of strategy profiles that can emerge from a SPACE analysis are shown in rectingal vector associated with each profile suggests the type of strategies to pur- sve, conse vative, defensive, ot competitive. When a firm's directional vector is located “aggressive quscirant (upper-right quadrant) of the SPACE Matrix, an organization is in an {elen! positon to use its internal strengths to (a) take advantage of external opportunities, (4) intemal weaknesses, and (c) avoid external threats. Therefore, market penetrtion, market External Strategic Position Stability Postion (SP) ‘Technological changes Rate of inflation Demand vatiability Price cange of competing products Barriers to entry into marcet Competitive pressure Ease of exit from market Price easticity of demand Risk involved in business Industry Position (1P) Growth potential Profit potenti Financial stability Extent leveraged Resour Base of enuy into market Productivity, eapacty uilization 'ased on H. Rowe, R. Mason, and K. Dickel, Strategic Management and Business Policy: A logical Approach (Reading, MA: Addisoa-Wesley Publishing Co, Inc.© 1982), 155-136PART 2 # STRATEGY FORMULATION TABLE 6-4 An Actual SPACE Matrix for Hewlett-Packard eternal Analysis Franc Postion (Py 3a iy Potion (SP) ‘Feta on Investment (ROL), 1 Rei, of Inflation 2°48 Loecage 4° Teriologiet Changes “6 Caitiy 2 iis Blaisy of Drand 3 ‘Wecking Capital 1 Competitive Pressure 3 Cath Flow 2 BanierstoEnty ino Maet na Financial Position P) Average 2 Stability Psion SP) Average ~as Internal Analysis External Analysis : ~Conpetive Psion Tn Poston OP) Make Share 1 Geowth Poel 6 Pract Quai Financial Stiiy 2 Cstomer Loyalty ase of Ey ito Make 4 “Technological Krow-how =4 Resource Uslzaton 1 Conia ve Suple/Disibators “5 Profit Porat 2 Competve Postion (CP) Average “42 Industry Posiion (Py Average 30 204+ C44) -24 praxis 30+ 4.2) "12 axis Conedinate (-1.2, ~24) Conclusion: Vector points in defensive quadrant ‘Table 6-4 followed by the Krispy Kreme Donuts SPACE diagram in Figure 6-6. Note th HP is in a precarious defensive position, struggling to compete against Apple, Dell, ‘Amazon, Conservative ro 76 5 4 Delensive FIGURE 6-6 A SPACE Matrix for Krispy Kreme Aggressive HEAD 43 4S 46 17 CompetitiveCHAPTER 6 + STRATEGY ANALYSIS AND CHOICE ‘THE IFE TOTAL WEIGHTED SCORES Averge Wak i 200139 Lorene | 4.0 20 B10 | — -- pn | i % sigh 3.01040 Yom 3.0 5 , v 4 ha 39 om Om, a 1 vil Law Low 199 ro Growand Build Stones SReveme %Reverue 3 Profit Profit BEEScores IE Seoes | 1 ‘$7,268 S% $3,000 59% 2s 3 2 Tan 13% L019 2 fs vse 800 sh 3 4 cae «100 2H as 5 zie 00H 2 : Tout 10% $5,100 100% — ‘a cated in Fp 6-12, the IE Matix hs five prod segments. Noe tat Divison se nice by he are ere) and he aes profit 35 indted “gest pie slice) in the matrix. It is common for organizations to develop both geographic ed IE Mates toners effectively fomultesseees and allocate resources ie vitten hrs often prepare an TE (or BCG) Nath for compeitors ee diya oten papa "etoe an after" I fr BCG) Matrices to revel te Fa ect wt eapced ston fron yeahs iter ea mimi he fon of these matrices being a “snapshot in time.” In performing case analysis, feel free I Sts nt aed EPP cee forthe varios division based upon your researc ne he lindsey rate tm preparing a separate Te Matin for each von rand Strategy Matrix ‘to the SWOT Matrix, SPACE Matrix, BCG Matrix, and IE Matrix, the Grand ‘Matrix has become a popular tol for formulating alternative strategies. All orgeniza- Fbe positioned in one of the Grand Strategy Matrin’s four strategy quadrants. A firm’s Ukewise could be positioned. As illustrated in Figure 6-13, the Grand Strategy Matrix {Mo evaluative dimensions: competitive position and market (industry) growth. Any Siose annua! growth in sales exceeds 5 percent could he considered to have rapid [Appropriate strategies for an organization to consider are listed in sequential order of Bite: vagrant of the matrix His located in Quadrant I of the Grand Strategy Matrix are in an excell. strategic posi- fe firms, continued concentration on current markets (market penetration and market Sn) and prodacts (product development) is an appropriate strategy. It is unvvise for a {fim to sift notably from is established competitive advantages. When @ Quadrant I Hot has excessive resources, then backward, forward, or horizontal integration say be ke 189194 TABLE 6-9 An Actual QSPM for Starbucks (2013) PART 2 © STRATEGY FORMULATION 2 Step 6 Compute the Sum Tota Atractiveness Score. Add TAS in each stategy coluiin of the QSPM. Tho Surn Total Attractiveness Scores (STAS) reveal which strate 4 ‘most attractive in excl set ofeternatives. Higher scores indicate mexe attractive «gies, considering all ve relevant extemal and intemal faeiors that sould affects stoategie decisions. Tiss ‘magnitude ofthe difference between the STAS ina givom 3 ‘of strategic altemativ.s indicates the relative desirability of one steategy over an In Table 6-8, two alternative swategies—(1) buy new land and build news larger steas ah @) fally renovate existing store—ere being considered by a computer retail steae, Note by a ‘otal attractiveness scores of 3.64 vessus 3.27 tha the analysis indicates the business should bp new land and build a new larger store. Note the use of dashes to indicate whieh factors do sae affect the strategy choice being considered. Ifa particulac factor affects one strategy but not oes, it affects the choice being made, so AS should be recorded for both stiategies. Never ra one strategy an! not the other. Note also in Table 6-8 that there are ao double: T's, 2's, 3% 4°s ina row. Never duplicate scotes in a row. Never work column by column; always preparg QSP¥M working ro” by row. If you have mor than one strategy in the QSPM then let the AS scores range from I to “the number of strategies being evaluated." This will enatale you to ha Aifferent AS score For each strategy. These are all important puidelines to follow in developing QSPM. In aetval practice, the store did purchase the new land aad build a new steve; the bush also did some minor refurbishing until the new store was operational ‘There should be a rationale for each AS score assigned. Note.in Table 6-8 in the firs ‘hat the “city population growing, 10 percent znnusily” opportunity could be capitalized on b by Strategy 1, “building the new, larger stor,” so an AS score of 4 was assigned to Strate AS scores therefore, are not mere guesses; they should be rational, defensible, and reasonabl ‘An example QSPM is given in Table 6-9. Note in the actual QSPM for Starbucks in Table that many rows are not rated, iocicating that the particular factor does not significantly i the choice to be made. This is good procedure. Also, notice in Table 6-9 that the 3 and 4 rat given to the Strategy 2 “Open 400 Stores in tho Middle East, Asia/Africa” versus Strategy 1 indicate that Stategy 2 is a beter choice given most of the factors. Working row by row is ‘ood procedure, In addition, notice in Table 6-9 that many rows ace not rated at all, indicating particular factor will not itpact the choice between Strategy { and 2. Leaving pechaps half of ti rows blank in this manner is also good procedure. Finslly, nce in Table 6-9, that Strategy 2 better for Starbucks as indicated by a STAS of 2.41, 3 Strategy 1 Strategy 2 Open 409 storosin = Open 100 Stores on U.S. liddle East Asia/: College Campuses Aliiea wr AS TAS aS Strengths 1.22 pereent of revenue comes ftom il international nit, oot ‘ 2. Net income grew to $333.IM forthe recent quarter, Hous ete ete ete a 3. Total revenue grow to $3.30B from $2,92B, re 4, Sales at global restaurants open atleast 13 months rose 6 percent, oo tons 3 5. Starbucks earned a 100 percent HRC rating for the fourth consecutive year 0 7 6, Starbucks global comparable store sales also increased 6 percent 001 oat 3 7. Starbucks revenues reached $166.9M in the Asian-Pacific region for 201U'slast_ 0.04.04 4 (quarter (up 38 percent from a year earlier), 8, Starbucks only buys coffee grown at elevations higher than 2,600 feet because 0.05 - e = ‘those beans are of betier quality 9. Starbucks'Employs more than 650 people to provide technology solutions om - - 10, Starbucks buys Evolution Fresh In. (a high end juice maker) for $30. aos - 11, Starbucks market share is 32.6 percent oo 12, Starbucks sells 8.2 million coffe drinks on everage each day inthe United States. 0.08 = 46. LCHASTER 6 + STRATEGY ANALYSIS AND CHOICE 195 teay2 (Orpen 400 Stores in Open 100Steres on US. Midd'e East Asia strategy College Campuses (Africa | wr aS TAS AS TAS oot 3 ON 1 0.04 uheks rose prices in the Northeast and Sunbelt by aboat percent, armtts roe ces in 00 Chinese mainland stores. Coffee rceswiliccnse 04 {OE oa sto 2 yuan (16 0 32 US. cnt). sie charging forsoy mileandfiowred = 0S 7 = Fe scexvtafferhosae ype and uy nar wsitteseredinlad, 00¢ AOK 2 Testo we oer in race, fis ened ote, 006 seiasccereeeeirice si Siazhucks in Europe open at least 13 months only rose 2 pereent 0.06 a oH ine United States had a9 perce and Asia had 20 percent gro | Sushvcis restaton takes a big hit among British consumers aftr por ‘Ons a i Beishowed i ‘id no tax on sales of 1.2 billion pounds in years past after telling Fe tnncn i made no profit bt tld investors it was a profitable uni urbe es in socond place to Durkin Dons on Bras Keys 2012 oor | = pustomer Loyalty Engagement Index ome = . om a om 2 Oe aos |S, projected GDP is $156 ron om 4 «0082 0s see's tues pice fell toa 17-manth low after the Hkotibond ofare- 008 = 2 OUR a1 BE ocd gloat crop in 2012-2013. ns 2005 China's markt for specialized coffe shops as tiple. oo 1S 020 Fecscie second most consumed beverage inthe wold, behind Dole wate, GH 7K 016 slia's tea industry accouns for 31 percent of global production. 0.04 1 004 4 016, on e - = rcks 8 percent be domes coe market in nt sgrowing by 25 prent sual. om FF topean de crisis canes he demand for coe to fale invasions coon 00S 2 GID 020 Fis donta 67 percent, 2.6 percent, and 1.6 prcent in Britain, Spin, and Tay, Fayectvely PC asuiner confidence inde 060.6 in August om 65.4 in ay. re 003 {Gina's pe capital GDP in 201} was $5,184 oo 10h 016 os a - : oo 4 Ot 003 college campuses. Sunkn' Donuts announces its company’s goal of doubling US. store presence 03,4 OMB 08 ener 20 years. oo 1 om 016 ‘Poona’ sAsiPacifi, Mid Bast and Attica division ha s 1.4 percent in Sis in comparable sales Donalds had ital revenves of 3278 for fiseal 2011 compared to StarbucksPART 3 © STRATEGY IMPLEMENTATION sales teritoris, adding new depastinents, closing facilities, biting new employees, changing organizations pricing stateny, developing financial noes, developing new employee bene establishing cos-eontol procedures, changing advertising sages, tilding new ect taining new employees ansfersing managers amo divisions, and building & beret ma ment information system, These types of activities cSviously differ prealy among ing, service, and governments! organizations manulactige Management Perspectives {n terms of “Quality of Management” Fortune recently ranked in the world: following cornpanies as} ————Sempary Koc Holding McDonald's Apple Philip Morris ternational Costco Wholesale JP Morgan Chase Woyndham Worldwide Sysco Walt Disney Ux 1 ee ‘Source: Based on: hap: aney ens, com/imagainelfanel ‘wosiadmirea/201best worse hin. 4m all but the smallest organizations, the transition from strategy formulation to strate implementation requires a shift in tesponsibility from strategists to divisional and functio fmanap-rs. Implsinentation problems can arise because of this shift in resp if strwepy-formsiation decisions come as a surprise to miitdle and lowerlevel Managers and employees are motivated more by percived selinterests than by organizations interests, unless the two eoincide. This isa primary reason why divisional and functional anatl ers should be iwvolved as mach as possible in srategy-formulation and stategy-implemental activities As indicated in Table 7-1, management issues central to stategy implementation inc establishing annual objectives, devising policies, allocating resources, alteing. an exishdg orgavizatonal smetue,restoctring and reengneorng, revising reward and incentive lig TABLE 7-1 Some Management Issues Central to Strategy Implementation Establish anaual abjectives Devise policies Allocate resources Alteran existing organizational structore Restructure and reengineer Revise reward and incentive plans Minimize resistance to change Match managers with state Develop a sate supportive culture Adapt production and operstions provesses Develop an effective human resources function Downsize and furlough as needed Linke performance and pay to stestegios