BAHIR-DAR UNIVERSITY

COLLEGE of BUSINESS
LSCM DEPARTMENT
Strategic Supply Chain
Management-SSCM

BY: Hailu A. (Assistant Professor)

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Strategic Management

COURSE CONTENT

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 PART ONE: OVERVIEW OF SSCM
Chapter One: The Nature of SSCM

1.1 Defining SSCM

1.2 Stages of strategic SC management
1.3 Key terms in strategic SC management
1.4 The strategic model
1.5 Benefits of strategic SC management
1.6 Business ethics and strategY

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 Chapter Two: Strategies in Action

2.1 Types of strategies

2.2 Guidelines for pursuing strategies

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 PART TWO: STRATEGY FORMULATION
Chapter Three: The Business Mission and Vision

3.1 The importance of a clear mission

3.2 The nature of business mission
3.3 Components of a mission statement

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 Chapter Four: Environmental Analysis

4.1 The nature of external audit

4.2 Sources of external information
4.3 Forecasting tools and techniques
4.4 Competitive analysis: Porter’s five forces model

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 Chapter Five: The Internal Assessment

5.1 The nature of an internal audit

5.2 Relationship among the functional areas of
business

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Chapter Six: Strategy Analysis and Choice/Strategy Formulation
assessment

6.1 The nature of strategy analysis and

choice
6.2 Long term objectives
6.3 A comprehensive strategy formulation
6.4 The decision stage

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 PART THREE: STRATEGY IMPLIMENTATION
Chapter Seven: Implementing Strategies Management Issues

7.1 The nature of strategy implementation

7.2 Key concepts in strategy implementation

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 PART FOUR: STRATEGY EVALUATION
Chapter Eight: Strategy Review, Evaluation and Control

8.1 The nature of strategy evaluation

8.2 A strategy evaluation framework
8.3 Published sources of strategy evaluation information
8.4 Characteristics of An effective evaluation system
8.5 The contingency plans

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Chapter One: Overview of Strategic
Supply Chain Management

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Why we study Strategic Management?
Or
What Is In it For Me (WIIFM)

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"Most of us fear change. Even when our minds
say change is normal, our stomachs quiver at
the prospect. But for strategists and
managers today, there is no choice but to
change."

——Robert Waterman Jr.

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"Without a strategy, an organization is like a
ship without a rudder, going around in circles.
It’s like a tramp; it has no place to go."
—Joel Ross and Michael Kami

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 for the same reason we need light to see in
the dark; strategy is for seeing forward.
! ~~~reflection of the company policy

 “where” to play and “how”

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CEOs from the big three American automakers
“If the three auto CEOs need a bridge
“it’s got to be a bridge to somewhere, not a
bridge to nowhere”

 Road Map

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Competitive Advantage

“Anything that a firm does especially

well compared to rival firms”

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Change

Rate & magnitude of change increasing

dramatically-

E-commerce

Globalization

Technology

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 SSCM Defined

Art and science of formulating, implementing, and evaluating

cross-functional decisions that enable an organization to
achieve its objectives.

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firm’s success through integration ––

Management Marketing

Finance/Accounting Production/Operations

Research & Development MIS

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 SSCM Defined (Cont’d)

SSCM is all about looking outside the organization

and developing long range plans that anticipate
change and to develop plans of action in order to
take advantage of them (Michael Porter) .
SSCM is all about developing and managing of
organization strategy (a means to provide
direction to the organization that allow it to
achieve its objectives while responding to both
environmental opportunities and threats (Hofer
& Schendel ).
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Stages of SSCM/Strategic-Management
Process: Three Stages

Strategy Formulation

Strategy Implementation

Strategy Evaluation
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 Stages of SSCM

Strategy Strategy Strategy

implementati
formulation on evaluation

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Strategy Formulation

Vision & Mission

Opportunities & Threats

Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

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Strategy Implementation

Annual Objectives

Policies

Motivate Employees

Resource Allocation

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Strategy Evaluation

Review
External & Internal

Measure Performance

Corrective Action

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Key Strategic Management Terms
Business Ethics & SM
Why Some Firms Do No SM
Pitfalls in SM

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Key Strategic Management Terms

1. competitive Advantage
2. Strategists
3. Vision statements
4. Mission statements
5. External opportunities and threats
6. Internal strengths and weaknesses
7. Long-term objectives
8. Strategies
9. Annual objectives
10. Policies

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 Comprehensive Strategic Management Model

External
Audit

Long-Term Generate, Implement Implement Measure &

Objectives Evaluate, Strategies: Strategies: Evaluate
Vision Select Mgmt Issues Marketing, Performance
& Strategies Fin/Acct,
Mission R&D, CIS
Statements

Internal
Audit

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Benefits to a Firm That Does
SSCM

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 Why Some Firms Do No
SM
Lack of knowledge in strategic planning
Poor reward structures
Firefighting
Waste of time
Too expensive
Laziness
Content with success

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 2. Strategies in Action

2.1 Types of strategies

2.2 Guidelines for pursuing strategic
management

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Types of Strategies

Forward
Integration

Vertical Backward
Integration Integration
Strategies

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 Forward Integration; Gaining ownership or
increased control over distributors or retailers
E.g Microsoft, Apple Inc , Ford, Toyota

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 When forward integration could be an
effective strategy?
 Distributors are especially expensive, or
unreliable, or incapable
 Quality distributors is so limited
 Distributors or retailers have high profit margins

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Backward Integration; Seeking ownership or
increased control of a firm’s suppliers
E .g. Apple Inc , 2009
Columbia/HCA Healthcare Corporation

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 When backward integration could be an
effective strategy?
 suppliers are especially expensive, or unreliable,
or incapable
 suppliers is small and the number of competitors
is large.
 capital and human resources
 stable prices
 high profit margins

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Horizontal Integration
Gaining ownership or increased control over
competitors.
merger or acquisition .

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When horizontal integration could be an
effective strategy?
 gain monopolistic characteristics
 competes in a growing industry.
 increased economies of scale provide major
competitive advantages.
 capital and human talent
 lack of managerial expertise or a need for
particular resources that an organization
possesses
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Horizontal Integration
N.B. government monopoly rules are vital to
pursue the above strategy.

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 Types of Strategies

Market
Penetration

Intensive Market
Strategies Development

Product
Development

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Market Penetration: Seeking increased market
share for present products or services in
present markets through greater marketing
efforts

Coke in 2009/2010, “Open Happiness,”/ “The Coke

Side of Life.

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When market penetration could be an effective
strategy?
 markets are not saturated
 usage rate of present customers could be increased
significantly
market shares of major competitors have been
declining while total industry sales have been
increasing.
correlation between dollar sales and dollar marketing
expenditures has been high.
economies of scale provide major competitive
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Market Development: Introducing present
products or services into new geographic areas

 Ethiopian Air Lines, 2018

 French hypermarket chain Carrefour/ 28
stores/China/2009
 PepsiCo Inc. build more plants, in western and
interior areas of China

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 When market development could be an effective
strategy?
 organization is very successful at what it does.
 new untapped or unsaturated markets exist.
 capital and human resources
 excess production capacity.
 The industry is rapidly becoming global in scope.

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 Product Development: Seeking increased
sales by improving present products or
services or developing new ones

 CBE

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 When Product development could be an effective
strategy?

 the maturity stage of the product life cycle

 competes in an industry that is characterized by rapid

technological developments.

 competitors offer better-quality products at

comparable prices.

 competes in a high-growth industry.

 strong research and development capabilities.

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 Types of Strategies

Related
Diversification

Diversification
Strategies

Unrelated
Diversification

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 Diversification Strategies

Related Diversification; Adding new but

related products or services
value chains posses competitively valuable
cross-business strategic fits
E.g. Sport cloth maker Armour introduced
athletic running shoes

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 When related diversification could be an
effective strategy?
 competes in a no-growth or a slow-growth industry.
 enhance the sales of current products.
 offered at highly competitive prices.
 have seasonal sales levels that counterbalance an
organization’s existing peaks and valleys.
 declining stage of the product’s life cycle.
 strong management team.

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 Diversification Strategies

unrelated Diversification; Adding new,

unrelated products or services
 General Electric, which owns NBC.
Cendant Corp: (real-estate firm Century 21,
the car-rental agency Avis, the travel-booking
sites Orbitz and Flairview Travel, and the
hotel brands Days Inn)

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When unrelated diversification could be an
effective strategy?

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When unrelated diversification could be an
effective strategy?
 revenues

 highly competitive and/or a no-growth industry

 present channels of distribution market the

new products to current customers.
 basic industry is experiencing declining annual sales
and profits.
 capital and managerial talent

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 Types of Strategies

Retrenchment

Defensive Divestiture
Strategies

Liquidation

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 Retrenchment; Regrouping through cost and
asset reduction to reverse declining sales and
profit.
 Eg.

 Tokyo-based Sony Corp. is cutting 8,000 jobs

and closing 6 of its 57 factories by
March 2010 as prices of televisions fall and
consumer spending in general declines

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When retrenchment could be an effective
strategy?
 a clearly distinctive competence but has failed to
meet its objectives
 weaker competitors in a given industry

 plagued by inefficiency, low profitability, poor

employee morale, and pressure from
stockholders to improve performance

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Divestiture; Selling a division or part of an
organization
 often is used to raise capital for further strategic
acquisitions or investments.
 Divestiture can be part of an overall
retrenchment strategy

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 pursued a retrenchment strategy and failed
 needs more resources

 responsible for an organization’s overall poor

performance.
 misfit with the rest of an organization;

 Sources of Cash.

 government antitrust action threatens an

organization.

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Liquidation; Selling all of a company’s assets,
in parts, for their tangible worth

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Retrenchment and divestiture have not been
successful.
only alternative is bankruptcy.
minimize losses by selling the organization’s assets.

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 Highlights

In Bahir Dar Recently, GAMBY PLC conducted

aggressive promotional campaign via Ethiopian
Telvision and planned to gain significant market
share.
What is the strategy adopted by GAMBY?

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Medroc corporate has large business groups in
Ethiopia. Among its business units, Ranbo Tour
and travel has been unprofitable for the last
three years and the company is planning to sale
this business units of the organization.

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The Samsung Group (is a South Korean
multinational conglomerate) is planning to open its
own retail stores in Ethiopia for Africa market. By
doing so, the company wants to learn firsthand
information about what its East African consumers
want and how they buy?

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 Cont..

Dashin Brewery Factory is one of the largest

beer company in the brewery industry. Although,
the beer demands of the customers are
increasing at an increasing rate, shortage of raw
material (beer malt), became the problem of the
company. Thus, the company decided to built
it’s own malt factory (Gondar Malt Factory is
expected to produce 16,200tns of malt a year).

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BGI Ethiopia is the largest beer and wine
manufacturing company in Ethiopia and part of
Group Castel operating internationally
introduced its first alcohol-free beverage,
Senqe, last week.

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To be in line with customer preferences, since
2020, LG has expanded the number of premium
OLED and NanoCell models on. In 2020, the
expansion of the 8K TV lineup, the new third-
generation processors, the expansion of the
NanoCell TV lineup.

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 GAMBY, 2010; Business College
 Construction Bank

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 STRATEGY FORMULATION
The Business Mission and Vision

Describe the nature and role of vision and mission

Discuss the process of developing a mission statement
Identify the components of mission statements.
benefit other strategic-management activities.
Evaluate mission statements of different organizations.

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 Comprehensive Strategic Management Model

External
Audit

Long-Term Generate, Implement Implement Measure &

Objectives Evaluate, Strategies: Strategies: Evaluate
Vision Select Mgmt Issues Marketing, Performance
& Strategies Fin/Acct,
Mission R&D, CIS
Statements

Internal
Audit

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 Vision Statement

“What do we want to become?”

Vision Statement Examples
Our vision is to be the world’s best quick
service restaurant. (McDonald’s)

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 Mission

“What is our business?”

Reveals:
what the organization doing
whom we want to serve
 Mission Statements
Essential for effectively establishing objectives
and formulating strategies.
It sets the foundation for priorities, strategies,
plans and work assignments.

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Mission
 A mission statement is
what an organization is all
about.
 A mission statement
explains what the
organization does, for
whom and the benefit.
 A mission statement
gives the overall purpose
of an organization
Vision
 A vision statement is
what the organization
wants to become.
 A vision statement, on the
other hand, describes
how the future will look if
the organization achieves
its mission.
 a vision statement
describes a picture of the
"preferred future."
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Importance of Mission

Benefits from a strong mission

Unanimity of Purpose

Resource Allocation
Mission
Organizational Climate

Focal point for work

structure

Ch. 2-102
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 The Process of Developing Vision and
Mission Statements

Background information.
managers prepare a vision and mission
statement
A facilitator, or committee of top managers:
merge
distribute the draft statements
meeting to revise the document

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 Emphasis

Discussion groups of managers

“Emotional bond and “Sense of mission”

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 Products
Services Markets
Customers

Technology
9 Components
Employees Of Mission
Statement
Survival
Growth
Profit
Public
Image
Self-Concept Philosophy

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 Evaluating Mission Statements

Evaluated based on the nine desired

components

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At L’Oreal, we believe that lasting business
success is built upon ethical (1) standards which
guide growth and on a genuine sense of
responsibility to our employees (2), our
environment and to the communities in which we
operate (3).
Statement lacks six components: Customers,
Products/Services, Markets, Technology,
Concern for Survival/Growth/Profits, self
concept)

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Components of Mission (Cont’d)
N.B. based on its components, mission can be
divided into two categories:
- Narrow Mission
- Broad Mission
Narrow mission identifies our mission but it
restrict in terms of:
1. Product and services offered
2. Technology used
3. Market served
4. Opportunity of growth
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Components of Mission (Cont’d)
Broad mission wider our mission values in terms
of product and services, offered, market served,
technology used and opportunity of growth. But
main flaw of this mission is that it creates
confusion among employees due to its wider
sense.
N.B. most organization mission statement
fall between wider and narrower mission.

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 Environmental Analysis

The nature of external audit

Sources of external information
EFE Matrix
CPM Matrix

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External Strategic
Management Audit

Purpose of an External Audit

Develop a finite list of
opportunities that could benefit a
firm
threats that should be avoided

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 Comprehensive Strategic Management Model

External
Audit

Long-Term Generate, Implement Implement Measure &

Objectives Evaluate, Strategies: Strategies: Evaluate
Vision Select Mgmt Issues Marketing, Performance
& Strategies Fin/Acct,
Mission R&D, CIS
Statements

Internal
Audit

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 Economic Forces
 GDP

 Trends in the dollar’s value (e.g what is the implication of

rising dollar against Ethiopian birr for those operate in
tourism?)

 Unemployment rates (e.g. increase in unemployment

rate create opportunities for many firms to diversify their
business….how?

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Economic Forces

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Social, Cultural, Demographic, and
Natural Environmental Forces

 Household pattern
 Religion and tradition ( e.g. MACDONALD)
 Population pattern ( e.g. aging society)
 Language (e.g affect promotion)
 The above forces have Impact on firms decision on –
• Products
• Services
• Markets
• Customers

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Political, Governmental, and
Legal Forces
Government Regulation

Key opportunities & threats

 Antitrust legislation

 Tax rates

 Patent laws

 Protectionist policies

 Governments taking equity stakes in

companies.

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Technological Forces
Essential for nearly every
strategic decision
- No company or industry today is insulated against emerging
technological developments. E.g online banking, E-books, wi-
fi in airlines and etc….

- In high-tech industries, identification and evaluation of key

technological opportunities and threats can be the most
important part of the external strategic-management audit.

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Competitive Forces
Identify Rival Firms’(i.e. firms with similar market
focus and internal resource capacity)
•Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies
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 Key Questions Concerning
Competitors
After identifying major rival firms, need for identify
and analyze:
Their strengths
Their weaknesses
Their objectives and strategies
Their responses to external variables
Their vulnerability to our alternative strategies
Our vulnerability to strategic counterattack

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The Process of Performing an External Audit

1. Gather competitive intelligence and

information
2. Assimilate and evaluate information
3. Resulting in a list of the most important
key external factors

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Performing External Audit

Long-term objectives

Measurable
External
Factors Applicable to
Competing Firms

Hierarchical

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 Industrial Organization (I/O) Theory

Advocators of I/O view promote that

Industry factors are more important
than internal factors
 Performance determined by industry
forces

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 I/O Perspective Firm Performance

Industry Properties

Economies of Scale

Barriers to Market Entry

Product Differentiation

The Economy

Level of Competitiveness

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 Competitive Intelligence

A systematic and ethical process for

gathering and analyzing information
about the competition’s activities and
general business trends to further a
business’s own goals.

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 Objectives of CI

Provide a general understanding of industry and

competitors
Identify areas where competitors are vulnerable
and assess impact of actions on competitors
Identify potential moves that a competitor might
make

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 Sources of CI

Internet Consultants
Employees Trade journals
Managers Newspaper articles
Suppliers Government filings
Distributors Competitors
 Unethical tactics such as
Customers bribery, and computer break-
should never be used to obtain
Creditors information.

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 Sources of External Information: Unpublished
Sources

 Customer surveys
 Market research
 Speeches at professional or shareholder meetings
 Television programs
 Interviews and conversations with stakeholders

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 Sources of External Information: Published
Sources

 Periodicals
 Journals
 Reports
 Government documents
 Abstracts
 Books
 Directories
 Newspapers
 Manuals

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 Forecasting techniques

Forecasts are educated assumptions about

future trends and events
Quantitative techniques – most
appropriate when historical data is
available and there is a constant
relationship
Qualitative techniques

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Industry Analysis: The External Factor Evaluation
(EFE) Matrix

An External Factor Evaluation (EFE) Matrix

allows strategists to summarize and evaluate
economic, social, cultural, demographic,
environmental, political, governmental, legal,
technological, and competitive information.
The EFE Matrix can be developed in five
steps:

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 EFE Matrix Steps

1. List key external factors (15 to 20 OT factors).

2. Weight from 0 to 1: Assign to each factor a weight that ranges
from 0.0 (not important) to 1.0 (very important).
3. Rate effectiveness of current strategies: Assign a rating
between 1 and 4 to each key external factor to indicate how
effectively the firm’s current strategies respond to the factor,
where 4 = the response is superior, 3 = the response is above
average, 2 = the response is average, and 1 = the response is
poor.
4. Multiply weight * rating i.e Multiply each factor’s weight by its
rating to determine a weighted score
5. Sum weighted scores i.e. Sum the weighted scores for each
variable to determine the total weighted score for the
organization. 139
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 EFE Matrix Steps

N.B. Regardless of the number of key opportunities and threats

included in an EFE Matrix, the highest possible total weighted
score for an organization is 4.0 and the lowest possible total
weighted score is 1.0.
 The average total weighted score is 2.5.
 A total weighted score of 4.0 indicates that an organization is
responding in an outstanding way to existing opportunities and
threats in its industry. In other words, the firm’s strategies
effectively take advantage of existing opportunities and minimize
the potential adverse effects of external threats.
 A total score of 1.0 indicates that the firm’s strategies are not
capitalizing on opportunities or avoiding external threats.

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Industry Analysis: Competitive Profile Matrix
(CPM)

 The weights and total weighted scores in both a CPM and an

EFE have the same meaning. However, critical success
factors in a CPM include both internal and external issues;
therefore, the ratings refer to strengths and weaknesses,
where 4 = major strength, 3 = minor strength, 2 = minor
weakness, and 1 = major weakness.
 The critical success factors in a CPM are not grouped into
opportunities and threats as they are in an EFE.
 In a CPM, the ratings and total weighted scores for rival firms
can be compared to the sample firm.
 This comparative analysis provides important internal
strategic information.

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Industry Analysis: Competitive Profile Matrix
(CPM)

 A word on interpretation: Just because one firm

receives a 3.2 rating and another receives a 2.80
rating in a Competitive Profile Matrix,
 Numbers are not magic.
 The aim is not to arrive at a single number, but
rather to assimilate and evaluate information in a
meaningful way that aids in decision making.

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 The Internal Assessment

5.1 The nature of an internal audit

5.2 Relationship among the functional areas of
business

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 Nature of an Internal Audit

All organizations have Strengths and Weaknesses that

should be analyzed while developing strategy.
Basis for objectives & strategies:

– Internal strengths/weaknesses
– External opportunities/threats
– Clear statement of mission
Hence internal audit should be at stake.
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 Nature of an Internal Audit

 Internal audit is all about Identify strengths and

weaknesses in
Management
Marketing
Finance and accounting
Production and operations
Research and development
Management information systems

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 Internal Audit Process

Parallels process of external audit

Gather & assimilate information from:
• Management
• Marketing
• Finance/accounting
• Production/operations
• Research & development
• Management information systems

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 Internal Audit Process(Cont’d)

 Managers and employees from all areas

provide information
 A team of managers then selects 10 to 15
key organizational strengths and weaknesses
to focus on

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 Internal auditing of Functional areas

 It is recalled that internal audit is all about gathering &

assimilating of information from:
• Management
• Marketing
• Finance/accounting
• Production/operations
• Research & development
• Management information systems

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 Internal Analysis (IFE)

Five-Step Process:
1. List key internal factors (10-20)
 Strengths & weaknesses

2. Assign weight to each (0 to 1.0) - 0.0 (not important) to 1.0 (all-

important) to each factor. The weight assigned to a given factor
indicates the relative importance of the factor to being successful in
the firm’s industry.
 Sum of all weights = 1.0

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 Internal Analysis (IFE)
(Cont’d)
3. Assign a 1-to-4 rating to each factor to indicate whether that factor
represents a major weakness (rating = 1), a minor weakness
(rating = 2), a minor strength (rating = 3), or a major strength
(rating = 4).
Note that strengths must receive a 3 or 4 rating and weaknesses
must receive a 1 or 2 rating. Ratings are thus company-based,
whereas the weights in step 2 are industry-based.
4. Multiply each factor’s weight by its rating
 Produces a weighted score

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 Internal Analysis (IFE)
(Cont’d)

5. Sum the weighted scores for each

 Determines the total weighted score for the organization
 Highest possible weighted score for the organization is 4.0;
the lowest, 1.0. Average = 2.5
N.B. Total weighted scores well below 2.5 characterize organizations
that are weak internally, whereas scores significantly above 2.5
indicate a strong internal position.
N.B. Be as quantitative as possible when stating factors. Use
monetary amounts, percentages, numbers, and ratios to the extent
possible.

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IEF- EXAMPLE

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 Internal Analysis (IFE)

 Overall, this store receives a 2.5 total weighted score, which on a

1-to-4 scale is exactly average/halfway, indicating there is
definitely room for improvement in store operations, strategies,
policies, and procedures.
 The IFE Matrix provides important information for strategy
formulation. For example, this retail computer store might want to
hire another checkout person and repair its carpet, paint, and
bathroom problems.
 Also, the store may want to increase advertising for its
repair/services, because that is a really important (weight 0.15)
factor to being successful in this business.

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 Competitive Analysis: Porter’s Five-Forces
Model

 Porter’s Five-Forces Model of competitive analysis is

a widely used approach for developing strategies in
many industries
 The intensity of competition among firms varies
widely across industries.

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Porter’s Five-Forces Model of
Competition

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 The Five-Forces Model

 Rivalry among competing firms

Most powerful of the five forces
Focus on competitive advantage of strategies over
other firms

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 Conditions that Cause High Rivalry Among
Competing Firms

 High number of competing firms

 Similar size of firms competing
 Similar capability of firms competing
 Falling demand for the industry’s products
 Falling product/service prices in the industry
 Consumers can switch brands easily e.g mobile industry
 Barriers to entering the market are low
 Fixed costs are high among firms competing e.g beer, cement

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 The Five-Forces Model(Cont’d)

Potential Entry of New

Competitors
Barriers to entry are important
Quality, pricing, and marketing can
overcome barriers

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 The Five-Forces Model(Cont’d)

Potential development of substitute

products
E.g. plastic container with glass,
paperboard, and aluminum
Pressure increases when:
Prices of substitutes decrease
Consumers’ switching costs
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 The Five-Forces Model(Cont’d)

Bargaining Power of Suppliers is increased

when there are:
smaller numbers of suppliers
Few substitutes
Costs of switching raw materials is
high

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 The Five-Forces Model (Cont’d)

Bargaining power of consumers

Customers being concentrated
or buying in volume affects
intensity of competition
Consumer power is higher
where products are standard or
undifferentiated
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 Consumers gain increasing
bargaining power
If they can inexpensively switch to competing
brands or substitutes
If they are particularly important to the seller
If sellers are struggling in the face of falling
consumer demand
If they are informed about sellers’ products,
prices, and costs
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Strategy Analysis and Choice/Strategy Formulation assessment

6.1 Long term objectives

6.2The nature of strategy analysis and
choice
6.3 A comprehensive strategy formulation
6.4 The decision stage

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 The Strategy-Formulation Analytical
Framework

Stage 1 (Input Stage).

Stage 2 (Matching Stage)
Stage 3 (Decision Stage).

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 Stage 1: The Input Stage

Stage 1 of the formulation framework consists

of the EFE Matrix, the IFE Matrix, and the
Competitive Profile Matrix (CPM).
Called the Input Stage, Stage 1 summarizes
the basic input information needed to
formulate strategies.

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Stage 1: The input stage (Cont’d)

External Factor Evaluation

Matrix (EFE)

Stage 1: Internal Factor Evaluation

The Input Stage Matrix (IFE)

Competitive Profile Matrix

(CPM)

Ch 5 -229
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Stage 2: The Matching Stage
(Cont’d) SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

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 Stage 2: The Matching Stage (Cont’d)

SWOT Matrix:
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix
is an important matching tool that helps managers develop four
types of strategies:

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 Stage 2: The Matching Stage (Cont’d)

 Strengths-Opportunities (SO)
 Weaknesses-Opportunities (WO)
 Strengths-Threats (ST)
 Weaknesses-Threats (WT)

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List the firm’s key external opportunities.
 List the firm’s key external threats.
 List the firm’s key internal strengths.
List the firm’s key internal weaknesses.
Match internal strengths with external
opportunities, and record the resultant SO
Strategies in the appropriate cell.
 Match internal weaknesses with external
opportunities, and record the resultant WO
Strategies.
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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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 Strengths (S) Weakness(S)

1.stong financial capacity (excess 1.limitation on production staff

WC&CB) skill(40% lack formal training)

2.strong R&D 2.poor RM inventory

management(delay in ordering and
3.excess production capacity
receiving RM)

3.long distance B/N factory location

and distributors station)
Opportunities(0) SO- strategies WO- strategies
1.30% increase in annual demand 1.add 2 new brand beer(S2,O1) .land purchase to build new factory
2.two majoir competitors retrench (w3,04)
3. horizontal facilities acquiring
3abandonment of acquisition low (S1,O2)

4.10%land lease price reduction

Threats(T) ST- strategies WT- strategies

1.RM price raise by20% annually 1. ?? (S1,T2)
2.current distributors also work for 2. ? (S1,T4) 2. ? (W23,T1)
major competitors

3. MKT labor cost for skilled

production staff rises by 30% annually. 236
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 Stage 2: The Matching Stage (Cont’d)

SPACE Matrix:
- The Strategic Position and Action Evaluation
(SPACE) Matrix, another important Stage 2 matching
tool.

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 Stage 2: The Matching Stage (Cont’d)

SPACE Matrix:
- Aggressive,
- Conservative,
- Defensive,
- Competitive

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 Stage 2: The Matching Stage (Cont’d)

The axes of the SPACE

• Internal dimensions
• financial position [FP]
• competitive position [CP])
 External dimensions
 stability position [SP]
 industry position [IP]).

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 Stage 2: The Matching Stage (Cont’d)

SPACE Matrix:
 Depending upon the type of organization, numerous
variables could make up each of the dimensions
represented on the axes of the SPACE matrix.
 Variables that were included in the firm’s EFE and
IFE matrices should be considered in developing a
SPACE matrix.

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241
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 Stage 2: The Matching Stage (Cont’d)

SPACE Matrix: Steps to Developing a SPACE Matrix

1. Select a set of variables to define FP, CP, SP, and IP.
2. Assign a numerical value:
- FROM +1 (worst) to +7 (best) to each of the variables that make up the FP
and IP dimensions.
- FROM -1 (best) to -7 (worst) to each of the variables that make up the
SP and CP dimensions.
3. Compute an average score for FP, CP, IP, and SP by summing the
values given to the variables of each dimension and then by dividing by
the number of variables included in the respective dimension.

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 Stage 2: The Matching Stage (Cont’d)

SPACE Matrix: Steps to Developing a SPACE Matrix

4. Plot the average scores for FP, IP, SP, and CP on the appropriate axis in the
SPACE Matrix

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

6. Draw a directional vector from the origin of the SPACE Matrix through
the new intersection point. This vector reveals the type of strategies
recommended for the organization: aggressive, competitive, defensive,
or conservative.

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 SPACE Matrix
SPACE Matrix
FP
Conservative Aggressive
+6
+5
Intensive & Related +4 Integration, Intensive,
Diversification +3
+2
Diversification
+1

CP IP
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6
-2 Integration, Intensive,
-3
(1, -3)
-4
-5
Defensive Competitive
-6
SP

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245
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Example of SPACE

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 SPACE Matrix
SPACE Matrix
FP
Conservative Aggressive
+6
+5
+4
+3
+2
+1

CP IP
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6
-2 Integration, Intensive,
-3
(1, -3)
-4
-5
Defensive Competitive
-6
SP

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Stage 2: The Matching Stage (Cont’d)

A financially strong firm

that has achieved major
competitive advantages in
a growing and stable
industry

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Stage 2: The Matching Stage (Cont’d)

A firm whose financial

strength is a dominating
factor in the industry

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Stage 2: The Matching Stage (Cont’d)

A firm that has achieved

financial strength in a stable
industry that is not growing;
the firm has few competitive
advantages

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Stage 2: The Matching Stage (Cont’d)

A firm with major competitive

advantages in a high-growth
industry

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Stage 2: The Matching Stage (Cont’d)

A firm that has a very weak

competitive position in a
negative growth, stable
industry

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Stage 2: The Matching Stage (Cont’d)

A financially troubled firm in a

very unstable industry

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 Stage 2: The Matching Stage (Cont’d)

The Boston Consulting Group(BCG) Matrix:

 The BCG matrix helps multi-divisional firms formulate strategies.

 It graphically portrays differences among divisions in terms of

relative market share position and industry growth rate.

 Relative market share position is defined as the ratio of a

division’s own market share (or revenues) in a particular
industry to the market share (or revenues) held by the largest
rival firm in that industry.

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 Stage 2: The Matching Stage (Cont’d)

The Boston Consulting Group(BCG) Matrix is based on two

axis i.e. X and Y
 Relative market share position is given on the x-axis. The
mid-point on the x-axis usually is set at .50, corresponding to a
division that has half the market share of the leading firm in the
industry.
 The y-axis represents the industry growth rate in sales,
measured in percentage terms. The growth rate percentages on
the y-axis could range from -20 to +20%, with 0.0 being the mid-
point.

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 Stage 2: The Matching Stage (Cont’d)

 An example of a BCG matrix appears in the next Power Point.

 Each circle represents a separate division.

 The size of the circle corresponds to the proportion of

corporate revenue generated by that business unit, and the pie
slice indicates the proportion of corporate profits generated by
that division.

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 Stage 2: The Matching Stage (Cont’d)

Divisions located in
 Quadrant I “Question Marks;”
 Quadrant II, “Stars;”
 Quadrant III, “Cash Cows;” and
 Quadrant IV, “Dogs.”

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259
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260
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 Stage 2: The Matching Stage (Cont’d)

BCG Matrix:
 Question Marks – low relative market share in a high-
growth industry
 Stars – high relative market share in a high-growth
industry
 Cash Cows – high relative market share in a low-
growth industry
 Dogs – Low relative market share in a slow or no
growth industry
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 Stage 2: The Matching Stage (Cont’d)

The Internal-External (IE) Matrix:

 Positions an organization’s various divisions in a

nine-cell display as shown in next power point.
 Similar to BCG Matrix except the IE Matrix:
 Requires more information about the divisions

 Strategic implications of each matrix are different

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 Stage 2: The Matching Stage (Cont’d)

The Internal-External (IE) Matrix:

 Based on two key dimensions
 The IFE total weighted scores on the x-axis

 The EFE total weighted scores on the y-axis

 Divided into three major regions

 Grow and build – Cells I, II, or IV

 Hold and maintain – Cells III, V, or VII

 Harvest or divest – Cells VI, VIII, or IX

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264
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265
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 Stage 2: The Matching Stage (Cont’d)

The grand strategy (GS) Matrix:

 Tool for formulating alternative strategies

 Based on two dimensions as shown in next
power point:
- Competitive position
- Market growth

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 RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
WEAK 7. Related diversification
STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Related diversification
2. Related diversification 2. Unrelated diversification
3. Unrelated diversification 3. Joint ventures
4. Divestiture
5. Liquidation

SLOW MARKET GROWTH

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Stage 3: The Decision Stage

Quantitative Strategic
Stage 3: Planning Matrix
The Decision Stage (QSPM)

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 Stage 3: The Decision Stage (Cont’d)

 determine the relative attractiveness of feasible alternative

actions
 A QSPM uses input information from Stage 1 to objectively
evaluate feasible alternative strategies identified in Stage 2.
 A QSPM reveals the relative attractiveness of alternative
strategies and thus provides objective basis for selecting
specific strategies. The basic format of the QSPM is
illustrated in the following Power Point.

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 QSPM Strategic Alternatives
Key External Factors Weight Strategy 1 Strategy 2 Strategy 3
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/
Environmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information
Systems

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 Stage 3: The Decision Stage (Cont’d)

QSPM
 The left column of a QSPM consists of key external and
internal factors (from Stage 1), and the top row consists of
feasible alternative strategies (from Stage 2).

 Specifically, the left column consists of information obtained

directly from the EFE matrix and the IFE matrix.
 In the column to the right of the key factors, the respective
weights received by each factor in the EFE matrix and IFE
matrix are recorded.

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 Stage 3: The Decision Stage (Cont’d)

QSPM
- The top row of a QSPM consists of alternative
strategies derived from each matrix in Stage 2.
- These matching techniques usually generate similar
feasible alternatives. However, not every strategy
suggested by the matching techniques has to be
evaluated in a QSPM. Strategists should use good
intuitive judgment in selecting strategies to include in
a QSPM.

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 Stage 3: The Decision Stage (Cont’d)-
Steps to Develop a QSPM

1. Make a list of the firm’s key external

opportunities/threats and internal
strengths/weaknesses in the left column
2. Assign weights to each key external and
internal factor

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 Stage 3: The Decision Stage (Cont’d)-
Steps to Develop a QSPM

3. Examine the Stage 2 (matching) matrices,

and identify alternative strategies that the
organization should consider implementing
4. Determine the Attractiveness Scores
5. Compute the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness
Score

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example

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 Guide lines on QSPM
construction
 Avoid giving each strategy the same AS score.
Note in Table 6-7 that dashes are inserted all the way
across the row when used. Also note that double 4’s, or
double 3’s, or double 2’s, or double 1’s are never in a
given row.
Again work row by row, not column by column. These are
important guidelines to follow in constructing a QSPM.

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