Chapter 23

Strategy Analysis And Choice

Strategic Management:
Concepts and Cases. 9th edition
Fred R. David

PowerPoint Slides by
Anthony F. Chelte
Western New England College
Ch 6-1
Fred R. David
Prentice Hall
 Chapter Outline

• The Nature of Strategy Analysis and

Choice

• A Comprehensive Strategy-Formulation
Framework

• The Input Stage

Ch 6-2
Fred R. David
Prentice Hall
 Chapter Outline
• The Matching Stage

• The Decision Stage

• Cultural Aspects of Strategy Choice

Ch 6-3
Fred R. David
Prentice Hall
 Chapter Outline

• The Politics of Strategy Choice

• The Role of a Board of Directors

Ch 6-4
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Prentice Hall
 Strategy Analysis & Choice

Whether it’s broke or not, fix it—make it

better. Not just products, but the whole
company if necessary.

-- Bill Saporito

Ch 6-5
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Prentice Hall
 Strategy Analysis & Choice

Strategic analysis and choice largely

involves making subjective decisions
based on objective information.

Ch 6-6
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Prentice Hall
 Strategy Analysis & Choice

The Nature of Strategy Analysis and Choice –

– Establishing long-term objectives

– Generating alternative strategies
– Selecting strategies to pursue
– Best alternative to achieve mission and objectives

Ch 6-7
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 Strategy Analysis & Choice
Alternative strategies derive from –

– Vision
– Mission
– Objectives
– External audit
– Internal audit
– Past successful strategies
Ch 6-8
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 Strategy Analysis & Choice

Participation in generating alternative

strategies should be broad –

Ch 6-9
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Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Ch 6-10
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 Formulation Framework

Internal Factor Evaluation

Matrix (IFE)

Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)

Competitive Profile
Matrix

Ch 6-11
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 Input Stage

• Provides basic input information for the

matching and decision stage matrices
• Requires strategists to quantify
subjectivity early in the process
• Good intuitive judgment always needed

Ch 6-12
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-13
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 Matching Stage

• Match between organization’s internal

resources and skills and the opportunities
and risks created by its external factors.

Ch 6-14
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 Matching Key Factors to Formulate Alternative Strategies

Key Internal Factor Key External Factor Resultant Strategy

20% annual growth in the

Excess working capacity
+ cell phone industry = Acquire Cellfone, Inc.
(strength)
(opportunity)

Exit of two major foreign Pursue horizontal integration

Insufficient capacity
+ competitors form the = by buying competitor's
(weakness)
industry (opportunity) facilities

Decreasing numbers of Develop new products for

Strong R&D (strength) + =
young adults (threat) older adults

Poor employee morale Develop a new employee

+ Strong union activity =
(weakness) (threat) benefits package

Ch 6-15
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-16
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 Formulation Framework

Stage 3: Quantitative Strategic

The Decision Stage Planning Matrix
(QSPM)

Ch 6-17
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 Matching Stage

TOWS Matrix

– Threats
– Opportunities
– Strengths
– Weaknesses

Ch 6-1
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 TOWS Matrix

Develop four types of strategies

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

Ch 6-2
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 SO Strategies

Threats Use a firm’s

Opportunities SO internal
strengths to take
Weaknesses Strategies
advantage of
Strengths external
(TOWS) opportunities

Ch 6-3
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 WO Strategies

Improving
Threats internal
Opportunities WO weaknesses by
Weaknesses Strategies taking
Strengths advantage of
(TOWS) external
opportunities

Ch 6-4
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 ST Strategies

Threats Using firm’s

ST strengths to
Opportunities
avoid or reduce
Weaknesses Strategies the impact of
Strengths external threats.
(TOWS)

Ch 6-5
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 WT Strategies

Defensive
Threats tactics aimed at
Opportunities WT reducing
internal
Weaknesses Strategies
weaknesses
Strengths and avoiding
(TOWS) environmental
threats.

Ch 6-6
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 TOWS Matrix

Steps in developing the TOWS Matrix

1. List the firm’s key external opportunities

2. List the firm’s key external threats
3. List the firm’s key internal strengths
4. List the firm’s key internal weaknesses

Ch 6-7
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 TOWS Matrix
Developing the TOWS Matrix

5. Match internal strengths with external opportunities

and record the resultant SO Strategies
6. Match internal weaknesses with external
opportunities and record the resultant WO Strategies
7. Match internal strengths with external threats and
record the resultant ST Strategies
8. Match internal weaknesses with external threats and
record the resultant WT Strategies

Ch 6-8
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 TOWS Matrix
Leave Blank Strengths-S Weaknesses-W

List Strengths List Weaknesses

Opportunities-O SO Strategies WO Strategies

List Opportunities Use strengths to take Overcome weaknesses

advantage of opportunities by taking advantage of
opportunities

Threats-T ST Strategies WT Strategies

List Threats Use strengths to avoid Minimize weaknesses

threats and avoid threats
Ch 6-9
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-1
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 SPACE Matrix
Strategic Position and Action Evaluation Matrix

▪ Four quadrant framework

▪ Determines appropriate strategies
▪ Aggressive
▪ Conservative
▪ Defensive
▪ Competitive

Ch 6-2
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 SPACE Matrix

Two Internal Dimensions

▪ Financial Strength [FS]
▪ Competitive Advantage [CA]

Two External Dimensions

▪ Environmental Stability [ES]
▪ Industry Strength [IS]

Ch 6-3
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 SPACE Matrix
Overall Strategic position determined by:

– Financial Strength [FS]

– Competitive Advantage [CA]
– Environmental Stability [ES]
– Industry Strength [IS]

Ch 6-4
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 SPACE Matrix
Developing the SPACE Matrix:

• EFE Matrix
• IFE Matrix
• Financial Strength
• Competitive Advantage
• Environmental Stability
• Industry Strength
Ch 6-5
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 SPACE Matrix

• Select variables to define FS, CA, ES,

& IS
• Assign numerical ranking from +1
(worst) to +6 (best) for FS and IS;
Assign numerical ranking from –1 (best)
to –6 (worst) for ES and CA.
• Compute average score for FS, CA,
ES, & IS

Ch 6-6
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 SPACE Matrix

• Plot the average scores on the Matrix

• Add the two scores on the x-axis and
plot point on X. Add the scores on the
y-axis and plot Y. Plot the intersection
of the new xy point.
• Draw a directional vector from origin
through the new intersection point.

Ch 6-7
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 SPACE Factors
Internal Strategic Position External Strategic Position

Financial Strength (FS) Environmental Stability (ES)

Return on investment Technological changes

Leverage Rate of inflation
Liquidity Demand variability
Working capital Price range of competing products
Cash flow Barriers to entry
Ease of exit from market Competitive pressure
Risk involved in business Price elasticity of demand

Ch 6-8
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 SPACE Factors
Internal Strategic Position External Strategic Position

Competitive Advantage CA Industry Strength (IS)

Market share Growth potential

Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Competition’s capacity utilization Resource utilization
Technological know-how Capital intensify
Control over suppliers & distributors Ease of entry into market
Productivity, capacity utilization

Ch 6-9
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 SPACE Matrix
FS
Conservative Aggressive
+6
+5
+4
+3
+2
+1

CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6

-2
-3
-4
-5
Defensive -6 Competitive
ES Ch 6-10
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-1
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 BCG Matrix
Boston Consulting Group Matrix

• Enhances multidivisional firms’ efforts to

formulate strategies
• Autonomous divisions (or profit centers)
constitute the business portfolio
• Firm’s divisions may compete in
different industries requiring separate
strategy
Ch 6-2
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 BCG Matrix
Boston Consulting Group Matrix

• Graphically portrays differences among

divisions
• Focuses on market share position and
industry growth rate
• Manage business portfolio through
relative market share position and
industry growth rate
Ch 6-3
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 BCG Matrix
Relative market share position defined:

• Ratio of a division’s own market share

in a particular industry to the market
share held by the largest rival firm in
that industry.

Ch 6-4
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 BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0
Industry Sales Growth Rate

High
+20
Stars Question Marks
II I
Medium
0

Cash Cows Dogs

III IV
Low
-20 Ch 6-5
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 BCG Matrix

• Question Marks
• Stars
• Cash Cows
• Dogs

Ch 6-6
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 BCG Matrix
Question Marks

• Low relative market share position yet

compete in high-growth industry.
• Cash needs are high
• Case generation is low

• Decision to strengthen (intensive

strategies) or divest

Ch 6-7
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 BCG Matrix
Stars

• High relative market share and high

industry growth rate.
• Best long-run opportunities for growth and
profitability

• Substantial investment to maintain or

strengthen dominant position
• Integration strategies, intensive strategies, joint
ventures
Ch 6-8
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 BCG Matrix
Cash Cows

• High relative market share position, but compete

in low-growth industry
• Generate cash in excess of their needs
• Milked for other purposes

• Maintain strong position as long as possible

• Product development, concentric diversification
• If becomes weak—retrenchment or divestiture

Ch 6-9
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 BCG Matrix
Dogs

• Low relative market share position and

compete in slow or no market growth
• Weak internal and external position

• Decision to liquidate, divest, retrenchment

Ch 6-10
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 Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:
BCG Matrix
The Matching Stage

IE Matrix

Grand Strategy Matrix

Ch 6-1
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 Grand Strategy Matrix
• Popular tool for formulating alternative
strategies

• All organizations (or divisions) can be

positioned in one of four quadrants

• Based on two evaluative dimensions:

– Competitive position
– Market growth

Ch 6-2
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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. Concentric diversification
STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate
4. Conglomerate diversification
diversification 4. Joint ventures
5. Liquidation
SLOW MARKET GROWTH
Ch 6-3
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 Grand Strategy Matrix

Quadrant I

• Excellent strategic position

• Concentration on current markets and
products
• Take risks aggressively when necessary

Ch 6-4
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 Grand Strategy Matrix

Quadrant II

• Evaluate present approach seriously

• How to change to improve competitiveness
• Rapid market growth requires intensive
strategy

Ch 6-5
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 Grand Strategy Matrix

Quadrant III

• Compete in slow-growth industries

• Weak competitive position
• Drastic changes quickly
• Cost and asset reduction indicated
(retrenchment)

Ch 6-6
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 Grand Strategy Matrix

Quadrant IV

• Strong competitive position

• Slow-growth industry
• Diversification indicated to more promising
growth areas

Ch 6-7
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 Formulation Framework

Stage 3: Quantitative Strategic

The Decision Stage Planning Matrix
(QSPM)

Ch 6-8
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 QSPM

Quantitative Strategic Planning Matrix

• Only technique designed to determine the

relative attractiveness of feasible
alternative actions

Ch 6-9
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 QSPM

Quantitative Strategic Planning Matrix

• Tool for objective evaluation of

alternative strategies
• Based on identified external and
internal crucial success factors
• Requires good intuitive judgment

Ch 6-10
Fred R. David
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 QSPM

Quantitative Strategic Planning Matrix

• List the firm’s key external opportunities &

threats; list the firm’s key internal strengths
and weaknesses

• Assign weights to each external and internal

critical success factor

Ch 6-11
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 QSPM

Quantitative Strategic Planning Matrix

• Examine the Stage 2 (matching) matrices

and identify alternative strategies that the
organization should consider implementing

• Determine the Attractiveness Scores (AS)

Ch 6-12
Fred R. David
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 QSPM

Quantitative Strategic Planning Matrix

• Compute the total Attractiveness

Scores

• Compute the Sum Total Attractiveness

Score

Ch 6-13
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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
Computer Information
Systems

Ch 6-14
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 QSPM

Limitations:

• Requires intuitive judgments and

educated assumptions

• Only as good as the prerequisite inputs

Ch 6-15
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 QSPM

Positives:

• Sets of strategies examined simultaneously

or sequentially

• Requires the integration of pertinent external

and internal factors in the decision-making
process

Ch 6-16
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 Chapter Outline

• The nature of Strategy Implementation

• Annual Objectives

• Policies

• Resource Allocation

Ch 7-1
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 Chapter Outline
• Managing Conflict

• Matching Structure with Strategy

• Restructuring, Reengineering, and E-

Engineering

• Linking Performance and Pay to Strategies

Ch 7-2
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 Chapter Outline

• Managing Resistance to Change

• Managing the Natural Environment

• Creating a Strategy-Supportive Culture

Ch 7-3
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 Chapter Outline

• Production/Operations Concerns
When Implementing Strategies

• Human Resource Concerns When

Implementing Strategies

Ch 7-4
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 Implementing Strategies:
Management Issues

Pretend that every single person you

meet has a sign around his or her neck
that says, “Make me feel important.”

-- Mary Kay Ash, CEO of Mary Kay, Inc.

Ch 7-5
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 Implementing Strategies:
Strategy Analysis & Choice
Management Issues

Contrasting strategy formulation and

strategy implementation

– Formulation is positioning forces before the action

– Implementation is managing forces during the action

Ch 7-6
Fred R. David
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 Implementing Strategies:
Strategy Analysis & Choice
Management Issues

Contrasting strategy formulation and

strategy implementation

– Formulation focuses on effectiveness

– Implementation focuses on efficiency

Ch 7-7
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 Implementing Strategies:
Strategy Analysis & Choice
Management Issues

Contrasting strategy formulation and

strategy implementation

– Formulation is primarily an intellectual process

– Implementation is primarily an operational process

Ch 7-8
Fred R. David
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 Implementing Strategies:
Strategy Analysis & Choice
Management Issues

Contrasting strategy formulation and

strategy implementation

– Formulation requires good intuitive and analytical

skills

– Implementation requires special motivation and

leadership skills

Ch 7-9
Fred R. David
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 Implementing Strategies:
Strategy Analysis & Choice
Management Issues

Contrasting strategy formulation and

strategy implementation

– Formulation requires coordination among a few

individuals

– Implementation requires coordination among many

persons

Ch 7-10
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 Implementing Strategies:
Strategy Analysis & Choice
Management Issues

Strategy implementation –

– Varies among different types and sizes

of organizations

Ch 7-11
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 Implementing Strategies:
Strategy Analysis & Choice
Management Issues
Strategy implementation Actions –

– Altering sales territories

– Adding new departments
– Closing facilities
– Hiring new employees
– Cost-control procedures
– Changing advertising strategies
– Building new facilities
Ch 7-12
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 Management Perspectives

Formulation to Implementation
transition –

– Shift in responsibility
• From strategists to division and functional
managers

Ch 7-13
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 Management Issues

Annual Objectives

Policies

Resources
Management
Issues Organizational structure

Restructuring

Rewards/Incentives

Ch 7-14
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 Management Issues (continued)

Resistance to Change

Managers & strategy

Supportive culture
Management
Issues Production/operations

Human resources

Downsizing

Ch 7-15
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 Annual Objectives

• Decentralized activity
• Involves all managers in the firm

Ch 7-16
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 Annual Objectives

1. Basis for allocating resources

2. Primary mechanism for evaluating
managers
3. Major instrument for monitoring
progress toward long-term objectives
4. Establish organizational, divisional, and
departmental priorities

Ch 7-17
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 Annual Objectives

• Horizontal consistency of objectives

• Vertical consistency of objectives

Ch 7-18
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 Annual Objectives

Objectives should state –

– Quantity
– Quality
– Cost
– Time

Ch 7-19
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 Policies

Policies facilitate solving recurring

problems and guide the implementation
of strategy

Ch 7-20
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 Policies

Policies set –

– Boundaries
– Constraints
– limits

Ch 7-21
Fred R. David
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 Policies
Example Issues requiring management policy --

– To offer extensive or limited management

development workshops and seminars
– To centralize or decentralize employee-training
activities
– To recruit through employment agencies, college
campuses, and/or newspapers
– To promote from within or hire from the outside
– To establish a high- or low-safety stock of
inventory
– To buy lease, or rent new production equipment
Ch 7-22
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 Resource Allocation

Resource Allocation –

A central management activity that allows

for strategy execution

Ch 7-1
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 Resource Allocation

Four types of resources –

1. Financial resources
2. Physical resources
3. Human resources
4. Technological resources

Ch 7-2
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 Managing Conflict

Conflict –

Disagreement between two or more parties

on one or more issues

Ch 7-3
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 Managing Conflict

• Conflict is not always “bad”

• Absence of conflict
– Signal indifference or apathy
• Can energize opposing groups to action
• May help managers identify problems

Ch 7-4
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 Managing Conflict

Conflict Management and Resolution

– Avoidance
– Defusion
– Confrontation

Ch 7-5
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 Matching Structure with Strategy

Changes in Strategy Changes in Structure

1. Structure largely dictates how objectives and

policies will be established.

2. Structure dictates how resources will be

allocated
Ch 7-6
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 Chandler’s Strategy-Structure
Relationship

Organizational
New strategy New administrative
performance
Is formulated problems emerge
declines

Organizational
New organizational
performance
structure is established
improves

Ch 7-7
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 Basic Forms of Structure

1. Functional Structure
• Groups tasks and activities by business
function

2. Divisional Structure
• Decentralized and organized by geography,
product, customer, or process

Ch 7-1
Fred R. David
Prentice Hall
 Basic Forms of Structure

3. Strategic Business Unit Structure (SBU)

• Groups similar divisions; delegates authority
and responsibility to SBU executive

4. Matrix Structure
• Most complex of all designs. Depends upon
both vertical and horizontal flows of authority
and communication

Ch 7-2
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 Restructuring
Restructuring –

Reducing the size of the firm in terms of

number of employees, divisions, or
units, and the number of hierarchical
levels in the firm’s organizational
structure

Ch 7-1
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 Restructuring

Also called –

– Downsizing
– Rightsizing
– Delayering

Ch 7-2
Fred R. David
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 Restructuring

• Employed when ratios out of line with

benchmarked competitors

• Primary benefit sought is cost reduction

Ch 7-3
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 Reengineering

Reengineering –

Involves reconfiguring or redesigning work,

jobs, and processes to improve cost,
quality, service and speed.

Ch 7-4
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 Reengineering

Also called –

– Process management
– Process innovation
– Process redesign

Ch 7-5
Fred R. David
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 Reengineering

Reengineering –

Concerned more with employee and

customer well-being than shareholder
well-being

Ch 7-6
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 Linking Performance and Pay
to Strategies

Most companies practicing pay-for-

performance

Ch 7-7
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 Linking Performance and Pay
to Strategies
• Dual bonus system becoming more common
– Based on both annual objectives and long-term
objectives

• Profit Sharing
– Incentive compensation used by 30% of companies

• Gain Sharing
– Performance targets set for employees or
departments

Ch 7-8
Fred R. David
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Tests for Performance-Pay Plans

Does the plan capture attention?

Do employees understand the plan?

Is the plan improving communication?

Does the plan pay out when it should?

Is the company or unit performing better?

Ch 7-9
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Managing Resistance to Change

Change raises anxiety over fear of:

– Economic loss
– Inconvenience
– Uncertainty
– Break in status-quo

Ch 7-10
Fred R. David
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Managing Resistance to Change

Resistance to change –

– Single greatest threat to successful strategy

implementation

Ch 7-11
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 Change Strategies

• Force Change Strategy

• Educative Change Strategy
• Rational or Self-Interest Change Strategy

Ch 7-12
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 Managing the Natural
Environment

• Wide appreciation for firms that conduct

operations that “mend” rather than “harm”
the environment.

Ch 7-13
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 Creating a Strategy-Supportive
Culture

Strategists should strive to preserve,

emphasize, and build upon aspects of
existing culture that support new
strategies.

Ch 7-14
Fred R. David
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 Creating a Strategy-Supportive
Culture
Elements linking culture to strategy:

1. Formal statements of philosophy, charters, etc. used for

recruitment and selection, and socialization
2. Designing of physical spaces, facades, buildings
3. Deliberate role modeling, teaching and coaching
4. Explicit reward and status system, promotion criteria
5. Stories, legends, myths about key people and events
6. What leaders pay attention to, measure and control
7. Leader reactions to critical incidents and crises
8. How the organization is designed and structured
9. Organizational systems and procedures
10. Criteria used for recruitment, selection, promotion, retirement

Ch 7-15
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Production/Operations Concerns

• Production processes typically

constitute more than 70% of firm’s total
assets
• Decisions on:
– Plant size
– Inventory/inventory control
– Quality control
– Cost control
– Technological innovation
Ch 7-1
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 Human Resource Concerns

• Assessing staffing needs and costs

• Develop performance incentives
• ESOPs
• Child-care policies
• Work-life balance

Ch 7-2
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 Marketing Issues

Marketing variables affect success or

failure of strategy implementation

• Market Segmentation
• Production Positioning

Ch 8-1
Fred R. David
Prentice Hall
 Implementing Strategies:
Strategy Analysis & Choice
Marketing Issues
Marketing Decisions requiring polices –

– Use exclusive dealerships or multiple channels of

distribution

– Use heavy, light, or no TV advertising

– Limit (or not) the share of business done with a single

customer

Ch 8-2
Fred R. David
Prentice Hall
 Implementing Strategies:
Strategy Analysis & Choice
Marketing Issues
Marketing Decisions requiring polices –

– Be a price leader or price follower

– Offer a complete or limited warranty

– Reward salespeople based on straight commission or

combination salary/commission

Ch 8-3
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 Market Segmentation

• Subdividing of a market into distinct

subsets of customers according to
needs and buying habits

Ch 8-4
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 Market Segmentation

• Widely used in implementing

strategies

• Small and specialized firms

Ch 8-5
Fred R. David
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 Market Segmentation

Market Segmentation Important Variable:

1. Market and product development,

market penetration, and diversification
require increased sales through new
markets or products

Ch 8-6
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 Market Segmentation

Market Segmentation Important Variable:

2. Firm can operate with limited resources.

Enables a small firm by maximizing per-
unit profits and per-segment sales.

Ch 8-7
Fred R. David
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 Market Segmentation

Market Segmentation Important Variable:

3. Segmentation decisions directly affect

marketing mix variables:
- Product, place, promotion, and price

Ch 8-8
Fred R. David
Prentice Hall
 Marketing Mix – Component Factors
Product Place Promotion Price

Quality Distribution channels Advertising Level

Distribution Discounts &

Features Personal selling
coverage allowances

Style Outlet location Sales promotion Payment terms

Brand name Sales territories Publicity

Inventory
Packaging
levels/locations

Transportation
Product line
carriers

Warranty

Service level
Ch 8-9
Fred R. David
Prentice Hall
 Market Segmentation

Bases for Segmenting Markets --

– Geographic
– Demographic
– Psychographic
– Behavioral

Ch 8-10
Fred R. David
Prentice Hall
 Market Segmentation

Geographic Basis:

– Region
– County Size
– City or SMSA size
– Density
– Climate

Ch 8-11
Fred R. David
Prentice Hall
 Market Segmentation
Demographic Basis:

– Age
– Family Size
– Family Life Cycle
– Income Occupation
– Education
– Religion
– Race Nationality

Ch 8-12
Fred R. David
Prentice Hall
 Market Segmentation

Psychographic Basis:

– Social Class
– Lifestyle
– Personality

Ch 8-13
Fred R. David
Prentice Hall
 Market Segmentation

Behavioral Basis:

– Use occasion
– Benefits sought
– User status
– Usage rate
– Loyalty status
– Readiness Stage
– Attitude toward product

Ch 8-14
Fred R. David
Prentice Hall
 Product Positioning

Developing schematic representations

that reflect how products or
services compare to competitors’
on dimensions most important to
success in the industry

Ch 8-15
Fred R. David
Prentice Hall
 Product Positioning

Product Positioning based on:

– Customers wants
– Customers needs

Ch 8-16
Fred R. David
Prentice Hall
 Product Positioning Steps

1. Select Key Criteria

2. Diagram Map

Product 3. Plot competitors’

Positioning products

Steps
4. Look for niches

5. Develop Marketing Plan

Ch 8-17
Fred R. David
Prentice Hall
 Product Positioning Map
High
Convenience Rental Car Market
•
Firm 1
Firm 2
•
High Low
Customer Customer
Loyalty Loyalty

•
Firm 3
Low
Convenience
Ch 8-18
Fred R. David
Prentice Hall
 Product Positioning

Product Positioning Map as Strategy-

Implementation Tool—

– Look for vacant niche

– Avoid suboptimization
– Don’t serve 2 segments with same strategy
– Don’t position in the middle of the map

Ch 8-19
Fred R. David
Prentice Hall
 Finance/Accounting Issues

Central to Strategy Implementation –

– Acquiring needed capital

– Developing pro forma financial statements
– Preparing financial budgets
– Evaluating worth of a business

Ch 8-1
Fred R. David
Prentice Hall
Decisions Requiring Finance/Accounting Policies

Raise capital w/ short-term, long-term preferred or common stock

Lease or buy fixed assets

Determine an appropriate dividend payout ratio

Use LIFO, FIFO, or market-value accounting approach

Ch 8-2
Fred R. David
Prentice Hall
Decisions Requiring Finance/Accounting Policies

Extend time of accounts receivable

Establish percentage discount on accounts for terms

Determine the amount of cash kept on hand

Ch 8-3
Fred R. David
Prentice Hall
 Finance/Accounting Issues

Acquiring Capital to Implement Strategies –

• Basic sources of capital:

– Debt
– Equity

Ch 8-4
Fred R. David
Prentice Hall
 Finance/Accounting Issues

Debt vs. Equity Decisions –

• EPS/EBIT analysis
– Earnings per share/Earnings before interest
and taxes

Ch 8-5
Fred R. David
Prentice Hall
 Finance/Accounting Issues

Pro Forma Financial Statements -

• Allows an organization to examine the

expected results of various actions and
approaches

Ch 8-6
Fred R. David
Prentice Hall
 Finance/Accounting Issues

6 Steps in Pro Forma Financial Analysis

1. Prepare income statement before balance sheet

(forecast sales)
2. Use percentage-of-sales method to project CGS and
expenses
3. Calculate projected net income
4. Subtract dividends to be paid from Net Income and
add remaining to Retained Earnings
5. Project balance sheet times beginning with retained
earnings
6. List comments (remarks) on projected statements
Ch 8-7
Fred R. David
Prentice Hall
 Finance/Accounting Issues

Financial Budget –

Document that details how funds will be

obtained and spent for a specified
period of time.

Ch 8-8
Fred R. David
Prentice Hall
 Finance/Accounting Issues
Types of Budgets –

– Cash budgets
– Operating budgets
– Sales budgets
– Profit budgets
– Factory budgets
– Capital budgets
– Expense budgets
– Divisional budgets
– Variable budgets
– Flexible budgets
– Fixed budgets

Ch 8-9
Fred R. David
Prentice Hall
 Evaluating Worth of a Business

Central to strategy implementation as

integrative, intensive and diversification
strategies are often implement through
acquisitions of other firms.

Ch 8-10
Fred R. David
Prentice Hall
 Evaluating Worth of a Business

3 Basic approaches:

1. What a firm owns

2. What a firm earns
3. What a firm will bring in the market

Ch 8-11
Fred R. David
Prentice Hall
RESEARCH AND DEVELOPMENT ISSUES
Learning

• Research and Development (R&D) Issues

• Research and development (R&D)
management can plays part in strategy
implementation.
• “New products and improvement of existing
products that allow for effective strategy
implementation”
• “New products and improvement of existing
products that allow for effective strategy
implementation” Fred R. David Ch 8-1

Prentice Hall
 RESEARCH AND DEVELOPMENT ISSUES
Learning

• R&D employees and managers perform

tasks that include
• Transferring complex technology,
• Adjusting processes to local raw
materials,
• Adapting processes to local markets,
• Altering products to particular tastes
and specifications.
Ch 8-2
Fred R. David
Prentice Hall
 ➢RESEARCH AND DEVELOPMENT ISSUES
Learning

• R&D policies can enhance strategy-

implementation efforts to:
• 1. Develop robotics or manual-type
processes.
• 2. Spend a high, average, or low
amount of money on R&D.
• 3. Perform R&D within the firm or to
contract R&D to outside firms.
Ch 8-3
Fred R. David
Prentice Hall
 ➢RESEARCH AND DEVELOPMENT ISSUES
Learning

• 4. Use university researchers or private

sector researchers.
• 5. Emphasize product or process
improvements.
• 6. Stress basic or applied research.
• 7. Be leaders or followers in R&D.

Ch 8-4
Fred R. David
Prentice Hall
 ➢RESEARCH AND DEVELOPMENT ISSUES
Learning

• There are at least three major R&D

approaches for implementing strategies.
• 1. First firm to market new technological
products
• 2. Be an innovative imitator of
successful products
• 3. Low-cost producer of similar but less
expensive products
Ch 8-5
Fred R. David
Prentice Hall
➢RESEARCH AND DEVELOPMENT ISSUES
Learning

Ch 8-6
Fred R. David
Prentice Hall
Strategy Review, Evaluation &
Control

Systematic Review, Evaluation & Control –

– Strategies become obsolete

– Internal environments are dynamic
– External environments are dynamic

Ch 9-1
Fred R. David
Prentice Hall
 Strategy Evaluation

• Strategy evaluation is vital to the organization’s

well-being

• Alert management to potential or actual

problems in a timely fashion

• Erroneous strategic decisions can have severe

negative impact on organizations
Ch 9-2
Fred R. David
Prentice Hall
 Strategy Evaluation

3 Basic Activities –

1. Examining the underlying bases of a firms’

strategy
2. Comparing expected to actual results
3. Corrective actions to ensure performance
conforms to plans

Ch 9-3
Fred R. David
Prentice Hall
 Strategy Evaluation

Strategy evaluation –

– Complex and sensitive undertaking

– Overemphasis can be costly and

counterproductive

Ch 9-4
Fred R. David
Prentice Hall
 Strategy Evaluation

In many organizations, evaluation is an

appraisal of performance –

• Have assets increased?

• Increase in profitability?
• Increase in sales?
• Increase in productivity?
• Profit margins, ROI and EPS ratios increased?

Ch 9-5
Fred R. David
Prentice Hall
 Strategy Evaluation

Four Criteria (Richard Rummelt):

• Consistency
• Consonance
• Feasibility
• Advantage

Ch 9-6
Fred R. David
Prentice Hall
 Rummelt’s Criteria

Consistency

– Strategy should not present inconsistent

goals and policies.

• Conflict and interdepartmental bickering

symptomatic of managerial disorder and strategic
inconsistency

Ch 9-7
Fred R. David
Prentice Hall
 Rummelt’s Criteria

Consonance

– Need for strategies to examine sets of

trends

• Adaptive response to external environment

• Trends are results of interactions among other
trends

Ch 9-8
Fred R. David
Prentice Hall
 Rummelt’s Criteria

Feasibility

– Neither overtax resources or create

unsolvable subproblems

• Organizations must demonstrate the abilities,

competencies, skills and talents to carry out a
given strategy

Ch 9-9
Fred R. David
Prentice Hall
 Rummelt’s Criteria

Advantage

– Creation or maintenance of competitive

advantage

• Superiority in resources, skills, or position

Ch 9-10
Fred R. David
Prentice Hall
 Strategy Evaluation

Difficulty in strategy evaluation –

1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy
3. Increasing number of variables

Ch 9-11
Fred R. David
Prentice Hall
 Strategy Evaluation

Difficulty in strategy evaluation –

4. Rate of obsolescence of plans

5. Domestic and global events
6. Decreasing time span for planning
certainty
Ch 9-12
Fred R. David
Prentice Hall
 Process of Strategy Evaluation

Strategy evaluation should –

– Initiative managerial questioning

– Trigger review of objectives and
values
– Stimulate creativity in generating
alternatives

Ch 9-13
Fred R. David
Prentice Hall
 Porter Supply Chain Model
The Value Chain framework of Michael Porter is
a model that helps to analyze specific
activities through which firms can create
value and competitive advantage.

Fred R. David
Prentice Hall
 The activities of the Value Chain
• Primary activities (line functions)
• Support activities (Staff functions, overhead)

Fred R. David
Prentice Hall
 Primary activities (line functions)

• Inbound Logistics
• Operations
• Outbound Logistics
• Marketing and Sales
• Service

Fred R. David
Prentice Hall
 Support activities (Staff functions, overhead)

• Firm Infrastructure
• Technology Development
• Human Resource Management
• Procurement

Fred R. David
Prentice Hall
 Creating a cost advantage based on the value chain

• A firm may create a cost advantage:

• By reducing the cost of individual value chain
activities, or
• By reconfiguring the value chain.

Fred R. David
Prentice Hall
 10 cost drivers related to value chain activities

• Economies of scale.
• Learning.
• Capacity utilization.
• Linkages among activities.
• Interrelationships among business units.
• Degree of vertical integration.
• Timing of market entry.
• Firm's policy of cost or differentiation.
• Geographic location.
• Institutional factors (regulation, union activity, taxes,
etc.).

Fred R. David
Prentice Hall
 Strategy Evaluation

Four Criteria (Richard Rummelt):

• Consistency
• Consonance
• Feasibility
• Advantage

Ch 9-1
Fred R. David
Prentice Hall
 Rummelt’s Criteria

Consistency

– Strategy should not present inconsistent

goals and policies.

• Conflict and interdepartmental bickering

symptomatic of managerial disorder and strategic
inconsistency

Ch 9-2
Fred R. David
Prentice Hall
 Rummelt’s Criteria

Consonance

– Need for strategies to examine sets of

trends

• Adaptive response to external environment

• Trends are results of interactions among other
trends

Ch 9-3
Fred R. David
Prentice Hall
 Rummelt’s Criteria

Feasibility

– Neither overtax resources or create

unsolvable subproblems

• Organizations must demonstrate the abilities,

competencies, skills and talents to carry out a
given strategy

Ch 9-4
Fred R. David
Prentice Hall
 Rummelt’s Criteria

Advantage

– Creation or maintenance of competitive

advantage

• Superiority in resources, skills, or position

Ch 9-5
Fred R. David
Prentice Hall
 Strategy Evaluation

Difficulty in strategy evaluation –

1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy
3. Increasing number of variables

Ch 9-6
Fred R. David
Prentice Hall
 Strategy Evaluation

Difficulty in strategy evaluation –

4. Rate of obsolescence of plans

5. Domestic and global events
6. Decreasing time span for planning
certainty
Ch 9-7
Fred R. David
Prentice Hall
 Process of Strategy Evaluation

Strategy evaluation should –

– Initiative managerial questioning

– Trigger review of objectives and
values
– Stimulate creativity in generating
alternatives

Ch 9-8
Fred R. David
Prentice Hall
 Reviewing Bases of Strategy

Review of underlying bases of strategy –

– Develop revised EFE Matrix

– Develop revised IFE Matrix

Ch 9-1
Fred R. David
Prentice Hall
 Reviewing Bases of Strategy

Review effectiveness of strategy –

1. Competitors’ reaction to strategy

2. Competitors’ change in strategy
3. Competitors’ changes in strengths and
weaknesses
4. Reasons for competitors’ strategic change

Ch 9-2
Fred R. David
Prentice Hall
 Reviewing Bases of Strategy

Review effectiveness of strategy –

5. Reasons for competitors’ successful

strategies
6. Competitors’ present market positions and
profitability
7. Potential for competitor retaliation
8. Potential for cooperation with competitors

Ch 9-3
Fred R. David
Prentice Hall
 Reviewing Bases of Strategy

Monitor Threats and Opportunities and

Weaknesses and Strengths

• Are our internal strengths still strengths?

• Have we added additional strengths?
• Are our weaknesses still weaknesses?
• Have we other internal weaknesses?

Ch 9-4
Fred R. David
Prentice Hall
 Reviewing Bases of Strategy

Monitor Threats and Opportunities and

Weaknesses and Strengths

• Are opportunities still opportunities?

• Other external opportunities?
• Are threats still threats?
• Are there other threats?
• Are we vulnerable to a hostile takeover?

Ch 9-5
Fred R. David
Prentice Hall
 Evaluation Framework
I. Review Underlying Bases

Differences? Yes

NO III.
Take
II. Measure Firm Performance Corrective
Actions
Differences? Yes

NO

Continue present course Ch 9-6

Fred R. David
Prentice Hall
 Measuring Organizational
Performance

• Comparing expected to actual results

• Investigating deviations from plan
• Evaluating individual performance
• Progress toward stated objectives

Ch 9-1
Fred R. David
Prentice Hall
 Measuring Organizational
Performance

Quantitative criteria for strategy evaluation –

– Financial Ratios:
• Compare performance over different periods
• Compare performance to competitors
• Compare performance to industry averages

Ch 9-2
Fred R. David
Prentice Hall
 Measuring Organizational
Performance

Key Financial Ratios –

– Return on investment
– Return on equity
– Profit margin
– Market share

Ch 9-3
Fred R. David
Prentice Hall
 Measuring Organizational
Performance

Key Financial Ratios –

– Debt to equity
– Earnings per share
– Sales growth
– Asset growth

Ch 9-4
Fred R. David
Prentice Hall
 Measuring Organizational
Performance

Qualitative evaluation of strategy -

– Internal consistency of strategy

– Consistency of strategy with environment
– Strategy appropriate in view of resources
– Acceptable degree of risk
– Appropriate time frame
– Workability of the strategy

Ch 9-5
Fred R. David
Prentice Hall
 Characteristics of Evaluation

Basic requirements for effective strategy

evaluation –

– Economical
– Meaningful
– Generate useful information
– Timely information
– Provide a true picture of what is happening

Ch 9-1
Fred R. David
Prentice Hall
 Strategy-Evaluation Assessment Matrix
Have major Have major
changes changes
occurred in occurred in Has the firm
the firm’s the firm’s progressed
internal external satisfactorily toward
strategic strategic achieving its stated
position? position? objectives? Result
No No No Corrective actions
Yes Yes Yes Corrective actions
Yes Yes No Corrective actions
Yes No Yes Corrective actions
Yes No No Corrective actions
No Yes Yes Corrective actions
No Yes No Corrective actions
No No Yes Continue course
Ch 9-2
Fred R. David
Prentice Hall
 Contingency Planning

Premise of sound strategic management –

– Planning to deal with unfavorable and

favorable events before they occur.

Ch 9-3
Fred R. David
Prentice Hall
 Contingency Planning

Contingency Planning –

– Alternative plans that can be put into effect if

certain key events do not occur as expected

Ch 9-4
Fred R. David
Prentice Hall
 Auditing

• Financial audits to determine

correspondence between assertions
based on strategic plans and established
criteria

• Environmental audits to insure sound

and safe practices

Ch 9-5
Fred R. David
Prentice Hall