Chapter 6 | Strategic Management | Swot Analysis

Chapter 6 Strategy Analysis & Choice

Strategic Management: Concepts & Cases 11th Strategic Management: Edition Fred David
Concepts & Cases PowerPoint Slides by 11th Edition Anthony F. Chelte Fred Western New David England College

Copyright 2007 Prentice Hall

Ch 6 -1

Strategy Analysis & Choice
Nature of Strategy Analysis & Choice -- Establishing long-term objectives -- Generating alternative strategies -- Selecting strategies to pursue -- Best alternative - achieve mission & objectives

Copyright 2007 Prentice Hall

Ch 6 -2

Strategy Analysis & Choice
Alternative Strategies Derive From -     

Vision Mission Objectives External audit Internal audit Past successful strategies

Copyright 2007 Prentice Hall

Ch 6 -3

Comprehensive Strategy-Formulation Framework Stage 1: The Input Stage Stage 2: The Matching Stage Stage 3: The Decision Stage Copyright 2007 Prentice Hall Ch 6 -4 .

Strategy-Formulation Analytical Framework Internal Factor Evaluation Matrix (IFE) Stage 1: The Input Stage External Factor Evaluation Matrix (EFE) Information derived from the three matrices we learnt in Chapters 3 and 4 provides basic information for the matching and decision stages later. Competitive Profile Matrix (CPM) Copyright 2007 Prentice Hall Ch 6 -5 .

Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Match between organization’s internal resources & skills and the opportunities & risks created by its external factors Grand Strategy Matrix Copyright 2007 Prentice Hall Ch 6 -6 .

WO. ST & WT) Strengths – S Leave Blank Opportunities – O List Opportunities List Strengths Weaknesses – W List Weaknesses SO Strategies Use strengths to take advantage of opportunities WO Strategies Overcoming weaknesses by taking advantage of opportunities Threats – T List Threats Copyright 2007 Prentice Hall ST Strategies Use strengths to avoid threats WT Strategies Minimize weaknesses and avoid threats Ch 6 -7 .SWOT Matrix results in four strategies (SO.

Insufficient capacity (weakness) Exit of two major foreign + competitors from the = industry (opportunity) Pursue horizontal integration by buying competitor's facilities Strong R&D (strength) + Decreasing numbers of young adults (threat) = Develop new products for older adults Poor employee morale (weakness) + Strong union activity (threat) = Develop a new employee benefits package Ch 6 -8 Copyright 2007 Prentice Hall .Examples of matching Key Factors to Formulate Alternative Strategies Key Internal Factor Key External Factor 20% annual growth in the cell phone industry (opportunity) Resultant Strategy Excess working capacity (strength) + = Acquire Cellfone. Inc.

Limitations with SWOT Matrix    Provides a static assessment in time Does not show how to achieve a competitive advantage May lead the firm to overemphasize a single internal or external factor in formulating strategies Copyright 2007 Prentice Hall Ch 6 -9 .

SPACE Matrix Strategic Position & Action Evaluation Matrix Aggressive Conservative Defensive Competitive Copyright 2007 Prentice Hall Ch 6 -10 .

SPACE Matrix Two Internal Dimensions Financial Strength (FS) Competitive Advantage (CA) Two External Dimensions Environmental Stability (ES) Industry Strength (IS) Copyright 2007 Prentice Hall Ch 6 -11 .

Companies take loans or other borrowings and invest them with the intent that the return will be greater than the cost of interest.Examples of SPACE Factors-1 Internal Strategic Position External Strategic Position Financial Strength (FS) Return on investment Leverage* Liquidity Working capital Cash flow * Financial leverage uses debt to supplement investment. Environmental Stability (ES) Technological changes Rate of inflation Demand variability Price range of competing products Barriers to entry Competitive pressure Price elasticity of demand Ease of exit from market Risk involved in business Copyright 2007 Prentice Hall Ch 6 -12 .

Examples of SPACE Factors-2 Internal Strategic Position External Strategic Position Competitive Advantage CA Market share Product quality Product life cycle Customer loyalty Technological know-how Control over suppliers & distributors Industry Strength (IS) Growth potential Profit potential Financial stability Technological know-how Resource utilization Ease of entry into market Productivity. capacity utilization Copyright 2007 Prentice Hall Ch 6 -13 .

Select a set of variables to define FS. CA. Add the two scores on the y-axis and plot the point. ES. & IS Plot the average score on the appropriate axis Add the two scores on the x-axis and plot the point. 6. 4. ES. 2. b. Plot the intersection of the new xy point Draw a directional vector from the origin through the new intersection point Ch 6 -14 Copyright 2007 Prentice Hall . & IS Assign a numerical value: From +1 to +6 to each FS & IS dimension From -1 to -6 to each ES & CA dimension 3. 5. Compute an average score for each FS. CA. a.Steps to Developing a SPACE Matrix 1.

indicating that as a risk taker. it should aggressively opt for a growth strategy. Ch 6 -15 Copyright 2007 Prentice Hall . This sample SPACE Matrix suggest that the firm is in the AGGRESSIVE quadrant.

Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright 2007 Prentice Hall Ch 6 -16 .

BCG Matrix Boston Consulting Group Matrix Enhances multi-divisional firm in formulating strategies Autonomous divisions = business portfolio Divisions may compete in different industries Focus on market-share position & industry growth rate Based on two dimensions of relative market share & industry sales growth rate Relative market share is the ratio of a division’s own market share in an industry to the market share held by the largest rival firm in that industry Copyright 2007 Prentice Hall Ch 6 -17 .

BCG Matrix Relative Market Share Position High 1.0 Industry Sales Growth Rate Stars II Medium Question Marks I 0 Cash Cows III Low -20 Dogs IV Ch 6 -18 Copyright 2007 Prentice Hall .0 High +20 Medium .50 Low 0.

concentric diversification If weakens—retrenchment or divestiture DOGS Ch 6 -19 Copyright 2007 Prentice Hall . intensive strategies. joint ventures High relative market share. divestiture. competes in lowgrowth industry Generate cash in excess of their needs Milked for other purposes Maintain strong position as long as possible Low relative market share & compete in slow or no market growth Weak internal & external position Liquidation. retrenchment CASH COWS Product development.BCG Matrix High relative market share and high growth rate Best long-run opportunities for growth & profitability QUESTION MARKS Low relative market share – compete in high-growth industry Cash needs are high Cash generation is low Decision to strengthen (intensive strategies) or divest STARS Substantial investment to maintain or strengthen dominant position Integration strategies.

Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright 2007 Prentice Hall Ch 6 -20 .

The Internal-External Matrix   Positions an organization’s various divisions in a nine-cell display Similar to BCG Matrix except the IE Matrix:  Requires more information about the divisions  Strategic implications of each matrix are different   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. VIII. II. or IV  Hold and maintain – Cells III. or VII  Harvest or divest – Cells VI. V. or IX Copyright 2007 Prentice Hall Ch 6 -21 .

Copyright 2007 Prentice Hall Ch 6 -22 .

Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright 2007 Prentice Hall Ch 6 -23 .

4. Quadrant I Market development Market penetration Product development Forward integration Backward integration Horizontal integration Concentric diversification Quadrant IV Concentric diversification Horizontal diversification Conglomerate diversification Joint ventures GROWTH Quadrant III Retrenchment 1. 4. Horizontal diversification 3. 6. 6. 3. Quadrant II Market development Market penetration Product development Horizontal integration Divestiture Liquidation 1. 2. WEAK COMPETITIVE POSITION 1. Conglomerate diversification 4. Concentric diversification 2. 2. 4. 3. 5. 5. 2.RAPID MARKET GROWTH 1. 7. 3. 5. Liquidation SLOW MARKET STRONG COMPETITIVE POSITION Copyright 2007 Prentice Hall Ch 6 -24 .

Strategy-Formulation Analytical Framework Stage 3: The Decision Stage Quantitative Strategic Planning Matrix (QSPM) Technique designed to determine the relative attractiveness of feasible alternative actions Copyright 2007 Prentice Hall Ch 6 -25 .

QSPM Key External Factors 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 Copyright 2007 Prentice Hall Weight Strategic Alternatives Strategy 1 Strategy 2 Strategy 3 Ch 6 -26 .

4. Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column Assign weights to each key external and internal factor Examine the Stage 2 (matching) matrices. 5. 3. and identify alternative strategies that the organization should consider implementing Determine the Attractiveness Scores for each strategy Compare the Total Attractiveness Scores Compute the Sum Total Attractiveness Score Copyright 2007 Prentice Hall Ch 6 -27 . 6.Steps to Develop a QSPM 1. 2.

QSPM Advantages Sets of strategies considered simultaneously or sequentially Integration of pertinent (suitable) external & internal factors in the decision making process Limitations Requires intuitive judgments & educated assumptions Only as good as the prerequisite inputs Copyright 2007 Prentice Hall Ch 6 -28 .

Cultural Aspects of Strategy Choice Organization Culture Successful strategies depend on the degree of consistency with the firm’s culture Strategies that require fewer cultural changes may be more attractive Culture becomes especially important when mergers takes place Copyright 2007 Prentice Hall Ch 6 -29 .

Politics of Strategy Choice Politics in organizations results from: Management hierarchy Career aspirations Allocation of scarce resources Copyright 2007 Prentice Hall Ch 6 -30 .

Politics of Strategy Choice Politics affects strategies of organizations:  Political biases and personal preferences are embedded in strategy choice decisions  Internal politics affects the choice of strategies  Coalitions of individuals often form around key strategic issues that face an enterprise  Lack of objectivity encourages more politics in strategy choice Copyright 2007 Prentice Hall Ch 6 -31 .

Politics of Strategy Choice Political Tactics for Strategists Satisfying: Achieving satisfactory results with an acceptable strategy Generalization: Shifting focus from specific to general issues Higher-order issues: Shifting focus from short-term to higher-order and long-term issues Political access on important issues: Issues having negative consequences for employees should be communicated properly and enable feedback Copyright 2007 Prentice Hall Ch 6 -32 .

reputation. and responsibility to its various constituencies.Governance Issues Governance is ―the characteristic of ensuring that long-term strategic objectives and plans are established and that the proper management structure is in place to achieve those objectives.‖ Board of Directors Roles & Responsibilities Control & oversight over management Adherence to legal prescriptions Consideration of stakeholder interests Advancement of stockholder rights Copyright 2007 Prentice Hall Ch 6 -33 . while at the same time making sure that the structure functions to maintain the corporation’s integrity.

outside / independent directors are appointed  Ethics and social responsibility is a significant issue in the corporate world Corporate governance codes are being developed around the world Ch 6 -34  Copyright 2007 Prentice Hall .SOME IMPORTANT ISSUES IN CORPORATE GOVERNANCE  Boards of directors are held responsible for the performance of firms.

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