Chapter 6 Strategy Analysis & Choice: So What? What Next?

Adapted from PowerPoint Slides by Anthony F. Chelte Western New England College

Strategy Analysis & Choice

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Subjective decisions based on objective information Generating alternative strategies Selecting strategies to pursue Best alternative course of action to achieve mission & objectives

Ch 6 -2

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

Vision Mission Objectives External audit Internal audit Past successful strategies

Successful strategies depend on the fit with the firm’s culture

Strategy Analysis & Choice Generating Alternatives -Participation in generating alternative strategies should be as broad as possible Politics (vested interests) can help or hinder .

Comprehensive Strategy-Formulation Framework Stage 1: The Input Stage Stage 2: The Matching Stage Stage 3: The Decision Stage .

Strategy-Formulation Analytical Framework Internal Factor Evaluation Matrix (IFE) Stage 1: The Input Stage External Factor Evaluation Matrix (EFE) Competitive Profile Matrix (CPM) PLUS PORTER’S 5 FORCES .

Stage 1: The Input Stage Basic input information for the matching & decision stage matrices Requires strategists to quantify subjectivity early in the process Good intuitive judgment always needed .

Strategy-Formulation Analytical Framework MORE TOOLS! Internal/External Matrix Stage 2: The Matching Stage BCG Matrix GE/McKinsey Industry Attractiveness Matrix “Grand Strategy Matrix” SPACE Matrix SWOT Matrix .

Stage 2: The Matching Stage Match between organization’s internal resources & skills and the opportunities & risks created by its external factors Matrices used for “portfolio management” .

0-1.9 GROW & BUILD GROW & BUILD HOLD & MAINTAIN GROW & BUILD HOLD & MAINTAIN HOLD & MAINTAIN HARVEST OR DIVEST EFE SCORES Avg 2-2.0 High 3-4 Avg. 2.9 HARVEST OR HARVEST OR DIVEST DIVEST GROW & BUILD = INTENSIVE AND/OR INTEGRATIVE STRATEGIES HOLD & MAINTAIN = MKT PENETRATION.9 Low 1-1.9 Weak 1.INTERNAL/EXTERNAL (IE) MATRIX IFE SCORES Strong 3/0-4.0-2. PRODUCT DEVELOPMENT .

(3/3) EFE SCORES Avg 2-2.5/3) PROP (2.9 FOOD & BEV.INTERNAL/EXTERNAL (IE) MATRIX HARRAH’S IFE SCORES Strong 3.9 Weak 1. 2.0-2.5/2.9 .0-4.0-1.0 High 3-4 Avg.9 CASINOS (2.5) ROOMS (2/2) Low 1-1.

retrenchment or divestiture . intensive strategies. milked for other purposes Dogs Low relative market share & compete in slow or no market growth Weak internal & external position Liquidation. divestiture. If weakens.50 Low 0. joint ventures 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 Medium 0 Cash Cows High relative market share. diversification. retrenchment a S yrt s udn I Low -20 Maintain strong position as long as possible. competes in low-growth industry Generates cash in excess of their needs. product development.0 Stars High relative market share and high growth rate.0 High +20 Medium . best long-run opportunities for growth & profitability Substantial investment required to maintain or strengthen dominant position Integration strategies.BCG Matrix Relative Market Share Position High 1.

GE-McKinsey Industry Attractiveness Matrix (Shell Directional Policy Matrix) Competitive Strength High Low Leader! High Try Harder Double efforts or quit Phased withdrawal Divest Growth Market Attractiveness Proceed with care Low Cash generator Phased withdrawal .

GE MATRIX VARIABLES INDUSTRY ATTRACTIVENESS (vertical axis) • Market growth rate • Market size • Demand variability • Industry profitability • Industry rivalry • Global opportunities • Macroenvironmental factors (PEST) COMPETITIVE STRENGTH (horizontal axis) • Market share • Growth in market share • Brand equity • Distribution channel access • Production capacity • Profit margins relative to competitors .

Grand Strategy Matrix Tool for formulating alternative strategies Based on two dimensions Competitive position Market growth Similar to GE Matrix (just flip the horizontal axis) .

Market penetration 3. Backward integration 6. Product development 4. Forward integration 5. QUAD. 2. 2. I . TAKE ACTION! 1. 4.“GRAND STRATEGY MATRIX” COMPETITIVE POSITION WEAK RAPID STRONG MARKET GROWTH QUAD II .GREAT POSITION! 1.EXPLOIT CASH 1.REEVALUATE. Horizontal integration 7. Diversification Retrenchment Divestiture Liquidation Diversification Joint ventures Acquisitions . Market development 2. Market development 2. SLOW 3. Market penetration 3.CHANGE NEEDED 1. Liquidation QUAD III . Divestiture 6. Horizontal integration 5. Product development 4. Diversification QUAD IV . 3.

SPACE Matrix Strategic Position & Action Evaluation Matrix Aggressive Conservative Defensive Competitive .

SPACE Matrix Two Internal Dimensions Financial Strength (FS) Competitive Advantage (CA) Two External Dimensions Environmental Stability (ES) Industry Strength (IS) .

FS C A IS ES .

SPACE Factors Internal Strategic Position Financial Strength (FS) Values: +1 (worst) to Return on investment +6 (best) Leverage Liquidity Working capital Cash flow External Strategic Position Industry Strength (IS) Values: +1 (worst) to Growth potential +6 (best) Profit potential Financial stability Technological know-how Resource utilization Ease of entry into market Productivity. capacity utilization Environmental Stability (ES) Values: -1 (best) Technological changes -6 (worst) Risk involved in business Price elasticity of demand--demand variability Rate of inflation Price range of competing products Barriers to entry Ease of exit from market Competitive Advantage CA Values: -1 (best) Market share Product quality Product life cycle Customer loyalty Competition’s capacity utilization Technological know-how Control over suppliers & distributors to .6 .

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SWOT Matrix Strengths – S List Strengths Weaknesses – W List Weaknesses Opportunities – O List Opportunities SO Strategies Use strengths to take advantage of opportunities WO Strategies Overcoming weaknesses by taking advantage of opportunities Threats – T List Threats ST Strategies Use strengths to avoid threats WT Strategies Minimize weaknesses and avoid threats .

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

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Strategy-Formulation Analytical Framework Stage 3: The Decision Stage Quantitative Strategic Planning Matrix (QSPM) .

Grand Strategy. etc. GE. and evaluate them against weighted SWOT factors . Choose explicit strategies suggested by SWOT. IFE and EFE weights. SPACE.QSPM Quantitative Strategic Planning Matrix Technique designed to determine the relative attractiveness of feasible alternative actions Uses SWOT factors.

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 Weight Strategic Alternatives Strategy 1 Strategy 2 Strategy 3 .

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QSPM Limitations Requires intuitive judgments & educated assumptions Only as good as the prerequisite inputs GIGO .

as in all things.QSPM Advantages Sets of strategies considered simultaneously or sequentially Integration of pertinent external & internal factors in the decision making process Still. remember GIGO .

“Testing Your Strategy” Test 1: Will your strategy beat the market? Test 2: Does your strategy tap a true source of advantage? Test 3: Is your strategy granular about where to compete? Test 4: Does your strategy put you ahead of trends? Test 5: Does your strategy rest on privileged insights? Test 6: Does your strategy embrace uncertainty? Test 7: Does your strategy balance commitment and flexibility? Test 8: Is your strategy contaminated by bias? Test 9: Is there conviction to act on your strategy? Test 10: Have you translated your strategy into an action plan? .

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