STRATEGIES IN ACTION

Nature of Long-Term Objectives (Cont’d)

Strategists should avoid:

Managing by crisis:
Reactive vs. proactive

Ch. 5-1
 STRATEGIES IN ACTION

Nature of Long-Term Objectives (Cont’d)

Strategists should avoid:

Managing by hope:
Good times are just around the corner

Ch. 5-2
 STRATEGIES IN ACTION

Nature of Long-Term Objectives (Cont’d)

Strategists should avoid:

Managing by subjectives:
Mystery approach to decision making
 Subordinates are left to figure out what is
happening and why

Ch. 5-3
MANAGEMENT BY OBJECTIVES
(MBO)

It is a management technique where

managers and employees work
together to set and monitor goals for
a specific period of time.

Ch. 5-4
 STRATEGIES IN ACTION

Nature of Long-Term Objectives

Objectives are the basis for:

 Designing jobs
 Organizing activities
 Providing direction
 Organizational synergy
 Standards for evaluation

Ch. 5-5
 Nature of Long-Term Objectives
Objectives are associated with time line and
stated in terms:
 Growth in assets
 Growth in sales
 Profitability
 Market share
 Diversification
 Integration
 EPS
 Social responsibility

Ch. 5-6
 Strategies

Growth Stability Defensive

strategies strategies strategies

Ch. 5-7
© 2001 PRENTICE HALL
 Strategies

Growth Stability Defensive

strategies strategies strategies

Integration Intensive Diversification

Retrenchment Divestiture Liquidation
strategies strategies strategies

8
SPACE Matrix

Two Internal Dimensions

Financial Strength (FS)

Competitive Advantage (CA)
SPACE Matrix

Two External Dimensions

Environmental Stability (ES)

Industry Strength (IS)
 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
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business
STEPS TO DEVELOPING A SPACE
MATRIX

1. Select a set of variables to define FS, CA, ES, & IS

2. Assign a numerical value:
1. From +1 to +6 to each FS & IS dimension
2. From -1 to -6 to each ES & CA dimension

3. Compute an average score for each FS, CA, ES, & IS

STEPS TO DEVELOPING A SPACE
MATRIX

1. Plot the average score on the appropriate axis

2. Add the two scores on the x-axis and plot the point. Add the two
scores on the y-axis and plot the point. Plot the intersection of
the new xy point
3. Draw a directional vector from the origin through the new
intersection point.
 SPACE MATRIX
Financial Strength <FS> Environmental Stability <ES>

Liquidity 4.0 Technological Changes -3.0

Cash Flow 4.0 Rate of inflation -2.0
Inventory Turnover 3.0 Competitor pricing -4.0
Entry Barriers -3.0
Earnings per Share 1.0
Risk involved -5.0
Price earnings ratio 2.0

Competitive Advantage <CA> Industry Strength <IS>

Market Share -4.0
Product Quality -2.0
Customer Loyalty -3.0 Profit Potential 3.0
Product Lifecycle -4.0
Control over suppliers and Growth Potential 3.0
distributors -2.0 Financial Stability
2.0
Ease of entry into market
 SPACE Matrix (Calculations)

FS average is 14/5 = 2.8 IS average is 14/5 = 2.8

ES average is -17/5 = -3.4 CA average is-15/5 = -3.0

X-axis = CA+IS
-3.0+2.8= -0.2

Y-axis = FS+ES
2.8+(-3.4) = -0.6
 SPACE MATRIX

FS
+6
+5
Conservative +4 Aggressive
+3
+2
+1
CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6
-2
-3
-4
Defensive Competitive
-5
-6
ES
 BCG MATRIX
Relative Market Share Position
High Medium Low
1.0 .50 0.0

High
+20
Industry Sales Growth Rate

Stars Question Marks

II I
Medium
0

Cash Cows Dogs

III IV
Low
-20