Strategic Management and

Policy
By
Iram Fatima
PhD
 Strategy Formulation
SFAS Matrix

This is Strategic Factors Analysis Summary (SFAS) Matrix that summarizes an organization’s strategic factors by
combining the external factors from the EFAS Table with the internal factors from the IFAS Table. SFAS Matrix
can be created by following these steps:
1. In column 1 (Strategic Factors), list the most important EFAS and IFAS items. After each factor, indicate
whether it is a Strength (S), Weakness (W), an Opportunity (O) or a Threat (T).
2. In column 2 (Weight) assign weights for all of the internal and external strategic factors.
3. In column 3 (Rating) assign a rating of how the company’s management is responding to each of the strategic
factors.
4. In column 4(Weighted Score) multiply the weight in column 2for each factor by its rating in column 3 to obtain
the factor’s rated score.
5. In column 5 (Duration), indicate short term, intermediate term or long term.
6. In column 6 (Comments), repeat or revise your comments for each strategic factor from the previous EFAS and
IFAS Tables.
The total weighted score for the average firm in an industry is always 3.0.
 Strategy Formulation
TWOS Matrix
• TOWS matrix is another way of writing SWOT.
• The TOWS matrix is a conceptual framework for a systematic
analysis for matching opportunities and threats that are external
with strengths and weaknesses, which are internal for the
organization.
• When opportunities, strengths, threats and weaknesses combine,
they result in four sets of different strategic alternatives.
• TOWS matrix is one way of generating strategic alternatives.
Strategy Formulation
 Strategy Formulation
Business Strategies
They are either competitive and/or cooperative.
Competitive strategy
According to Michael Porter there are three generic competitive
strategies:
1. Cost Leadership
2. Differentiation
3. Focus
 Strategy Formulation
Cooperative Strategies
1. Collusion
It is the active cooperation of firms within an industry to reduce output and raise prices
in order to get around the normal economic law of supply and demand. It may be
explicit, in which case firms cooperate through direct communication and negotiation, or
tacit in which case firms cooperate indirectly through an informal system of signals.
Explicit collusion is illegal in most countries and in a number of regional trade
associations, such as the European Union.
Tacit Collusion in an industry is most likely to be successful if
i. Small number of identifiable competitors
ii. Costs are similar among firms
iii. One firm tends to act as the price leader
iv. There is common industry culture that accepts cooperation
v. Sales are characterized by high frequency of small orders.
vi. High entry barriers to keep out new competitors.
 Strategy Formulation
2. Strategic Alliances
A strategic alliance is a long-term cooperative arrangement between two or more
independent firms or business units that engage in business activities for mutual
economic gain. Alliances between companies or business units have become a fact of
life in modern business.
Companies or business units may form a strategic alliance for a number of reasons,
including:
i. To obtain or learn new capabilities
ii. To obtain access to specific markets.
iii. To reduce financial risk
iv. To reduce political risk
 Strategy Formulation
• Mutual Service Consortia
It is a partnership of similar companies in similar industries that pool
their resources to gain a benefit that is too expansive to develop alone,
such as access to advanced technology.
• Joint Venture
It is a cooperative business activity, formed by two or more separate
organizations for strategic purposes, that creates an independent
business entity and allocates ownership, operational responsibilities, and
financial risks and rewards to each member, while preserving their
separate identity and autonomy.
 Strategy Formulation
• Licensing Arrangements
A licensing arrangement is an agreement in which the licensing firm
grants rights to another firm in another country or market to produce and/
or sell a product.
The licensee pays compensation to the licensing firm in return for
technical expertise.
• Value Chain Partnership
A value-chain partnership is a strong and close alliance in which one
company or unit forms a long-term arrangement with a key supplier or
distributor for mutual advantage.
 Strategy Formulation
• Corporate Strategy
It is primarily about the choice of direction for a firm as a whole and the management
of its businesses or product portfolio. This is true whether the firm is a small company
or a large MNC. There are three key issues facing the corporation as a whole.
1. The firm’s overall orientation toward growth, stability, or retrenchment
(directional strategy).
2. The industries or markets in which the firm competes through its products, and
business units (portfolio analysis).
3. The manner in which management coordinates activities and transfers resources
and cultivates capabilities among product lines and business units (parenting
strategy).
 Strategy Formulation
• Every corporation must decide its orientation toward growth, so, a
corporation’s directional strategy is composed of three general orientations.
1. Growth strategies
2. Stability Strategies
3. Retrenchment strategies
1. Growth strategies
The most widely perused corporate directional strategies are those designed to
achieve growth in sales, assets, profits and some combination of these.
Companies that do business in expanding industries must go to survive.
 Strategy Formulation
1. Growth strategies
These strategies include
I. Concentration
a. Vertical growth
Vertical growth can be achieved by taking over a function previously provided by a
supplier or distributor. The company, in effect, grows by making its own supplies and/or by
distributing its own products. This may be done in order to reduce costs, gain control over a
scarce resource, guarantee quality of a key input, or obtain access to potential customers.
Full Integration Taper Integration Quasi Integration Long-term Contract

Fig: Vertical Integration Continuum

 Strategy Formulation
b. Horizontal Growth
A firm can achieve horizontal growth by expanding its operations into other geographic locations and/or by
increasing the range of products and services offered to current markets.
International entry points for horizontal growth
1. Exporting
2. Licensing
3. Franchising
4. Joint Ventures
5. Acquisitions
6. Green-field development
7. Production sharing
8. Trunkey operations
9. BOT (Build, Operate, Transfer) Concept
10.Management Contracts
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II. Diversification
a. Concentric
It is an appropriate corporate strategy when a firm has a strong
competitive position but industry attractiveness is low.
b. Conglomerate
When management realizes that the current industry is
unattractive and that the firm lacks outstanding abilities or skills
that it could easily transfer to related products or services in other
industries, the most likely strategy will be Conglomerate
diversification.
 Strategy Formulation
2. Stability
• Pause/ Proceed with Caution
It is, in effect, a timeout- an opportunity to rest before continuing a growth or retrenchment
strategy.
It is a very deliberate attempt to make only incremental improvements until a particular
environmental situation changes.
• No Change Strategy
It is a decision to do nothing new – a choice to continue current operations and policies for
the foreseeable future.
• Profit Strategy
It is a decision to do nothing new in a worsening situation but instead to act as though the
company’s problems are only temporary.
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3. Retrenchment
• Turn around Strategy
It emphasizes the improvement of operational efficiency and is
probably most appropriate when a corporation’s problems are passive
but not yet critical. These strategies are either Contraction or
Consolidation.
• Captive Company Strategy
• Sell out/ Divestment
• Bankruptcy/ Liquidation