Strategic Analysis & Choice

The Nature of Strategy Analysis and Choice A Comprehensive Strategy-Formulation Framework The Input Stage

Chapter Outline
The Matching Stage The Decision Stage Cultural Aspects of Strategy Choice

Strategy Analysis & Choice

Strategic analysis and choice largely involves making subjective decisions based on objective information.

Strategy Analysis & Choice

The Nature of Strategy Analysis and Choice
Establishing long-term objectives longGenerating alternative strategies Selecting strategies to pursue Best alternative to achieve mission and objectives

Strategy Analysis & Choice

Alternative strategies derive from
Vision Mission Objectives External audit Internal audit Past successful strategies

Strategy Analysis & Choice

Participation in generating alternative strategies should be broad

StrategyStrategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Formulation Framework
Internal Factor Evaluation Matrix (IFE)

Stage 1: The Input Stage

External Factor Evaluation Matrix (EFE)

Competitive Profile Matrix

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

Formulation Framework
TOWS Matrix

SPACE Matrix
Stage 2: The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

Matching Stage

Match between organizations internal resources and skills and the opportunities and risks created by its external factors.

Matching Key Factors to Formulate Alternative Strategies Key Internal Factor Key External Factor Resultant Strategy

Excess working capacity (strength)

20% annual growth in the cell phone industry = (opportunity)

Acquire Cellfone, Inc.

Insufficient capacity (weakness)

Exit of two major foreign competitors form 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

Formulation Framework
TOWS Matrix

SPACE Matrix
Stage 2: The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

Matching Stage
TOWS Matrix Threats Opportunities Strengths Weaknesses

TOWS Matrix
Develop four types of strategies Strengths-Opportunities (SO) Strengths Weaknesses-Opportunities (WO) Weaknesses Strengths-Threats (ST) Strengths Weaknesses-Threats (WT) Weaknesses-

TOWS Matrix
Leave Blank Strengths-S
List Strengths

Weaknesses-W
List Weaknesses

Opportunities-O
List Opportunities

SO Strategies
Use strengths to take advantage of opportunities

WO Strategies
Overcome weaknesses by taking advantage of opportunities

Threats-T
List Threats

ST Strategies
Use strengths to avoid threats

WT Strategies
Minimize weaknesses and avoid threats

Formulation Framework
TOWS Matrix

SPACE Matrix
Stage 2: The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

SPACE Matrix
Strategic Position and Action Evaluation Matrix
 

Four quadrant framework Determines appropriate strategies

Aggressive  Conservative  Defensive  Competitive


SPACE Matrix
Two Internal Dimensions
 

Financial Strength [FS] Competitive Advantage [CA]

Two External Dimensions

 

Environmental Stability [ES] Industry Strength [IS]

SPACE Matrix
Overall Strategic position determined by:

Financial Strength [FS] Competitive Advantage [CA] Environmental Stability [ES] Industry Strength [IS]

SPACE Matrix
Developing the SPACE Matrix:

EFE Matrix IFE Matrix Financial Strength Competitive Advantage Environmental Stability Industry Strength

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

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.

SPACE Factors
Internal Strategic Position External Strategic Position

Financial Strength (FS)

Return on investment Leverage Liquidity Working capital Cash flow Ease of exit from market Risk involved in business

Environmental Stability (ES)

Technological changes Rate of inflation Demand variability Price range of competing products Barriers to entry Competitive pressure Price elasticity of demand

SPACE Factors
Internal Strategic Position External Strategic Position

Competitive Advantage CA
Market share Product quality Product life cycle Customer loyalty Competitions capacity utilization Technological know-how Control over suppliers & distributors

Industry Strength (IS)

Growth potential Profit potential Financial stability Technological know-how Resource utilization Capital intensify Ease of entry into market Productivity, capacity utilization

SPACE Matrix
Conservative FS
+6 +5 +4 +3 +2 +1

Aggressive

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

IS

Defensive

-6

Competitive ES

Formulation Framework
TOWS Matrix

SPACE Matrix
Stage 2: The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

BCG Matrix
Relative Market Share Position
High 1.0 Medium .50 Low 0.0

Industry Sales Growth Rate

High +20

Stars II
Medium 0

Question Marks I

Cash Cows III

Low -20

Dogs IV

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

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

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 weakretrenchment or divestiture

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

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

RAPID MARKET GROWTH

1. 2. 3. 4. 5. 6.

Quadrant II Market development Market penetration Product development Horizontal integration Divestiture Liquidation

1. 2. 3. 4. 5. 6. 7.

WEAK COMPETITIVE POSITION

1. 2. 3. 4. 5.

Quadrant I Market development Market penetration Product development Forward integration Backward integration Horizontal integration Concentric diversification

Quadrant III Quadrant IV Retrenchment 1. Concentric diversification Concentric diversification 2. Horizontal diversification Horizontal diversification 3. Conglomerate diversification Conglomerate diversification 4. Joint ventures Liquidation SLOW MARKET GROWTH

STRONG COMPETITIVE POSITION

Grand Strategy Matrix

Quadrant I

Excellent strategic position Concentration on current markets and products Take risks aggressively when necessary

Grand Strategy Matrix

Quadrant II
Evaluate present approach seriously How to change to improve competitiveness Rapid market growth requires intensive strategy

Grand Strategy Matrix

Quadrant III
Compete in slow-growth industries Weak competitive position Drastic changes quickly Cost and asset reduction indicated (retrenchment)

Grand Strategy Matrix

Quadrant IV

Strong competitive position Slow-growth industry Diversification indicated to more promising growth areas

Formulation Framework

Stage 3: The Decision Stage

Quantitative Strategic Planning Matrix (QSPM)

QSPM
Quantitative Strategic Planning Matrix

Only technique designed to determine the relative attractiveness of feasible alternative actions

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

QSPM
Quantitative Strategic Planning Matrix

List the firms key external opportunities & threats; list the firms key internal strengths and weaknesses Assign weights to each external and internal critical success factor

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)

QSPM
Quantitative Strategic Planning Matrix

Compute the total Attractiveness Scores Compute the Sum Total Attractiveness Score

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

QSPM
Limitations:

Requires intuitive judgments and educated assumptions Only as good as the prerequisite inputs

QSPM
Positives:

Sets of strategies examined simultaneously or sequentially Requires the integration of pertinent external and internal factors in the decision-making process

Cultural Aspects of Strategy Choice

Culture: The set of shared values, beliefs, attitudes, customs, norms, personalities, heroes, and heroines that describe a firm

Cultural Aspects of Strategy Choice

Culture: Successful strategies depend on degree of support from a firms culture

Politics of Strategy Choice

Politics in organizations: Management hierarchy Career aspirations Allocation of scarce resources