Chapter 6 Strategy Analysis Choice Strategic Management Concepts

Chapter 6 Strategy Analysis & Choice Strategic Management: Concepts & Cases 13 th Edition Fred David Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 1

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 2

Strategy Analysis & Choice “Whether it’s broke or not, fix it – make it better. Not just products, but the whole company if necessary. ” – Bill Saporito “Life is full of lousy options. ” – General P. X. Kelley Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 3

Strategy Analysis & Choice n n n Subjective decisions based on objective information Generating alternative strategies Selecting strategies to pursue Best alternative course of action to achieve mission & objectives Derived from vision, mission, objectives, external audit, and internal audit Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 4

Strategy Analysis & Choice Generating Alternatives – Participation in generating alternative strategies should be as broad as possible Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 5

Comprehensive Strategy. Formulation Framework n Stage 1 - Input Stage q q q n Stage 2 - Matching Stage q q q n EFE Matrix IFE matrix CPM SWOT SPACE matrix BCG matrix IE Matrix Grand strategy matrix Stage 3 - Decision Stage q QSPM Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6

Strategy-Formulation Framework External Factor Evaluation Matrix (EFE) Stage 1: The Input Stage Internal Factor Evaluation Matrix (IFE) Competitive Profile Matrix (CPM) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 7

Stage 2: The Matching Stage n. Match between organization’s internal resources & skills and the opportunities & risks created by its external factors Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 8

Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 9

Stage 2: The Matching Stage SWOT Matrix n. Strengths n. Weaknesses n. Opportunities n. Threats Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 10

SWOT Matrix Four Types of Strategies n. Strengths-Opportunities (SO) n. Weaknesses-Opportunities n. Strengths-Threats (WO) (ST) n. Weaknesses-Threats (WT) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 11

SWOT Matrix n n SO strategies use a firm’s internal strengths to take advantage of external opportunities WO strategies improve internal weaknesses by taking advantage of external opportunities ST strategies use a firm’s strengths to avoid or reduce the impact of external threats WT strategies defensive tactics aimed at reducing internal weakness and avoiding external threats Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 12

Limitations with SWOT Matrix n n n Does not show to achieve a competitive advantage Provides a static assessment in time May lead the firm to overemphasize a single internal or external factor in formulating strategies Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13

Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14

SPACE Matrix Strategic Position & Action Evaluation Matrix n. Aggressive n. Conservative n. Defensive n. Competitive Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15

SPACE Matrix n Internal dimensions q q n Financial position (FP) Competitive position (CP) External dimensions q q Environmental position (EP) Industry position (IP) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 16

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 17

Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 18

BCG Matrix Boston Consulting Group Matrix n. Assists multidivisional firm in formulating strategies n. Autonomous n. Divisions divisions = business portfolio may compete in different industries n. Focus on relative market-share position & industry growth rate Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 19

BCG Matrix n n Question Marks – low relative market share in a high-growth industry Stars – high relative market share in a highgrowth industry Cash Cows – high relative market share in a low-growth industry Dogs – Low relative market share in a slow or no growth industry Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 20

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 21

Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 22

The Internal-External Matrix n n Positions an organization’s various divisions in a nine-cell display Similar to BCG Matrix except the IE Matrix: q q Requires more information about the divisions Strategic implications of each matrix are different Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 23

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 24

IE Matrix n Based on two key dimensions q q n The IFE total weighted scores on the x-axis The EFE total weighted scores on the y-axis Divided into three major regions q q q Grow and build – Cells I, II, or IV Hold and maintain – Cells III, V, or VII Harvest or divest – Cells VI, VIII, or IX Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 25

Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 26

Grand Strategy Matrix Tool formulating alternative strategies n n Based on two dimensions q Competitive position q Market growth Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 27

RAPID MARKET GROWTH 1. 2. 3. 4. 5. 6. WEAK COMPETITIVE POSITION 1. 2. 3. 4. 5. Quadrant II Market development Market penetration Product development Horizontal integration Divestiture Liquidation 1. 2. 3. 4. 5. 6. 7. Quadrant III Retrenchment Related diversification Unrelated diversification Divestiture Liquidation 1. 2. 3. Quadrant I Market development Market penetration Product development Forward integration Backward integration Horizontal integration Related diversification Quadrant IV Related diversification Unrelated diversification Joint ventures STRONG COMPETITIVE POSITION SLOW MARKET GROWTH Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 28

Grand Strategy Matrix Quadrant I n. Excellent strategic position n. Concentration on current markets/products n. Take risks aggressively when necessary Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 29

Grand Strategy Matrix Quadrant II n. Evaluate present approach n. How to improve competitiveness n. Rapid market growth requires intensive strategy Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 30

Grand Strategy Matrix Quadrant III n. Compete n. Weak in slow-growth industries competitive position n. Drastic changes quickly n. Cost & asset reduction (retrenchment) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 31

Grand Strategy Matrix Quadrant IV n. Strong competitive position n. Slow-growth industry n. Diversification to more promising growth areas Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 32

Strategy-Formulation Analytical Framework Stage 3: The Decision Stage Quantitative Strategic Planning Matrix (QSPM) Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 33

QSPM Quantitative Strategic Planning Matrix n. Technique designed to determine the relative attractiveness of feasible alternative actions Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 34

Strategic Alternatives QSPM Key External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/ Environmental Technological Competitive Weight Strategy 1 Strategy 2 Strategy 3 Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Management Information Systems Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 35

Steps to Develop a QSPM 1. 2. 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 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 36

Steps to Develop a QSPM 3. 4. 5. 6. Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing Determine the Attractiveness Scores Compute the Total Attractiveness Scores Compute the Sum Total Attractiveness Score Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 37

QSPM Advantages n. Sets of strategies considered simultaneously or sequentially n. Integration of pertinent external & internal factors in the decisionmaking process Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 38

QSPM Limitations n. Requires intuitive judgments & educated assumptions n. Only as good as the prerequisite inputs Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 39

Cultural Aspects of Strategy Choice Organization Culture n. A set of values, beliefs, attitudes, customs, norms, personalities, heroes and heroines that describe a firm n. Successful strategies depend on support of the firm’s culture Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 40

Politics of Strategy Choice Politics in Organizations n. Hierarchy n. Career of command aspirations n. Allocation of scarce resources Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 41

Politics of Strategy Choice Political Tactics for Strategists n. Equifinality n. Satisfying n. Generalization n. Higher-order n. Political issues access on important issues Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 42

Governance Issues Board of Directors Roles & Responsibilities n. Control & oversight over management n. Adherence to legal prescriptions n. Consideration of stakeholders’ interests n. Advancement of stockholders’ rights Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 43

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 44