Module 6 Strategy Analysis Choice Ch 6 1

Module 6 Strategy Analysis & Choice Ch 6 -1

Ch 6 -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 Ch 6 -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 Ch 6 -4

Strategy Analysis & Choice Generating Alternatives – Participation in generating alternative strategies should be as broad as possible Ch 6 -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 Ch 6 -6

Strategy-Formulation Framework External Factor Evaluation Matrix (EFE) Stage 1: The Input Stage Internal Factor Evaluation Matrix (IFE) Competitive Profile Matrix (CPM) Ch 6 -7

Stage 2: The Matching Stage n. Match between organization’s internal resources & skills and the opportunities & risks created by its external factors Ch 6 -8

Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Ch 6 -9

Stage 2: The Matching Stage SWOT Matrix n. Strengths n. Weaknesses n. Opportunities n. Threats Ch 6 -10

SWOT Matrix Four Types of Strategies n. Strengths-Opportunities (SO) n. Weaknesses-Opportunities n. Strengths-Threats (WO) (ST) n. Weaknesses-Threats (WT) Ch 6 -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 Ch 6 -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 Ch 6 -13

Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Ch 6 -14

SPACE Matrix Strategic Position & Action Evaluation Matrix n. Aggressive n. Conservative n. Defensive n. Competitive Ch 6 -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) Ch 6 -16

Ch 6 -17

Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Ch 6 -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 Ch 6 -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 Ch 6 -20

Ch 6 -21

Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Ch 6 -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 Ch 6 -23

Ch 6 -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 Ch 6 -25

Strategy-Formulation Framework SWOT Matrix SPACE Matrix Stage 2: The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Ch 6 -26

Grand Strategy Matrix Tool formulating alternative strategies n n Based on two dimensions q Competitive position q Market growth Ch 6 -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 Ch 6 -28

Grand Strategy Matrix Quadrant I n. Excellent strategic position n. Concentration on current markets/products n. Take risks aggressively when necessary Ch 6 -29

Grand Strategy Matrix Quadrant II n. Evaluate present approach n. How to improve competitiveness n. Rapid market growth requires intensive strategy Ch 6 -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) Ch 6 -31

Grand Strategy Matrix Quadrant IV n. Strong competitive position n. Slow-growth industry n. Diversification to more promising growth areas Ch 6 -32

Strategy-Formulation Analytical Framework Stage 3: The Decision Stage Quantitative Strategic Planning Matrix (QSPM) Ch 6 -33

QSPM Quantitative Strategic Planning Matrix n. Technique designed to determine the relative attractiveness of feasible alternative actions Ch 6 -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 Ch 6 -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 Ch 6 -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 Ch 6 -37

QSPM Advantages n. Sets of strategies considered simultaneously or sequentially n. Integration of pertinent external & internal factors in the decisionmaking process Ch 6 -38

QSPM Limitations n. Requires intuitive judgments & educated assumptions n. Only as good as the prerequisite inputs Ch 6 -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 Ch 6 -40

Politics of Strategy Choice Politics in Organizations n. Hierarchy n. Career of command aspirations n. Allocation of scarce resources Ch 6 -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 Ch 6 -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 Ch 6 -43