Post on 16-Mar-2018
Strategy Analysis & Choice Week 06
W. Rofianto, ST, MSi
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
– Establishing long-term objectives
– Generating alternative strategies
– Selecting strategies to pursue
– Best alternative – achieve mission & objectives
Nature of Strategy Analysis & Choice
� Vision� Mission� Objectives� External audit� Internal audit
Alternative Strategies Derive From
Strategy Analysis & Choice
� Internal audit� Past successful strategies
Generating Alternatives
Participation in generating alternative strategies should be as broad as possible
The Strategy-Formulation Analytical Framework
Internal Factor EvaluationMatrix (IFE)
External Factor EvaluationMatrix (EFE)
Stage 1:The Input Stage
Stage 1 : The Input Stage
Competitive Profile Matrix(CPM)
�Basic input information for the matching & decision stage matrices
�Requires strategists to quantify subjectivity early in the process
�Good intuitive judgment always needed
SWOT Matrix
SPACE Matrix
BCG Matrix
Stage 2 : The Matching Stage
Stage 2:The Matching Stage
IE Matrix
Grand Strategy Matrix
The Matching Stage
Match between organization’s internal resources & skills and the opportunities & risks created by its external factors
Strengths – S
List Strengths
Weaknesses –W
List Weaknesses
Opportunities – O
List Opportunities
SO StrategiesUse strengths to take
advantage of opportunities
WO StrategiesOvercoming weaknesses by taking advantage of
opportunities
SWOT Matrix
Threats – T
List Threats
ST StrategiesUse strengths to avoid
threats
WT StrategiesMinimize weaknesses and
avoid threats
Limitations :� Does not show how to achieve a competitive advantage
� May lead to overemphasize a single internal or external factor in formulating strategies
Strategic Position & Action Evaluation Matrix
�Aggressive
�Conservative
�Defensive
�Competitive
SPACE Matrix
Two Internal Dimensions
�Financial Strength (FS)
�Competitive Advantage (CA)
Two External Dimensions
�Environmental Stability (ES)
� Industry Strength (IS)
Internal Strategic Position External Strategic Position
Financial Strength (FS)Return on investmentLeverageLiquidityWorking capitalCash flowInventory turnover
Environmental Stability (ES)Technological changesRate of inflationDemand variabilityPrice range of competing productsBarriers to entryCompetitive pressure
SPACE Factors
Inventory turnoverEarnings per sharePrice earnings ratio
Competitive pressurePrice elasticity of demandEase of exit from market Risk involved in business
Competitive Advantage (CA)Market shareProduct qualityProduct life cycleCustomer loyaltyCompetition’s capacity utilizationTechnological know-howControl over suppliers & distributors
Industry Strength (IS)Growth potentialProfit potentialFinancial stabilityTechnological know-howResource utilizationEase of entry into marketProductivity, capacity utilization
1. Select a set of variables to define FS, CA, ES, and IS.
2. Assign a numerical value:
� From +1 to +6 to each FS & IS dimension
� From -1 to -6 to each ES & CA dimension
3. Compute an average score for each FS, CA, ES, and IS.
4. Plot the average score on the appropriate axis.
Steps to Developing a SPACE Matrix
4. Plot the average score on the appropriate axis.
5. 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.
6. Draw a directional vector from the origin through the new intersection point.
SPACE Matrix
Boston Consulting Group Matrix
� Enhances multidivisional firm in formulating strategies
� Autonomous divisions = business portfolio
� Divisions may compete in different industries
� Focus on market-share position & industry growth rate
BCG Matrix
Relative Market Share PositionRelative Market Share Position
Ratio of a division’s own market share in an industry to the market share held by the largest rival firm in that industry
Industry Sales Growth Rate
Average annual increase in revenues for several leading firms
BCG Matrix
� Positions an organization’s various divisions in a nine-cell display
� Similar to BCG Matrix except the IE Matrix:
� Requires more information about the divisions
The Internal-External ( IE ) Matrix
� Based on two key dimensions
� The IFE total weighted scores on the x-axis
� The EFE total weighted scores on the y-axis
The Internal-External ( IE ) Matrix
The Internal-External ( IE ) Matrix
Quadrant IMarket developmentMarket penetrationProduct developmentForward integrationBackward integrationHorizontal integration
Quadrant IIMarket development
Market penetrationProduct developmentHorizontal integration
DivestitureLiquidation
RAPID MARKET GROWTH
Weak Strong
Grand Strategy Matrix
Rapid Market Growth � Excellent strategic position
� Concentration on current
markets/products
� Take risks aggressively when
necessary
� Evaluate present approach
� Improve competitiveness
Quadrant IVConcentric diversificationHorizontal diversificationConglomerate diversificationJoint ventures
Quadrant IIIRetrenchment
Concentric diversificationHorizontal diversification
Conglomerate diversificationLiquidation
Horizontal integrationConcentric diversification
Liquidation
Slow Market Growth
Weak Competitive Position
StrongCompetitive Position
� Cost & asset reduction� Diversification to more
promising growth areas
Quantitative StrategicPlanning Matrix
(QSPM)
Stage 3:The Decision Stage
Stage 3 : The Decision Stage
Quantitative Strategic Planning Matrix
Technique designed to determine the relative attractiveness
of feasible alternative actions
Advantages
� Sets of strategies considered simultaneously or sequentially
� Integration of pertinent external & internal factors in the decision-making process
Strategy 3Strategy 2Strategy 1Weight
Key External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic
Environmental
Technological
Strategic Alternatives
Quantitative Strategic Planning Matrix
AS WAS AS WAS AS WAS
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information Systems
Technological
Competitive
TOTAL 1.00
1. Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column.
2. Assign weights to each key external and internal factor.
3. Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing.
4. Determine the Attractiveness Scores.
5. Compare the Total Attractiveness Scores.
Steps to Develop a QSPM
5. Compare the Total Attractiveness Scores.
6. Compute the Sum Total Attractiveness Score.
Limitations
� Requires intuitive judgments & educated assumptions
� Only as good as the prerequisite inputs
Cultural Aspects of Strategy Choice
Successful strategies depend on the degree of consistency with the firm’s culture
Political Tactics for Strategists
� Equifinality� Satisfying
Other Issue
� Satisfying� Generalization� Higher-order issues� Political access on important issues
� Control & oversight over management
� Adherence to legal prescriptions
� Consideration of stakeholder interests
� Advancement of stockholder rights
Governance Issues - Board of Directors Roles & Responsibilities