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Ch 6 -1
Chapter 6Strategy Analysis & Choice
Ch 6 -2
To acquire or not to acquire, that is the question –Robert J. Terry
Strategy Analysis & Choice
Life is full of lousy options -- General P.X. Kelley
Ch 6 -3
-- Establishing long-term objectives-- Generating alternative strategies-- Selecting strategies to pursue-- Best alternative - achieve mission & objectives
Nature of Strategy Analysis & Choice
Strategy Analysis & Choice
Ch 6 -4
Vision Mission Objectives External audit Internal audit Past successful strategies
Strategy Analysis & Choice
Alternative Strategies Derive From --
Ch 6 -5
Strategy Analysis & Choice
Generating Alternatives --
Participation in generating alternative strategies should be as broad as possible
Ch 6 -6
Comprehensive Strategy-Formulation Framework
Stage 1:The Input Stage
Stage 2:The Matching Stage
Stage 3:The Decision Stage
Ch 6 -7
Strategy-Formulation Analytical Framework
Internal Factor EvaluationMatrix (IFE)
External Factor EvaluationMatrix (EFE)
Competitive Profile Matrix(CPM)
Stage 1:The Input Stage
Ch 6 -8
Stage 1: The Input Stage
Basic input information for the matching & decision stage matrices
Requires strategists to quantify subjectivity early in the process
Good intuitive judgment always needed
Ch 6 -9
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Ch 6 -10
Stage 2: The Matching Stage
Match between organization’s internal resources & skills and the opportunities & risks created by its external factors
Ch 6 -11
Stage 2: The Matching Stage
Strengths
Weaknesses
Opportunities
Threats
SWOT Matrix
Ch 6 -12
SWOT Matrix
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Four Types of Strategies
Ch 6 -13
SO Strategies
Use a firm’sinternal strengthsto take advantage
of external opportunities
SOStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
Ch 6 -14
WO Strategies
Improving internalweaknesses by
taking advantageof external
opportunities
WOStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
Ch 6 -15
ST Strategies
Use a firm’s strengthsto avoid or
reduce the impactof external
threats
STStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
Ch 6 -16
WT Strategies
Defensive tacticsaimed at reducing
internal weaknesses &
avoidingenvironmental
threats
WTStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
Ch 6 -17
SWOT Matrix
Developing the SWOT
List firm’s key internal Strengths
List firm’s key internal Weaknesses
List firm’s key external Opportunities
List firm’s key external Threats
Ch 6 -18
SWOT 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
Overcoming weaknesses by taking advantage of
opportunities
Threats – T
List Threats
ST Strategies
Use strengths to avoid threats
WT Strategies
Minimize weaknesses and avoid threats
Ch 6 -19
Develop a new employee benefits package
= Strong union activity (threat)
+Poor employee morale (weakness)
Develop new products for older adults
=Decreasing numbers of young adults (threat)
+Strong R&D (strength)
Pursue horizontal integration by buying competitor's facilities
=Exit of two major foreign competitors form the industry (opportunity)
+Insufficient capacity (weakness)
Acquire Cellfone, Inc.=20% annual growth in the cell phone industry (opportunity)
+Excess working capital (strength)
Key Internal Factor Key External Factor Resultant Strategy
Matching Key Factors to Formulate Alternative Strategies
Ch 6 -20
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Ch 6 -21
SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
Ch 6 -22
SPACE Matrix
Two Internal Dimensions
Financial Strength (FS)
Competitive Advantage (CA)
Ch 6 -23
SPACE Matrix
Two External Dimensions
Environmental Stability (ES)
Industry Strength (IS)
Ch 6 -24
SPACE Factors
Environmental Stability (ES)
Technological changes
Rate of inflation
Demand variability
Price range of competing products
Barriers to entry
Competitive pressure
Price elasticity of demandEase of exit from market Risk involved in business
Financial Strength (FS)
Return on investment
Leverage
Liquidity
Working capital
Cash flow
External Strategic PositionInternal Strategic Position
Ch 6 -25
SPACE Factors
Industry Strength (IS)
Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilization
Ease of entry into market
Productivity, capacity utilization
Competitive Advantage CA
Market share
Product quality
Product life cycle
Customer loyalty
Competition’s capacity utilization
Technological know-how
Control over suppliers & distributors
External Strategic PositionInternal Strategic Position
Ch 6 -26
SPACE MatrixFS
+6
+1
+5+4+3
+2
-6
-5
-4
-3
-2
-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6
ES
CA IS
Conservative Aggressive
Defensive Competitive
Ch 6 -27
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Ch 6 -28
BCG Matrix
Boston Consulting Group Matrix
Enhances multi-divisional firm in formulating strategies
Autonomous divisions = business portfolio
Divisions may compete in different industries
Focus on market-share position & industry growth rate
Ch 6 -29
BCG Matrix
Relative 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.
Ch 6 -30
BCG Matrix
Dogs
IV
Cash Cows
III
Question Marks
I
Stars
II
Relative Market Share PositionHigh1.0
Medium.50
Low0.0
Ind
us
try
Sa
les
Gro
wth
Ra
te
High+20
Low-20
Medium0
Ch 6 -31
BCG Matrix
Question Marks
Low relative market share – compete in high-growth industry
Cash needs are high
Case generation is low
Decision to strengthen (intensive strategies) or divest
Ch 6 -32
BCG Matrix
Stars
High relative market share and high growth rate
Best long-run opportunities for growth & profitability
Substantial investment to maintain or strengthen dominant position
Integration strategies, intensive strategies, joint ventures
Ch 6 -33
BCG Matrix
Cash Cows
High relative market share, competes 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 weakens—retrenchment or divestiture
Ch 6 -34
BCG Matrix
Dogs
Low relative market share & compete in slow or no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Ch 6 -35
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Ch 6 -36
Grand Strategy Matrix
Tool for formulating alternative strategies
Based on two dimensions
Competitive position
Market growth
Ch 6 -37
Quadrant IV
1. Concentric diversification
2. Horizontal diversification
3. Conglomerate diversification
4. Joint ventures
Quadrant III
1. Retrenchment
2. Concentric diversification
3. Horizontal diversification
4. Conglomerate diversification
5. Liquidation
Quadrant I
1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal integration
7. Concentric diversification
Quadrant II
1. Market development
2. Market penetration
3. Product development
4. Horizontal integration
5. Divestiture
6. Liquidation
RAPID MARKET GROWTH
SLOW MARKET GROWTH
WEAK COMPETITIVE
POSITION
STRONGCOMPETITIVE
POSITION
Ch 6 -38
Grand Strategy Matrix
Excellent strategic position
Concentration on current markets/products
Take risks aggressively when necessary
Quadrant I
Ch 6 -39
Grand Strategy Matrix
Evaluate present approach
How to improve competitiveness
Rapid market growth requires intensive strategy
Quadrant II
Ch 6 -40
Grand Strategy Matrix
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Quadrant III
Ch 6 -41
Grand Strategy Matrix
Strong competitive position
Slow-growth industry
Diversification to more promising growth areas
Quadrant IV
Ch 6 -42
Strategy-Formulation Analytical Framework
Stage 3:The Decision Stage
Quantitative StrategicPlanning Matrix
(QSPM)
Ch 6 -43
QSPM
Technique designed to determine the relative attractiveness of feasible alternative actions
Quantitative Strategic Planning Matrix
Ch 6 -44
QSPM
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information Systems
Strategy 3Strategy 2Strategy 1WeightKey External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/Environmental
Technological
Competitive
Strategic Alternatives
Ch 6 -45
QSPM
Requires intuitive judgments & educated assumptions
Only as good as the prerequisite inputs
Limitations
Ch 6 -46
QSPM
Sets of strategies considered simultaneously or sequentially
Integration of pertinent external & internal factors in the decision making process
Advantages
Ch 6 -47
Cultural Aspects of Strategy Choice
Successful strategies depend on the degree of consistency with the firm’s culture
Organization Culture
Ch 6 -48
Politics of Strategy Choice
Management hierarchy
Career aspirations
Allocation of scarce resources
Politics in Organizations
Ch 6 -49
Politics of Strategy Choice
Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
Political tactics for strategists