Chapter Outline - kaizenha.comkaizenha.com/.../04/620Rawabdeh_PPT_strategic20management_2011 … ·...

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Dr. Ibrahim Rawabdeh (2011) Ch 6 -1

Chapter 6Strategy Analysis & Choice

Strategic Management: Concepts & Cases

13th EditionFred David


Chapter Outline

The Nature of Strategy & Choice

A Comprehensive Strategy-Formulation Framework

The Input Stage

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Chapter Outline (cont’d)

The Matching Stage

The Decision Stage


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

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-- 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 Past successful strategies


Alternative Strategies Derive From --

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Generating Alternatives --

Participation in generating alternative strategies should be as broad as possible


Comprehensive Strategy-Formulation Framework

Stage 1:The Input Stage

Stage 2:The Matching Stage

Stage 3:The Decision Stage

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Strategy-Formulation Analytical Framework

Internal Factor EvaluationMatrix (IFE)

External Factor EvaluationMatrix (EFE)

Competitive Profile Matrix(CPM)

Stage 1:The Input Stage


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

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SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix



Stage 2: The Matching Stage

Match between organization’s internal resources & skills and the opportunities & risks created by its external factors

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Stage 2: The Matching Stage

Strengths

Weaknesses

Opportunities

Threats

SWOT Analysis vs. TOWS Matrix


SWOT Matrix

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of Strategies

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SO Strategies

Use a firm’sinternal strengthsto take advantage

of external opportunities

SOStrategies

StrengthsWeaknesses

OpportunitiesThreats

SWOT


WO Strategies

Improving internalweaknesses by

taking advantageof external

opportunitiesWO

Strategies

StrengthsWeaknesses


SWOT

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ST Strategies

Use a firm’sstrengths

to avoid orreduce the impact

of externalthreats

STStrategies

StrengthsWeaknesses


SWOT


WT Strategies

Defensive tacticsaimed at reducing

internal weaknesses &

avoidingenvironmental

threatsWT

Strategies

StrengthsWeaknesses


SWOT

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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


TOWS Matrix

Leave BlankStrengths – 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

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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 from the industry (opportunity)

+Insufficient capacity (weakness)

Acquire Cellfone, Inc.=20% annual growth in the cell phone industry (opportunity)

+Excess working capacity (strength)

Key Internal Factor Key External Factor Resultant Strategy

Matching Key Factors to Formulate Alternative Strategies


Limitations with SWOT Matrix

Does not show how to achieve a competitive advantage (engineered!)

Provides a static assessment in time May lead the firm to overemphasize a single

internal or external factor in formulating strategies

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SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix




SPACE Matrix

Strategic Position & Action Evaluation Matrix

Aggressive

Conservative

Defensive

Competitive

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SPACE Matrix

Two Internal Dimensions

Financial Strength (FS)

Competitive Advantage (CA)


SPACE Matrix

Two External Dimensions

Environmental Stability (ES)

Industry Strength (IS)

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SPACE Factors

Environmental Stability (ES)

Technological changesRate of inflationDemand variabilityPrice range of competing productsBarriers to entryCompetitive pressurePrice elasticity of demandEase of exit from market Risk involved in business

Financial Strength (FS)

Return on investmentLeverageLiquidityWorking capitalCash flow

External Strategic PositionInternal Strategic Position


SPACE Factors

Industry Strength (IS)

Growth potentialProfit potentialFinancial stabilityTechnological know-howResource utilizationEase of entry into marketProductivity, capacity utilization

Competitive Advantage CA

Market shareProduct qualityProduct life cycleCustomer loyaltyCompetition’s capacity utilizationTechnological know-howControl over suppliers & distributors

External Strategic PositionInternal Strategic Position

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Steps to Developing a SPACE Matrix

1. Select a set of variables to define FS, CA, ES, & IS

2. Assign a numerical value:1. From +1 to +6 to each FS & IS dimension2. From -1 to -6 to each ES & CA dimension

3. Compute an average score for each FS, CA, ES, & IS


Steps to Developing a SPACE Matrix

1. Plot the average score on the appropriate axis

2. 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

3. Draw a directional vector from the origin through the new intersection point.

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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



SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix



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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


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

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BCG Matrix

DogsIV

Cash CowsIII

Question MarksI

StarsII

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

Indu

stry

Sal

es G

row

th R

ate

High+20

Low-20

Medium0


BCG Matrix

Question Marks

Low relative market share – compete in high-growth industryCash needs are high

Cash generation is low

Decision to strengthen (intensive strategies) or divest

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BCG Matrix

Stars

High relative market share and high growth rateBest long-run opportunities for growth & profitability

Substantial investment to maintain or strengthen dominant positionIntegration strategies, intensive strategies, joint ventures


BCG Matrix

Cash Cows

High relative market share, competes in low-growth industryGenerate cash in excess of their needs

Milked for other purposes

Maintain strong position as long as possibleProduct development, concentric diversification

If weakens—retrenchment or divestiture

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BCG Matrix

Dogs

Low relative market share & compete in slow or no market growthWeak internal & external position

Liquidation, divestiture, retrenchment



SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix



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The Internal-External 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 Strategic implications of each matrix are different


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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

Divided into three major regions Grow and build – Cells I, II, or IV Hold and maintain – Cells III, V, or VII Harvest or divest – Cells VI, VIII, or IX


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SPACE Matrix

BCG Matrix

IE Matrix


SWOT Matrix




Tool for formulating alternative strategies

Based on two dimensions

Competitive position

Market growth

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Quadrant IV1. Concentric diversification2. Horizontal diversification3. Conglomerate

diversification4. Joint ventures

Quadrant III1. Retrenchment2. Concentric diversification3. Horizontal diversification4. Conglomerate

diversification5. Liquidation

Quadrant I1. Market development2. Market penetration3. Product development4. Forward integration5. Backward integration6. Horizontal integration7. Concentric diversification

Quadrant II1. Market development2. Market penetration3. Product development4. Horizontal integration5. Divestiture6. Liquidation

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAK COMPETITIVE

POSITION

STRONGCOMPETITIVE

POSITION



Excellent strategic position

Concentration on current markets/products

Take risks aggressively when necessary

Quadrant I

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Evaluate present approach

How to improve competitiveness

Rapid market growth requires intensive strategy

Quadrant II



Compete in slow-growth industries

Weak competitive position

Drastic changes quickly

Cost & asset reduction (retrenchment)

Quadrant III

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Strong competitive position

Slow-growth industry

Diversification to more promising growth areas

Quadrant IV



Stage 3:The Decision Stage

Quantitative StrategicPlanning Matrix

(QSPM)

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QSPM

Technique designed to determine the relative attractiveness of feasible alternative actions

Quantitative Strategic Planning Matrix


QSPM

Key Internal FactorsManagementMarketingFinance/AccountingProduction/OperationsResearch and DevelopmentComputer Information Systems

Strategy 3Strategy 2Strategy 1WeightKey External FactorsEconomyPolitical/Legal/GovernmentalSocial/Cultural/Demographic/EnvironmentalTechnologicalCompetitive

Strategic Alternatives

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Steps to Develop a QSPM

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


Steps to Develop a QSPM

4. Determine the Attractiveness Scores5. Compare the Total Attractiveness Scores6. Compute the Sum Total Attractiveness

Score

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QSPM

Requires intuitive judgments & educated assumptions

Only as good as the prerequisite inputs

Limitations


QSPM

Sets of strategies considered simultaneously or sequentially

Integration of pertinent external & internal factors in the decision making process

Advantages

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EXAMPLES

Triumpharma Roberts


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