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Transcript of Copyright 2005 Prentice Hall1 Bus 411 DAY 9. Copyright 2005 Prentice Hall Ch 6 -2 Agenda Assignment...
Copyright 2005 Prentice Hall 1
Bus 411
DAY 9
Copyright 2005 Prentice Hall Ch 6 -2
Agenda
Assignment #3 due Assignment #4 will be assigned next class Templates available in WebCT Discussion on Mid-term
Before or after Spring Break? Finish Discussion about Strategies Start Discussion on Strategy Analysis and
choice
Copyright 2005 Prentice Hall Ch 6 -3
Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Copyright 2005 Prentice Hall Ch 6 -4
Generic Strategies
In conjunction with differentiation
Economies or diseconomies of scale
Capacity utilization achieved
Linkages w/ suppliers & distributors
Cost Leadership
Copyright 2005 Prentice Hall Ch 6 -5
Generic Strategies
Many price-sensitive buyers
Few ways of achieving differentiation
Buyers not sensitive to brand differences
Large # of buyers w/bargaining power
Low Cost Producer Advantage
Copyright 2005 Prentice Hall Ch 6 -6
Generic Strategies
Greater product flexibility
Greater compatibility
Improved service
Greater convenience
More features
Differentiation
Copyright 2005 Prentice Hall Ch 6 -7
Generic Strategies
Industry segment of sufficient size
Good growth potential
Not crucial to success of major competitors
Focus
Copyright 2005 Prentice Hall Ch 6 -8
Means for Achieving Strategies
Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.
Joint Venture/Partnering -
Copyright 2005 Prentice Hall Ch 6 -9
Means for Achieving Strategies
R&D partnerships Cross-distribution agreements Cross-licensing agreements Cross-manufacturing agreements Joint-bidding consortia
Cooperative Arrangements -
Copyright 2005 Prentice Hall Ch 6 -10
Means for Achieving Strategies
Managers who must collaborate daily; not involved in developing the venture
Benefits the company not the customers Not supported equally by both partners May begin to compete with one of the
partners
Why Joint Ventures Fail -
Copyright 2005 Prentice Hall Ch 6 -11
Joint Ventures
Guidelines --Synergies between private and publicly held
Domestic with foreign firm, local management can reduce risk
Complementary distinctive competencies
Resources & risks where project is highly profitable (e.g. Alaska Pipeline)
Two or more smaller firms competing w/larger firm
Need to introduce new technology quickly
Copyright 2005 Prentice Hall Ch 6 -12
Means for Achieving Strategies
Provide improved capacity utilization Better use of existing sales force Reduce managerial staff Gain economies of scale Smooth out seasonal trends in sales Gain new technology Access to new suppliers, distributors, customers,
products, creditors
Mergers & Acquisitions
Copyright 2005 Prentice Hall Ch 6 -13
Recent Mergers
Acquiring Firm Acquired Firm
IBM Rational Software Corp
Yahoo Inktomi Corp
U.S. Steel National Steel Corp
Pfizer Pharmacia
Krispy Kreme Doughnuts Montana Mills
Oracle People Soft
Palm Handspring
Nike Converse
Copyright 2005 Prentice Hall Ch 6 -14
First Mover Advantages
Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms.
Copyright 2005 Prentice Hall Ch 6 -15
First Mover Advantages
Securing access to rare resources Gaining new knowledge of key factors &
issues Carving out market share Easy to defend position & costly for rival
firms to overtake
Potential Advantages
Copyright 2005 Prentice Hall Ch 6 -16
Outsourcing
Companies taking over the functional operations of other firms
Business-process outsourcing (BPO)
Copyright 2005 Prentice Hall Ch 6 -17
Outsourcing
Less expensive Allows firm to focus on core business Enables firm to provide better services
Benefits
Copyright 2005 Prentice Hall Ch 6 -18
Chapter 6Strategy Analysis & Choice
Strategic Management: Concepts & Cases
10th EditionFred David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Copyright 2005 Prentice Hall Ch 6 -19
Chapter Outline
The Nature of Strategy & Choice
A Comprehensive Strategy-Formulation Framework
The Input Stage
Copyright 2005 Prentice Hall Ch 6 -20
Chapter Outline (cont’d)
The Matching Stage
The Decision Stage
Cultural Aspects of Strategy Choice
Copyright 2005 Prentice Hall Ch 6 -21
Chapter Outline (cont’d)
The Politics of Strategy Choice
Governance Issues
Copyright 2005 Prentice Hall Ch 6 -22
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
Copyright 2005 Prentice Hall Ch 6 -23
-- Establishing long-term objectives-- Generating alternative strategies-- Selecting strategies to pursue-- Best alternative - achieve mission & objectives
Nature of Strategy Analysis & Choice
Strategy Analysis & Choice
Copyright 2005 Prentice Hall Ch 6 -24
Vision Mission Objectives External audit Internal audit Past successful strategies
Strategy Analysis & Choice
Alternative Strategies Derive From --
Copyright 2005 Prentice Hall Ch 6 -25
Strategy Analysis & Choice
Generating Alternatives --
Participation in generating alternative strategies should be as broad as possible
Copyright 2005 Prentice Hall Ch 6 -26
Comprehensive Strategy-Formulation Framework
Stage 1:The Input Stage
Stage 2:The Matching Stage
Stage 3:The Decision Stage
Copyright 2005 Prentice Hall Ch 6 -27
Strategy-Formulation Analytical Framework
Internal Factor EvaluationMatrix (IFE)
External Factor EvaluationMatrix (EFE)
Competitive Profile Matrix(CPM)
Stage 1:The Input Stage
Copyright 2005 Prentice Hall Ch 6 -28
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
Copyright 2005 Prentice Hall Ch 6 -29
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Copyright 2005 Prentice Hall Ch 6 -30
Stage 2: The Matching Stage
Match between organization’s internal resources & skills and the opportunities & risks created by its external factors
Copyright 2005 Prentice Hall Ch 6 -31
Stage 2: The Matching Stage
Strengths
Weaknesses
Opportunities
Threats
SWOT Matrix
Copyright 2005 Prentice Hall Ch 6 -32
SWOT Matrix
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Four Types of Strategies
Copyright 2005 Prentice Hall Ch 6 -33
SO Strategies
Use a firm’sinternal strengthsto take advantage
of external opportunities
SOStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
Copyright 2005 Prentice Hall Ch 6 -34
WO Strategies
Improving internalweaknesses by
taking advantageof external
opportunities
WOStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
Copyright 2005 Prentice Hall Ch 6 -35
ST Strategies
Use a firm’s strengthsto avoid or
reduce the impactof external
threats
STStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
Copyright 2005 Prentice Hall Ch 6 -36
WT Strategies
Defensive tacticsaimed at reducing
internal weaknesses &
avoidingenvironmental
threats
WTStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
Copyright 2005 Prentice Hall Ch 6 -37
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
Copyright 2005 Prentice Hall Ch 6 -38
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
Copyright 2005 Prentice Hall Ch 6 -39
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 capacity (strength)
Key Internal Factor Key External Factor Resultant Strategy
Matching Key Factors to Formulate Alternative Strategies
Copyright 2005 Prentice Hall Ch 6 -40
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Copyright 2005 Prentice Hall Ch 6 -41
SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive
Copyright 2005 Prentice Hall Ch 6 -42
SPACE Matrix
Two Internal Dimensions
Financial Strength (FS)
Competitive Advantage (CA)
Two External Dimensions
Environmental Stability (ES)
Industry Strength (IS)
Copyright 2005 Prentice Hall Ch 6 -43
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
Copyright 2005 Prentice Hall Ch 6 -44
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
Copyright 2005 Prentice Hall Ch 6 -45
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
Copyright 2005 Prentice Hall Ch 6 -46
The steps to develop a SPACE Matrix:
Select a set of variables to define financial strength (FS), competitive advantage (CA), environmental stability (ES), and industry strength (IS).
Table 6-2 provides Good examples Assign a numerical value ranging from 1 (worst) to 6 (best) for the variables that make
up the FS and IS dimensions. Assign a number between –1 (best) to –6 (worst) for variables that make up the ES and CA dimensions. On the FS and CA axes, make comparison to competitors. On the IS and ES axes, make comparison to other industries.
Compute an average score for FS, CA, IS, and ES by summing the values given to the variables and dividing by the number of variables included in each dimension.
Plot the average scores for FS, IS, ES, and CA on the appropriate axis in the SPACE Matrix.
Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on the y-axis and plot the resultant point on Y. Plot the intersection of the new xy point.
Draw a directional vector from the origin of the SPACE matrix through the new intersection point. This vector reveals the type of strategies recommended for the organization.
Aggressive Competitive Defensive Conservative
Lets try with Data in table 6-3
Copyright 2005 Prentice Hall Ch 6 -47
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Copyright 2005 Prentice Hall Ch 6 -48
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
Copyright 2005 Prentice Hall Ch 6 -49
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.
Copyright 2005 Prentice Hall Ch 6 -50
BCG Matrix
Data required Relative market Share for each Division
Horizontal axis Compare to leading firm (1 means you are the leading firm)
Industry growth pattern Vertical axis
Percentage of Corporate Revenues generated by division Size of circle
Percentage of Corporate Profits generated by division Size of pie slice
Copyright 2005 Prentice Hall Ch 6 -51
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
Copyright 2005 Prentice Hall Ch 6 -52
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
Copyright 2005 Prentice Hall Ch 6 -53
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
Copyright 2005 Prentice Hall Ch 6 -54
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
Copyright 2005 Prentice Hall Ch 6 -55
BCG Matrix
Dogs
Low relative market share & compete in slow or no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Copyright 2005 Prentice Hall Ch 6 -56
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
Copyright 2005 Prentice Hall Ch 6 -57
IE Matrix
The IE Matrix positions an organization’s various divisions in a nine-cell display illustrated in Figure 6-10.
The IE Matrix is similar to the BCG Matrix in that both tools involve plotting organization divisions in a schematic diagram; this is why they are called portfolio matrices.
Differences between the IE Matrix and the BCG Matrix Axes are different. IE Matrix requires more information about divisions than
BCG. Strategic implications of each matrix are different.
Copyright 2005 Prentice Hall Ch 6 -58
IE Matrix
I II III
IV V VI
VII VIII IX
IFE ScoresStrong Average Weak3-4 2-2.99 1-1.99
High3-4
Medium2-2.99
Low1-1.99
EF
ES
core
s
Copyright 2005 Prentice Hall Ch 6 -59
Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
IE Matrix
Copyright 2005 Prentice Hall Ch 6 -60
Grand Strategy Matrix
Tool for formulating alternative strategies
Based on two dimensions
Competitive position
Market growth
Copyright 2005 Prentice Hall Ch 6 -61
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
Copyright 2005 Prentice Hall Ch 6 -62
Grand Strategy Matrix
Excellent strategic position
Concentration on current markets/products
Take risks aggressively when necessary
Quadrant I
Copyright 2005 Prentice Hall Ch 6 -63
Grand Strategy Matrix
Evaluate present approach
How to improve competitiveness
Rapid market growth requires intensive strategy
Quadrant II
Copyright 2005 Prentice Hall Ch 6 -64
Grand Strategy Matrix
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
Quadrant III
Copyright 2005 Prentice Hall Ch 6 -65
Grand Strategy Matrix
Strong competitive position
Slow-growth industry
Diversification to more promising growth areas
Quadrant IV
Copyright 2005 Prentice Hall Ch 6 -66
Strategy-Formulation Analytical Framework
Stage 3:The Decision Stage
Quantitative StrategicPlanning Matrix
(QSPM)
Copyright 2005 Prentice Hall Ch 6 -67
QSPM
Technique designed to determine the relative attractiveness of feasible alternative actions
Quantitative Strategic Planning Matrix
Copyright 2005 Prentice Hall Ch 6 -68
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
Copyright 2005 Prentice Hall Ch 6 -69
QSPM
Requires intuitive judgments & educated assumptions
Only as good as the prerequisite inputs
Limitations
Copyright 2005 Prentice Hall Ch 6 -70
QSPM
Sets of strategies considered simultaneously or sequentially
Integration of pertinent external & internal factors in the decision making process
Advantages
Copyright 2005 Prentice Hall Ch 6 -71
Cultural Aspects of Strategy Choice
Successful strategies depend on the degree of consistency with the firm’s culture
Organization Culture
Copyright 2005 Prentice Hall Ch 6 -72
Politics of Strategy Choice
Management hierarchy
Career aspirations
Allocation of scarce resources
Politics in Organizations
Copyright 2005 Prentice Hall Ch 6 -73
Politics of Strategy Choice
Equifinality
Satisfying
Generalization
Higher-order issues
Political access on important issues
Political tactics for strategists
Copyright 2005 Prentice Hall Ch 6 -74
Governance Issues
Control & oversight over management
Adherence to legal prescriptions
Consideration of stakeholder interests
Advancement of stockholder rights
Board of Directors Roles & Responsibilities
Copyright 2005 Prentice Hall Ch 6 -75
Corporate Governance Issues
1. No more than 2 directors current or former company executives2. No directors do business with the company3. Audit, compensation, and nominating committees made up
of outside directors4. Each director attends at lest 75% of all meetings5. Audit committee meets at least four times a year6. CEO is not also the Chairperson of the Board7. Shareholders have considerable power and information to
choose & replace directors8. Stock options are considered a corporate expense9. No interlocking directorships
Business Week’s “principles of good governance”