Strategic Management -Concepts & Cases

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Strategy Analysis & Choice

Strategic Management:

Concepts & Cases

Prof. Rushen Chahal




Chapter Outline

Prof. Rushen Chahal

The Nature of Strategy & Choice

A Comprehensive

Strategy-Formulation Framework

The Input Stage




To acquire or not to acquire, that is the

question ±

Robert J. Terry

Prof. Rushen Chahal


Life is full of lousy options ±

General P.X. Kelley




-- Establishing long-term objectives-- Generating alternative strategies

-- Selecting strategies to pursue

-- Best alternative - achieve mission & objectives

Prof. Rushen Chahal

Nature of Strategy Analysis & Choice





Vision

Mission Objectives

External audit

Internal audit

Past successful strategies

Prof. Rushen Chahal


Alternative Strategies Derive From --



Powerpoint Templates Prof. Rushen Chahal

Comprehensive Strategy-Formulation

Framework

Stage 1:

The Input Stage

Stage 2:

The Matching Stage

Stage 3:

The Decision Stage




Strategy-Formulation Analytical

Framework

Internal Factor Evaluation

Matrix (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





FrameworkSWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix

Stage 2:The Matching Stage




Stage 2: The Matching Stage

Match between organization¶s internal

resources & skills and the opportunities & riskscreated by its external factors




Stage 2: The Matching Stage

StrengthsWeaknesses

Opportunities

Threats

SWOT Matrix




SWOT Matrix

Strengths-Opportunities (SO)Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of Strategies




SO Strategies

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Use a firm¶s

internal strengthsto take advantage

of external

opportunitiesSO

Strategies

Strengths

Weaknesses

OpportunitiesThreats

SWOT




W O Strategies

Prof. Rushen Chahal

Improving internal

weaknesses bytaking advantage

of external

opportunitiesW O

Strategies

Strengths

Weaknesses


SWOT




ST Strategies

Prof. Rushen Chahal

Use a firm¶s

strengths

to avoid or reduce the impact

of external

threats

ST

Strategies

Strengths

Weaknesses


SWOT




W T Strategies

Prof. Rushen Chahal

Defensive tactics

aimed at reducing

internal

weaknesses &avoiding

environmental

threats

W T

Strategies

Strengths

Weaknesses


SWOT




SWOT Matrix

Developing the SWOT

List firm¶s key internal Strengths

List firm¶s key internal W eaknesses

List firm¶s key external Opportunities

List firm¶s key external Threats




SWOT Matrix

Leave Blank

Strengths ± S

List Strengths

Weaknesses ± W

List Weaknesses

Opportunities ± O

List Opportunities

SO Strategies

U se strengths to take

advantage of

opportunities

W O Strategies

Overcoming weaknesses

by taking advantage of

opportunities

Threats ± T

List Threats

ST Strategies

U se strengths to avoid

threats

W T Strategies

Minimize weaknesses and

avoid threats

Prof. Rushen Chahal




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

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

single internal or external factor in

formulating strategies

Prof. Rushen Chahal






SPACE Matrix

BCG Matrix

IE Matrix






SPACE Matrix

Strategic Position & Action Evaluation Matrix

Aggressive

Conservative

Defensive

Competitive




SPACE Matrix

Two Internal Dimensions

Financial Strength (FS)

Competitive Advantage (CA)




SPACE Matrix

Two External Dimensions

Environmental Stability (ES)

Industry Strength (IS)




SPACE Factors

Prof. Rushen Chahal

Environmental Stability (ES)

Technological changes

Rate of inflationDemand 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




SPACE Factors

Prof. Rushen Chahal

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




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 dimension

2. From -1 to -6 to each ES & CA dimension

3. Compute an average score for each FS,

CA, ES, & IS

Prof. Rushen Chahal




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 plotthe 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.

Prof. Rushen Chahal




SPACE Matrix

Prof. Rushen Chahal

FS

+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






SPACE Matrix

BCG Matrix

IE Matrix






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 anindustry to the market share held by the largest

rival firm in that industry




BCG Matrix

Prof. Rushen Chahal

DogsIV

Cash CowsIII

Question Marks

I

Stars

II

Relative Market Share PositionHigh

1.0

Medium

.50

Low

0.0

I n d u s t

r y S a l e s G r o w

t h R a t e

High

+20

Low

-20

Medium

0




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




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, jointventures




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 weakens²retrenchment or divestiture




BCG Matrix

Dogs

Low relative market share & compete in slow or

no market growth

Weak internal & external position

Liquidation, divestiture, retrenchment






SPACE Matrix

BCG Matrix

IE Matrix






The Internal-External Matrix

Positions an organization¶s various

divisions in a nine-cell display

Similar to BCG Matrix except the IEMatrix:

± Requires more information about the divisions

± Strategic implications of each matrix are

different

Prof. Rushen Chahal




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

Prof. Rushen Chahal




Prof. Rushen Chahal




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Framework

SPACE Matrix

BCG Matrix

IE Matrix


SWOT Matrix





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Tool for formulating alternative strategies

Based on two dimensions

Competitive position

Market growth




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Q uadrant IV

1. Concentric diversification

2. Horizontal diversification

3. Conglomeratediversification

4. Joint ventures

Q uadrant III

1. Retrenchment

2. Concentric diversification

3. Horizontal diversification

4. Conglomerate

diversification

5. Liquidation

Q uadrant I

1. Market development2. Market penetration

3. Product development

4. Forward integration

5. Backward integration

6.H

orizontal integration7. Concentric diversification

Q uadrant II

1. Market development2. Market penetration

3. Product development

4. Horizontal integration

5. Divestiture

6.Liquidation

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAK

COMPETITIVE

POSITION

STRONG

COMPETITIVE

POSITION




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Excellent strategic positionConcentration on current markets/products

Take risks aggressively when necessary

Quadrant I




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Evaluate present approachHow to improve competitiveness

Rapid market growth requires intensive

strategy

Quadrant II




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Compete in slow-growth industriesWeak competitive position

Drastic changes quickly

Cost & asset reduction (retrenchment)

Quadrant III




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Strong competitive positionSlow-growth industry

Diversification to more promising growth areas

Quadrant IV




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Framework

Stage 3:The Decision Stage

Quantitative Strategic

Planning Matrix(QSPM)




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QSPM

Technique designed to determine the relativeattractiveness of feasible alternative actions

Quantitative Strategic Planning Matrix




QSPM

Prof. Rushen Chahal

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Computer Information

Systems

Strategy 3Strategy 2Strategy 1WeightKey External Factors

EconomyPolitical/Legal/Governmental

Social/Cultural/Demographic/

Environmental

Technological

Competitive

Strategic Alternatives




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 alternativestrategies that the organization should

consider implementingProf. Rushen Chahal




Steps to Develop a QSPM

4. Determine the Attractiveness Scores

5. Compare the Total Attractiveness Scores

6. Compute the Sum Total AttractivenessScore

Prof. Rushen Chahal




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QSPM

Requires intuitive judgments & educatedassumptions

Only as good as the prerequisite inputs

Limitations




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QSPM

Sets of strategies considered simultaneously or sequentially

Integration of pertinent external & internal

factors in the decision making process

Advantages




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Cultural Aspects of Strategy

Choice

Successful strategies depend on the degree of consistency with the firm¶s culture

Organization Culture




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Politics of Strategy Choice

Management hierarchy

Career aspirations

Allocation of scarce resources

Politics in Organizations




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Politics of Strategy Choice

Equifinality

Satisfying

Generalization

Higher-order issues

Political access on important issues

Political Tactics for Strategists




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Governance Issues

Control & oversight over management

Adherence to legal prescriptions

Consideration of stakeholder interests

Advancement of stockholder rights

Board of Directors Roles & Responsibilities




Corporate Governance Issues

Prof. Rushen Chahal

1. No more than 2 directors are current or former company

executives

2. No directors do business with the company

3. Audit, compensation, and nominating committees made upof outside directors

4. Each director owns a large equity stake in the company

5. At least one outside director with extensive experience

6. Fully employed directors sit on no more than 4 boards ±

Retirees on no more than 77. Each director attends at lest 75% of all meetings

Business Week¶s ³Principles of Good Governance´




Corporate Governance Issues

Prof. Rushen Chahal

8. Board meets regularly without management present

9. Audit committee meets at least four times a year

10. Board is frugal on executive pay, diligent in CEO succession,and prompt to act when trouble arises

11. CEO is not also the Chairperson of the Board

12. Shareholders have considerable power and information to

choose & replace directors

13. Stock options are considered a corporate expense

14. No interlocking directorships

Business Week¶s ³principles of good governance´




Key Terms & Concepts

Prof. Rushen Chahal

For Review (Chapter 6)

Aggressive Quadrant Business Portfolio

Attractiveness Scores

(AS)Cash Cows

Boards of DirectorsCompetitive Advantage

(CA)

Boston Consulting

Group (BCG) MatrixCompetitive Quadrant





Prof. Rushen Chahal


Conservative Quadrant Dogs

CultureEnvironmental Stability

(ES)

Defensive QuadrantFinancial Strength

(FS)

Directional Vector Governance





Prof. Rushen Chahal


Grand Strategy MatrixInternal-External (IE)

Matrix

Halo Error Matching

Industry Strength

(IS)Matching Stage

Input StageQuantitative Strategic

Planning Matrix (QSPM)





Prof. Rushen Chahal


Question Marks Stars

Relative Market Share

Position

Strategic Position & Action

Evaluation (SPACE)

SO StrategiesSum Total Attractiveness

Score (STAS)

ST Strategies Sustainability





Prof. Rushen Chahal


Total Attractiveness

Scores (TAS)

WO Strategies

WT Strategies

Strengths, Weaknesses

Opportunities, Threats SWOT

Strategic Management -Concepts & Cases

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