Strategy framework

STRATEGY FRAMEWORK

Presented by Manisha Kumari 13159Pooja Goyal 13189Pooja Sharma 13190Priyanka Meena 13210

Presented to Paridhi sharma ma’am

STRATEGY ANALYSIS & CHOICE

“Strategic management is not a box of tricks or a bundle of techniques. It is analytical thinking and commitment of resources to action. But quantification alone is not planning. Some of the most important issues in strategic management cannot be quantified at all.”

—Peter Drucker—


Strategic Analysis and Choice:

Making subjective decisions based on objective information


Strategic Analysis and Choice:

• Generate feasible alternatives• Evaluate alternatives• Select specific course of action


Generating & Selecting Strategies

Develop set of most attractive alternative strategies

Determine for the set• Advantages• Disadvantages• Trade-offs• Costs• Benefits



Involve a broad mix of personnel Representation from each department/function Provides opportunity to gain understanding of firm’s

direction Provides vehicle to develop commitment to attainment

of organizational objectives



Evaluate each alternative Internal and external audit information Firm’s mission statement Listed in writing Ranked in order of attractiveness

STRATEGY-FORMULATION ANALYTICAL FRAMEWORK

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage



Provides Basic Input for Stages 2 and 3 External Factor Evaluation Matrix (EFE) Internal Factor Evaluation Matrix (IFE) Competitive Profile Matrix



Strategy is characterized by the organizational match between

• Internal resources and skills• Opportunities & risks created by external factors



ExternalFactorEvaluationMatrix (EFE)

CompetitiveProfileMatrix

InternalFactorEvaluationMatrix (IFE)



Strengths WeaknessesOpportunitiesThreats(SWOT)

StrategicPosition &Action Evaluation(SPACE)

BostonConsultingGroup Matrix(BCG)

GAP analysis GrandStrategyMatrix

Copyright 2007 Prentice Hall Ch 6 -13

StrengthsWeaknessesOpportunitiesThreats

SWOT Matrix


SWOT Matrix

Strengths-Opportunities (SO)Weaknesses-Opportunities (WO)Strengths-Threats (ST)Weaknesses-Threats (WT)

Four Types of Strategies

Copyright 2007 Prentice Hall

SWOT MATRIX

Ch 6 -15

SWOT MATRIX OF WHIRPOOL (2011)

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

Ch 6 -17Copyright 2007 Prentice Hall


SPACE MatrixStrategic Position & Action Evaluation Matrix

AggressiveConservativeDefensiveCompetitive


SPACE Matrix

Two Internal Dimensions

Financial Strength (FS)Competitive Advantage (CA)


SPACE Matrix

Two External Dimensions

Environmental Stability (ES)Industry Strength (IS)

FACTORS THAT MAKES UP THE SPACE MATRIXINTERNAL STRATEGIC POSITION EXTERNAL STRATEGIC POSITION

FINANCIAL POSITION COMPETITIVE POSITION STABILITY POSITION INDUSTRY STRENGTH

Return on investment Market Share Technological Changes Profit Potential

Leverage Product Quality Rate of Inflation Financial Stability

Liquidity Product Life Cycle Demand Variability Extent LeveragedWorking Capital Customer Loyalty Place range of

competing products Resource Utilization

Cash flow Capacity Utilization Barriers to entry into the market

Ease of entry into market

Inventory Turnover Technological Know-how Competitive Pressure Productivity, capacity utilization

Earnings per share Control over suppliers and distributors

Ease of Exit from market

Price Earnings Ratio Price Elasticity of demand

FINANCIAL STRENGTH

INDUSTRY STRENGTH

ENIVRONMENT STABILITY

COMPETITVE STRATEGY

Conservative Aggressive

Defensive Competitive

AGGRESSIVE QUADRANTExcellent position to use internal strength:

1. Take advantage of external opportunities2. Overcome Internal Weaknesses3. Avoid or minimize external threats

CONSERVATIVE QUADRANTFirm should stay close to its core competences and not take risks

DEFENSIVE QUADRANT

Focus on rectifying internal weakness and external threats

COMPETITIVE QUADRANTUse Competitive strategies

STEPS TO DEVELOPING A SPACE MATRIX

1. Select a set of variables to define FS, CA, ES, & IS2. 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 axis2. 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.


SPACE MATRIX OF HP (HEWLETT PACKARD CORPORATION) - 2011

Internal Strategic Position External Strategic position

Financial Strengths (FS) Environmental Stability (ES)

Return on InvestmentleverageWorking CapitalLiquidityPrice earning ratio

TotalAverage

+5+3+4 +5 +4

+21+4.2

Technological changesRate of InflationPrice range of Competing productsCompetitive pressureBarriers to entry into marketDemand variability

TotalAverage

-3-2-3-5-4-2

-19-3.17

Competitive Advantage (CA) Industry Strength (IS)Market ShareProduct QualityCustomer LoyaltyTechnological know-howControl over suppliers and distributors

TotalAverage

-2-3-2-2-4

-13-2.6

Growth PotentialProfit PotentialFinancial StabilityLabor costTechnological know-how

TotalAverage

+5+5+4+3+4

+21+4.2

-6 -5 -4 -3 -2 -1 +1 +2 +3 +5 +6

+6+5+4+3+2+1

-1-2-3-4-5-6

AggressiveConservative

CompetitiveDefensive

ISCA

X-axis =CA + IS = -2.6+(4.20) = 1.60

Y-axis = FS + ES = 4.2+(-3.17) =1.03

FS

ES

According to the space matrix score HP falls in the “AGGRESSIVE quadrant” . Their strategies should be one of the following:

• Vertical and horizontal integration•Market penetration•Market development•Product development•Diversification

INTERPRETATION

BOSTON CONSULTING GROUP MATRIX• Matrix is developed by Bruce Henderson of the Boston

Consulting Group in the early 1970’s

• According to this technique, business or products are classified as low or high performance depending upon their market growth rate & relative market share

RELATIVE MARKET SHARE

Business Unit Sales this year RMS =

Leading rival sales this year

• The higher your market share, the higher proportion of the market you control.

MARKET GROWTH RATE

Individual Sales this year – Individual sales last year

MGR = Individual Sales last year

• Market Growth is used as a measure of a market’s attractiveness.

• Markets experiencing high growth are ones where the total market share available is expanding & there is plenty of opportunity for everyone to make money

THE BCG GROWTH-SHARE MATRIX

QUESTION MARKS/PROBLEM CHILDREN ( HIGH GROWTH, LOW MARKET SHARE)• Most business start of as question marks• They will absorb great amount of cash if the market share

remains unchanged (low)• Question marks have potential to become star & evenly cash

cow but can also become dog.• Investment should be high for question marks.

STARS (HIGH GROWTH, HIGH MARKET SHARE)• Stars are leader in business• They also require heavy investment to maintain it’s large

market share.• It leads to large amount of cash consumption & cash

generation.• Attempts should be made to hold the market share otherwise

the star will became a cash cow

CASH COWS ( LOW GROWTH, HIGH MARKET SHARE)• They are foundation of the company & often the stars of

yesterday.• They generate more cash than required • They generate more cash than required.• They extract the profits by investing as little cash as possible• They are located in an industry that is mature not growing or

declining

DOGS (LOW GROWTH, LOW MARKET SHARE)• Dogs are the cash traps• Dogs do not have potential to bring• High cost – Low quality• Business is situated at a declining stage

WHY BCG MATRIX? To asses • Profile of product /business• Cash demands of products• The development cycle of product• Resource allocation & divestment decisions

BENEFITS• BCG matrix is simple & easy to understand • It helps to quickly & simply screen the opportunity open to

you, & help you think about how you can make the most of them.

• It is used to identify how corporate cash resources can best be used to maximize company’s future growth & profitability.

LIMITATION• BCG matrix uses only two dimensions relative market share &

market growth rate.• Problem of getting data on market share & market growth• High market share does not mean profits all time.• Business with market share can be profitable too.

GRAND STRATEGY MATRIX

Popular tool for formulating alternative strategies

Based on two evaluative dimensions Competitive position Market growth


Quadrant IV• Concentric

diversification• Horizontal

diversification• Conglomerate

diversification• Joint ventures

Quadrant III• Retrenchment• Concentric

diversification• Horizontal

diversification• Conglomerate

diversification• Liquidation

Quadrant I• Market development• Market penetration• Product development• Forward integration• Backward integration• Horizontal integration• Concentric

diversification

Quadrant II• Market development• Market penetration• Product development• Horizontal integration• Divestiture• Liquidation

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAK COMPETITIVE POSITION

STRONGCOMPETITIVE POSITION


Quadrant I Excellent strategic position Concentration on current markets and

products Take risks aggressively when necessary


Quadrant II Evaluate present approach seriously How to change to improve competitiveness Rapid market growth requires intensive

strategy

Ch. 6-50

© 2001 Prentice H

all


Quadrant III Compete in slow-growth industries Weak competitive position Drastic changes quickly Cost and asset reduction indicated

(retrenchment)


Quadrant IV Strong competitive position Slow-growth industry Diversification indicated to more promising

growth areas

GAP ANALYSIS

DEFINITION GAP ANALYSIS It is a Technique for determining the steps to be taken in moving

from current state to desired future state.

Gap Analysis is formal study of what business is doing currently and where it wants to go in the future?

Current State

Gap AnalysisDesired State

WHY GAP ANALYSIS? GAP analysis provides foundation for measuring investment

of time , money and Human resources required to achieve particular outcome.

Examples: Transformation of Paper based to Paperless Salary system Classification of how well a product or solution meets the consumer

requirement

Where are we now?

Where Do we want to go?

How Do we do that ?

What Do we need to Do to Get there?

BASIC PROCESS FOR GAP ANALYSIS

Current State

Gap Analysis

Desired State

Answer to each GAP analysis Question

Answer ->Yes Answer-No Answer->N/A

Provide Evidence

Remedial action

should be taken

No Action Required

You Must be able to Justify Why

this Question is not Applicable

WHAT DO WE NEED TO DO TO GET THERE ?

How do we Do that ? PlanDoCheckAct

DIFFERENT METHODS TO CONDUCT GAP ANALYSIS

SERVQUAL

ISO 9001:2000

SAGA(Self Assessment Gap Analysis)

Two Dimensional Analysis

SERVQUAL This Method of GAP Analysis consists of set of

Questions Divided in Five categories• Physical Facilities , equipment and appearance

of personnel Tangible

• Ability to perform promised Service dependably and accuratelyReliability

• Willingness to help Customer and provide prompt service

Responsiveness

SERVQUAL• Knowledge and courtesy of the employees and

their ability to inspire trust and ConfidenceAssurance

• Caring individualized attention the Firm Provides its CustomersEmpathy

What do we do with this survey?•Administer the survey to customer and the companyThe results will show difference in perceptions between

• Customers• Employees• Management

SERVQUAL – MODELWord of mouth

Communication

Past Experience

Personal Needs

Expected Service

Service Quality Specifications

Service delivery

Perceived Service

Management Perception of Customer Expectations

External communicati

on to Customers

Customer

ProviderGAP 3

GAP 2

GAP 5

GAP 4

GAP 1

Rather then sending out a survey as in SurvQual, SAGA is a process used to take a close look at an organization’s operations.

In SAGA a Company/Process/Approach is Analysed using the Baldrige criteria and the Gaps are found out .

What is Baldrige Criteria?

SAGA-Self Assessment Gap Analysis

http://www.baldrige.com/80-critical-questions/

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ISO (International Organization for Standardization) is the world's largest developer and publisher of International Standards.

Identifying the GAPS with reference to the Standards provided by ISO and Finding out solutions To Fill them.

The ISO 9000 family of standards relate to quality management systems

http://www.iso.org

ISO 9001:2000 GAP Analysis

http://www.iso.org/

SUMMARY Gaps can be found in any

process,Department,Approach of an orgainsation.

Tools like SERVQUAL, SAGA, TWO Dimensional Analysis,ISO 9001 2000 can be used to perform gap analysis

GAP Analysis is one of best procedures to help a company to not only improve their processes, but recognise which processes are in need of improvement

GE Business Screen

Long-term industry attractiveness

Business strength/competitive position

General Electric’s Business Screen

AWinners Winners

B

C

Question Marks

D

FAverage

BusinessesE

Winners

Losers

GLosers H

LosersProfit

Producers

Strong Average Weak

Low

Medium

High

Business Strength/Competitive Position

Indu

stry

Attr

activ

enes

s

Source: Adapted from Strategic Management in GE, Corporate Planning and Development, General Electric Corporation. Used by permission of General Electric Company.

GE MATRIX- USES More sophisticated than BCG – uses more variables Condenses much information into 2 variables?

LIMITATIONS Complex and Weighty The numerical estimates can be “objective” What about new products or business units in growth

industries.

USES The power of the Life-cycle matrix is the story it tells about

the distribution of the firm’s businesses across the stages of the industry evolution

LIMITATIONS Limited strategic prescription Once defined prescription is limited Some businesses “skip” cycles Go from Growth to Decline in a short time. Duration of “cycles” Eg. Mars (1930)


Stage 3: The Decision Stage

Quantitative StrategicPlanning Matrix(QSPM)

STEPS TO DEVELOP A QSPM1. 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 factor3. Examine the Stage 2 (matching) matrices, and identify

alternative strategies that the organization should consider implementing

4. Determine the Attractiveness Scores (A.S)5. Compare the Total Attractiveness Scores 6. Compute the Sum Total Attractiveness Score

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QSPM : INFORMATION FROM IFE AND EFE

Key Internal FactorsManagementMarketingFinance/AccountingProduction/OperationsResearch and DevelopmentComputer Information SystemsSum total A.S.

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

Strategic Alternatives

AS 1 to 4 and blank if factor does not effect strategy: TAS = Weight x AS

QSPM

Requires intuitive judgments & educated assumptionsOnly as good as the prerequisite inputs

Limitations

AdvantagesSets of strategies considered simultaneously or sequentiallyIntegration of pertinent external & internal factors in the decision making process

CULTURAL ASPECTS OF STRATEGY CHOICE

ORGANIZATION CULTURE Successful strategies depend on the degree of consistency

with the firm’s culture Logically, we think that strategy should drive behavior. But in

reality it’s the culture-the underline norms belief systems-that dictates how effectively they work together

POLITICS OF STRATEGY CHOICE Politics in Organizations Management hierarchy Career aspirations Allocation of scarce resources

GOVERNANCE ISSUES

Board of Directors Roles & Responsibilities Control & oversight over management Adherence to legal prescriptions Consideration of stakeholder interests Advancement of stockholder rights

CORPORATE GOVERNANCE ISSUES No more than 2 directors are current or former company

executives No directors do business with the company Audit, compensation, and nominating committees made up

of outside directorsEach director owns a large equity stake in the company

At least one outside director with extensive experience Fully employed directors sit on no more than 4 boards – Retirees on no more than 7 Each director attends at lest 75% of all meetings

THANK YOU

Strategy framework

Data & Analytics

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