Chapter 6 Strategy Analysis

1
Chapter 6Strategy Analysis Choice
2
Strategy Analysis Choice
Nature of Strategy Analysis Choice

• -- Establishing long-term objectives
• -- Generating alternative strategies
• -- Selecting strategies to pursue
• -- Best alternative - achieve mission
  objectives

3
Strategy Analysis Choice
Alternative Strategies Derive From --

• Vision
• Mission
• Objectives
• External audit
• Internal audit
• Past successful strategies

4
(No Transcript)
5
Comprehensive Strategy-Formulation Framework
Stage 1The Input Stage
Stage 2The Matching Stage
Stage 3The Decision Stage
6
Strategy-Formulation Analytical Framework
Internal Factor EvaluationMatrix (IFE)
Stage 1The Input Stage
Competitive Profile Matrix(CPM)
External Factor EvaluationMatrix (EFE)
Note EFE and CPM form external and IFE from
internal (assessment)
7
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

8
Strategy-Formulation Analytical Framework
SWOT Matrix
Stage 2The Matching Stage
BCG Matrix
Grand Strategy Matrix
9
Stage 2 The Matching Stage

• Match between organizations internal resources
  skills and the opportunities risks created by
  its external factors
• E.g. internal strong R and D function
• External changing demographics (population
  getting older)
• Strategy Develop new products for older adults
  (related to long term objectives financial or
  strategic)

10
Stage 2 The Matching Stage SWOT Matrix
Four Types of Strategies Strengths-Opportunities
(SO) Use a firms internal strengths to take
advantage of external opportunities
Weaknesses-Opportunities (WO) Improving
internal weaknesses by taking advantageof
external opportunities Strengths-Threats
(ST) Use a firms strengths to avoid or reduce
the impact of external threats. Weaknesses-Threat
s (WT) Defensive tactics aimed at reducing
internal weaknesses and avoiding external threats
11
SWOT Matrix
12
Matching Key Factors to Formulate Alternative
Strategies
Key Internal Factor
Key External Factor
Resultant Strategy
Which types of strategies, e.g. intensive
diversification, are referred to above
13
(No Transcript)
14
Key Strategies

• Accelerate product launches by strengthening R
  and D team
• Extend links with key technology centres
• Raise additional venture capital
• Expand senior management team in sales/marketing
• Recruit non-executive directors
• Strengthen human resources function and introduce
  share options for staff
• Appoint advisers for intellectual property and
  finance
• Seek new market segments/applications for
  products

15
SWOT Matrix
Inset key strategies into correct box element of
the Matrix
16
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

17
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

18
BCG Matrix
Relative Market Share Position

• Ratio of a divisions own market share in an
  industry to the market share held by the largest
  rival firm in that industry

19
BCG Matrix
Relative Market Share Position
High 1.0
Medium .50
Low 0.0
Industry Sales Growth Rate
High 20
Medium 0
Low -20
20
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

21
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

22
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 weakensretrenchment or divestiture

23
BCG Matrix
Dogs

• Low relative market share compete in slow or no
  market growth
• Weak internal external position
• Liquidation, divestiture, retrenchment

24
Grand Strategy Matrix

• Tool for formulating alternative strategies
• Based on two dimensions
• Competitive position
• Market growth

25
RAPID MARKET GROWTH

• 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

WEAK COMPETITIVE POSITION
STRONG COMPETITIVE POSITION

• Quadrant IV
• Concentric diversification
• Horizontal diversification
• Conglomerate diversification
• Joint ventures

• Quadrant III
• Retrenchment
• Concentric diversification
• Horizontal diversification
• Conglomerate diversification
• Liquidation

SLOW MARKET GROWTH
26
Grand Strategy Matrix
Quadrant I

• Excellent strategic position
• Concentration on current markets/products
• Take risks aggressively when necessary
• Which type of strategy would you suggest?

27
Grand Strategy Matrix
Quadrant II

• Evaluate present approach
• How to improve competitiveness
• Rapid market growth requires intensive strategy

28
Grand Strategy Matrix
Quadrant III

• Compete in slow-growth industries
• Weak competitive position
• Drastic changes quickly
• Cost asset reduction (retrenchment)

29
Grand Strategy Matrix
Quadrant IV

• Strong competitive position
• Slow-growth industry
• Diversification to more promising growth areas

30
Strategy-Formulation Analytical Framework
Quantitative StrategicPlanning Matrix(QSPM)
Stage 3The Decision Stage

• Technique designed to determine the relative
  attractiveness of feasible alternative actions

31
Steps to Develop a QSPM

• Make a list of the firms key external
  opportunities/threats and internal
  strengths/weaknesses in the left column
• Assign weights to each key external and internal
  factor
• Examine the Stage 2 (matching) matrices, and
  identify alternative strategies that the
  organization should consider implementing
• Determine the Attractiveness Scores (A.S)
• Compare the Total Attractiveness Scores
• Compute the Sum Total Attractiveness Score

32
QSPM information from IFE and EFE
Strategic Alternatives
AS 1 to 4 and blank if factor does not effect
strategy TAS Weight x AS
33
QSPM
Limitations

• Requires intuitive judgments educated
  assumptions
• Only as good as the prerequisite inputs

Advantages

• Sets of strategies considered simultaneously or
  sequentially
• Integration of pertinent external internal
  factors in the decision making process

Example of a QSPM for Dell
34
Questions

• Discuss 3 techniques that can be used by
  organisations to choose alternative paths to
  achieve their long term objectives.
• Discuss how to choose the best of a set of
  alternative strategies.