Strategy Analysis

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Lecture 6

• Strategy Analysis Choice

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Objectives

• Understanding the techniques of formulating and
  choosing alternative strategies.

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Topics

• Strategy classification
• A Comprehensive Strategy-Formulation Framework
• The Input Stage
• The Matching Stage
• The Decision Stage
• Source David 2005, Strategic management concept
  case, 10 edition, Pearson, New Jersy.
• Coulter 2005, strategic
  management in action, 3rd edn, Pearson , New
  Jersy.

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Strategy Analysis Choice
Nature of Strategy Analysis Choice

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

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Strategy Analysis Choice
Alternative Strategies Derive From --

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

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Strategy Analysis Choice
Generating Alternatives --
Participation in generating alternative
strategies should be as broad as possible
Revisit module 1 to review various types of
strategies
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Types of strategies Recap lecture1

• Integration strategy
• Intensive strategy
• Diversification strategy
• Defensive strategy (divestiture, retrenchment,
  liquidation)
• Generic strategy
• First mover strategy
• Outsourcing strategy

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Strategies across organisational level

• As with objectives, strategies can be developed
  across all organisational levels, i.e. corporate
  level, business level, and functional level

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Formulating Various Levels of Strategy

• Corporate level strategies seek to determine
  what businesses a company should be in or wants
  to be in. Strategies include
• Growth to increase sales or earnings
• Stability maintain its market position,
  Pause/proceed with caution,
• Turnaround or Harvest For survival, cut costs
  and eliminate losses
• Combination of the above
• Refer to reading A view of generic and
  specific strategies at the corporate level which
  can be found in the study package reading 6.6
  (undergraduate) and 7.5 ( postgraduate)

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Formulating Various Levels of Strategy

• Business level strategies seek to determine how
  an organisation should compete in each of its
  businesses
• generic strategy (cost leadership,
  differentiation, focus)
• Functional level (specific operations of each
  business)
• Functional level strategies spell out how
  functional areas can support business-level
  strategy, e.g.
• RD department might accelerate innovation to
  provide new products before competitors
• Purchasing strategy
• Logistics strategy
• Marketing strategy
• Financial strategy
• HRM strategy
• Operations strategy

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Levels of Strategies
Corporate level
Business level
Functional level
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Comprehensive Strategy-Formulation Framework
Stage 1The Input Stage
Stage 2The Matching Stage
Stage 3The Decision Stage
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Stage 1 Input stage

• What are the inputs?

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Strategy-Formulation Analytical Framework
TOWS Matrix
BCG Matrix
Stage 2The Matching Stage
SWOT portfolio model
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Stage 2 The Matching Stage

• Match between organizations internal resources
  skills and the opportunities risks created by
  its external factors

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Stage 2 The Matching Stage
TOWS Matrix

• Strengths
• Weaknesses
• Opportunities
• Threats

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TOWS Matrix
Four Types of Strategies

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

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SO Strategies
Use a firmsinternal strengthsto take
advantageof external opportunities
StrengthsWeaknessesOpportunities ThreatsSWOT
SOStrategies
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WO Strategies
Improving internalweaknesses bytaking
advantageof externalopportunities
StrengthsWeaknessesOpportunities ThreatsSWOT
WOStrategies
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ST Strategies
Use a firms strengthsto avoid orreduce the
impactof externalthreats
StrengthsWeaknessesOpportunities ThreatsSWOT
STStrategies
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WT Strategies
Defensive tacticsaimed at reducinginternal
weaknesses avoidingenvironmentalthreats
StrengthsWeaknessesOpportunities ThreatsSWOT
WTStrategies
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TOWS Matrix
Developing the SWOT

• List firms key internal Strengths
• List firms key internal Weaknesses
• List firms key external Opportunities
• List firms key external Threats

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TOWS Matrix
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Matching Key Factors to Formulate Alternative
Strategies
Key Internal Factor
Key External Factor
Resultant Strategy
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Portfolio Analysis Boston Consulting Group
Matrix (BCG Matrix)

• Autonomous divisions business portfolio
• Divisions may compete in different industries
• Focus on market-share position industry growth
  rate

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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.

Ex RCCL 25 market share Carnival 44 Relative
market share position is 25/44
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BCG Matrix
Relative Market Share Position
High 1.0
Medium .50
Low 0.0
Industry Sales Growth Rate
High 20
Medium 0
Low -20
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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

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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

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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

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BCG Matrix
Dogs

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

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Strategy choice

• The three cells in the lower right-hand corner of
  the GE matrix losers
• What corporate strategy should be adopted?
• The three cells in the upper left-hand corner
  winners
• Strategy?
• The three cells along the diagonal in the matrix
  question mark, average business, and profit
  producers
• Strategy?

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SWOT portfolio Model

• Two dimensions
• Internal environment
• External environment

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Many strengths Few weaknesses
Many weaknesses Few strengths
Many opportunities Few threats
Many threats Few opportunities
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SWOT portfolio Model

• Appropriate strategy types
• Grow/develop or stabilise full ahead
• Turnaround steady as she goes
• Grow/develop or Harvest Ride out the storm
• Turnaround or Harvest Time to salvage

Source James 2005.
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Strategy-Formulation Analytical Framework
Quantitative StrategicPlanning Matrix(QSPM)
Stage 3The Decision Stage
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QSPM
Quantitative Strategic Planning Matrix (similar
to generic strategic evaluation tool in the study
guide)

• Only technique in literature designed to
  determine the relative attractiveness of feasible
  alternative actions

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QSPM

• Steps
• List the firms key external opportunities
  threats list the firms key internal strengths
  and weaknesses
• Assign weights to each external and internal
  critical success factor (five point scale from1
  to 5 representing less important to most critical
  important)

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QSPM

• Examine the Stage 2 (matching) matrices and
  identify alternative strategies that the
  organization should consider implementing
• Determine the Attractiveness Scores (AS) scores
  are assigned to each strategy to indicate the
  relative attractiveness of one strategy over
  others, considering the particular factor. Score
  1 not attractive, 2somewhat attractive, 3
  reasonably attractive, 4 highly attractive,
  5most attractive.

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QSPM

• Compute the total Attractiveness Scores
• Compute the Sum Total Attractiveness Score

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QSPM
Strategic Alternatives
Ex RCCL QSPM