Strategy Analysis

1
Strategy Analysis Choice

• Chapter 6

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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.

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Strategic Analysis and Choice

• Making subjective decisions based on objective
  information
• Generate feasible alternatives
• Evaluate alternatives
• Select specific course of action

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Generating selecting strategies

• Develop set of most attractive alternative
  strategies
• Determine for the set
• Advantages
• Disadvantages
• Trade-offs
• Costs
• Benefits

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• Involve a broad mix of personnel
• Representation from each department/function
• Provides opportunity to gain understanding of
  firms direction
• Provides vehicle to develop commitment to
  attainment of organizational objectives

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• Evaluate each alternative
• Internal and external audit information
• Firms mission statement
• Listed in writing
• Ranked in order of attractiveness

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Strategy-Formulation Analytical Framework
Stage 1 The Input Stage
Stage 2 The Matching Stage
Stage 3 The Decision Stage
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Strategy-Formulation Analytical Framework
Stage 1 The Input Stage
External Factor Evaluation Matrix (EFE)
Competitive Profile Matrix
Internal Factor Evaluation Matrix (IFE)
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Strategy-Formulation Analytical Framework
Stage 2 The Matching Stage
Threats Opportunities Weaknesses Strengths (TOWS)
Strategic Position Action Evaluation (SPACE)
Boston Consulting Group Matrix (BCG)
Internal- External Matrix (IE)
Grand Strategy Matrix
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Strategy-Formulation Analytical Framework
Stage 3 The Decision Stage
Quantitative Strategic Planning Matrix (QSPM)
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Matching Key Factors
Resultant Strategy
Key External Factor
Key Internal Factor
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Four Types of Strategies
Threats Opportunities Weaknesses Strengths (TOWS)
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SO Strategies
Threats Opportunities Weaknesses Strengths (TOWS)
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WO Strategies
Threats Opportunities Weaknesses Strengths (TOWS)
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ST Strategies
Threats Opportunities Weaknesses Strengths (TOWS)
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WT Strategies
Threats Opportunities Weaknesses Strengths (TOWS)
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• Match internal strengths with external
  opportunities and record the resultant SO
  strategies
• Match internal weaknesses with external
  opportunities and record the resultant WO
  strategies
• Match internal strengths with external threats
  and record the resultant ST strategies
• Match internal weaknesses with external threats
  and record the resultant WT strategies

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TOWS Matrix
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• Strategic position action evaluation matrix
  (SPACE)
• Four quadrant framework
• Determines appropriate strategies
• Aggressive
• Conservative
• Defensive
• Competitive

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• Two Internal Dimensions
• Financial Strength FS
• Competitive Advantage CA
• Two External Dimensions
• Environmental Stability ES
• Industry Strength IS

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Strategic Position Action Evaluation Matrix
(SPACE)

• Overall strategic position determined by
• Financial strength FS
• Competitive advantage CA
• Environmental stability ES
• Industry strength IS

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• Developing the SPACE Matrix
• EFE Matrix
• IFE Matrix
• Financial Strength
• Competitive Advantage
• Environmental Stability
• Industry Strength

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The SPACE Matrix

• Select variables to define FS, CA, ES, IS.
• Assign numerical ranking from 1 (worst) to 6
  (best) for FS and IS Assign numerical ranking
  from 1 (best) to 6 (worst) for ES and CA.
• Compute average score for FS, CA, ES, IS.

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• Plot the average scores on the Matrix
• Add the two scores on the x-axis and plot point
  on X. Add the scores on the y-axis and plot Y.
  Plot the intersection of the new xy point.
• Draw a directional vector from origin through the
  new intersection point.

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SPACE Factors
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SPACE Factors
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SPACE Matrix
FS
Conservative
Aggressive
6
5
4
3
2
1
CA
IS
-6
-5
-4
-3
-2
-1
1
2
3
4
5
6
-1
-2
-3
-4
-5
Competitive
Defensive
-6
ES
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Boston Consulting Group Matrix(BCG)

• Enhances multidivisional firms efforts to
  formulate strategies
• Autonomous divisions (or profit centers)
  constitute the business portfolio
• Firms divisions may compete in different
  industries requiring separate strategy

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• Graphically portrays differences among divisions
• Focuses on market share position and industry
  growth rate
• Manage business portfolio through relative market
  share position and industry growth rate

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• Relative market share position defined
• Ratio of a divisions own market share in a
  particular industry to the market share held by
  the largest rival firm in that industry.

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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
• Stars
• Cash Cows
• Dogs

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Grand Strategy Matrix

• Popular tool for formulating alternative
  strategies
• Based on two evaluative dimensions
• Competitive position
• Market growth

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Grand Strategy Matrix
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
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• Quadrant I
• Concentration on current markets and products
• Take risks aggressively when necessary
• Excellent strategic position
• Quadrant II
• Evaluate present approach seriously
• How to change to improve competitiveness
• Rapid market growth requires intensive strategy

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• 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

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Strategy Analysis Choice

• Quantitative Strategic Planning Matrix (QSPM)
• Comprises Stage 3 of the analytical framework
• Analytical technique designed to determine the
  relative attractiveness of feasible alternative
  actions.
• Uses input from Stage 1 and Stage 2

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Strategy Analysis Choice

• Quantitative Strategic Planning Matrix (QSPM)
• Tool for objective evaluation of alternative
  strategies
• Based on identified external and internal crucial
  success factors
• Requires good intuitive judgment

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QSPM
Strategic Alternatives
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QSPM

• 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

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• Examine the Stage 2 (matching) matrices and
  identify alternative strategies that the
  organization should consider implementing
• Determine the Attractiveness Scores (AS)
• Compute the total Attractiveness Scores
• Compute the Sum Total Attractiveness Score

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• QSPM
• Positives
• Sets of strategies examined simultaneously or
  sequentially
• Requires the integration of pertinent external
  and internal factors in the decision-making
  process

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