Chapter 6 Strategy Analysis

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Chapter 6Strategy Analysis Choice
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Strategy Analysis Choice
Nature of Strategy Analysis Choice

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

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Comprehensive Strategy-Formulation Framework
Stage 1The Input Stage
Stage 2The Matching Stage
Stage 3The Decision Stage
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Strategy-Formulation Analytical Framework
Internal Factor EvaluationMatrix (IFE)
Stage 1The Input Stage
External Factor EvaluationMatrix (EFE)
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Stage 1 The Input Stage

• Basic input information comes from the internal
  /external evaluation (matrices)
• Requires strategists to quantify subjectivity
  early in the process the assigned weights
• Good intuitive judgment always needed

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Strategy-Formulation Analytical Framework
SWOT Matrix
Stage 2The Matching Stage
BCG Matrix
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Stage 2 The Matching Stage SWOT analysis

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

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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
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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
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Ryanair Matching Key Factors to Formulate
Alternative Strategies
Key Internal Factor
Key External Factor
Resultant Strategy
The above is based on the internal and external
evaluation of Ryanair
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Strengths Weaknesses
R and D almost complete Basis for strong management team Key first major customer acquired Initial product can evolve into range of offerings Located near a major centre of excellence Very focused management/staff Well-rounded and managed business Over dependent on borrowings - Insufficient cash resources Board of Directors is too narrow Lack of awareness amongst prospective customers Need to relocate to larger premises Absence of strong sales/marketing expertise Overdependence on few key staff Emerging new technologies may move market in new directions
Threats Opportunities
Major player may enter targeted market segment New technology may make products obsolescent Economic slowdown could reduce demand Euro/Yen may move against Market may become price sensitive Market segment's growth could attract major competition Market segment is poised for rapid growth Export markets offer great potential Distribution channels seeking new products Scope to diversify into related market segments
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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

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SWOT Matrix
Leave Blank Strengths SList Strengths Weaknesses W List Weaknesses
Opportunities O List Opportunities SO Strategies Match and determine strategy WO Strategies Match and determine strategy
Threats T List Threats ST Strategies Match and determine strategy WT Strategies Match and determine strategy
Inset key strategies into correct box element of
the Matrix
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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

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Boston Consulting Group (BCG) Matrix

• Enhances multi-divisional firm in formulating
  strategies
• Divisions may compete in different industries
• Focus on market-share position industry growth
  rate

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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

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

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BCG Matrix
Quadrant 1 Question Marks or Problem child

• Low relative market share compete in
  high-growth industry
• Cash needs are high
• Case generation is low
• Decision to strengthen (intensive strategies) or
  divest (a defensive strategy)

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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

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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, Related 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-Formulation Analytical Framework
Quantitative StrategicPlanning Matrix(QSPM)
Stage 3The Decision Stage

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

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Steps to Develop a QSPM

1. Make a list of the firms 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 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
Strategic Alternatives
AS 1 to 4 and blank if factor does not effect
strategy TAS Weight x AS
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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
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Questions

• Explain, using a SWOT analysis, how you would
  come up with a set of strategies for an
  organisation based on an internal evaluation,
  external evaluation and long term objectives.
  (30 marks)
• Describe, using suitable examples, the BCG matrix
  (10 marks)
• Explain, using an example, the types of
  strategies a firm could adopt for each of the 4
  quadrants. (20 marks)