Strategy Analysis & Choice

Usman Chaudhry

Strategy Analysis & Choice

Strategy analysis and choice largely involve making subjective decisions based on objective information Participation in generating alternative strategies should be as broad as possible. How many feasible alternatives should be considered that could benefit the firm?
Usman Chaudhry. Strategic Management-FSM Ch 6 -2

Strategy Analysis & Choice

Alternative Strategies are derive from

Vision Mission Objectives External audit Internal audit Past successful strategies

Usman Chaudhry. Strategic Management-FSM

Ch 6 -3

Comprehensive StrategyFormulation Framework

Stage 1 The Input Stage

Stage 2 The Matching Stage

Stage 3 The Decision Stage

Intuition and Analysis

Usman Chaudhry. Strategic Management-FSM Ch 6 -4

Strategy-Formulation Analytical Framework

Internal Factor Evaluation Matrix (IFE)

Stage 1 The Input Stage

External Factor Evaluation Matrix (EFE)

Competitive Profile Matrix (CPM)

Usman Chaudhry. Strategic Management-FSM Ch 6 -5

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

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Ch 6 -6

Stage 2: The Matching Stage

SWOT Matrix
SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix
A match between internal and external resources

Usman Chaudhry. Strategic Management-FSM

Ch 6 -7

Stage 2: The Matching Stage

SWOT Matrix

Four Types of Strategies

Strengths-Opportunities (SO) Weaknesses-Opportunities (WO) Strengths-Threats (ST) Weaknesses-Threats (WT)
Ch 6 -8

Usman Chaudhry. Strategic Management-FSM

SWOT Matrix

Strengths S List Strengths Opportunities O List Opportunities

Weaknesses W List Weaknesses WO Strategies Overcoming weaknesses by taking advantage of opportunities

SO Strategies Use strengths to take advantage of opportunities

Threats T
List Threats
Usman Chaudhry. Strategic Management-FSM

ST Strategies
Use strengths to avoid threats
Ch 6 -9

WT Strategies
Minimize weaknesses and avoid threats

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

Usman Chaudhry. Strategic Management-FSM

Ch 6 -10

Stage 2: The Matching Stage

SWOT Matrix

SPACE Matrix
BCG Matrix IE Matrix Grand Strategy Matrix

Usman Chaudhry. Strategic Management-FSM

Ch 6 -11

SPACE Matrix Strategic Position & Evaluation Matrix

Indicates which of the following strategy is most appropriate for a given organization
Aggressive Conservative Defensive Competitive

Usman Chaudhry. Strategic Management-FSM

Ch 6 -12

SPACE Matrix

Two Internal Dimensions

Financial Position (FP) Competitive Position (CP)

Two External Dimensions

Stability / Environment Position (SP) Industry Position (IP)
Usman Chaudhry. Strategic Management-FSM Ch 6 -13

SPACE Factors

Internal Strategic Position

Financial Strength (FS) Return on investment Leverage Liquidity Working capital Cash flow

External Strategic Position

Environmental Stability (ES) Technological changes Rate of inflation Demand variability Price range of competing products Barriers to entry Competitive pressure Price elasticity of demand Ease of exit from market Risk involved in business
Ch 6 -14

Usman Chaudhry. Strategic Management-FSM

SPACE Factors

Internal Strategic Position

Competitive Position (CP) Market share Product quality Product life cycle Customer loyalty Competitions capacity utilization Technological know-how Control over suppliers & distributors

External Strategic Position

Industry Position (IP) Growth potential Profit potential Financial stability Technological know-how Resource utilization Ease of entry into market Productivity, capacity utilization

Usman Chaudhry. Strategic Management-FSM

Ch 6 -15

Steps to Developing a SPACE Matrix

1. 2.

Select a set of variables to define FP, CP, SP, & IP Assign a numerical value: a. From +1 to +6 to each FP & IP dimension b. From -1 to -6 to each SP & CP dimension

3. Compute an average score for each FP, CP, SP, & IP

Usman Chaudhry. Strategic Management-FSM Ch 6 -16

Steps to Developing a SPACE Matrix

1. 2.

Plot the average score on the appropriate axis 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.
Usman Chaudhry. Strategic Management-FSM Ch 6 -17

SPACE Matrix
FP
Conservative
+6 +5 +4 +3 +2 +1 +1 +2 -1 -2 -3 -4 -5

Aggressive

CP

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

Defensive

-6

Competitive

SP
Usman Chaudhry. Strategic Management-FSM Ch 6 -18

Stage 2: The Matching Stage

SWOT Matrix SPACE Matrix

BCG Matrix
IE Matrix Grand Strategy Matrix

Usman Chaudhry. Strategic Management-FSM

Ch 6 -19

BCG Matrix

Boston Consulting Group Matrix

Enhances multi-divisional firm to manage its portfolio of businesses by examining the relative market share position Divisions may compete in different industries Focus on market-share position & industry growth rate
Usman Chaudhry. Strategic Management-FSM Ch 6 -20

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

Usman Chaudhry. Strategic Management-FSM

Ch 6 -21

BCG Matrix

Relative Market Share Position High 1.0 Industry Sales Growth Rate High +20 Medium .50 Low 0.0

Stars II Cash Cows III

Ch 6 -22

Question Marks I Dogs IV

Medium 0

Low -20

Usman Chaudhry. Strategic Management-FSM

BCG Matrix
Question Marks

Low relative market share compete in high-growth industry

Cash needs are high Cash generation is low
e.g., IT/Mobile Applications, Sales of Cds falling

Decision to strengthen (intensive strategies) or divest

Usman Chaudhry. Strategic Management-FSM

Ch 6 -23

BCG Matrix
Stars
High relative market share and high growth rate Best long-run opportunities for growth & profitability
e.g., IPhone, IPods

Substantial investment to maintain or strengthen dominant position Integration strategies, intensive strategies, joint ventures
Usman Chaudhry. Strategic Management-FSM Ch 6 -24

BCG Matrix
Cash Cows
High relative market share, competes in low-growth industry/mature market Generate cash in excess of their needs Milked for other purposes Maintain strong position as long as possible Product development, concentric diversification weakensretrenchment or divestiture
e.g., Kelloggs Corn Flakes, Coca Cola
Usman Chaudhry. Strategic Management-FSM Ch 6 -25

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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Ch 6 -26

Stage 2: The Matching Stage

SWOT Matrix SPACE Matrix BCG Matrix

IE Matrix
Grand Strategy Matrix

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Ch 6 -27

The Internal-External Matrix

Positions an organizations various divisions in a ninecell display Similar to BCG Matrix except the IE Matrix:
Requires more information about the divisions Strategic implications of each matrix are different

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Ch 6 -28

IE Matrix

Usman Chaudhry. Strategic Management-FSM

Ch 6 -29

IE Matrix

Based on two key dimensions

The IFE total weighted scores on the x-axis The EFE total weighted scores on the y-axis

Divided into three major regions

Grow and build Cells I, II, or IV Hold and maintain Cells III, V, or VII Harvest or divest Cells VI, VIII, or IX
Usman Chaudhry. Strategic Management-FSM Ch 6 -30

IE Matrix

Usman Chaudhry. Strategic Management-FSM

Ch 6 -31

Stage 2: The Matching Stage

SWOT Matrix SPACE Matrix BCG Matrix IE Matrix

Grand Strategy Matrix

Usman Chaudhry. Strategic Management-FSM

Ch 6 -32

Grand Strategy Matrix

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

Usman Chaudhry. Strategic Management-FSM

Ch 6 -33

Grand Strategy Matrix

RAPID MARKET GROWTH Quadrant II Market development Market penetration Product development Horizontal integration Divestiture Liquidation Quadrant I Market development Market penetration Product development Forward integration Backward integration Horizontal integration Concentric diversification Quadrant IV Concentric diversification Horizontal diversification Conglomerate diversification Joint ventures

1. 2. 3. 4. 5. 6.

1. 2. 3. 4. 5. 6. 7.

WEAK COMPETITIVE POSITION

1. 2. 3. 4.

STRONG COMPETITIVE POSITION

5.

Quadrant III Retrenchment Concentric diversification Horizontal diversification Conglomerate diversification Liquidation

1. 2. 3. 4.

SLOW MARKET GROWTH

Usman Chaudhry. Strategic Management-FSM Ch 6 -34

Grand Strategy Matrix

Quadrant I
Excellent strategic position Concentration on current markets/products Take risks aggressively when necessary

Usman Chaudhry. Strategic Management-FSM

Ch 6 -35

Grand Strategy Matrix

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

Usman Chaudhry. Strategic Management-FSM

Ch 6 -36

Grand Strategy Matrix

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

Usman Chaudhry. Strategic Management-FSM

Ch 6 -37

Grand Strategy Matrix

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

Usman Chaudhry. Strategic Management-FSM

Ch 6 -38

Strategy-Formulation Analytical Framework

Stage 3: The Decision Stage

Quantitative Strategic Planning Matrix (QSPM)

Usman Chaudhry. Strategic Management-FSM

Ch 6 -39

QSPM

Quantitative Strategic Planning Matrix

Technique designed to determine the relative attractiveness of feasible alternative actions

Usman Chaudhry. Strategic Management-FSM

Ch 6 -40

QSPM
Strategic Alternatives
Weight
Key External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/Environmental Technological Competitive Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Computer Information Systems
Usman Chaudhry. Strategic Management-FSM Ch 6 -41

Strategy 1

Strategy 2

Strategy 3

Steps to Develop a QSPM

1. 2. 3.

4. 5. 6.

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 Compare the Total Attractiveness Scores Compute the Sum Total Attractiveness Score
Ch 6 -42

Usman Chaudhry. Strategic Management-FSM

QSPM

Limitations
Requires intuitive judgments & educated assumptions Only as good as the prerequisite inputs

Usman Chaudhry. Strategic Management-FSM

Ch 6 -43

QSPM
Advantages
Sets of strategies considered simultaneously or sequentially Integration of relevant external & internal factors in the decision making process

Usman Chaudhry. Strategic Management-FSM

Ch 6 -44

Cultural Aspects of Strategy Choice

Organization Culture
Successful strategies depend on the degree of consistency with the firms culture

Usman Chaudhry. Strategic Management-FSM

Ch 6 -45