Modern tool for analysis of the situation

Internal factors External factors EXTERNAL OPPORTUNITIES (O) EXTERNAL THREATS (T) SO STRATEGY MAXI MAXI (successful strategy) ST STRATEGY MAXI MINI (Avoid threats) WO STRATEGY MINI - MAXI (Overcome weakness) WT STRATEGY MINI MINI (Retrenchment strategy) INTERNAL STRENGTHS (S) INTERNAL WEAKNESSES (W)

TOWS MATRIX FOR STRATEGY FORMULATION

The TOWS matrix

Facilitates matching the external threats and opportunities with internal weaknesses and strengths Model starts with THREATS because in many situations a company undertakes strategic planning as a result of perceived crisis, problem or threat

FOUR ALTERNATIVE STRATEGIES

WT strategy aims to minimise both weaknesses and threats WO strategy attempts to minimise the weaknesses and maximises opportunities

ST strategy based on organisations strengths to deal with threats in the environment SO strategy desirable situation use strengths to take advantage of opportunities

Time dimensions and the TOWS matrix

Internal and external environments are dynamic Strategic designer must prepare several TOWS matrices at different points in time

THE PORTFOLIO MATRIX

A tool for allocating resources Developed by Boston Consulting Group (BCG) Linkage between GROWTH RATE OF THE BUSINESS AND COMPETITIVE POSITION OF THE FIRM

Question Marks

Weak market share, High growth rate Require cash investment

Stars

High growth, strongly competitive position Have opportunities for growth, profit

Cashcows

Strong competitive position, low growth rate Makes product at low cost Provide needed cash for operation

Dogs

Low growth rate and weak market share Not profitable, generally disposed of Developed for large corporations with several divisions

Business Portfolio matrix

B U S I N E S S G R O W T H R A T E

STARS HIGH CASH COWS LOW

QUESTION MARKS

DOGS

STRONG

WEAK

RELATIVE COMPETITIVE POSITION

Major kinds of strategies and policies

Growth How much growth should occur? How fast? How should it occur?

Finance

Clear strategy non business enterprise

Organisation

How centralised or decentralised? What kinds of departmental patterns? How should staff positions be designed?

Personnel

Human resources and relationships Union relations, compensation, selection, training, appraisal

Public relations

Strategy designed closeness to the public Fit all organisations and situations Ex: Two major strategic areas

Products or Services: Key questions What is our business? Who are our customers? Customers wants? Product leader? Develop new products? Potential competition

Profits expected? Basic form of strategy? Advantages of serving customers

Marketing

How do customers buy? How is it best for us to sell? Offer something that competitors do not? Supply supporting services? Best pricing strategy? Best in serving customers?

Industry Analysis and competitive strategies by PORTER

Prof. Michael Porter at Harvard suggested strategy formulation Requires analysis of the industry

Industry analysis

The competition among companies The threat of new companies entering market Possibility of using substitute products Bargaining power of suppliers Bargaining power of buyers

Overall cost leadership strategy

Aims at reduction in cost Based on experience Close watch on costs in R & D Objective is to have low cost structure Ex: Lincoln Electric company produces arc welding equipment and supplies Low cost ivory soap sold in a broad market

Differentiation strategy

Something unique in the industry Ex: Caterpillar company availability of spare parts

Focused strategies

Concentrates on special groups of customers Ex: Specific geographic region Specific segment of market Focused low cost strategy Focused differentiation strategy

Effective implementation of strategies

Allocation of resources Appropriate organisation structure Effective management information system (MIS) Budgeting system Reward system supports the strategy

Strategic planning failures

Managers inadequately prepare Information is insufficient Goals too vague Business units not identified clearly Review not done effectively Link insufficient

Successful implementation of strategies

Communicating strategies to all key decision making managers Developing and communicating planning premises Ensuring that action plans contribute to and reflect major objectives and strategies

Reviewing strategies regularly Developing contingency strategies and programs Making the organisation structure fit planning needs

Continuing to emphasize planning and implementation strategy Creating a company climate that forces planning

Premising and forecasting

Planning Premises Defines as the anticipated environment in which plans are expected to operate Include assumptions of forecasts of the future Forecast is a prerequisite of planning

Environmental Forecasting

Managers compute the optimum method of reaching their objective

Values and areas of forecasting

Makes manager to think ahead Disclose areas where necessary control is lacking Participation throughout the organisation, helps to unify and co-ordinate plans

Environmental areas

Economic Social Political/legal Technological Frequently chosen for making forecasts

Forecasting with the Delphi technique

Developed by Olaf Helmer and his colleagues at the RAND corporation Process: A panel of experts selected inside and outside the organisation Experts are asked to make forecast Answers are compiled, results fedback to panel members

Further estimates made Process repeated Convergence of opinion begins to evolve acceptable forecast

Effective premising

Selection of the premises that bear materially on the programs Development of alternative premises for contingency planning Verification of the consistency of premises Communication of the premises