ENVIRONMENTAL SCANNING

AND LEADERSHIP
Unit II
 Methods. SWOT Analysis Strategies and
competitive advantages in diversified
companies and its evaluation.
Strategic Analysis and Choice: Tools and
techniques- Strategic Leadership: Leadership
and Style Key Strategic Leadership Actions -
Developing Human Capital and Social Capital
Balanced Scorecard.
SWOT Analysis
Strategies and competitive advantages
in diversified companies and its
evaluation
Strategy Tasks
Picking the industries to enter and how to enter
Actions to boost the combined performance of
the business
Leverage business relationships into a competitive
advantages
Establish investment priorities
 When to Diversify
Diminishing growth prospects in current
business
Opportunities to
Add value to customers
Gain competitive advantage
Transfer existing competencies
Cost saving opportunities
Have financial and organizational resources
 When to Diversify
Justifiable only if it builds shareholder wealth
The 3 tests to judge
Industry attractiveness
Cost of entry
Better-off
 Related Diversification
Business share competitively valuable
relationships
Transfer expertise or capabilities
Combining activities lowers costs
Exploit common brand name
Collaboration creates strength
Develops synergy
 Related Diversification
Strategic fits along the value chain
Upstream
Company
R&D
Sales and Marketing
Manufacturing
Managerial and Support
Downstream
Economies of scope
 Unrelated Diversification
Acquisition of good companies
Targets are usually judged on their ability to
provide financial gain
Companies with undervalued assets
Companies in financial distress
 Unrelated Diversification
Pros Cons
Diversify risk over Unreasonable
several industries expectations for
Invest capital t best managers
advantage Stabilization of profits is
Stabilize profits not realized in practice
Shrewd acquisitions can Corporate meddling
enhance shareholder
wealth
 Types of Diversification Strategies
Horizontal Diversification
Acquiring or developing new products or
offering new services that could appeal to the
companys current customer groups.
In this case the company relies on sales and
technological relations to the existing product
lines.
For example a dairy, producing cheese adds a new type
of cheese to its products.
 Types of Diversification Strategies
Vertical Diversification

occurs when the company goes back to previous

stages of its production cycle or moves forward to
subsequent stages of the same cycle - production of
raw materials or distribution of the final product.

For example, if you have a company that does

reconstruction of houses and offices and you start
selling paints and other construction materials for use
in this business.
 Types of Diversification Strategies
Concentric Diversification

enlarging the production portfolio by adding new products

with the aim of fully utilizing the potential of the existing
technologies and marketing system.

The concentric diversification can be a lot more financially

efficient as a strategy, since the business may benefit from
some synergies in this diversification model. It may enforce
some investments related to modernizing or upgrading the
existing processes or systems.

This type of diversification is often used by small producers

of consumer goods, e.g. a bakery starts producing pastries or
dough products.
Heterogeneous (conglomerate) diversification

Is moving to new products or services that have
no technological or commercial relation with
current products, equipment, distribution
channels, but which may appeal to new groups
of customers.
The major motive behind this kind of diversification is
the high return on investments in the new industry.
Furthermore, the decision to go for this kind of
diversification can lead to additional opportunities
indirectly related to further developing the main
company business - access to new technologies,
opportunities for strategic partnerships, etc.
Corporate Diversification

Involves production of unrelated but definitely

profitable goods. It is often tied to large
investments where there may also be high
returns.
Strategic Analysis and Choice
 The nature of strategy and choice
A comprehensive strategy formulation
framework
The input stage (IFE, EFE, Competitive profile matrix)
The matching concept (SOWT, SPACE, BCG, IE, Grand
Strategy matrix)
The decision stage (Quantitative strategic planning
matrix)
Cultural aspects of strategy choice
The politics of strategy choice
Governance issues
 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-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Ch. 6-29
2001 Prentice Hall
Strategy-Formulation Analytical Framework

Internal Factor Evaluation

Matrix (IFE)

Stage 1: External Factor Evaluation

The Input Stage Matrix (EFE)

Competitive Profile Matrix

(CPM)

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 IFE
Matrix means Internal
Factor Evaluation
Matrix;
Is a popular strategic
management tool
for auditing or evaluati
ng major internal
strengths and internal
weaknesses in
functional areas of an
organization or a
business.
 External Factor
Evaluation (EFE)
matrix method is a
strategic-management
tool often used for
assessment of current
business conditions. The
EFE matrix is a good tool
to visualize and prioritize
the opportunities and
threats that a business is
facing.
 The Competitive
Profile Matrix
(CPM) is a tool that
compares the firm
and its rivals and
reveals their relative
strengths and
weaknesses.
Strategy-Formulation Analytical Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

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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

SWOT Matrix

Strengths
Weaknesses
Opportunities
Threats

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SWOT Matrix

Four Types of Strategies

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

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 SO Strategies

Strengths
Weaknesses Use a firms
internal strengths
Opportunities
to take advantage
Threats SO of external
Strategies opportunities
SWOT

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 WO Strategies

Strengths
Weaknesses Improving internal
weaknesses by
Opportunities
taking advantage
Threats WO of external
Strategies opportunities
SWOT

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 ST Strategies

Strengths Use a firms

Weaknesses strengths
Opportunities to avoid or
Threats reduce the impact
ST of external
Strategies threats
SWOT

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 WT Strategies

Defensive tactics
Strengths aimed at reducing
Weaknesses internal
Opportunities weaknesses &
Threats avoiding
WT environmental
Strategies threats
SWOT

Copyright 2005 Prentice Hall Ch 6 -41

Strategy-Formulation Analytical Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

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SPACE Matrix
Strategic Position & Action Evaluation Matrix

Aggressive
Conservative
Defensive
Competitive

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SPACE Matrix

Two Internal Dimensions

Financial Strength (FS)

Competitive Advantage (CA)

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SPACE Matrix

Two External Dimensions

Environmental Stability (ES)

Industry Strength (IS)

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 SPACE Factors
Internal Strategic Position External Strategic Position

Financial Strength (FS) Environmental Stability (ES)

Technological changes
Return on investment
Rate of inflation
Leverage
Demand variability
Liquidity
Price range of competing products
Working capital
Barriers to entry
Cash flow
Competitive pressure
Price elasticity of demand
Ease of exit from market
Risk involved in business

Ch 6 -46
 SPACE Factors
Internal Strategic Position
Competitive Advantage CA
Market share
Product quality
Product life cycle
Customer loyalty
Competitions capacity utilization
Technological know-how
Control over suppliers & distributors
External Strategic Position
Industry Strength (IS)
Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilization
Ease of entry into market
Productivity, capacity utilization
Ch 6 -47
 SPACE Matrix
FS
Conservative Aggressive
+6Best
+5
+4
+3
+2
+1worst

CA IS
worst-6 -5 -4 -3 -2 -1Best-1Best +1 worst+2 +3 +4 +5 +6 Best

-2
-3

-4
-5
Defensive Competitive
-6 worst
ES
Ch 6 -49
 FINANCIAL STRENGTH

Conservative Aggressive

INDUSTRY STRENGTH
COMPETITVE STRATEGY

Defensive Competitive

ENIVRONMENT STABILITY
 AGGRESSIVE QUADRANT
Excellent position to use internal strength:

1. Take advantage of external opportunities

2. Overcome Internal Weaknesses
3. Avoid or minimize external threats

CONSERVATIVE QUADRANT
Firm should stay close to its core competences and not take risks
 DEFENSIVE QUADRANT
Focus on rectifying internal weakness and external
threats

COMPETITIVE QUADRANT
Use Competitive strategies
Strategy-Formulation Analytical Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

IE Matrix

Grand Strategy Matrix

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 BCG MATRIX
Market-Growth/Market-Share Matrix
A strategic planning tool based on the philosophy
that a products market growth rate and market
share are important in determining marketing
strategy
Factors determining SBU/products position within
a matrix
Product-market growth rate
Relative market share
Growth-Share Matrix Developed by
the Boston Consulting Group
 BCG Classification
Starhigh growth market, dominant market share
requires additional resources for continued growth
Cash cowlow growth, dominant market share
generates surplus resources for allocation to other SBUs
Doglow/declining market, subordinate market share
has diminished prospects and represents a drain on the
portfolio
Question markhigh growth market, low market share
represents a high-risk/cost opportunity requiring a large
commitment of resources to build market share
Strategy-Formulation Analytical Framework
SWOT Matrix

SPACE Matrix

Stage 2: BCG Matrix

The Matching Stage

Grand Strategy Matrix

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The Internal-External (IE) Matrix
The IE Matrix is based on two key
dimensions: the IFE total weighted scores
on the x-axis and the EFE total weighted
scores on the y-axis
Three major regions
Grow and build
Hold and maintain
Harvest or divest

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The Internal-External (IE) Matrix

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 The Grand Strategy Matrix

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 The Grand Strategy Matrix
Quadrant I
continued concentration on current markets
(market penetration and market development)
and products (product development) is an
appropriate strategy
Quadrant II
unable to compete effectively
need to determine why the firms current
approach is ineffective and how the company can
best change to improve its competitiveness

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 The Grand Strategy Matrix
Quadrant III
must make some drastic changes quickly to avoid
further decline and possible liquidation
Extensive cost and asset reduction
(retrenchment) should be pursued first
Quadrant IV
have characteristically high cash-flow levels and
limited internal growth needs and often can
pursue related or unrelated diversification
successfully

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Strategy-Formulation Analytical Framework

Quantitative Strategic
Stage 3:
Planning Matrix
The Decision Stage
(QSPM)

Copyright 2005 Prentice Hall Ch 6 -64

The Quantitative Strategic Planning
Matrix (QSPM)
Quantitative Strategic Planning Matrix
(QSPM)
objectively indicates which alternative
strategies are best

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 QSPM Strategic Alternatives
Key External Factors Weight Strategy 1 Strategy 2 Strategy 3
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/En
vironmental
Technological
Competitive
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information Systems

Ch 6 -66
 The Politics of Strategy Choice
Political maneuvering consumes valuable
time, subverts organizational objectives,
diverts human energy, and results in the
loss of some valuable employees
Political biases and personal preferences
get unduly embedded in strategy choice
decisions

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 The Politics of Strategy Choice
The hierarchy of command in an
organization, combined with the career
aspirations of different people and the
need to allocate scarce resources,
guarantees the formation of coalitions of
individuals who strive to take care of
themselves first and the organization
second, third, or fourth

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 Tactics to Aid Strategists

Equifinality

Satisfying

Generalization

Focus on Higher-Order Issues

Provide Political Access on Important Issues

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 Equifinality- It is often possible to achieve similar
results using different means or paths. Strategists
should recognize that achieving a successful outcome
is more important than imposing the method of
achieving it. It may be possible to generate new
alternatives that give equal results but with far
greater potential for gaining commitment.

Satisfying- Achieving satisfactory results with an

acceptable strategy is far better than failing to achieve
optimal results with an unpopular strategy.

Generalizations -Shifting focus from specific issues

to more general ones may increase strategists'
options for gaining organizational commitment.
 Focus on Higher Order Issues- By raising an issue to a
higher level, many short term interest can be postponed in
favor of long term interests. For instance , by focusing on
issues of survival , the airline and automotive industries
were able to persuade unions to make concessions on wage
increases.

Provide Political Access on Important Issues- Strategy and

policy decisions with significant negative consequences for
middle managers will motivate intervention behavior from
them. If middle managers do not have an opportunity take
a position on such decisions in appropriate
political forums, they are capable of successfully resisting
the decisions after they are made. Providing such political
access provides strategists with information that otherwise
might not be available and that be useful in managing
intervention behavior.
 Governance Issues
Board of directors
a group of individuals who are elected by the
ownership of a corporation to have oversight
and guidance over management and who
look out for shareholders interests

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Governance Issues

Board of Directors Roles & Responsibilities

Control & oversight over management

Adherence to legal prescriptions
Consideration of stakeholder interests
Advancement of stockholder rights

Copyright 2005 Prentice Hall Ch 6 -73

 Corporate Governance Issues
Business Weeks principles of good governance

1. No more than 2 directors current or former company executives

2. No directors do business with the company
3. Audit, compensation, and nominating committees made up
of outside directors
4. Each director attends at lest 75% of all meetings
5. Audit committee meets at least four times a year
6. CEO is not also the Chairperson of the Board
7. Shareholders have considerable power and information to
choose & replace directors
8. Stock options are considered a corporate expense
9. No interlocking directorships

Copyright 2005 Prentice Hall Ch 6 -74

Cultural Aspects of Strategy Choice

Organization Culture

Successful strategies depend on the degree of

consistency with the firms culture

Copyright 2005 Prentice Hall Ch 6 -75