Strategy Analysis

and
Choice
INTRODUCTION :

“the process of conducting research on the business

environment within which an organization operates
and on the organization itself, in order to formulate
strategy.”

“Strategic analysis is about looking outside what is

happening outside the organization now and in the
future.”

The focus is external because outside factors are

influence powerfully to an organization .
It studies the uncertainty of the environment. Here the
environment are straightforward to understand.
Change is not significant and is predictable on the basis
of historical data. Ex. Row material ,market condition
suppliers and some mass manufacturing companies.

A number of tools are used in the process of strategic

analysis, including PEST, SWOT analysis, and Michael
Porter's five forces model etc . Some as follow…
1.PEST Analysis - a technique for understanding the
"environment" in which a business operates
2.Scenario Planning - a technique that builds various
plausible views of possible futures for a business
3.Five Forces Analysis - a technique for identifying the
forces which affect the level of competition in an industry
4.Market Segmentation - a technique which seeks to
identify similarities and differences between groups of
customers or users
5.Directional Policy Matrix - a technique which
summarizes the competitive strength of a businesses
operations in specific markets
6.Competitor Analysis - a wide range of techniques and
analysis that seeks to summarize a businesses' overall
competitive position
7.Critical Success Factor Analysis - a technique to
identify those areas in which a business must outperform
the competition in order to succeed
8.SWOT Analysis - a useful summary technique for
summarizing the key issues arising from an assessment of
a businesses "internal" position and "external"
environmental influences.
 Strategic Analysis & Choice(SAC)
It determine alternative course of action that could best enable
for firm to achieve its mission and objectives. The firm`s
present strategy , objectives coupled with information
gathered through internal and external analysis provide a
basis for generating and evaluating feasible alternative
strategies.
In simple way SAC is
 Set Long-Term Objectives
 Generate feasible alternatives
 Evaluate alternatives
 Choose courses of action
 Decision based on objective information
 The Strategy Formulation Analytical
Framework

Stage 1: The Input Stage

External Analysis Internal Analysis SWOT Analysis

Stage 2: The Matching Stage

Set Long Term Objectives
Generate feasible alternative Strategies

Stage 3: The Decision Stage

Evaluate and Choose Strategies on the objective
information
 Long Term Objectives - Areas
1.Quantitative Areas
 Profitability
 Productivity
 Growth
 Shareholder Wealth
 Market Position
 Technological Leadership
2.Qualitative Areas
 Reputation
 Social Responsibility
 Employees
QUANTITATIVE AREAS

 Profitability
 Net profit margin; ROI
 Productivity
 Lower costs
 Growth
 Increases in sales, assets, net income
 Competitive Position
 Market Share
 Technological Leadership
 Shareholder Wealth
 EPS; Dividends; Shareholder Value
(stock)
 Qualitative Areas

 Employee Relations
 Social Responsibility
 Reputation

These are as have long term

objectives that can be measured.
OBJECTIVES:

To Provide Direction To Provide Purpose

To Aid in Evaluations To Establish Priorities

To Reduce Uncertainty To Minimize Conflicts

To Allocate Resources To Design Jobs

To Motivate Managers & Employees
BENEFITS:
1.Sustainability
2.Funding
3.Organizational Approach
4.Sound Goal
5.External Focus
6.Clear Expectation
7.Effectiveness
 Tools
for Formulating and
Choosing
Corporate Strategies
 The BCG Matrix

BOSTON CONSULTING GROUP (BCG) MATRIX is

developed by BRUCE HENDERSON of the BOSTON
CONSULTING GROUP IN THE EARLY 1970’s.

It is a portfolio planning model which is based on the

observation that a company’s business units can be classified in
to four categories:
 Stars
 Question marks
 Cash cows
 Dogs

It is based on the combination of market growth and market

share relative to the next best competitor.
BCG is the graphical representation for an
organization to examine the different businesses in its
portfolio on the basis of their relative market shares
and growth rates.

According to this technique, businesses or products

are classified as low or high performers depending
upon their market growth rate and relative market
share.

 Vertical axis denote –industry growth(% sales)

Horizontal axis –Market share
 The BCG Matrix

Relative Market Share Position in the Industry

High Medium
Low
1.0 .50 0.0
High +20
Stars (II) Question Marks (I)
Industry
Sales
Growth
Rate Medium 0
?
(Percent) Cash Cows (III) Dogs (IV)

Low -20
QUESTION MARKS
High growth , Low market share
1.Most businesses start of as question marks.
2.They will absorb great amounts of cash if the
market share remains unchanged, (low).
3.Why question marks?
4.Question marks have potential to become star and
eventually cash cow but can also become a dog.
5.Investments should be high for question marks.
STARS:
High growth, High market share
1.Stars are leaders in business.
2.They also require heavy investment, to maintain
its large market share.
3.It leads to large amount of cash consumption and
cash generation.
4.Attempts should be made to hold the market share
otherwise the star will become a CASH COW.
CASH COW:
Low growth , High market share
1.They are foundation of the company and often the
stars of yesterday.
2.They generate more cash than required.
3.They extract the profits by investing as little cash
as possible
4.They are located in an industry that is mature, not
growing or declining.
DOGS
Low growth, Low market share
1.Dogs are the cash traps.
2.Dogs do not have potential to bring in
much cash.
3.They neither generate nor require large
amount of cash.
4.Business is situated at a declining stage.
GE Competitive Position (1. Market Share; 2. Technological
MATRIX Know-How; 3. Product Quality; 4. Service Network;
5. Price Competitiveness; 6. Operating Costs
Industry Attractiveness

Good Medium Poor

High Winner Winner ???????

Medium Winner Average Loser

Business

Profit
Low Loser
Producer Loser
1. Market growth; 2. market size; 3. Capital requirements;
4. Competitive Intensity
 GE / McKinsey Matrix
 Inconsulting engagements with General Electric in
the 1970's, McKinsey & Company developed a nine-
cell portfolio matrix as a tool for screening GE's
large portfolio of strategic business units (SBU).
This business screen became known as the
GE/McKinsey Matrix and is shown below:

 The
GE matrix has nine cells vs. four cells in the
BCG matrix. ·
 The GE / McKinsey matrix is similar to the
BCG growth-share matrix in that it maps strategic
business units on a grid of the industry and the
SBU's position in the industry.

 The GE matrix generalizes the axes as "Industry

Attractiveness" and "Business Unit Strength”.
 INDUSTRY ATTRACTIVENESS

 The vertical axis of the GE / McKinsey matrix is

industry attractiveness, which is determined by factors
such as the following:
 Market growth rate
 Market size
 Demand variability
 Industry profitability
 Industry rivalry
 Global opportunities
 Macro-environmental factors
 ( political,economical,social,technical)
Each factor is assigned a weighting
that is appropriate for the industry.
The industry attractiveness then is
calculated as follows:
 Business Unit Strength

The horizontal axis of the GE / McKinsey matrix is the strength

of the business unit. Some factors that can be used to determine
business unit strength include:
Market share
Growth in market share
Brand equity
Distribution channel access
Production capacity
Profit margins relative to competitors
The business unit strength index can be calculated by multiplying
the estimated value of each factor by the factor's weighting, as done
for industry attractiveness.
 Strategic Implications

Resource allocation recommendations can be made to grow,

hold, or harvest a strategic business unit based on its position
on the matrix as follows:

·Grow strong business units in attractive industries, average

business units in attractive industries, and strong business
units in average industries.

·Hold average businesses in average industries, strong

businesses in weak industries, and weak business in attractive
industries.
Harvest weak business units in unattractive
industries, average business units in unattractive
industries, and weak business units in average
industries.
There are strategy variations within these three
groups. For example, within the harvest group the
firm would be inclined to quickly divest itself of a
weak business in an unattractive industry, whereas it
might perform a phased harvest of an average
business unit in the same industry.
 GE Mckinsey Matrix

Bus STR AVERA WEAK

Star Ind at - ONG GE
High
GROW
HOLD

AVERAGE
HOLD

Low HOLD HARVEST

 Strategic Analysis and
Choice
Summary

“Making subjective
decisions based on
objective information, and
subjective interpretation”
Thank you