Strategic analysis and choice

Strategic analysis and choice are two important components of the implementation stage of
the strategic management plan. These two components are crucial links in the strategic
management implementation procedure. Strategic analysis involves a number of steps.
Strategic implementation is the penultimate stage of strategic management and strategic
analysis and choice are two significant constituents of that process. The strategy of a
company refers to its all-inclusive plan or program for the purpose of accomplishing its aims
and targets in the long run. strategic analysis The process of developing strategy for
a business by researching the business and the environment in which it operates.

Strategic analysis
implies the examination of the present condition of a business and
consequently developing an appropriate business strategy.
Strategic analysis carries higher importance with regards to conglomerates that offer a wide
range of diversified products. Strategic choice refers to the selection of the appropriate
business strategy.
At the time of performing strategic analysis and arriving at strategic choices, long term goals
are fixed and different types of strategies are chosen that are most appropriate for the mission
of the company and the variable conditions.
http://finance.mapsofworld.com/strategic-management/analysis-choice.html

Strategic Choice :Strategic choice is the final step in the strategic formulation phase of strategic
management strategic choice involves the selection of the strategy or set of strategies that
helps in achieving organization objectives
In other words , the decision to select from among the Grand strategies considered, the
strategy which will best meet the enterprises objectives. The decision involves
1. Focussing on a few alternatives
2. Considering the selection of factors
3. Evaluating the alternatives against these criteria
4. And making an actual choice

Process of strategic choice :-

Focusing on strategic alternatives: It involves identification of all alternatives. The

strategist examines what the organization wants to achieve (desired performance) and
what it has really achieved (actual performance). The gap between the two positions
constitutes the background for various alternatives and diagnosis. This is gap analysis.
The gap between what is desired and what is achieved widens as the time passes if no
strategy is adopted.

Evaluating strategic alternatives: The next step is to assess the pros and cons of
various alternatives and their suitability. The tools which may be used are portfolio
analysis, GE business screen and corporate Parenting. [Describe each of these]

Considering decision factors:

(i) Objective factors:

Environmental factors

Volatility of environment

Input supply from environment

Powerful stakeholders

Organizational factors
Organizations mission

Strategic intent

Business definition

Strengths and weaknesses

(ii) Subjective factors:

Strategies adopted in the previous period;

Personal preferences of decision- makers;

Managements attitude toward risk;

Pressure from stakeholders;

Pressure from corporate culture; and

Needs and desires of key managers.

Constructing Corporate scenario: Corporate scenario consists of proforma balance

sheets and income statement which forecasts the strategic alternatives impact on
various divisions.

First: 3 sets of estimated figures for optimistic, pessimistic and most likely conditions are
manipulated for all economic factors and key external strategic factors.
Second: Common size financial statements with projections are drawn.
Third: Based on historical data from previous years balance sheet projection for next 5 years
for Optimistic (O), Pessimistic (P), and Most likely (M) are developed.
Corporate scenario is constructed for every strategic alternative considering both
environmental factors and market conditions. It provides sufficient information for a
strategist to make final decision.
http://www.bms.co.in/strategic-choice-process/

Types of strategic analysis :Corporate level strategic analysis :Corporate level strategy covers the strategic scope of the organization as a whole. For most
organizations, the corporate strategic plan is the only strategic plan required. Often strategy at
the corporate level is simply referred to as corporate strategy, or in unified companies the
corporate business strategy. The process that produces it is called corporate strategic
planning, or sometimes simply corporate planning.
When a business identifies opportunities outside its original industry, it might contemplate
diversification. When additional businesses become part of the company, the small business
owner must consider corporate-level strategy. To be effective, the umbrella company must
contribute to the efficiency, profitability and competitive advantage to each business unit. The
gourmet candy maker may decide to enter the dried-fruit business, for example. This
corporate decision is sound only if the parent company can extend and develop a competitive
advantage say economy of scope, integrated management or procurement over both
businesses. For example, the owner may determine that her mail-order candy distribution
system is perfectly suited for the dried-fruit business and that customer research indicates
existing customers will purchase items from both companies. Or she may be able to negotiate
volume discounts for raisins, dried cranberries and dried cherries she will use in both
businesses.
Features of Corporate Level Strategic Analysis
Treats a corporate entity as constituting a portfolio of businesses under a
corporate umbrella
Analysis focuses on the question of what should a corporate entity do
regarding the several businesses that are there in its portfolio
Strategic alternatives constitute the Grand Strategies Stability, Expansion,
Retrenchment & Combination
Relevant to the case of a diversified corporation which has several businesses

Corporate portfolio analysis

A corporate portfolio analysis takes a close look at a companys services and products. Each
segment of a companys product line is evaluated including sales, market share, cost of
production and potential market strength. The analysis categorizes the companys products
and looks at the competition. The goal is to identify business opportunities, strategize for the
future and direct business resources towards that growth potential. Portfolio analysis can be
performed by an outside firm or by company management. There are various tools used for a
portfolio analysis with some that look at market share and others that evaluate a companys
product line against the competition. While the process typically points the way for spending
for future growth, it can also be used to identify products or services which short-term may
become obsolete, suggesting that part of the portfolio be retired and the funds used for areas
with more promising growth potential
http://www.indiaclass.com/corporate-portfolio-analysis/

TECHNIQUES OF CORPORATE LEVEL STRATEGIC

ANALYSIS
1. BCG MATRIX
Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by
BCG, USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic
representation for an organization to examine different businesses in its portfolio on the basis
of their related market share and industry growth rates. It is a two dimensional analysis on
management of SBUs (Strategic Business Units). In other words, it is a comparative analysis
of business potential and the evaluation of environment.
According to this matrix, business could be classified as high or low according to their
industry growth rate and relative market share.
Relative Market Share = SBU Sales this year leading competitors sales this year.
Market Growth Rate = Industry sales this year - Industry Sales last year.
The analysis requires that both measures be calculated for each SBU. The dimension of
business strength, relative market share, will measure comparative advantage indicated by
market dominance. The key theory underlying this is existence of an experience curve and
that market share is achieved due to overall cost leadership.
BCG matrix has four cells, with the horizontal axis representing relative market share and the
vertical axis denoting market growth rate. The mid-point of relative market share is set at 1.0.
if all the SBUs are in same industry, the average growth rate of the industry is used. While, if
all the SBUs are located in different industries, then the mid-point is set at the growth rate
for the economy.

Resources are allocated to the business units according to their situation on the grid. The four
cells of this matrix have been called as stars, cash cows, question marks and dogs. Each of
these cells represents a particular type of business.

10 x

1x

0.1 x

1. Stars- Stars represent business units having large market share in a fast growing
industry. They may generate cash but because of fast growing market, stars require
huge investments to maintain their lead. Net cash flow is usually modest. SBUs
located in this cell are attractive as they are located in a robust industry and these
business units are highly competitive in the industry. If successful, a star will become
a cash cow when the industry matures.
2. Cash Cows- Cash Cows represents business units having a large market share in a
mature, slow growing industry. Cash cows require little investment and generate cash
that can be utilized for investment in other business units. These SBUs are the
corporations key source of cash, and are specifically the core business. They are the
base of an organization. These businesses usually follow stability strategies. When
cash cows loose their appeal and move towards deterioration, then a retrenchment
policy may be pursued.
3. Question Marks- Question marks represent business units having low relative market
share and located in a high growth industry. They require huge amount of cash to
maintain or gain market share. They require attention to determine if the venture can
be viable. Question marks are generally new goods and services which have a good
commercial prospective. There is no specific strategy which can be adopted. If the
firm thinks it has dominant market share, then it can adopt expansion strategy, else
retrenchment strategy can be adopted. Most businesses start as question marks as the
company tries to enter a high growth market in which there is already a market-share.
If ignored, then question marks may become dogs, while if huge investment is made,
then they have potential of becoming stars.
4. Dogs- Dogs represent businesses having weak market shares in low-growth markets.
They neither generate cash nor require huge amount of cash. Due to low market share,
these business units face cost disadvantages. Generally retrenchment strategies are
adopted because these firms can gain market share only at the expense of

competitors/rival firms. These business firms have weak market share because of
high costs, poor quality, ineffective marketing, etc. Unless a dog has some other
strategic aim, it should be liquidated if there is fewer prospects for it to gain market
share. Number of dogs should be avoided and minimized in an organization.

Limitations of BCG Matrix

The BCG Matrix produces a framework for allocating resources among different business
units and makes it possible to compare many business units at a glance. But BCG Matrix is
not free from limitations, such as1. BCG matrix classifies businesses as low and high, but generally businesses can be
medium also. Thus, the true nature of business may not be reflected.
2. Market is not clearly defined in this model.
3. High market share does not always leads to high profits. There are high costs also
involved with high market share.
4. Growth rate and relative market share are not the only indicators of profitability. This
model ignores and overlooks other indicators of profitability.
5. At times, dogs may help other businesses in gaining competitive advantage. They can
earn even more than cash cows sometimes.
6. This four-celled approach is considered as to be too simplistic.
http://www.managementstudyguide.com/bcg-matrix.htm

2..

GE Nine-cell matrix

This matrix was developed in 1970s by the General Electric Company with the assistance
of the consulting firm, McKinsey & Co, USA. This is also called GE multifactor portfolio
matrix.
The GE matrix has been developed to overcome the obvious limitations of BCG matrix.
This matrix consists of nine cells (3X3) based on two key variables:
i)

business strength

ii)

industry attractiveness
The horizontal axis represents business strength and the vertical axis represent industry
attractiveness
The business strength is measured by considering such factors as:

relative market share

profit margins

ability to compete on price and quality

knowledge of customer and market

competitive strengths and weaknesses

technological capacity

caliber of management
Industry attractiveness is measured considering such factors as :

market size and growth rate

industry profit margin

competitive intensity

economies of scale

technology

social, environmental, legal and human aspects

The industry product-lines or business units are plotted as circles. The area of each circle
is proportionate to industry sales. The pie within the circles represents the market share of
the product line or business unit.
The nine cells of the GE matrix represent various degrees of industry attractiveness (high,
medium or low) and business strength (strong, average and weak). After plotting each
product line or business unit on the nine cell matrix, strategic choices are made depending
on their position in the matrix.
Spotlight Strategy
GE matrix is also called Stoplight strategy matrix because the three zones are like
green, yellow and red of traffic lights.
1)

2)

Green indicates invest/expand if the product falls in green zone, the business
strength is strong and industry is at least medium in attractiveness, the strategic decision
should be to expand, to invest and to grow.
Yellow indicates select/earn if the product falls in yellow zone, the

business strength is low but industry attractiveness is high, it needs caution and
managerial discretion for making the strategic choice
Red indicates harvest/divest if the product falls in the red zone, the business
strength is average or weak and attractiveness is also low or medium, the
appropriate strategy should be divestment

BUSINESS LEVEL STRATEGY

Business level strategies are popularly known as generic or competitive strategies.
Michael Porter classified these strategies into overall cost leadership, differentiation and
focus. The first two strategies are broader in concept as their competitive scope is wide
enough whereas the third strategy i.e the focus strategy has a narrower competitive scope.
The experience curve Cost has been correlated with the accumulated experience by the
experience curve. Let us take the example of production
The underlying principle behind the experience curve is that as total quantity of
production of a standardized item is increased, its unit manufacturing cost decreases in a
systematic manner. The concept of the experience curve was presented by BCG in 1966
and since then it has been accepted as an important phenomenon.

TECHNIQUES OF BUSINESS LEVEL STRATEGIC ANALYSIS

:1.

Industry Life Cycle

Life cycle models are not just a phenomenon of the life sciences. Industries experience a
similar cycle of life. Just as a person is born, grows, matures, and eventually experiences
decline and ultimately death, so too do industries and product lines. The stages are the same
for all industries, yet every industry will experience these stages differently, they will last
longer for some and pass quickly for others. Even within the same industry, various firms
may be at different life cycle stages. A firms strategic plan is likely to be greatly influenced
by the stage in the life cycle at which the firm finds itself. Some companies or even industries
find new uses for declining products, thus extending their life cycle.
The growth of an industry's sales over time is used to chart the life cycle. The distinct stages
of an industry life cycle are: introduction, growth, maturity, and decline. Sales typically begin
slowly at the introduction phase, then take off rapidly during the growth phase. After leveling
out at maturity, sales then begin a gradual decline. In contrast, profits generally continue to

increase throughout the life cycle, as companies in an industry take advantage of expertise
and economies of scale and scope to reduce unit costs over time.
STAGES OF THE LIFE CYCLE

1. Introduction
In the introduction stage of the life cycle, an industry is in its infancy. Perhaps a new, unique
product offering has been developed and patented, thus beginning a new industry. Some
analysts even add an embryonic stage before introduction. At the introduction stage, the firm
may be alone in the industry. It may be a small entrepreneurial company or a proven
company which used research and development funds and expertise to develop something
new. Marketing refers to new product offerings in a new industry as "question marks"
because the success of the product and the life of the industry is unproven and unknown.
A firm will use a focused strategy at this stage to stress the uniqueness of the new product or
service to a small group of customers. These customers are typically referred to in the
marketing literature as the "innovators" and "early adopters." Marketing tactics during this
stage are intended to explain the product and its uses to consumers and thus create awareness
for the product and the industry. According to research by Hitt, Ireland, and Hoskisson, firms
establish a niche for dominance within an industry during this phase. For example, they often
attempt to establish early perceptions of product quality, technological superiority, or
advantageous relationships with vendors within the supply chain to develop a competitive
advantage.
Because it costs money to create a new product offering, develop and test prototypes, and
market the product, the firm's and the industry's profits are usually negative at this stage. Any
profits generated are typically reinvested into the company to solidify its position and help
fund continued growth. Introduction requires a significant cash outlay to continue to promote
and differentiate the offering and expand the production flow from a job shop to possibly a
batch flow. Market demand will grow from the introduction, and as the life cycle curve
experiences growth at an increasing rate, the industry is said to be entering the growth stage.
Firms may also cluster together in close proximity during the early stages of the industry life
cycle to have access to key materials or technological expertise, as in the case of the U.S.
Silicon Valley computer chip manufacturers.
2. Growth

Like the introduction stage, the growth stage also requires a significant amount of capital.
The goal of marketing efforts at this stage is to differentiate a firm's offerings from other
competitors within the industry. Thus the growth stage requires funds to launch a newly
focused marketing campaign as well as funds for continued investment in property, plant, and
equipment to facilitate the growth required by the market demands. However, the industry is
experiencing more product standardization at this stage, which may encourage economies of
scale and facilitate development of a line-flow layout for production efficiency.
Research and development funds will be needed to make changes to the product or services
to better reflect customers' needs and suggestions. In this stage, if the firm is successful in the
market, growing demand will create sales growth. Earnings and accompanying assets will
also grow and profits will be positive for the firms. Marketing often refers to products at the
growth stage as "stars." These products have high growth and market share. The key issue in
this stage is market rivalry. Because there is industry-wide acceptance of the product, more
new entrants join the industry and more intense competition results.
The duration of the growth stage, as all the other stages, depends on the particular industry or
product line under study. Some itemslike fad clothing, for examplemay experience a
very short growth stage and move almost immediately into the next stages of maturity and
decline. A hot toy this holiday season may be nonexistent or relegated to the back shelves of a
deep-discounter the following year. Because many new product introductions fail, the growth
stage may be short or nonexistent for some products. However, for other products the growth
stage may be longer due to frequent product upgrades and enhancements that forestall
movement into maturity. The computer industry today is an example of an industry with a
long growth stage due to upgrades in hardware, services, and add-on products and features.
During the growth stage, the life cycle curve is very steep, indicating fast growth. Firms tend
to spread out geographically during this stage of the life cycle and continue to disperse during
the maturity and decline stages. As an example, the automobile industry in the United States
was initially concentrated in the Detroit area and surrounding cities. Today, as the industry
has matured, automobile manufacturers are spread throughout the country and internationally.
3. Maturity
As the industry approaches maturity, the industry life cycle curve becomes noticeably flatter,
indicating slowing growth. Some experts have labeled an additional stage, called expansion,
between growth and maturity. While sales are expanding and earnings are growing from these
"cash cow" products, the rate has slowed from the growth stage. In fact, the rate of sales
expansion is typically equal to the growth rate of the economy.
Some competition from late entrants will be apparent, and these new entrants will try to steal
market share from existing products. Thus, the marketing effort must remain strong and must
stress the unique features of the product or the firm to continue to differentiate a firm's
offerings from industry competitors. Firms may compete on quality to separate their product
from other lower-cost offerings, or conversely the firm may try a low-cost/low-price strategy
to increase the volume of sales and make profits from inventory turnover. A firm at this stage
may have excess cash to pay dividends to shareholders. But in mature industries, there are
usually fewer firms, and those that survive will be larger and more dominant. While
innovations continue they are not as radical as before and may be only a change in color or

formulation to stress "new" or "improved" to consumers. Laundry detergents are examples of

mature products.
4. Decline
Declines are almost inevitable in an industry. If product innovation has not kept pace with
other competing products and/or service, or if new innovations or technological changes have
caused the industry to become obsolete, sales suffer and the life cycle experiences a decline.
In this phase, sales are decreasing at an accelerating rate. This is often accompanied by
another, larger shake-out in the industry as competitors who did not leave during the maturity
stage now exit the industry. Yet some firms will remain to compete in the smaller market.
Mergers and consolidations will also be the norm as firms try other strategies to continue to
be competitive or grow through acquisition and/or diversification.
PROLONGING THE LIFE CYCLE
Management efficiency can help to prolong the maturity stage of the life cycle. Production
improvements, like just-in-time methods and lean manufacturing, can result in extra profits.
Technology, automation, and linking suppliers and customers in a tight supply chain are also
methods to improve efficiency.
New uses of a product can also revitalize an old brand. A prime example is Arm & Hammer
baking soda. In 1969, sales were dropping due to the introduction of packaged foods with
baking soda as an added ingredient and an overall decline in home baking. New uses for the
product as a deodorizer for refrigerators and later as a laundry additive, toothpaste additive,
and carpet freshener extended the life cycle of the baking soda industry. Promoting new uses
for old brands can increase sales by increasing usage frequency. In some cases, this strategy
is cheaper than trying to convert new users in a mature market.
To extend the growth phase as well as industry profits, firms approaching maturity can pursue
expansion into other countries and new markets. Expansion into another geographic region is
an effective response to declining demand. Because organizations have control over internal
factors and can often influence external factors, the life cycle does not have to end.

2 . Analysis of Business-Level Strategies- Contribution by Porters

GenericStrategies.
The Porter's Five Forces tool is a simple but powerful tool for understanding where power
lies in a business situation. This is useful, because it helps you understand both the strength of
your current competitive position, and the strength of a position you're considering moving
into.
With a clear understanding of where power lies, you can take fair advantage of a situation of
strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an
important part of your planning toolkit.

Conventionally, the tool is used to identify whether new products, services or businesses have
the potential to be profitable. However it can be very illuminating when used to understand
the balance of power in other situations.

Understanding the Tool

Five Forces Analysis assumes that there are five important forces that determine competitive
power in a business situation. These are:
1.

Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This
is driven by the number of suppliers of each key input, the uniqueness of their product or
service, their strength and control over you, the cost of switching from one to another, and
so on. The fewer the supplier choices you have, and the more you need suppliers' help, the
more powerful your suppliers are.
2.
Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down.
Again, this is driven by the number of buyers, the importance of each individual buyer to
your business, the cost to them of switching from your products and services to those of
someone else, and so on. If you deal with few, powerful buyers, then they are often able to
dictate terms to you.
3.
Competitive Rivalry: What is important here is the number and capability of your
competitors. If you have many competitors, and they offer equally attractive products and

services, then you'll most likely have little power in the situation, because suppliers and
buyers will go elsewhere if they don't get a good deal from you. On the other hand, if noone else can do what you do, then you can often have tremendous strength.
4.
Threat of Substitution: This is affected by the ability of your customers to find a
different way of doing what you do for example, if you supply a unique software
product that automates an important process, people may substitute by doing the process
manually or by outsourcing it. If substitution is easy and substitution is viable, then this
weakens your power.
5.
Threat of New Entry: Power is also affected by the ability of people to enter your
market. If it costs little in time or money to enter your market and compete effectively, if
there are few economies of scale in place, or if you have little protection for your key
technologies, then new competitors can quickly enter your market and weaken your
position. If you have strong and durable barriers to entry, then you can preserve a
favorable position and take fair advantage of it.