Chapter 6

Strategy Analysis and

Choice
Strategic Analysis & Choice
Re-visit the Mission
Revise, create, or maintain mission
Set Long-Term Objectives
Generate feasible alternatives
Evaluate alternatives
Choose courses of action
The Strategy Formulation Analytical
Framework (Figure 6-2)
Stage 1: The Input Stage
External Analysis Internal Analysis
SWOT Analysis
Stage 2: The Matching Stage
Re-visit Mission and Set Long Term Objectives
Generate feasible alternative Corporate Strategies

Stage 3: The Decision Stage
Evaluate and Choose Corporate Strategies
Create, revise Mission Statement
Statement of the purpose of the organization
Describes the organization in terms of:
Customers
Products or services
Markets
Basic beliefs about growth, public image,
employees
Remember Hersheys evolving Mission Statement
Purpose of Mission:
Communication Tool
Decision-Making Tool
Quantitative Areas
Profitability
Net profit margin; ROI; ROE
Productivity
Lower costs (% of sales CGS, S&A)
Activity ratios
Growth
Increases in sales, assets, net income
Competitive Position
Market Share

Technological Leadership
Shareholder Wealth
EPS; Dividends; Shareholder Value
(stock)
Industry specific metrics

Qualitative Areas
Employee Relations
Social Responsibility
Reputation

These areas have long term objectives that
can be measured.
Corporate Strategies
The overall managerial game plan.
How management plans to achieve
mission and objectives.
Alternatives for Growth
Alternatives
for Growth
Expansion
of existing
Businesses
Diversification
into new
Businesses
Market Penetration
Market Development
Product Development
Vertical
Integration -
Forward & Backward
Related
Unrelated
Modes of Growth
Internal development
Acquiring firms/businesses
Collaborative arrangements
Strategic Alliances
Joint Ventures
Licensing
Repositioning Strategies
Retrenchment
Assets and/or costs
Divestiture
Spin-offs
Termination Strategies
Liquidation
Merger
Being acquired
Tools
for Formulating and Choosing
Corporate Strategies

1. Portfolio Analysis
The BCG Matrix
Relative Market Share Position in the Industry
Industry
Sales
Growth
Rate
(Percent)
High +20



Medium 0



Low -20
High Medium Low
1.0 .50 0.0
Question Marks (I)

Dogs (IV)

Stars (II)

Cash Cows (III)

?
Competitive Position (1. Market Share; 2. Technological
Know-How; 3. Product Quality; 4. Service Network;
5. Price Competitiveness; 6. Operating Costs
Good Medium Poor
High
Medium
Low
I
n
d
u
s
t
r
y

A
t
t
r
a
c
t
i
v
e
n
e
s
s

Winner
Winner
Winner
Profit
Producer
Average
Business
???????
Loser
Loser
Loser
1. Market growth; 2. market size; 3. Capital requirements;
4. Competitive Intensity
GE
MATRIX
Competitive Position
Market Share; Technological Know-How; Product Quality
Service Network; Price competitiveness; operating costs
Strong Average
Weak
Development
Growth
Shakeout
Maturity/
Saturation
Decline
B1
B2
B3
B4
PRODUCT/MARKET EVOLUTION PORTFOLIO MATRIX
Stage
of
Industry
Advantages of Portfolio Analyses
Encourages top management to evaluate
each business individually; to set objectives;
and consider resources.
It stimulates use of external data to
supplement managements judgment.
Its graphic representation makes
interpretation and communication easier.
Limitations of Portfolio Analyses
Defining product/market segments isnt
easy.
Using standard strategies may miss
opportunities or be impractical.
Providing an illusion of scientific rigor
masks the reality that positions are based on
subjective judgments.
Determining what makes an industry
attractive isnt always possible.
More Tools
2. Past Performance
% increase in sales
Contribution Margin
Sales or profit (gross, operating, net)
Continue to do what doing
3. Mission and Long Term Objectives
More Tools
4. Matrices
SWOT or TOWS Matrix

Internal Analysis External Analysis


Strengths Opportunities





Weaknesses Threats

SO Strategies
WT Strategies
ST Strategies
WO Strategies
Matching Key External and Internal Factors to
Formulate Alternative Strategies (Table 6-2)
Key Internal Factor Key External Factor

Excess working
capacity (an internal
strength)
Insufficient capacity
(an internal
weakness)
Strong R & D
expertise (an
internal strength)
Poor employee
morale (an internal
weakness)
+
+
+
+
=
=
=
=
Resultant Strategy
20% annual growth in the
cablevision industry (an
external opportunity)
Exit of two major foreign
competitors from the
industry (an external
opportunity
Decreasing numbers of
young adults (an external
threat)
Strong union activity (an
external threat)
Acquire
Visioncable
Buy competitors
facilities
Develop new
products for older
adults
Develop a new
employee-benefits
package
The TOWS Matrix (Figure 6-3)
List strengths List weaknesses
STRENGTHS - S WEAKNESSES - W
OPPORTUNITIES - O SO STRATEGIES WO STRATEGIES
THREATS - T ST STRATEGIES
WT STRATEGIES
List opportunities
Use strengths to take
advantage of
opportunities
Overcome weaknesses
by taking advantage of
opportunities
List threats
Use strengths to avoid
threats
Minimize weaknesses
and avoid threats
Other Matrices
Internal Factor Evaluation (IFE) p.165
External Factor Evaluation (EFE) p. 130
Competitive Profile Matrix (CPM) p. 131
Strategic Position and Action Evaluation
(SPACE) p. 184
Internal-External p. 190
Grand Strategy p. 192
Other Tools Cont
5. Economic Value Added (EVA)
6. Scenario Analysis
7. Game Theory
8. Quantitative Decision Techniques
Linear Programming, etc.
9. Computer Assisted
Decision Support Systems (DSS)
Artificial Intelligence (AI)





















Behavioral Aspects/Tools
Propensity for risk
Personal Agendas
Personalities
Time Pressures
Reputation/Integrity
Imagination/Conceptualizations
Support/Coalitions
Core Competencies
Core Competencies of the
Corporation
Real sources of advantage - not based on
businesses.
Core competencies are collective learning in
the organization, especially:
how to coordinate diverse production skills by
integrating multiple streams of technologies.
Tests to identify core
competencies
Provide potential access to a wide variety of
markets/products/services.
Are difficult to imitate.
Are driven by knowledge and learning.
examples
Engines
Powertrains

Optics
Imaging
Microprocessor
controls


Cars; motorcycles; lawn
mowers; generators

Copiers; laser printers;
cameras; image scanners;
medical imaging
Core Competencies Products/businesses
More kinds of core
competencies:
Systems Integration
Virtual reality
Bioengineering
Delighting the customer

Strategic Analysis and Choice
Summary
Making subjective decisions based
on objective information, and
subjective interpretation