Strategic Management - Concepts &amp Cases

Strategy Analysis & Choice
Strategic Management: Concepts & Cases
Prof. Rushen Chahal Powerpoint Templates
Page 1
Chapter Outline
The Nature of Strategy & Choice
A Comprehensive Strategy-Formulation Framework
The Input Stage
Prof. Rushen Chahal
Powerpoint Templates
Page 2
Chapter Outline (contd)

The Matching Stage
The Decision Stage
Cultural Aspects of Strategy Choice
Prof. Rushen Chahal
Page 3
Chapter Outline (contd)
The Politics of Strategy Choice
Governance Issues
Prof. Rushen Chahal
Page 4

To acquire or not to acquire, that is the question Robert J. Terry
Life is full of lousy options General P.X. Kelley
Prof. Rushen Chahal
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Nature of Strategy Analysis & Choice -- Establishing long-term objectives -- Generating alternative strategies -- Selecting strategies to pursue -- Best alternative - achieve mission & objectives
Prof. Rushen Chahal
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Alternative Strategies Derive From - Vision Mission Objectives External audit Internal audit Past successful strategies
Prof. Rushen Chahal
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Strategy Analysis & Choice Generating Alternatives -Participation in generating alternative strategies should be as broad as possible
Prof. Rushen Chahal
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Comprehensive Strategy-Formulation Framework

Stage 1: The Input Stage
Stage 2: The Matching Stage
Stage 3: The Decision Stage
Prof. Rushen Chahal
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Strategy-Formulation Analytical Framework

Internal Factor Evaluation Matrix (IFE)
External Factor Evaluation Matrix (EFE)
Competitive Profile Matrix (CPM)
Prof. Rushen Chahal
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Basic input information for the matching & decision stage matrices Requires strategists to quantify subjectivity early in the process Good intuitive judgment always needed
Prof. Rushen Chahal
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SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Prof. Rushen Chahal
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Match between organizations internal resources & skills and the opportunities & risks created by its external factors
Prof. Rushen Chahal
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Stage 2: The Matching Stage SWOT Matrix

Strengths Weaknesses Opportunities Threats
Prof. Rushen Chahal
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SWOT Matrix Four Types of Strategies

Strengths-Opportunities (SO) Weaknesses-Opportunities (WO) Strengths-Threats (ST) Weaknesses-Threats (WT)
Prof. Rushen Chahal
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SO Strategies
Strengths Weaknesses Opportunities Threats SWOT
SO Strategies
Use a firms internal strengths to take advantage of external opportunities
Prof. Rushen Chahal
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WO Strategies
WO Strategies
Improving internal weaknesses by taking advantage of external opportunities
Prof. Rushen Chahal
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ST Strategies
ST Strategies
Use a firms strengths to avoid or reduce the impact of external threats
Prof. Rushen Chahal
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WT Strategies
Defensive tactics aimed at reducing internal weaknesses & avoiding environmental threats
WT Strategies
Prof. Rushen Chahal
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SWOT Matrix Developing the SWOT

List firms key internal List firms key internal List firms key external List firms key external
Strengths Weaknesses Opportunities Threats
Prof. Rushen Chahal
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SWOT Matrix
Strengths S Leave Blank Opportunities O
List Opportunities List Strengths
Weaknesses W
List Weaknesses
SO Strategies
Use strengths to take advantage of opportunities
WO Strategies
Overcoming weaknesses by taking advantage of opportunities
Threats T
List Threats
Prof. Rushen Chahal
ST Strategies
Use strengths to avoid threats
WT Strategies
Minimize weaknesses and avoid threats
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Matching Key Factors to Formulate Alternative Strategies Key Internal Factor Key External Factor
20% annual growth in the cell phone industry (opportunity)
Resultant Strategy
Excess working capacity (strength)
Acquire Cellfone, Inc.
Insufficient capacity (weakness)
Exit of two major foreign + competitors from the = industry (opportunity)
Pursue horizontal integration by buying competitor's facilities
Strong R&D (strength)
Decreasing numbers of young adults (threat)
Develop new products for older adults Develop a new employee benefits package
Poor employee morale (weakness)
Strong union activity (threat)
Prof. Rushen Chahal
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Limitations with SWOT Matrix Does not show how to achieve a competitive advantage Provides a static assessment in time May lead the firm to overemphasize a single internal or external factor in formulating strategies
Prof. Rushen Chahal
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SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Prof. Rushen Chahal
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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)
Prof. Rushen Chahal
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SPACE Matrix Two External Dimensions

Environmental Stability (ES) Industry Strength (IS)
Prof. Rushen Chahal
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SPACE Factors
Internal Strategic Position External Strategic Position
Financial Strength (FS)

Return on investment Leverage Liquidity Working capital Cash flow
Environmental Stability (ES)

Technological changes Rate of inflation Demand variability Price range of competing products Barriers to entry Competitive pressure Price elasticity of demand
Ease of exit from market Risk involved in business
Prof. Rushen Chahal
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SPACE Factors
Internal Strategic Position External Strategic Position
Competitive Advantage CA
Market share Product quality Product life cycle Customer loyalty Competitions capacity utilization Technological know-how Control over suppliers & distributors
Industry Strength (IS)

Growth potential Profit potential Financial stability Technological know-how Resource utilization Ease of entry into market Productivity, capacity utilization
Prof. Rushen Chahal
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Steps to Developing a SPACE Matrix 1. Select a set of variables to define FS, CA, ES, & IS 2. Assign a numerical value:
1. From +1 to +6 to each FS & IS dimension 2. From -1 to -6 to each ES & CA dimension
3. Compute an average score for each FS, CA, ES, & IS

Prof. Rushen Chahal
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Steps to Developing a SPACE Matrix 1. Plot the average score on the appropriate axis 2. Add the two scores on the x-axis and plot the point. Add the two scores on the yaxis and plot the point. Plot the intersection of the new xy point 3. Draw a directional vector from the origin through the new intersection point.
Prof. Rushen Chahal Powerpoint Templates Page 31
SPACE Matrix
Conservative FS
+6 +5 +4 +3 +2 +1
Aggressive
CA
-6 -5 -4 -3 -2 -1 -1 -2 -3 -4 +1 +2 +3 +4 +5 +6
IS
Defensive
Prof. Rushen Chahal
-5 -6 Powerpoint Templates
Competitive ES
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SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Prof. Rushen Chahal
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BCG Matrix Boston Consulting Group Matrix

Enhances multi-divisional firm in formulating strategies Autonomous divisions = business portfolio Divisions may compete in different industries Focus on market-share position & industry growth rate
Prof. Rushen Chahal
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BCG Matrix Relative Market Share Position
Ratio of a divisions own market share in an industry to the market share held by the largest rival firm in that industry
Prof. Rushen Chahal
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BCG Matrix
Relative Market Share Position
High 1.0 High +20 Medium .50 Low 0.0
Industry Sales Growth Rate
Stars II
Medium
Question Marks I
Cash Cows III

Low -20
Dogs IV
Prof. Rushen Chahal
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BCG Matrix Question Marks

Low relative market share compete in highgrowth industry
Cash needs are high Case generation is low
Decision to strengthen (intensive strategies) or divest
Prof. Rushen Chahal
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BCG Matrix Stars

High relative market share and high growth rate
Best long-run opportunities for growth & profitability
Substantial investment to maintain or strengthen dominant position

Integration strategies, intensive strategies, joint ventures
Prof. Rushen Chahal
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BCG Matrix Cash Cows

High relative market share, competes in lowgrowth industry
Generate cash in excess of their needs Milked for other purposes
Maintain strong position as long as possible

Product development, concentric diversification If weakensretrenchment or divestiture
Prof. Rushen Chahal
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BCG Matrix Dogs

Low relative market share & compete in slow or no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
Prof. Rushen Chahal
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SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Prof. Rushen Chahal
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The Internal-External Matrix Positions an organizations various divisions in a nine-cell display Similar to BCG Matrix except the IE Matrix:
Requires more information about the divisions Strategic implications of each matrix are different
Prof. Rushen Chahal
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Prof. Rushen Chahal
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IE Matrix Based on two key dimensions

The IFE total weighted scores on the x-axis The EFE total weighted scores on the y-axis
Divided into three major regions

Grow and build Cells I, II, or IV Hold and maintain Cells III, V, or VII Harvest or divest Cells VI, VIII, or IX
Prof. Rushen Chahal
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Prof. Rushen Chahal
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SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Prof. Rushen Chahal
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Tool for formulating alternative strategies Based on two dimensions Competitive position Market growth
Prof. Rushen Chahal
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RAPID MARKET GROWTH

1. 2. 3. 4. 5. 6.
Quadrant II Market development Market penetration Product development Horizontal integration Divestiture Liquidation
1. 2. 3. 4. 5. 6. 7.
WEAK COMPETITIVE POSITION
Quadrant I Market development Market penetration Product development Forward integration Backward integration Horizontal integration Concentric diversification
Quadrant IV Quadrant III 1. Retrenchment 1. Concentric diversification 2. Concentric diversification 2. Horizontal diversification 3. Horizontal diversification 3. Conglomerate diversification 4. Conglomerate diversification 4. Joint ventures 5. Liquidation SLOW MARKET GROWTH Prof. Rushen Chahal Powerpoint Templates
STRONG COMPETITIVE POSITION
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Quadrant I
Excellent strategic position Concentration on current markets/products Take risks aggressively when necessary
Prof. Rushen Chahal
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Quadrant II
Evaluate present approach How to improve competitiveness Rapid market growth requires intensive strategy
Prof. Rushen Chahal
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Quadrant III
Compete in slow-growth industries Weak competitive position Drastic changes quickly Cost & asset reduction (retrenchment)
Prof. Rushen Chahal
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Quadrant IV
Strong competitive position Slow-growth industry Diversification to more promising growth areas
Prof. Rushen Chahal
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Stage 3: The Decision Stage
Quantitative Strategic Planning Matrix (QSPM)
Prof. Rushen Chahal
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QSPM
Quantitative Strategic Planning Matrix
Technique designed to determine the relative attractiveness of feasible alternative actions
Prof. Rushen Chahal
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QSPM
Key External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/ Environmental Technological Competitive Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Computer Information Systems Prof. Rushen Chahal Weight
Strategic Alternatives
Strategy 1 Strategy 2 Strategy 3
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Steps to Develop a QSPM 1. Make a list of the firms key external opportunities/threats and internal strengths/weaknesses in the left column 2. Assign weights to each key external and internal factor 3. Examine the Stage 2 (matching) matrices, and identify alternative strategies that the organization should consider implementing
Prof. Rushen Chahal Powerpoint Templates Page 56
Steps to Develop a QSPM 4. Determine the Attractiveness Scores 5. Compare the Total Attractiveness Scores 6. Compute the Sum Total Attractiveness Score
Prof. Rushen Chahal
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QSPM
Limitations
Requires intuitive judgments & educated assumptions Only as good as the prerequisite inputs
Prof. Rushen Chahal
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QSPM
Advantages
Sets of strategies considered simultaneously or sequentially Integration of pertinent external & internal factors in the decision making process
Prof. Rushen Chahal
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Cultural Aspects of Strategy Choice

Organization Culture
Successful strategies depend on the degree of consistency with the firms culture
Prof. Rushen Chahal
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Politics of Strategy Choice
Politics in Organizations
Management hierarchy Career aspirations Allocation of scarce resources
Prof. Rushen Chahal
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Politics of Strategy Choice

Political Tactics for Strategists
Equifinality Satisfying Generalization Higher-order issues Political access on important issues
Prof. Rushen Chahal
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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
Prof. Rushen Chahal
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Corporate Governance Issues

Business Weeks Principles of Good Governance
1. No more than 2 directors are 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 owns a large equity stake in the company 5. At least one outside director with extensive experience 6. Fully employed directors sit on no more than 4 boards Retirees on no more than 7 7. Each director attends at lest 75% of all meetings
Prof. Rushen Chahal
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Corporate Governance Issues

Business Weeks principles of good governance
8. Board meets regularly without management present 9. Audit committee meets at least four times a year 10. Board is frugal on executive pay, diligent in CEO succession, and prompt to act when trouble arises 11. CEO is not also the Chairperson of the Board 12. Shareholders have considerable power and information to choose & replace directors 13. Stock options are considered a corporate expense 14. No interlocking directorships
Prof. Rushen Chahal
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For Review (Chapter 6)

Key Terms & Concepts
Aggressive Quadrant Attractiveness Scores (AS) Boards of Directors Boston Consulting Group (BCG) Matrix
Prof. Rushen Chahal
Business Portfolio
Cash Cows Competitive Advantage (CA) Competitive Quadrant
Page 66

Conservative Quadrant Dogs Environmental Stability (ES) Financial Strength (FS) Governance
Culture
Defensive Quadrant
Directional Vector
Prof. Rushen Chahal
Page 67

Grand Strategy Matrix Internal-External (IE) Matrix Matching
Halo Error Industry Strength (IS) Input Stage

Prof. Rushen Chahal
Matching Stage Quantitative Strategic Planning Matrix (QSPM)
Page 68

Question Marks Relative Market Share Position SO Strategies Stars Strategic Position & Action Evaluation (SPACE) Sum Total Attractiveness Score (STAS) Sustainability
ST Strategies
Prof. Rushen Chahal
Page 69

Strengths, Weaknesses Opportunities, Threats SWOT Total Attractiveness Scores (TAS) WO Strategies
WT Strategies
Prof. Rushen Chahal
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Strategic Management - Concepts &amp Cases

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Strategy Analysis & Choice

Strategic Management: Concepts & Cases

Prof. Rushen Chahal Powerpoint Templates

A Comprehensive Strategy-Formulation Framework

The Input Stage

Prof. Rushen Chahal

Chapter Outline (contd)

The Decision Stage

Cultural Aspects of Strategy Choice

Prof. Rushen Chahal

Chapter Outline (contd)

The Politics of Strategy Choice

Prof. Rushen Chahal

Strategy Analysis & Choice

Life is full of lousy options General P.X. Kelley

Prof. Rushen Chahal

Strategy Analysis & Choice

Prof. Rushen Chahal

Strategy Analysis & Choice

Prof. Rushen Chahal

Prof. Rushen Chahal

Comprehensive Strategy-Formulation Framework

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Prof. Rushen Chahal

Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

External Factor Evaluation Matrix (EFE)

Competitive Profile Matrix (CPM)

Prof. Rushen Chahal

Stage 1: The Input Stage

Prof. Rushen Chahal

Strategy-Formulation Analytical Framework

Stage 2: The Matching Stage

Grand Strategy Matrix

Prof. Rushen Chahal

Stage 2: The Matching Stage

Prof. Rushen Chahal

Stage 2: The Matching Stage SWOT Matrix

Prof. Rushen Chahal

SWOT Matrix Four Types of Strategies

Prof. Rushen Chahal

Use a firms internal strengths to take advantage of external opportunities

Prof. Rushen Chahal

Improving internal weaknesses by taking advantage of external opportunities

Prof. Rushen Chahal

Use a firms strengths to avoid or reduce the impact of external threats

Prof. Rushen Chahal

Prof. Rushen Chahal

SWOT Matrix Developing the SWOT

Prof. Rushen Chahal

Excess working capacity (strength)

Acquire Cellfone, Inc.

Insufficient capacity (weakness)

Exit of two major foreign + competitors from the = industry (opportunity)

Pursue horizontal integration by buying competitor's facilities

Strong R&D (strength)

Decreasing numbers of young adults (threat)

Poor employee morale (weakness)

Strong union activity (threat)

Prof. Rushen Chahal

Prof. Rushen Chahal

Strategy-Formulation Analytical Framework

Aggressive Conservative Defensive Competitive

Decision to strengthen (intensive strategies) or divest

Substantial investment to maintain or strengthen dominant position

Maintain strong position as long as possible

Liquidation, divestiture, retrenchment

Technique designed to determine the relative attractiveness of feasible alternative actions