Ch 7 -1 Copyright © 2011 Pearson Education. Strategic Management: Concepts and Cases Arab World...

Strategic Management: Concepts and CasesArab World EditionFred R. DavidAbbas J. AliAbdulrahman Y. Al-Aali

Chapter 7: Strategy Analysis andChoice


Chapter Outline


• The Nature of Strategy & Choice

• A Comprehensive Strategy-Formulation Framework

• The Input Stage

• The Matching Stage

• The Decision Stage

• Cultural Aspects of Strategy Choice

• The Politics of Strategy Choice

• Governance Issues

Nature of Strategy Analysis & ChoiceStrategy Analysis & Choice


This process seek to determine alternative courses of action that could best enable the firm to best achieve its mission and long run objectives


Source: Adapted from Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988) 40.

• Vision• Mission• Objectives• External audit• Internal audit• Past successful strategies

Strategy Analysis & Choice

Alternative Strategies Derive From:


Ch 6 -7

Strategy Analysis & ChoiceGenerating Alternatives

• Participation in generating alternative strategies should be as broad as possible

• Alternative strategies proposed by participants should be considered, discussed, and ranked in order of attractiveness


Ch 6 -8

Comprehensive Strategy-Formulation Framework

Stage 1:The Input Stage

Stage 2:The Matching Stage

Stage 3:The Decision Stage


Ch 6 -10

Strategy-Formulation Analytical Framework

Internal Factor EvaluationMatrix (IFE)

External Factor EvaluationMatrix (EFE)

Competitive Profile Matrix(CPM)

Stage 1:The Input Stage


Ch 6 -11

Stage 1: The Input Stage

• Basic input information for the matching & decision stage matrices

• Good intuitive judgment always needed


Ch 6 -12


SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix



Ch 6 -13

Stage 2: The Matching Stage

Finding the match between organization’s internal resources & skills and the opportunities & risks created by its external factors


Ch 6 -14

Stage 2: The Matching Stage

SWOT Matrix

A SWOT matrix :it is an important matching tool that help managers develop four types of strategies


SO WO

ST WT

SWOT Matrix

internal

external

Strengths – S

List Strengths

Weaknesses – W

List Weaknesses

Opportunities – O

List Opportunities

SO Strategies

Use strengths to take advantage of opportunities

WO Strategies

Overcoming weaknesses by taking advantage of

opportunities

Threats – T

List Threats

ST Strategies

Use strengths to avoid threats

WT Strategies

defensive strategy aim at

Minimize weaknesses and avoid threats


SWOT Example

Key internal factor Key external factor

Resultant strategy

Excess working capacity (strength )

20% annual growth in the cell phone industry (opportunity )

Acquire Cell phone ,Inc.(SO)

Insufficient capacity (weakness)

Exit of two major foreign competitors (opportunity )

Pursue horizontal integration by buying competitors ‘s facilities (WO)

Strong R&D expertise (strength )

Decreasing number of younger adults (threat )

Develop new products for older adults (ST)

Poor employees morale (weakness)

Strong union activity (threat)

Develop a new employees benefits package (WT)

Ch 6 -16

Ch 6 -17


SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix




Ch 6 -18

SPACE Matrix

Strategic Position & Action Evaluation Matrix

4-quadrants indicate whether the most appropriate strategy is:• Aggressive• Conservative• Defensive• Competitive


Ch 6 -19

SPACE Matrix

Two Internal Dimensions:

1. Financial Strength (FS)

2. Competitive Advantage (CA)


Ch 6 -20

SPACE Matrix

Two External Dimensions:

1. Environmental Stability (ES)

2. Industry Strength (IS)


SPACE Factors

Ch 6 -21

Environmental Stability (ES)

Technological changesRate of inflationDemand variabilityPrice range of competing productsBarriers to entryCompetitive pressure

Ease of exit from market Risk involved in business

Financial Strength (FS)

Return on investmentLeverageLiquidityWorking capitalCash flowInventory turnoverEarnings per sharePrice earnings ratio

External Strategic PositionInternal Strategic

Position


SPACE Factors

Ch 6 -22

Industry Strength (IS)

Growth potentialProfit potentialFinancial stabilityTechnological know-howResource utilizationEase of entry into marketProductivity, capacity utilization

Competitive Advantage (CA)

Market shareProduct qualityProduct life cycleCustomer loyaltyCompetition’s capacity utilizationTechnological know-howControl over suppliers & distributors

External Strategic PositionInternal Strategic Position


Steps to Developing a SPACE Matrix

1. Select a set of variables to define FS, CA, ES, and IS.

2. Assign a numerical value:

• From +1 to +6 to each FS & IS dimension

• From -1 to -6 to each ES & CA dimension

3. Compute an average score for each FS, CA, ES, and IS.

4. Plot the average score on the appropriate axis.

5. Add the two scores on the x-axis and plot the point. Add the two scores on the y-axis and plot the point. Plot the intersection of the new xy point.

6. Draw a directional vector from the origin through the new intersection point.


Ch 6 -25


SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix




Ch 6 -26

BCG Matrix

Boston Consulting Group Matrix

• Enhances multidivisional firm in formulating strategies

• Divisions may compete in different industries

• Focus on market-share position & industry growth rate


Ch 6 -27

BCG Matrix

Relative Market Share Position

Ratio of a division’s own market share in an industry to the market share held by the largest rival firm in that industry


Ch 6 -29

BCG Matrix

Question Marks

• Low relative market share, competes in high-growth industry

- Cash needs are high

- Cash generation is low

• Decision to strengthen (intensive strategies) or divest


Ch 6 -30

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


Ch 6 -31

BCG Matrix

Cash Cows

• High relative market share, competes in low-growth industry

- Generate cash in excess of their needs

- Milked for other purposes

• Maintain strong position as long as possible

- Product development, concentric diversification

- If weakens – retrenchment or divestiture


Ch 6 -32

BCG Matrix

Dogs

• Low relative market share, competes in slow or no market growth

- Weak internal & external position

• Liquidation, divestiture, retrenchment


Ch 6 -33


SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix




The Internal-External Matrix

• Positions an organization’s 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


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


Ch 6 -38


SPACE Matrix

BCG Matrix

IE Matrix


SWOT Matrix



Ch 6 -39


Stage 3:The Decision Stage

Quantitative StrategicPlanning Matrix

(QSPM)


Ch 6 -40

QSPM

Quantitative Strategic Planning Matrix

Technique designed to determine the relative attractiveness of feasible alternative actions


Steps to Develop a QSPM

1. Make a list of the firm’s 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.

4. Determine the Attractiveness Scores.

5. Compare the Total Attractiveness Scores.

6. Compute the Sum Total Attractiveness Score.


Ch 6 -43

QSPM

Advantages

• Sets of strategies considered simultaneously or sequentially

• Integration of pertinent external & internal factors in the decision-making process


Ch 6 -45

Cultural Aspects of Strategy Choice

Organizational Culture

Successful strategies depend on the degree of consistency with the firm’s culture


Ch 7 -1 Copyright © 2011 Pearson Education. Strategic Management: Concepts and Cases Arab World...

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Transcript of Ch 7 -1 Copyright © 2011 Pearson Education. Strategic Management: Concepts and Cases Arab World...