Chapter 6

Strategy Analysis and Strategy Analysis and ChoiceChoice

Strategic Analysis & Choice

Re-visit the MissionRe-visit the Mission Revise, create, or maintain missionRevise, create, or maintain mission

Set Long-Term ObjectivesSet Long-Term Objectives Generate feasible alternativesGenerate feasible alternatives Evaluate alternativesEvaluate alternatives Choose courses of actionChoose courses of action

The Strategy Formulation Analytical Framework (Figure 6-2)

Stage 1: The Input StageExternal Analysis Internal Analysis

SWOT Analysis

Stage 2: The Matching Stage

Re-visit Mission and Set Long Term ObjectivesGenerate feasible alternative Corporate Strategies

Stage 3: The Decision Stage

Evaluate and Choose Corporate Strategies

Create, revise Mission Statement Statement of the purpose of the organizationStatement of the purpose of the organization Describes the organization in terms of:Describes the organization in terms of:

CustomersCustomers Products or servicesProducts or services MarketsMarkets Basic beliefs about growth, public image, employeesBasic beliefs about growth, public image, employees

Remember Hershey’s evolving Mission StatementRemember Hershey’s evolving Mission Statement Purpose of Mission:Purpose of Mission:

Communication ToolCommunication Tool Decision-Making ToolDecision-Making Tool

Quantitative AreasQuantitative Areas Profitability Profitability

Net profit margin; ROI; ROENet profit margin; ROI; ROE ProductivityProductivity

Lower costs (% of sales CGS, S&A)Lower costs (% of sales CGS, S&A) Activity ratiosActivity ratios

GrowthGrowth Increases in sales, assets, net incomeIncreases in sales, assets, net income

Competitive PositionCompetitive Position Market ShareMarket Share

Technological LeadershipTechnological Leadership Shareholder WealthShareholder Wealth

EPS; Dividends; Shareholder Value EPS; Dividends; Shareholder Value (stock)(stock)

Industry specific metricsIndustry specific metrics

Qualitative AreasQualitative Areas

Employee RelationsEmployee Relations Social ResponsibilitySocial Responsibility ReputationReputation

These areas have long term objectives that These areas have long term objectives that can be measured.can be measured.

Corporate Strategies

The overall managerial game plan.The overall managerial game plan.How management plans to achieve How management plans to achieve

mission and objectives.mission and objectives.

Alternatives for Growth

Alternatives for Growth

Expansionof existingBusinesses

Diversificationinto new Businesses

Market PenetrationMarket DevelopmentProduct Development

VerticalIntegration -Forward & Backward

Related

Unrelated

Modes of Growth

Internal developmentInternal development Acquiring firms/businessesAcquiring firms/businesses Collaborative arrangementsCollaborative arrangements

Strategic AlliancesStrategic Alliances Joint VenturesJoint Ventures LicensingLicensing

Repositioning Strategies

RetrenchmentRetrenchment Assets and/or costsAssets and/or costs

DivestitureDivestiture Spin-offsSpin-offs

Termination Strategies

LiquidationLiquidation MergerMerger Being acquiredBeing acquired

Tools for Formulating and Choosing

Corporate Strategies

1. Portfolio Analysis1. 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

LowInd

ust

ry A

ttra

ctiv

enes

s

Winner Winner

Winner

ProfitProducer

AverageBusiness

???????

Loser

Loser Loser

1. Market growth; 2. market size; 3. Capital requirements; 4. Competitive Intensity

GEMATRIX

Competitive PositionMarket Share; Technological Know-How; Product QualityService Network; Price competitiveness; operating costs

Strong Average Weak

Development

Growth

Shakeout

Maturity/Saturation

Decline

B1

B2

B3

B4

PRODUCT/MARKET EVOLUTION PORTFOLIO MATRIX

Stageof Industry

Advantages of Portfolio Analyses

Encourages top management to evaluate Encourages top management to evaluate each business individually; to set each business individually; to set objectives; and consider resources.objectives; and consider resources.

It stimulates use of external data to It stimulates use of external data to supplement management’s judgment.supplement management’s judgment.

Its graphic representation makes Its graphic representation makes interpretation and communication easier.interpretation and communication easier.

Limitations of Portfolio Analyses Defining product/market segments isn’t easy.Defining product/market segments isn’t easy. Using standard strategies may miss Using standard strategies may miss

opportunities or be impractical.opportunities or be impractical. Providing an illusion of scientific rigor masks Providing an illusion of scientific rigor masks

the reality that positions are based on the reality that positions are based on subjective judgments.subjective judgments.

Determining what makes an industry Determining what makes an industry attractive isn’t always possible.attractive isn’t always possible.

More Tools

2. Past Performance2. Past Performance % increase in sales% increase in sales Contribution MarginContribution Margin

Sales or profit (gross, operating, net)Sales or profit (gross, operating, net)

Continue to do what doingContinue to do what doing 3. Mission and Long Term Objectives3. Mission and Long Term Objectives

More Tools

4. Matrices4. 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)

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 opportunitiesUse 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.165Internal Factor Evaluation (IFE) p.165 External Factor Evaluation (EFE) p. 130External Factor Evaluation (EFE) p. 130 Competitive Profile Matrix (CPM) p. 131Competitive Profile Matrix (CPM) p. 131 Strategic Position and Action Evaluation Strategic Position and Action Evaluation

(SPACE) p. 184(SPACE) p. 184 Internal-External p. 190Internal-External p. 190 Grand Strategy p. 192Grand Strategy p. 192

Other Tools Con’t

5. Economic Value Added (EVA)5. Economic Value Added (EVA) 6. Scenario Analysis6. Scenario Analysis 7. Game Theory7. Game Theory 8. Quantitative Decision Techniques8. Quantitative Decision Techniques

Linear Programming, etc.Linear Programming, etc. 9. Computer Assisted9. Computer Assisted

Decision Support Systems (DSS)Decision Support Systems (DSS) Artificial Intelligence (AI)Artificial Intelligence (AI)

Behavioral Aspects/Tools

Propensity for riskPropensity for risk Personal AgendasPersonal Agendas PersonalitiesPersonalities Time PressuresTime Pressures Reputation/IntegrityReputation/Integrity Imagination/ConceptualizationsImagination/Conceptualizations Support/CoalitionsSupport/Coalitions

Core Competencies

Core Competencies of the Corporation Real sources of advantage - not based on Real sources of advantage - not based on

businesses.businesses. Core competencies are collective learning Core competencies are collective learning

in the organization, especially:in the organization, especially: how to coordinate diverse production skills by how to coordinate diverse production skills by

integrating multiple streams of technologies.integrating multiple streams of technologies.

Tests to identify core competencies Provide potential access to a wide variety of Provide potential access to a wide variety of

markets/products/services.markets/products/services. Are difficult to imitate.Are difficult to imitate. Are driven by knowledge and learning.Are driven by knowledge and learning.

examples

EnginesEngines PowertrainsPowertrains

OpticsOptics ImagingImaging Microprocessor Microprocessor

controlscontrols

Cars; motorcycles; lawn Cars; motorcycles; lawn mowers; generatorsmowers; generators

Copiers; laser printers; Copiers; laser printers; cameras; image scanners; cameras; image scanners; medical imagingmedical imaging

Core Competencies Products/businesses

More kinds of core competencies: Systems IntegrationSystems Integration Virtual realityVirtual reality BioengineeringBioengineering Delighting the customerDelighting the customer

Strategic Analysis and ChoiceSummary

MakingMaking subjective decisions based subjective decisions based on objective information, and on objective information, and

subjective interpretationsubjective interpretation