Bus 411

1. Bus 411 DAY 9 Copyright 2005 Prentice Hall

2. Agenda • Assignment #3 due • Assignment #4 will be assigned next class • Templates available in WebCT • Discussion on Mid-term • Before or after Spring Break? • Finish Discussion about Strategies • Start Discussion on Strategy Analysis and choice Copyright 2005 Prentice Hall

3. Michael Porter’s Generic Strategies Cost Leadership Strategies DifferentiationStrategies Focus Strategies Copyright 2005 Prentice Hall

4. Generic Strategies Cost Leadership • In conjunction with differentiation • Economies or diseconomies of scale • Capacity utilization achieved • Linkages w/ suppliers & distributors Copyright 2005 Prentice Hall

5. Generic Strategies Low Cost Producer Advantage • Many price-sensitive buyers • Few ways of achieving differentiation • Buyers not sensitive to brand differences • Large # of buyers w/bargaining power Copyright 2005 Prentice Hall

6. Generic Strategies Differentiation • Greater product flexibility • Greater compatibility • Improved service • Greater convenience • More features Copyright 2005 Prentice Hall

7. Generic Strategies Focus • Industry segment of sufficient size • Good growth potential • Not crucial to success of major competitors Copyright 2005 Prentice Hall

8. Means for Achieving Strategies Joint Venture/Partnering - • Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity. Copyright 2005 Prentice Hall

9. Means for Achieving Strategies Cooperative Arrangements - • R&D partnerships • Cross-distribution agreements • Cross-licensing agreements • Cross-manufacturing agreements • Joint-bidding consortia Copyright 2005 Prentice Hall

10. Means for Achieving Strategies Why Joint Ventures Fail - • Managers who must collaborate daily; not involved in developing the venture • Benefits the company not the customers • Not supported equally by both partners • May begin to compete with one of the partners Copyright 2005 Prentice Hall

11. Joint Ventures Guidelines -- • Synergies between private and publicly held • Domestic with foreign firm, local management can reduce risk • Complementary distinctive competencies • Resources & risks where project is highly profitable (e.g. Alaska Pipeline) • Two or more smaller firms competing w/larger firm • Need to introduce new technology quickly Copyright 2005 Prentice Hall

12. Means for Achieving Strategies Mergers & Acquisitions • Provide improved capacity utilization • Better use of existing sales force • Reduce managerial staff • Gain economies of scale • Smooth out seasonal trends in sales • Gain new technology • Access to new suppliers, distributors, customers, products, creditors Copyright 2005 Prentice Hall

13. Recent Mergers Copyright 2005 Prentice Hall

14. First Mover Advantages • Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms. Copyright 2005 Prentice Hall

15. First Mover Advantages Potential Advantages • Securing access to rare resources • Gaining new knowledge of key factors & issues • Carving out market share • Easy to defend position & costly for rival firms to overtake Copyright 2005 Prentice Hall

16. Outsourcing Business-process outsourcing (BPO) • Companies taking over the functional operations of other firms Copyright 2005 Prentice Hall

17. Outsourcing Benefits • Less expensive • Allows firm to focus on core business • Enables firm to provide better services Copyright 2005 Prentice Hall

18. Chapter 6Strategy Analysis & Choice Strategic Management: Concepts & Cases 10th Edition Fred DavidPowerPoint Slides by Anthony F. Chelte Western New England College Copyright 2005 Prentice Hall

19. Chapter Outline The Nature of Strategy & Choice A Comprehensive Strategy-Formulation Framework The Input Stage Copyright 2005 Prentice Hall

20. Chapter Outline (cont’d) The Matching Stage The Decision Stage Cultural Aspects of Strategy Choice Copyright 2005 Prentice Hall

21. Chapter Outline (cont’d) The Politics of Strategy Choice Governance Issues Copyright 2005 Prentice Hall

22. Strategy Analysis & Choice To acquire or not to acquire, that is the question –Robert J. Terry Life is full of lousy options -- General P.X. Kelley Copyright 2005 Prentice Hall

23. Strategy Analysis & Choice --Establishing long-term objectives -- Generating alternative strategies -- Selecting strategies to pursue -- Best alternative - achieve mission & objectives Nature of Strategy Analysis & Choice Copyright 2005 Prentice Hall

24. Strategy Analysis & Choice Alternative Strategies Derive From -- • Vision • Mission • Objectives • External audit • Internal audit • Past successful strategies Copyright 2005 Prentice Hall

25. Strategy Analysis & Choice Generating Alternatives -- Participation in generating alternative strategies should be as broad as possible Copyright 2005 Prentice Hall

26. Comprehensive Strategy-Formulation Framework Stage 1:The Input Stage Stage 2:The Matching Stage Stage 3:The Decision Stage Copyright 2005 Prentice Hall

27. Strategy-Formulation Analytical Framework Internal Factor EvaluationMatrix (IFE) Stage 1:The Input Stage External Factor EvaluationMatrix (EFE) Competitive Profile Matrix(CPM) Copyright 2005 Prentice Hall

28. Stage 1: The Input Stage • Basic input information for the matching & decision stage matrices • Requires strategists to quantify subjectivity early in the process • Good intuitive judgment always needed Copyright 2005 Prentice Hall

29. Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix Stage 2:The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright 2005 Prentice Hall

30. Stage 2: The Matching Stage • Match between organization’s internal resources & skills and the opportunities & risks created by its external factors Copyright 2005 Prentice Hall

31. Stage 2: The Matching Stage SWOT Matrix • Strengths • Weaknesses • Opportunities • Threats Copyright 2005 Prentice Hall

32. SWOT Matrix Four Types of Strategies • Strengths-Opportunities (SO) • Weaknesses-Opportunities (WO) • Strengths-Threats (ST) • Weaknesses-Threats (WT) Copyright 2005 Prentice Hall

33. SO Strategies StrengthsWeaknessesOpportunities ThreatsSWOT Use a firm’sinternal strengthsto take advantageof external opportunities SOStrategies Copyright 2005 Prentice Hall

34. WO Strategies StrengthsWeaknessesOpportunities ThreatsSWOT Improving internalweaknesses bytaking advantageof externalopportunities WOStrategies Copyright 2005 Prentice Hall

35. ST Strategies StrengthsWeaknessesOpportunities ThreatsSWOT Use a firm’s strengthsto avoid orreduce the impactof externalthreats STStrategies Copyright 2005 Prentice Hall

36. WT Strategies StrengthsWeaknessesOpportunities ThreatsSWOT Defensive tacticsaimed at reducinginternal weaknesses & avoidingenvironmentalthreats WTStrategies Copyright 2005 Prentice Hall

37. SWOT Matrix Developing the SWOT • List firm’s key internal Strengths • List firm’s key internal Weaknesses • List firm’s key external Opportunities • List firm’s key external Threats Copyright 2005 Prentice Hall

38. SWOT Matrix Copyright 2005 Prentice Hall

39. Excess working capacity (strength) + 20% annual growth in the cell phone industry (opportunity) = Acquire Cellfone, Inc. Insufficient capacity (weakness) + Exit of two major foreign competitors form 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 Poor employee morale (weakness) + = Develop a new employee benefits package Strong union activity (threat) Matching Key Factors to Formulate Alternative Strategies Key Internal Factor Key External Factor Resultant Strategy

40. Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix Stage 2:The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright 2005 Prentice Hall

41. SPACE Matrix Strategic Position & Action Evaluation Matrix • Aggressive • Conservative • Defensive • Competitive Copyright 2005 Prentice Hall

42. SPACE Matrix Two Internal Dimensions • Financial Strength (FS) • Competitive Advantage (CA) Two External Dimensions • Environmental Stability (ES) • Industry Strength (IS) Copyright 2005 Prentice Hall

43. 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 demandEase of exit from market Risk involved in business SPACE Factors

44. Internal Strategic Position External Strategic Position Competitive Advantage CA Market share Product quality Product life cycle Customer loyalty Competition’s 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 SPACE Factors

45. SPACE Matrix FS Conservative Aggressive +6 +5 +4 +3 +2 +1 CA IS -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 -1 -2 -3 -4 Defensive -5 Competitive -6 ES

46. The steps to develop a SPACE Matrix: • Select a set of variables to define financial strength (FS), competitive advantage (CA), environmental stability (ES), and industry strength (IS). • Table 6-2 provides Good examples • Assign a numerical value ranging from 1 (worst) to 6 (best) for the variables that make up the FS and IS dimensions. Assign a number between –1 (best) to –6 (worst) for variables that make up the ES and CA dimensions. On the FS and CA axes, make comparison to competitors. On the IS and ES axes, make comparison to other industries. • Compute an average score for FS, CA, IS, and ES by summing the values given to the variables and dividing by the number of variables included in each dimension. • Plot the average scores for FS, IS, ES, and CA on the appropriate axis in the SPACE Matrix. • Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on the y-axis and plot the resultant point on Y. Plot the intersection of the new xy point. • Draw a directional vector from the origin of the SPACE matrix through the new intersection point. This vector reveals the type of strategies recommended for the organization. • Aggressive • Competitive • Defensive • Conservative • Lets try with Data in table 6-3 Copyright 2005 Prentice Hall

47. Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix Stage 2:The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix Copyright 2005 Prentice Hall

48. 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 Copyright 2005 Prentice Hall

49. 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. Copyright 2005 Prentice Hall

50. BCG Matrix • Data required • Relative market Share for each Division • Horizontal axis • Compare to leading firm (1 means you are the leading firm) • Industry growth pattern • Vertical axis • Percentage of Corporate Revenues generated by division • Size of circle • Percentage of Corporate Profits generated by division • Size of pie slice Copyright 2005 Prentice Hall