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Chapter 6 Strategy Analysis And Choice. Strategic Management: Concepts and Cases . 9 th edition Fred R. David PowerPoint Slides by Anthony F. Chelte Western New England College. Chapter Outline. The Nature of Strategy Analysis and Choice A Comprehensive Strategy-Formulation Framework

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chapter 6 strategy analysis and choice
Chapter 6Strategy Analysis And Choice

Strategic Management:

Concepts and Cases. 9th edition

Fred R. David

PowerPoint Slides by

Anthony F. Chelte

Western New England College

Fred R. David

Prentice Hall

chapter outline
Chapter Outline
  • The Nature of Strategy Analysis and Choice
  • A Comprehensive Strategy-Formulation Framework
  • The Input Stage

Fred R. David

Prentice Hall

chapter outline3
Chapter Outline
  • The Matching Stage
  • The Decision Stage
  • Cultural Aspects of Strategy Choice

Fred R. David

Prentice Hall

chapter outline4
Chapter Outline
  • The Politics of Strategy Choice
  • The Role of a Board of Directors

Fred R. David

Prentice Hall

strategy analysis choice
Strategy Analysis & Choice

Whether it’s broke or not, fix it—make it better. Not just products, but the whole company if necessary.

-- Bill Saporito

Fred R. David

Prentice Hall

strategy analysis choice6
Strategy Analysis & Choice

Strategic analysis and choice largely involves making subjective decisions based on objective information.

Fred R. David

Prentice Hall

strategy analysis choice7
Strategy Analysis & Choice

The Nature of Strategy Analysis and Choice –

  • Establishing long-term objectives
  • Generating alternative strategies
  • Selecting strategies to pursue
  • Best alternative to achieve mission and objectives

Fred R. David

Prentice Hall

strategy analysis choice8
Strategy Analysis & Choice

Alternative strategies derive from –

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

Fred R. David

Prentice Hall

strategy analysis choice9
Strategy Analysis & Choice

Participation in generating alternative strategies should be broad –

Fred R. David

Prentice Hall

slide10

Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Fred R. David

Prentice Hall

formulation framework
Formulation Framework

Internal Factor Evaluation

Matrix (IFE)

Stage 1:

The Input Stage

External Factor Evaluation

Matrix (EFE)

Competitive Profile

Matrix

Fred R. David

Prentice Hall

input stage
Input Stage
  • Provides basic input information for the matching and decision stage matrices
  • Requires strategists to quantify subjectivity early in the process
  • Good intuitive judgment always needed

Fred R. David

Prentice Hall

formulation framework13
Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:

The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

Fred R. David

Prentice Hall

matching stage
Matching Stage
  • Match between organization’s internal resources and skills and the opportunities and risks created by its external factors.

Fred R. David

Prentice Hall

matching key factors to formulate alternative strategies

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

Fred R. David

Prentice Hall

formulation framework16
Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:

The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

Fred R. David

Prentice Hall

matching stage17
Matching Stage

TOWS Matrix

  • Threats
  • Opportunities
  • Strengths
  • Weaknesses

Fred R. David

Prentice Hall

tows matrix
TOWS Matrix

Develop four types of strategies

  • Strengths-Opportunities (SO)
  • Weaknesses-Opportunities (WO)
  • Strengths-Threats (ST)
  • Weaknesses-Threats (WT)

Fred R. David

Prentice Hall

so strategies

SO

Strategies

Use a firm’s internal strengths to take advantage of external opportunities

SOStrategies

Threats

Opportunities

Weaknesses

Strengths

(TOWS)

Fred R. David

Prentice Hall

wo strategies

WO

Strategies

Improving internal weaknesses by taking advantage of external opportunities

WOStrategies

Threats

Opportunities

Weaknesses

Strengths

(TOWS)

Fred R. David

Prentice Hall

st strategies

ST

Strategies

Using firm’s strengths to avoid or reduce the impact of external threats.

STStrategies

Threats

Opportunities

Weaknesses

Strengths

(TOWS)

Fred R. David

Prentice Hall

wt strategies

WT

Strategies

Defensive tactics aimed at reducing internal weaknesses and avoiding environmental threats.

WTStrategies

Threats

Opportunities

Weaknesses

Strengths

(TOWS)

Fred R. David

Prentice Hall

tows matrix23
TOWS Matrix

Steps in developing the TOWS Matrix

  • List the firm’s key external opportunities
  • List the firm’s key external threats
  • List the firm’s key internal strengths
  • List the firm’s key internal weaknesses

Fred R. David

Prentice Hall

tows matrix24
TOWS Matrix

Developing the TOWS Matrix

  • Match internal strengths with external opportunities and record the resultant SO Strategies
  • Match internal weaknesses with external opportunities and record the resultant WO Strategies
  • Match internal strengths with external threats and record the resultant ST Strategies
  • Match internal weaknesses with external threats and record the resultant WT Strategies

Fred R. David

Prentice Hall

tows matrix25

Leave Blank

Strengths-S

List Strengths

Weaknesses-W

List Weaknesses

Opportunities-O

List Opportunities

SO Strategies

Use strengths to take advantage of opportunities

WO Strategies

Overcome weaknesses by taking advantage of opportunities

Threats-T

List Threats

ST Strategies

Use strengths to avoid threats

WT Strategies

Minimize weaknesses and avoid threats

TOWS Matrix

Fred R. David

Prentice Hall

formulation framework26
Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:

The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

Fred R. David

Prentice Hall

space matrix
SPACE Matrix

Strategic Position and Action Evaluation Matrix

  • Four quadrant framework
  • Determines appropriate strategies
    • Aggressive
    • Conservative
    • Defensive
    • Competitive

Fred R. David

Prentice Hall

space matrix28
SPACE Matrix

Two Internal Dimensions

  • Financial Strength [FS]
  • Competitive Advantage [CA]

Two External Dimensions

  • Environmental Stability [ES]
  • Industry Strength [IS]

Fred R. David

Prentice Hall

space matrix29
SPACE Matrix

Overall Strategic position determined by:

  • Financial Strength [FS]
  • Competitive Advantage [CA]
  • Environmental Stability [ES]
  • Industry Strength [IS]

Fred R. David

Prentice Hall

space matrix30
SPACE Matrix

Developing the SPACE Matrix:

  • EFE Matrix
  • IFE Matrix
  • Financial Strength
  • Competitive Advantage
  • Environmental Stability
  • Industry Strength

Fred R. David

Prentice Hall

space matrix31
SPACE Matrix
  • Select variables to define FS, CA, ES, & IS
  • Assign numerical ranking from +1 (worst) to +6 (best) for FS and IS; Assign numerical ranking from –1 (best) to –6 (worst) for ES and CA.
  • Compute average score for FS, CA, ES, & IS

Fred R. David

Prentice Hall

space matrix32
SPACE Matrix
  • Plot the average scores on the Matrix
  • Add the two scores on the x-axis and plot point on X. Add the scores on the y-axis and plot Y. Plot the intersection of the new xy point.
  • Draw a directional vector from origin through the new intersection point.

Fred R. David

Prentice Hall

space factors

Internal Strategic Position

External Strategic Position

Financial Strength (FS)

Return on investment

Leverage

Liquidity

Working capital

Cash flow

Ease of exit from market

Risk involved in business

Environmental Stability (ES)

Technological changes

Rate of inflation

Demand variability

Price range of competing products

Barriers to entry

Competitive pressure

Price elasticity of demand

SPACE Factors

Fred R. David

Prentice Hall

space factors34

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

Capital intensify

Ease of entry into market

Productivity, capacity utilization

SPACE Factors

Fred R. David

Prentice Hall

space matrix35
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

-5

Competitive

Defensive

-6

ES

Fred R. David

Prentice Hall

formulation framework36
Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:

The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

Fred R. David

Prentice Hall

bcg matrix
BCG Matrix

Boston Consulting Group Matrix

  • Enhances multidivisional firms’ efforts to formulate strategies
  • Autonomous divisions (or profit centers) constitute the business portfolio
  • Firm’s divisions may compete in different industries requiring separate strategy

Fred R. David

Prentice Hall

bcg matrix38
BCG Matrix

Boston Consulting Group Matrix

  • Graphically portrays differences among divisions
  • Focuses on market share position and industry growth rate
  • Manage business portfolio through relative market share position and industry growth rate

Fred R. David

Prentice Hall

bcg matrix39
BCG Matrix

Relative market share position defined:

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

Fred R. David

Prentice Hall

bcg matrix40

Stars

II

Question Marks

I

Cash Cows

III

Dogs

IV

BCG Matrix

Relative Market Share Position

High

1.0

Medium

.50

Low

0.0

Industry Sales Growth Rate

High

+20

Medium

0

Low

-20

Fred R. David

Prentice Hall

bcg matrix41
BCG Matrix
  • Question Marks
  • Stars
  • Cash Cows
  • Dogs

Fred R. David

Prentice Hall

bcg matrix42
BCG Matrix

Question Marks

  • Low relative market share position yet compete in high-growth industry.
    • Cash needs are high
    • Case generation is low
  • Decision to strengthen (intensive strategies) or divest

Fred R. David

Prentice Hall

bcg matrix43
BCG Matrix

Stars

  • High relative market share and high industry growth rate.
    • Best long-run opportunities for growth and profitability
  • Substantial investment to maintain or strengthen dominant position
    • Integration strategies, intensive strategies, joint ventures

Fred R. David

Prentice Hall

bcg matrix44
BCG Matrix

Cash Cows

  • High relative market share position, but compete 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 becomes weak—retrenchment or divestiture

Fred R. David

Prentice Hall

bcg matrix45
BCG Matrix

Dogs

  • Low relative market share position and compete in slow or no market growth
    • Weak internal and external position
  • Decision to liquidate, divest, retrenchment

Fred R. David

Prentice Hall

formulation framework46
Formulation Framework

TOWS Matrix

SPACE Matrix

Stage 2:

The Matching Stage

BCG Matrix

IE Matrix

Grand Strategy Matrix

Fred R. David

Prentice Hall

grand strategy matrix
Grand Strategy Matrix
  • Popular tool for formulating alternative strategies
  • All organizations (or divisions) can be positioned in one of four quadrants
  • Based on two evaluative dimensions:
    • Competitive position
    • Market growth

Fred R. David

Prentice Hall

slide48

RAPID MARKET GROWTH

Quadrant II

  • Market development
  • Market penetration
  • Product development
  • Horizontal integration
  • Divestiture
  • Liquidation

Quadrant I

  • Market development
  • Market penetration
  • Product development
  • Forward integration
  • Backward integration
  • Horizontal integration
  • Concentric diversification

WEAK

COMPETITIVE

POSITION

STRONG

COMPETITIVE

POSITION

Quadrant III

  • Retrenchment
  • Concentric diversification
  • Horizontal diversification
  • Conglomerate diversification
  • Liquidation

Quadrant IV

  • Concentric diversification
  • Horizontal diversification
  • Conglomerate diversification
  • Joint ventures

SLOW MARKET GROWTH

Fred R. David

Prentice Hall

grand strategy matrix49
Grand Strategy Matrix

Quadrant I

  • Excellent strategic position
  • Concentration on current markets and products
  • Take risks aggressively when necessary

Fred R. David

Prentice Hall

grand strategy matrix50
Grand Strategy Matrix

Quadrant II

  • Evaluate present approach seriously
  • How to change to improve competitiveness
  • Rapid market growth requires intensive strategy

Fred R. David

Prentice Hall

grand strategy matrix51
Grand Strategy Matrix

Quadrant III

  • Compete in slow-growth industries
  • Weak competitive position
  • Drastic changes quickly
  • Cost and asset reduction indicated (retrenchment)

Fred R. David

Prentice Hall

grand strategy matrix52
Grand Strategy Matrix

Quadrant IV

  • Strong competitive position
  • Slow-growth industry
  • Diversification indicated to more promising growth areas

Fred R. David

Prentice Hall

formulation framework53
Formulation Framework

Stage 3:

The Decision Stage

Quantitative Strategic

Planning Matrix

(QSPM)

Fred R. David

Prentice Hall

slide54
QSPM

Quantitative Strategic Planning Matrix

  • Only technique designed to determine the relative attractiveness of feasible alternative actions

Fred R. David

Prentice Hall

slide55
QSPM

Quantitative Strategic Planning Matrix

  • Tool for objective evaluation of alternative strategies
  • Based on identified external and internal crucial success factors
  • Requires good intuitive judgment

Fred R. David

Prentice Hall

slide56
QSPM

Quantitative Strategic Planning Matrix

  • List the firm’s key external opportunities & threats; list the firm’s key internal strengths and weaknesses
  • Assign weights to each external and internal critical success factor

Fred R. David

Prentice Hall

slide57
QSPM

Quantitative Strategic Planning Matrix

  • Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementing
  • Determine the Attractiveness Scores (AS)

Fred R. David

Prentice Hall

slide58
QSPM

Quantitative Strategic Planning Matrix

  • Compute the total Attractiveness Scores
  • Compute the Sum Total Attractiveness Score

Fred R. David

Prentice Hall

slide59

Key External Factors

Economy

Political/Legal/Governmental

Social/Cultural/Demographic/Environmental

Technological

Competitive

Weight

Strategy 1

Strategy 2

Strategy 3

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Computer Information Systems

Strategic Alternatives

QSPM

Fred R. David

Prentice Hall

slide60
QSPM

Limitations:

  • Requires intuitive judgments and educated assumptions
  • Only as good as the prerequisite inputs

Fred R. David

Prentice Hall

slide61
QSPM

Positives:

  • Sets of strategies examined simultaneously or sequentially
  • Requires the integration of pertinent external and internal factors in the decision-making process

Fred R. David

Prentice Hall

cultural aspects of strategy choice
Cultural Aspects of Strategy Choice

Culture:

  • The set of shared values, beliefs, attitudes, customs, norms, personalities, heroes, and heroines that describe a firm

Fred R. David

Prentice Hall

cultural aspects of strategy choice63
Cultural Aspects of Strategy Choice

Culture:

  • Successful strategies depend on degree of support from a firm’s culture

Fred R. David

Prentice Hall

politics of strategy choice
Politics of Strategy Choice

Politics in organizations:

  • Management hierarchy
  • Career aspirations
  • Allocation of scarce resources

Fred R. David

Prentice Hall

politics of strategy choice65
Politics of Strategy Choice

Political tactics for strategists:

  • Equifinality
  • Satisfying
  • Generalization
  • Focus on Higher-Order Issues
  • Provide Political Access on Important Issues

Fred R. David

Prentice Hall

role of a board of directors
Role of A Board of Directors

Duties and Responsibilities:

  • Control and oversight over management
  • Adherence to legal prescriptions
  • Consideration of stakeholder interests
  • Advancement of stockholders’ rights

Fred R. David

Prentice Hall

key terms
Key Terms
  • Aggressive quadrant
  • Attractiveness Scores (AS)
  • Board of Directors
  • Boston Consulting Group (BCG) Matrix
  • Business portfolio
  • Cash cows
  • Champions
  • Competitive Advantage (CA)

Fred R. David

Prentice Hall

key terms68
Key Terms
  • Competitive quadrant
  • Conservative quadrant
  • Culture
  • Decision stage
  • Defensive quadrant
  • Directional vector
  • Dogs
  • Environmental Stability (ES)
  • Financial Strength (FS)

Fred R. David

Prentice Hall

key terms69
Key Terms
  • Grand Strategy Matrix
  • Halo error
  • Industry Strength (IS)
  • Input stage
  • Internal-External (IE) Matrix
  • Long-term objectives
  • Matching
  • Matching stage
  • Quantitative Strategic Planning Matrix (QSPM)

Fred R. David

Prentice Hall

key terms70
Key Terms
  • Question marks
  • Relative market share position
  • SO strategies
  • ST strategies
  • Stars
  • Strategic Position and Action Evaluation (SPACE) Matrix
  • Strategy-formulation framework

Fred R. David

Prentice Hall

key terms71
Key Terms
  • Sum total attractiveness scores
  • Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix
  • Total Attractiveness Scores (TAS)
  • WO strategies
  • WT strategies

Fred R. David

Prentice Hall

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