STRATEGY ANALYSIS AND CHOICE

1. STRATEGY ANALYSIS AND CHOICE Gopal Salim UAE

3. Strategic Management • DEFINITION ANALYSIS, DECISIONS, AND ACTIONS AN ORGANIZATION UNDERTAKES IN ORDER TO CREATE AND SUSTAIN COMPETITIVE ADVANTAGES • There are two main elements in the above definition • Analysis, Decisions and Actions • Create and Sustain Competitive Advantages

4. 1.Analysis, Decisions & Actions • ANALYSIS • Analysis of Strategic Goals (Vision, Mission, Strategic Objectives) • Analysis of Internal and External Environment of the organization • DECISIONS ( Addresses 2 Questions) • What industries should we compete in? • How should we compete in those industries? • ACTIONS • Allocate resources to achieve the objectives • Design an organization to make the intended strategy a reality

5. 2.Create & Sustain Competitive Advantage • This focus on two major questions 1. How should an organization compete to create competitive advantage in the market place or industry ? 2. How can an organization create competitive advantage that is not only unique and valuable , but difficult for competitors to copy?

6. Strategic Process • The above definition of strategic management brings in a series of actions in an organization that is intended towards achieving the organizational goals so that the organization can sustain its competitive advantage in the long run. • The whole series of actions can be summarized in the form of a chart as given in the next power point

7. Strategic Management Process (Single SBU) Defining VISION, MISSION, BUSINESS Environmental Analysis Organizational Analysis Reset if Required Setting Objectives &Goals Identification &Development of Alternative Strategies Reformulate if required Choice of Strategy Implementation of Strategy Re-implement if required Strategy Evaluation & Control Feedback

8. Analysis of Objectives & Goals Organizational Vision • Vision serves the purpose of stating what an organization wishes to achieve in the long run • It is more of a dream than articulated idea and it should be “massively inspring, overarching and long term”. • It is powerful motivator to action • Vision articulates the position of an organization which it may retain in distant future

9. Analysis of Objectives & Goals Organizational Vision ENVISIONING • This is the process of creating vision • A well conceived vision should have: • Core ideology • This remains unchanged and has enduring character • Envisioned Future • This shows the long term objectives of the organization • Clear description of articulated future

10. Analysis of Objectives & Goals Organizational Vision Advantages of having a Vision • It promotes experimentation • Promotes long term thinking of the management • It promotes risk taking • It makes organization competitive, original and unique • It is inspiring and motivating to people

11. Analysis of Objectives & Goals Organizational Mission • It is the purpose or reason for the organization to exist • It answers “ why the organization is in existence”. • It is the basis of awareness of a sense of purpose

12. Analysis of Objectives & Goals Organizational Mission Characteristics of Mission Statement • The mission of an organization is always stated by Mission Statement. A mission statement should have the following characteristics: • It should be SMART (Specific, Measurable, Appropriate, Realistic and Timely) • Neither be too broad nor too narrow • Should not be ambiguous • Should be distinct • Should have societal linkage • Should be motivating

13. Analysis of Objectives & Goals Business Definition • Explains business of an organization in terms of the following: • CUSTOMER NEEDS • CUSTOMER GROUPS • ALTERNATIVE TECHNOLOGIES

15. Example of Business Definition • The business definition of a watch making can be as follows: • Customer groups are individual customers , commercial organizations, sports organizations, educational institutions • Customer functions are record time, finding time, alarm services, gift to somebody , vanity value etc • Alternative technologies are manual, mechanical, automatic, digital etc

16. Objectives and Goals • Objectives are ultimate end results which is used to operationalize the mission statement • They are more specific than mission • It is the ultimate end results which are to be accomplished by overall plan over a specific period of time • Objectives are open ended and when they are stated in specific terms, it becomes goal

17. Difference between Objectives and Goals • Goals are broad, while objectives specific • Goals set for relatively longer period of time • Goals are more affected by external environment • Goals are not quantified, but objectives are quantified

18. What objectives should be set? • Profit objective • Marketing objective • Productivity objective • Product objective • Social objective • Financial objective • HR Objective

19. Analyzing External Environment • The external environment is the totality of forces that is external to the business and it interact with the business in the market place. • The external environment provides the OPPORTUNITY for the firm to do business and at the same time it generates THREAT from the market.

20. Creating an Environmentally Aware Organization • A firm need to forecasts its environment for developing a strategy that create sustained competitive advantage • The inputs for forecasting are : • Environmental Scanning • Environmental Monitoring • Competitive Intelligence

21. Creating an Environmentally Aware Organization • Role of Environment Scanning • This involves the surveillance of a firm’s external environment to predict environmental changes, and detect changes that is already underway. • For Environmental Scanning, we can use a framework which is known as PESTEL framework • An example of Pestel framework is given below:

22. PESTEL FRAMEWORK

23. Find out the impact of general environmental factors on your business

24. Find out the impact of general environmental factors on your business • Consider the table given overleaf. • If the impact of a factors is positive, then it has got some positive influence on your business • If the impact is negative, then it has got some negative impact on your business • If it is neutral, then the factor is unimportant for you now

25. COMPETITIVE FORCES • One of the most uncertain environmental forces that affect the business is the competitive framework in the market. • One of the models that is highly acclaimed in assessing competitive framework is Michael E. Porter’s Five Forces Model.

26. Porter’s Five Forces Model

27. COMPETITIVE FORCES

33. Firm’s Internal Analysis • Many of the issues of strategy development are concerned with changing strategic capability better to fit a changing environment • The methods used for assessing internal capabilities and weaknesses are: • Resource Based View of the Firm (RBV) • Study of Critical Success Factors (CSF) • The Value Chain Framework • The Balance Scorecard

34. STRATEGY FORMULATION FRAMEWORK : TOOLS AND TECHNIQUES

35. Comprehensive Strategy-Formulation Framework Stage 1:The Input Stage Stage 2:The Matching Stage Stage 3:The Decision Stage

36. Strategy-Formulation Analytical Framework Internal Factor EvaluationMatrix (IFE) Stage 1:The Input Stage External Factor EvaluationMatrix (EFE) Competitive Profile Matrix(CPM)

37. 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

38. IFE Matrix (Internal Factor Evaluation) • Internal Factor Evaluation (IFE) matrix is a strategic management tool for auditing or evaluating major strengths and weaknesses in functional areas of a business. • IFE matrix also provides a basis for identifying and evaluating relationships among those areas.  • The IFE Matrix together with the EFE matrix is a strategy-formulation tool that can be utilized to evaluate how a company is performing in regards to identified internal strengths and weaknesses of a company.

39. IFE Matrix (Internal Factor Evaluation) • IFE MATRIX can be created by using 5 steps: • Conduct and internal audit and find out the strengths and weaknesses of the company • There is no limit on the number of factors that can be considered as strengths and weaknesses 2. Assign Weights to each factor ranging from 0.00 to 100 scale • The weights assigned shows the importance of that factor. The most important factor is given highest percentage and least importance is given least percentage • The sum of all the weights should be equal to 1.00 or 100 %

40. IFE Matrix (Internal Factor Evaluation) 3. Rating • Give the rating as below: • Major Weakness – 1 • Minor Weakness – 2 • Minor Strength - 3 • Major Strength - 4 • Multiply each factor rating with the weights. This will give the weighted score for each factor. Sum the total weights score for each factor which give weighted score for your business. • Weighted score below 2.5 shows that you are internally weak and above 2.5 shows that you are internally strong. • Example is given in the next PPT

42. External Factor Evaluation Matrix (EFE) • External Factor Evaluation (EFE) matrix method is a strategic-management tool often used for assessment of current business conditions. • The EFE matrix is a good tool to visualize and prioritize the opportunities and threats that a business is facing.

43. Development of EFE Matrix 1. List Opportunities and Threats • List one by one the opportunities and threats of the business 2. Assign Weightage • Assign a weight to each factor • The value of weight should be between 0 and 1 ( or use a scale on 0 to 100) • Zero means factors is unimportant. If it is nearing either one or 100, it is important • The total value of weight will be 1 or 100

44. Development of EFE Matrix 3. Rate Factors • Assign a rating to each factor. • Rating should be between 1 and 4 • Ratings indicate the effectiveness of the present strategy of the firm to the factor under consideration • Rating should be given as follows: • Poor Response – 1 • Below Average Response -2 • Above Average Response – 3 • Superior Response - 4

45. Development of EFE Matrix 4. Find Weighted Score • Multiply each factor weight with its rating. This will give weighted score for each factor 5. Sum up the Weighted Score • Add all weighted score for each factor. This will give total weighted score for the company. • Weighted score below 2.5 shows that the company’s response is weak and above 2.5 shows that the response is strong.

46. EXTERNAL FACTOR EVALUATION MATRIX - EXAMPLE

47. Factors to be included in EFE Matrix • Political Factors • Economic Factors • Socio-Cultural Factors • Technological Factors • Environmental Factors • Legal Factors

48. Competitive Profile Matrix (CPM) • CPM identifies a firm’s major competitors and their strengths and weaknesses in relation to the sample firm’s strategic position. • The weights and total weighted scores in both CPM and EFE have the same meaning. • The factors that are considered are strengths and weaknesses and the rating will be as follows: • Major Strengths – 4 • Minor Strengths – 3 • Minor Weaknesses – 2 • Major Weaknesses -1

49. Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix Stage 2:The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix

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