dr. sayed elsayed strategy analysis and choice strategic management

Dr. Sayed Elsayed

Strategy Analysis And ChoiceStrategy Analysis And Choice

Strategic Management

Dr. Sayed Elsayed

Strategy Analysis & ChoiceStrategy Analysis & Choice

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

-- Bill Saporito

Dr. Sayed Elsayed

Strategy Analysis & ChoiceStrategy Analysis & Choice

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

Dr. Sayed Elsayed

Strategy Analysis & ChoiceStrategy Analysis & Choice

The Nature of Strategy Analysis and Choice –The Nature of Strategy Analysis and Choice –

– Establishing long-term objectivesEstablishing long-term objectives– Generating alternative strategiesGenerating alternative strategies– Selecting strategies to pursueSelecting strategies to pursue– Best alternative to achieve mission and objectivesBest alternative to achieve mission and objectives

Dr. Sayed Elsayed

Strategy Analysis & ChoiceStrategy Analysis & Choice

Alternative strategies derive from –Alternative strategies derive from –

– VisionVision– MissionMission– ObjectivesObjectives– External auditExternal audit– Internal auditInternal audit– Past successful strategiesPast successful strategies

Dr. Sayed Elsayed

Strategy Analysis & ChoiceStrategy Analysis & Choice

Participation in generating alternative Participation in generating alternative strategies should be broad –strategies should be broad –

Dr. Sayed Elsayed

Strategy-FormulationStrategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Dr. Sayed Elsayed

Formulation FrameworkFormulation Framework

External Factor EvaluationMatrix (EFE)

Competitive ProfileMatrix

Internal Factor EvaluationMatrix (IFE)

Stage 1:The Input Stage

Dr. Sayed Elsayed

Input StageInput Stage

• Provides basic input information for the Provides basic input information for the matching and decision stage matricesmatching and decision stage matrices

• Requires strategists to quantify Requires strategists to quantify subjectivity early in the processsubjectivity early in the process

• Good intuitive judgment always neededGood intuitive judgment always needed

Dr. Sayed Elsayed

Formulation FrameworkFormulation Framework

SPACE Matrix

Stage 2:The Matching Stage

TOWS Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix

Dr. Sayed Elsayed

Matching StageMatching Stage

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

Dr. Sayed Elsayed

Matching Key Factors to Formulate Alternative StrategiesMatching Key Factors to Formulate Alternative Strategies

Resultant StrategyKey External FactorKey Internal Factor

Develop a new employee benefits package

=Strong union activity (threat)

+Poor employee morale (weakness)

Develop new products for older adults

=Decreasing numbers of young adults (threat)

+Strong R&D (strength)

Pursue horizontal integration by buying competitor's facilities

=Exit of two major foreign competitors form the industry (opportunity)

+Insufficient capacity (weakness)

Acquire Cellfone, Inc.=20% annual growth in the cell phone industry (opportunity)

+Excess working capacity (strength)

Dr. Sayed Elsayed

Formulation FrameworkFormulation Framework

SPACE Matrix

Stage 2:The Matching Stage

TOWS Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix

Dr. Sayed Elsayed

Matching StageMatching Stage

TOWS MatrixTOWS Matrix

– ThreatsThreats

– OpportunitiesOpportunities

– StrengthsStrengths

– WeaknessesWeaknesses

Dr. Sayed Elsayed

TOWS MatrixTOWS Matrix

Develop four types of strategiesDevelop four types of strategies

– Strengths-Opportunities (SO)Strengths-Opportunities (SO)

– Weaknesses-Opportunities (WO)Weaknesses-Opportunities (WO)

– Strengths-Threats (ST)Strengths-Threats (ST)

– Weaknesses-Threats (WT)Weaknesses-Threats (WT)

Dr. Sayed Elsayed

SOSO StrategiesStrategies

SO

Strategies

Use a firm’s internal

strengths to take advantage of

external opportunities

ThreatsOpportunitiesWeaknesses

Strengths(TOWS)

Dr. Sayed Elsayed

WOWO StrategiesStrategies

WO

Strategies

Improving internal

weaknesses by taking

advantage of external

opportunities

ThreatsOpportunitiesWeaknesses

Strengths(TOWS)

Dr. Sayed Elsayed

STST StrategiesStrategies

ST

Strategies

Using firm’s strengths to

avoid or reduce the impact of

external threats.

ThreatsOpportunitiesWeaknesses

Strengths(TOWS)

Dr. Sayed Elsayed

WTWT StrategiesStrategies

WT

Strategies

Defensive tactics aimed at reducing internal

weaknesses and avoiding

environmental threats.

ThreatsOpportunitiesWeaknesses

Strengths(TOWS)

Dr. Sayed Elsayed

TOWS MatrixTOWS Matrix

Steps in developing the TOWS Matrix

1. List the firm’s key external opportunities

2. List the firm’s key external threats

3. List the firm’s key internal strengths

4. List the firm’s key internal weaknesses

Dr. Sayed Elsayed

TOWS MatrixTOWS Matrix

Developing the TOWS Matrix

5. Match internal strengths with external opportunities and record the resultant SO Strategies

6. Match internal weaknesses with external opportunities and record the resultant WO Strategies

7. Match internal strengths with external threats and record the resultant ST Strategies

8. Match internal weaknesses with external threats and record the resultant WT Strategies

Dr. Sayed Elsayed

TOWS MatrixTOWS Matrix

WT Strategies

Minimize weaknesses and avoid threats

ST Strategies

Use strengths to avoid threats

Threats-T

List Threats

WO Strategies

Overcome weaknesses by taking advantage of

opportunities

SO Strategies

Use strengths to take advantage of opportunities

Opportunities-O

List Opportunities

Weaknesses-W

List Weaknesses

Strengths-S

List Strengths

Leave Blank

Dr. Sayed Elsayed

Formulation FrameworkFormulation Framework

SPACE Matrix

Stage 2:The Matching Stage

TOWS Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix

Dr. Sayed Elsayed

SPACE MatrixSPACE Matrix

Strategic Position and Action Evaluation Matrix

Four quadrant framework Determines appropriate strategies

Aggressive Conservative Defensive Competitive

Dr. Sayed Elsayed

SPACE MatrixSPACE Matrix

Two Internal Dimensions Financial Strength [FS] Competitive Advantage [CA]

Two External Dimensions Environmental Stability [ES] Industry Strength [IS]

Dr. Sayed Elsayed

SPACE MatrixSPACE Matrix

Overall Strategic position determined by:

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

Dr. Sayed Elsayed

SPACE MatrixSPACE Matrix

Developing the SPACE Matrix:

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

Dr. Sayed Elsayed

SPACE MatrixSPACE 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

Dr. Sayed Elsayed

SPACE MatrixSPACE 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.

Dr. Sayed Elsayed

SPACE FactorsSPACE Factors

Environmental Stability (ES)

Technological changes

Rate of inflation

Demand variability

Price range of competing products

Barriers to entry

Competitive pressure

Price elasticity of demand

Financial Strength (FS)

Return on investment

Leverage

Liquidity

Working capital

Cash flow

Ease of exit from market

Risk involved in business

External Strategic PositionInternal Strategic Position

Dr. Sayed Elsayed

SPACE FactorsSPACE Factors

Industry Strength (IS)

Growth potential

Profit potential

Financial stability

Technological know-how

Resource utilization

Capital intensify

Ease of entry into market

Productivity, capacity utilization

Competitive Advantage CA

Market share

Product quality

Product life cycle

Customer loyalty

Competition’s capacity utilization

Technological know-how

Control over suppliers & distributors

External Strategic PositionInternal Strategic Position

Dr. Sayed Elsayed

SPACE MatrixSPACE MatrixFS

+6

+1

+5+4+3

+2

-6

-5

-4

-3

-2

-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6

ES

CA IS

Conservative Aggressive

Defensive Competitive

Dr. Sayed Elsayed

Formulation FrameworkFormulation Framework

SPACE Matrix

Stage 2:The Matching Stage

TOWS Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix

Dr. Sayed Elsayed

BCG MatrixBCG 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

Dr. Sayed Elsayed

BCG MatrixBCG 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

Dr. Sayed Elsayed

BCG MatrixBCG 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.

Dr. Sayed Elsayed

BCG MatrixBCG Matrix

DogsDogs

IVIV

Cash CowsCash Cows

IIIIII

Question MarksQuestion Marks

II

StarsStars

IIII

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

Ind

ust

ry S

ales

Gro

wth

Rat

e High+20

Low-20

Medium0

Dr. Sayed Elsayed

BCG MatrixBCG Matrix

• Question Marks • Stars• Cash Cows• Dogs

Dr. Sayed Elsayed

BCG MatrixBCG 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

Dr. Sayed Elsayed

BCG MatrixBCG 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

Dr. Sayed Elsayed

BCG MatrixBCG 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

Dr. Sayed Elsayed

BCG MatrixBCG 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

Dr. Sayed Elsayed

Formulation FrameworkFormulation Framework

SPACE Matrix

Stage 2:The Matching Stage

TOWS Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix

Dr. Sayed Elsayed

Grand Strategy MatrixGrand 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

Dr. Sayed Elsayed

Quadrant IV

1. Concentric diversification

2. Horizontal diversification

3. Conglomerate diversification

4. Joint ventures

Quadrant III

1. Retrenchment

2. Concentric diversification

3. Horizontal diversification

4. Conglomerate diversification

5. Liquidation

Quadrant I

1. Market development

2. Market penetration

3. Product development

4. Forward integration

5. Backward integration

6. Horizontal integration

7. Concentric diversification

Quadrant II

1. Market development

2. Market penetration

3. Product development

4. Horizontal integration

5. Divestiture

6. Liquidation

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAK COMPETITIVE

POSITION

STRONGCOMPETITIVE

POSITION

Dr. Sayed Elsayed

Grand Strategy MatrixGrand Strategy Matrix

Quadrant I

• Excellent strategic position• Concentration on current markets and

products• Take risks aggressively when necessary

Dr. Sayed Elsayed

Grand Strategy MatrixGrand Strategy Matrix

Quadrant II

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

strategy

Dr. Sayed Elsayed

Grand Strategy MatrixGrand Strategy Matrix

Quadrant III

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

(retrenchment)

Dr. Sayed Elsayed

Grand Strategy MatrixGrand Strategy Matrix

Quadrant IV

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

growth areas

Dr. Sayed Elsayed

Formulation FrameworkFormulation Framework

Quantitative Strategic Planning Matrix

(QSPM)

Stage 3:The Decision Stage

Dr. Sayed Elsayed

QSPMQSPM

Quantitative Strategic Planning Matrix

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

Dr. Sayed Elsayed

QSPMQSPM

Quantitative Strategic Planning Matrix

• Tool for objective evaluation of alternative strategies

• Based on identified external and internal crucial success factors

• Requires good intuitive judgment

Dr. Sayed Elsayed

QSPMQSPM

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

Dr. Sayed Elsayed

QSPMQSPM

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)

Dr. Sayed Elsayed

QSPMQSPM

Quantitative Strategic Planning Matrix

• Compute the total Attractiveness Scores

• Compute the Sum Total Attractiveness Score

Dr. Sayed Elsayed

QSPMQSPM

Key Internal FactorsManagementMarketingFinance/AccountingProduction/OperationsResearch and DevelopmentComputer Information Systems

Strategy 3Strategy 2

Strategy 1

WeightKey External FactorsEconomyPolitical/Legal/GovernmentalSocial/Cultural/Demographic/EnvironmentalTechnologicalCompetitive

Strategic Alternatives

Dr. Sayed Elsayed

QSPMQSPM

Limitations:

• Requires intuitive judgments and educated assumptions

• Only as good as the prerequisite inputs

Dr. Sayed Elsayed

QSPMQSPM

Positives:

• Sets of strategies examined simultaneously or sequentially

• Requires the integration of pertinent external and internal factors in the decision-making process

Dr. Sayed Elsayed

Cultural Aspects of Strategy Cultural Aspects of Strategy ChoiceChoice

Culture:

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

Dr. Sayed Elsayed

Cultural Aspects of Strategy Cultural Aspects of Strategy ChoiceChoice

Culture:

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

Dr. Sayed Elsayed

Politics of Strategy ChoicePolitics of Strategy Choice

Politics in organizations:

• Management hierarchy

• Career aspirations

• Allocation of scarce resources

Dr. Sayed Elsayed

Politics of Strategy ChoicePolitics of Strategy Choice

Political tactics for strategists:

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

Dr. Sayed Elsayed

Role of A Board of DirectorsRole of A Board of Directors

Duties and Responsibilities:

1. Control and oversight over management

2. Adherence to legal prescriptions

3. Consideration of stakeholder interests

4. Advancement of stockholders’ rights