dr. sayed elsayed strategy analysis and choice strategic management
TRANSCRIPT
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