strategy analysis and choice

Strategic Choice

Deciding the acceptable alternatives among the several

which fits with the organisational

objectives.

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Choice of Strategy

Mintzberg

Dynamic Environment

Operating systems of the Organisation

The Role of Leadership


Factors influencing Strategic

choice

Focusing on strategic alternatives

Analysing the strategic alternatives

Evaluating the strategic alternatives

Choosing from among the strategic alternatives


Process of Strategic

Choice

Limit the choice to few alternatives

Gap Analysis

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Focusing on Strategic

Alternatives

Few feasible alternatives

Analysis has to rely on selection factors.

Objective factors- based on data

For Eg: Market share

Subjective factors- on Personal judgement

Eg: Perception of Companys top management


Analysing the Strategic Alternatives

Bringing together the analysis done on the basis of the objective

and subjective factors.


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Evaluating the Strategic Alternatives

One or two strategies have to be chosen for implementation.

A blueprint has to be made (Strategic plan)

Contingency strategies also needed


8

Making the Strategic

Choice

Investigation of objective factors

Which industries to enter?

Which industries to leave?

Which businesses to create/acquire/divest?

Which products and markets to retain/ grow/divest?


Strategic Analysis

Corporate Portfolio Analysis GE Matrix BCG Matrix Hofers Matrix

SWOT Experience Curve Analysis Life Cycle Analysis Industry Analysis

5 Force Matrix

Strategic Group Analysis Competitor Analysis


Tools and Techniques for

Strategic Analysis

Corporate Portfolio Analysis

Set of techniques that help strategists in taking strategic

decisions with regard to individual

products or businesses in a firms portfolio.

Used for competitive analysis in multi business firm.

Can decide on how to utilise the resources at corporate level.


General Electric Company & McKinsey &Co.

GE is a model to perform business portfolio analysis on the SBUs.

GE is rated in terms of Market Attractiveness & Business Strength

The matrix is divided into 9 cells, it has 3 zones, one at the upper left, one at the lower right and one central-diagonal


GE Nine-cell Matrix

The upper left zone represents business that are most

important to the company:

The lower right zone represents business that are

least important: and

The central diagonal zone represents businesses that are

medium in their importance.


Parts

Two main parameters- (1) Industry attractiveness, and (2) Companys Business Strength.

When the industry concerned is highly attractive and the company has the best of strengths for

excelling in that industry, the business is rated as

the most important one to the company.

When the industry concerned is least attractive and the company's strength for excelling in that

industry is also very low, the business is rated as

the least important one.

The other businesses will occupy a position somewhere between the two extremes.


About GE matrix

Size

Growth rate

Market share

Profitability

Profit margins

Technology position

Image

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Business Strength

Market size and growth

Industry profit margin

Competitive structure

Market diversity

Seasonality and cyclicality

Macro environmental factors (PEST)

Economies of scale


Industry attractiveness

GE Multi-factor Portfolio Matrix

GE Nine-Cell Planning Grid

Business Attractiveness Screen

Stop-light Strategy Model


GE Matrix also known as...

GE Nine Cell Matrix

Industry

Attractiveness

Business Unit Strength

Strong Average Weak

High Grow Grow Hold

Medium Grow Hold Harvest

Low Hold Harvest Harvest


GE Nine Cell Matrix

Grow Business units that fall under grow attract high investment. Firms may go for product differentiation or Cost

leadership. Huge cash is generated in this phase. Market leaders

exist in this phase.

Hold Business units that fall under hold phase attract moderate investment. Market segmentation, Market penetration, imitation

strategies are adopted in this phase. Followers exist in this phase.

Harvest - Business units that fall under this phase are unattractive. Low priority is given in these business units.

Strategies like divestment, Diversification, mergers are adopted in

this phase.


Efficiency increase gained by workers through repetitive productive work.

Labour productivity increases over time and unit costs fall.

The more the company produces, the more experience it accumulates.


Experience Curve Analysis

Company A

B

Larger firms will have lower unit cost; and there by competitive cost

advantage.

Better products- Quality and costs.

Economies of scale

Learning effects

Product re-design

Technological improvements


Strategic consideration changes according to levels of PLC

Portfolio of products

Expansion feasible for the businesses in introductory and growth stage.


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Life Cycle Analysis

Industry Analysis

Group of companies offering products or services that are close

substitutes of each other.

Structural analysis of industries can be made to identify the strength

and weaknesses.



Five Force Matrix

Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:

Using price competition

Advertising battles

Making new product introductions

Increasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, but may be costly to smaller competitors

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Threat of New Entrants

Barriers to Entry

Government Policy

Expected Retaliation

Economies of Scale

Product Differentiation

Capital Requirements

Customer Switching Costs

Access to Distribution Channels


Threat of Substitute Products

Products with similar function limit the prices firms can charge

Keys to evaluate substitute products:

Products with improving price/performance tradeoffs relative to present industry products


Bargaining Power of Suppliers

Suppliers exert power in the industry by:

* Threatening to raise prices or to reduce quality

Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Suppliers are likely to be powerful if:

Supplier industry is dominated by a few firms

Suppliers products have few substitutes

Buyer is not an important customer to supplier

Suppliers product is an important input to buyers product

Suppliers products are differentiated

Suppliers products have high switching costs


Bargaining Power of Buyers

Buyers compete with the supplying industry

by:

* Bargaining down prices

* Forcing higher quality

* Playing firms off

each other

Buyer groups are likely to be powerful if:

Buyers are concentrated

Purchase accounts for a significant fraction of suppliers sales

Products are undifferentiated

Buyers face few switching costs

Buyer presents a credible threat of backward integration

Buyer has full information


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5 Forces Analysis

Rivalry among the competitor Reliance Retail, Aditya Birla Group , Vishal Retails,

Bharti and Walmart, etc

Threat of entrants

FDI policy not favorable for international players.

Domestic conglomerates looking to start retail chains.

International players looking to foray India.

Bargaining power of supplier

The bargaining power of suppliers varies depending

upon the target segment.

The unorganised sector has a dominant position.

There are few players who have a slight edge over

others on account of being established players and

enjoying brand distinction.

Bargaining power of buyers Consumers are price sensitive..

Availability of more choice.

Threat of substitutes

Unorganized retail

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Strategic Group Analysis

Conceptually defined clusters of competitors that share similar strategies and therefore, compete more directly with one another than with other firms in the same industry.

Technological leadership Degree of product quality Pricing policies Choice of distribution channels Degree and type of customer service


Within an industry, firms with similar asset configurations will

pursue similar competitive

strategies with similar performance

results.


Competitive forces shape the strategy. Strategies of opponent firms shape

competitive forces.

Determine each competitors probable reaction to industry and environmental changes

Anticipate the response of each competitor to the likely strategic moves by other firms

Develop a profile of the nature and success of the possible strategic changes each competitor might undertake.


Competitor Analysis

Intuitive and descriptive

Can not apply analytical model

Consideration for Governmental Policies

Perception of CSFs and Distinctive Competencies

Commitment to past Strategic Actions

Strategists Style and Attitude to Risk

Internal Political Considerations

Timing and Competitor considerations


Subjective Factors in

Strategic Choice

Centrally planned and regulated economy

Decision maker should be aware of the crucial role that govt plays.

Govt Policies decides future.


Consideration for Governmental

Policies

CSF- vital for organisation success

a specific ability is possessed by an organisation exclusively

Advantage over others


Perception of CSFs and Distinctive

Competencies

Not fully break away past strategies

Move in incremental fashion


Commitment to past Strategic Actions

Different strategists; different styles


Strategists Style and Attitude to Risk

Inter relationship, power structure and balance

Dominant?


Internal Political Considerations

When to exercise a strategic choice?

Short term or long term?

Competitors actions and reactions.


Timing and competitor

considerations

Contingency Strategies

To deal with uncertainties.

Environment changes

Emergencies or disasters

Unexpected opportunities


Strategic plan

Final step before a strategy is implemented.

Called corporate/ group/ perspective plan.

Document which provides information regarding the different elements of strategic management and the manner in which an organisation and its strategists propose to put the strategists into action.


Contents of Strategic Plan

Clear statement of strategic intent Result of environmental appraisal Results of Organisational Appraisal Strategies chosen and assumptions used. Contingent strategies Strategic budget for resource allocation and

schedule for implementation

Proposed organisational structure Functional strategies and the mode of their

implementation

Measures to be used to evaluate performance


The BCG matrix model was developed by Bruce Henderson in the early 1970s

The BCG matrix stands for Boston consulting group

The BCG matrix model is a portfolio planning model

The BCG model is a well-known portfolio management tool used in product life cycle theory


BCG Matrix

BCG matrix is often used to prioritize which products within company

product mix get more funding and

attention

It has 2 dimensions: MARKET SHARE & MARKET GROWTH

The BCG Matrix consist of 4 category in a portfolio of a company Stars,

Cash cows, Dogs, Question marks


BCG Matrix


BCG Matrix

Stars

Stars are the unit with a high market share in a fast growing industry.

Star represent the best profits and growth opportunities in the

organizations.

Generates high revenues and also requires huge cash for sustaining the

STAR position.

Product is in growth stage.


Cash Cows

A cash cow is a product or a business unit that generates unusually high profit margins.

They are the business with low growth rate and high market share.

Generating cash more than its requirement which can be used by other units.

Product in maturity Stage.


Question Marks Question Marks are the units with low

market share in a fast growing industry.

They required large amount of cash to grow their market share. for e.g.: Promotional expenses.

They have the potential to generate profits and achieve a dominant position in market.

Product is in introduction stage, in a fast growing market.


Dogs

Dogs often have little future and are big cash drainer on the company.

Generating cash just to BREAK-EVEN. It is a self sustaining unit.

They do not generate any profit for the overall business and hence can be sold off and hired off.

Product is in decline stage, with no chance of revival.


Strategic Implication Of BCG

MATRIX

BCG Matrix helps in determining the competitive advantage of each SBU

BCG Matrix will work when:

1)Market of each Division / SBU is well defined.

2)Relative market share is an indication of an SBUs competitive position.

3)Market growth, cash investment and profits of the SBU are positively co-related.


Advantages

1) Diversification with sustainable

profits.

2) Allocation of Scarce Resources

of the company.

3) Higher profits and Growth rates

4) Raising Equity Capital only when

necessary.


Limitation of BCG Matrix

High market is not the only success factor

Market growth is not the only indicator for attractiveness of a

market

Sometimes dog can earn even more cash as cash cows


Charles Hofer and Schendel

Three by Five matrix

Stages of Product/market and competitive position of different

businesses in a company.


Hofers Product Market Evolution Matrix

Development

Growth

Shake out

Maturity to saturation

Decline


Stages in Product or Market

Evolution

Strong

Average

Weak


Segments in Competitive

position

The business unit competitive position

Strong Average Weak The Life-Cycle Portfolio Matrix

Development

Growth

Competitive shakeout

Maturity

Decline

Saturation

Th e

Ind

ust

rys

sta

ge in

th

e e

volu

tio

nar

y lif

e c

ycle


Strategy for each SBU depends on the stage of its product or market

evolution and competitive strength.

Used to identify & develop winners

Illustrates how businesses are distributed across the stages of

industry evolution


Implication

Thank You

Kanish George Make Presentation much more fun

@Kanish George

kanishgeorge


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