Chapter 6 Strategy Analysis _ Choice - Computing by hcj


									Strategy Analysis & Choice

       Denis Manley
Strategy Analysis & Choice

-- Establishing long-term objectives
-- Generating alternative strategies
-- Selecting best alternative to achieve
mission & objectives
Comprehensive Strategy-Formulation

                          Stage 1:
                       The Input Stage

       Stage 2:                               Stage 3:
  The Matching Stage                     The Decision Stage
Strategy-Formulation Analytical
                                  Internal Factor Evaluation
                                         Matrix (IFE)

            Stage 1:
         The Input Stage

                                  External Factor Evaluation
                                        Matrix (EFE)
Stage 1: The Input Stage

§Basic input information comes from the internal
/external evaluation (matrices)
§Requires strategists to quantify subjectivity
early in the process: the assigned weights…
§Good intuitive judgment always needed
Strategy-Formulation Analytical
                                      SWOT Matrix

            Stage 2:                   BCG Matrix
       The Matching Stage

                                  Grand Strategy Matrix
Stage 2: The Matching Stage: SWOT

§Match between organization’s internal
strengths and weaknesses and the opportunities
& risks created by its external factors
   §E.g. internal: strong R and D function
   §External changing demographics (e.g.
   population getting older)
   §Strategy: Develop new products for older
   adults (related to long term objectives
   financial or strategic)
Stage 2: The Matching Stage: SWOT Matrix
 Four Types of Strategies

 Strengths-Opportunities (SO):
     Use a firm’s internal strengths to take advantage of external

 Weaknesses-Opportunities (WO):
    Improving internal weaknesses by taking advantage
    of external opportunities

 Strengths-Threats (ST):
     Use a firm’s strengths to avoid or reduce the impact of external

 Weaknesses-Threats (WT):
    Defensive tactics aimed at reducing internal weaknesses and
    avoiding external threats
          Matching Key Factors to Formulate Alternative Strategies
 Key Internal Factor            Key External Factor             Resultant Strategy

                                                               Invest money (e.g. 100
                                02: lower interest rates
  S1: Own 42 bases in                                          million) in terminal space at
                            +   on borrowing money         =
  Europe (strength)                                            new airports now currently

                                                               Increase amount spent on
W7: charge for items free       Cheaper holiday’s
                                                               advertising to attract
on other airlines           +   being offered by resorts   =
                                                               customers only concerned
(weakness)                      (opportunity)
                                                               about price.

                                                                Hedge (invest) money to
 S7: profits increase by         Risk of increasing oil
                            +                              =    protect against rising oil
 200%(strength)                  prices(threat)

                              T2: increase in                  Spend money annually
  W2: Poor customer
                            + competitors                  =   to increase customer
  service (weakness)          customers services               services.

The above is based on the internal and external evaluation of Ryanair:                       9
              Strengths:                                Weaknesses:

                                            •   Over dependent on borrowings -
•   R and D almost complete
                                                Insufficient cash resources
•   Basis for strong management team
                                            •   Board of Directors is too narrow
•   Key first major customer acquired
                                            •   Lack of awareness amongst
•   Initial product can evolve into range
                                                prospective customers
    of offerings
                                            •   Need to relocate to larger premises
•   Located near a major centre of
                                            •   Absence of strong sales/marketing
•   Very focused management/staff
                                            •   Overdependence on few key staff
•   Well-rounded and managed
                                            •   Emerging new technologies may
                                                move market in new directions
               Threats:                                Opportunities:

•   Major player may enter targeted
    market segment
                                            •   Market segment is poised for rapid
•   New technology may make products
                                            •   Export markets offer great potential
•   Economic slowdown could reduce
                                            •   Distribution channels seeking new
•   Euro/Yen may move against $
                                            •   Scope to diversify into related
•   Market may become price sensitive
                                                market segments
•   Market segment's growth could
    attract major competition
                Key Strategies
1.   Accelerate product launches by strengthening R and D
2.   Extend links with key technology centres
3.   Raise additional venture capital
4.   Expand senior management team in sales/marketing
5.   Recruit non-executive directors
6.   Strengthen human resources function and introduce
     share options for staff
7.   Appoint advisers for intellectual property and finance
8.   Seek new market segments/applications for products
      Limitations with SWOT Matrix

• Does not show how to achieve a
  competitive advantage
• Provides a static assessment in time
  (based on current internal/external
• May lead the firm to overemphasize a
  single internal or external factor in
  formulating strategies
Boston Consulting Group (BCG)

§Enhances multi-divisional firm in formulating
§Divisions may compete in different industries
§Focus on market-share position & industry
growth rate
                                                         BCG Matrix
                                                   Relative Market Share Position
                                    High                              Medium                                      Low
                                     1.0                                .50                                       0.0

Industry Sales Growth Rate

                                                  Stars                        Question Marks
                                                    II                                I

                                            Cash Cows                                    Dogs
                                                III                                       IV
                                       §Ratio of a division’s own market share in an industry to the
                                       market share held by the largest rival firm in that industry: Which   14
                                       one is Ryanair
BCG Matrix

Quadrant 1: Question Marks
 §Low relative market share – compete in high-
 growth industry
    §Cash needs are high
    §Case generation is low

 §Decision to strengthen (intensive strategies)
 or divest – selling part of the organisation - (a
 defensive strategy)
BCG Matrix

 §High relative market share and high growth rate
    §Best long-run opportunities for growth & profitability

 §Substantial investment to maintain or
 strengthen dominant position
    §Integration strategies, intensive strategies
BCG Matrix
Cash Cows

 §High relative market share, competes in low-
 growth industry
    §Generate cash in excess of their needs
    §Milked for other purposes

 §Maintain strong position as long as possible
    §Product development, Related diversification
    §If weakens—retrenchment or divestiture

 §Why do you think you would not use other generic
BCG Matrix


 §Low relative market share & compete in slow or
 no market growth
    §Weak internal & external position

 §Defensive strategy: Liquidation, divestiture,
    Grand Strategy Matrix
                           RAPID MARKET GROWTH
                   Quadrant II                    Quadrant I
       •      Market development        •    Market development
       •      Market penetration        •    Market penetration
       •      Product development       •    Product development
       •      Horizontal integration    •    Forward integration
       •      Divestiture               •    Backward integration
       •      Liquidation               •    Horizontal integration
   WEAK                                 •    Related diversification
COMPETITIVE                                                            COMPETITIVE
  POSITION         Quadrant III                 Quadrant IV
       •      Retrenchment               • Related diversification
       •      Related diversification    • Horizontal diversification
       •      Horizontal diversification • Conglomerate (unrelated)
       •      Conglomerate                 diversification
              diversification            • Joint ventures
       •      Liquidation
                              SLOW MARKET GROWTH
    Where do you think you would position Ryanair?
    The grand strategy matrix
• The grand strategy matrix is very similar to
  the Boston consultants group matrix
  except the matrices quadrants are not in
  the same position:
  – Cash cow is equivalent to quadrant IV
  – Stars: is equivalent to Quadrant I
  – ? is equivalent to quadrant II
  – Dogs is equivalent to quadrant III
Strategy-Formulation Analytical Framework

                                   Quantitative Strategic
         Stage 3:
                                     Planning Matrix
    The Decision Stage

   §Technique designed to determine the relative
   attractiveness of feasible alternative actions
        Steps to Develop a QSPM
1. Make a list of the firm’s key external
   opportunities/threats and internal
   strengths/weaknesses in the left column
2. Assign weights to each key external and
   internal factor
3. Examine the Stage 2 (matching) matrices, and
   identify alternative strategies that the
   organization should consider implementing
4. Determine the Attractiveness Scores (A.S)
5. Compare the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness Score
Ryanair: Sample QSPM matrix
Ryanair: Sample QSPM matrix
Ryanair: Sample QSPM matrix
Ryanair: Sample QSPM matrix

 Invest $100 million in terminal space annually at new airports
 not currently serviced. What is this type of “generic”
 strategy; does it correspond to the proposed strategies of
 the grand strategy and BCG matrix

§Requires intuitive judgments & educated
§Only as good as the prerequisite inputs (

 §Sets of strategies considered simultaneously or
 §Integration of pertinent external & internal
 factors in the decision making process
• The SWOT analysis and the BCG matrix are two
  models to help an organisation derive a set of
  strategies. Compare and contrast each model,
  using suitable examples.

• Discuss, using a suitable examples, a
  framework that would be suitable to help an
  organisation derive and choose suitable
  strategies to help ensure competitive advantage.

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