Chapter 6 Strategy Formulation: Situational Analysis & Business Strategy

Strategy formulation -Strategic planning or long-range planning

Develops mission, objectives, strategies, policies

6-1

Situational Analysis

- Process of finding a strategic fit

between external opportunities and

internal strengths while working around
external threats and internal weaknesses

6-2

SFAS (Strategic Factors Analysis Summary) Matrix

The SFAS (Strategic Factors Analysis Summary) Matrix summarizes an organizations

strategic factors by combining the external factors from the EFAS Table with the internal
factors from the IFAS Table. The SFAS Matrix requires the strategic decision maker to
condense these strengths, weaknesses, opportunities, and threats into fewer than ten strategic
factors. This is done by reviewing and revising the weight given each factor. The revised
weights reflect the priority of each factor as a determinant of the companys future success.
The highest weighted EFAS and IFAS factors should appear in the SFAS Matrix.

6-3

Situational Analysis

Niche -Need in the marketplace that is currently

unsatisfied

6-4

Situational Analysis

Corporate Goal -Find favorable niche

Strategic window

6-5

Situational Analysis

SWOT -Internal
Strengths/Weaknesses

External
Opportunities/Threats

6-6

TOWS (Threats, Opportunities, Weaknesses, and Strengths) Matrix

The TOWS Matrix is a relatively simple tool for generating strategic options. By using it, you can
look intelligently at how you can best take advantage of the opportunities open to you, at the same
time that you minimize the impact of weaknesses and protect yourself against threats.
Used after detailed analysis of your threats, opportunities, strength and weaknesses, it helps you
consider how to use the external environment to your strategic advantage, and so identify some of
the strategic options available to you.
At a practical level, the only difference between TOWS and SWOT is that TOWS emphasizes the
external environment whilst SWOT emphasizes the internal environment.

6-7

Business Strategy

Focuses on improving competitive

position of companys products or
services within the specific industry or
market segment

6-8

Porters Competitive Strategies

Competitive Strategy -Low cost

Differentiation
Direct competition
Focus on niche

6-9

Porters Competitive Strategies

Generic Competitive Strategies -Lower Cost strategy

Greater efficiencies than competitors

Differentiation strategy
Unique/superior value, quality, features, service

6-10

Porters Competitive Strategies

Competitive Advantage -Determined by Competitive Scope

Breadth (wide range and scope) of the target
market

6-11

Porters Competitive Strategies

6-12

Porters Competitive Strategies

Cost Leadership -Low-cost competitive strategy

Broad mass market
Efficient-scale facilities
Cost reductions
Cost minimization

6-13

Porters Competitive Strategies

Differentiation
Broad mass market
Unique product/service
Premiums charged
Less price sensitivity

6-14

Porters Competitive Strategies

Cost-Focus
Low-cost competitive strategy
Focus on market segment
Niche focused
Cost advantage in market segment

6-15

Porters Competitive Strategies

Differentiation Focus
Specific group or geographic market focus
Differentiation in target market
Special needs of narrow target market

6-16

Porters Competitive Strategies

Stuck in the middle

No competitive advantage
Below-average performance

6-17

Risks of Generic Strategies

Risks of Cost Leadership

Risks
of Cost is
Leadership
Cost
leadership
not
Cost
leadership
is
not
sustained:
sustained:
Competitors imitate.

Competitors
imitate.
Technology
changes.
Technology
changes.
Other
bases for
cost
leadership
Other bases
for
erode. cost
leadership
erode.
Proximity
in differentiation
is
Proximity
in
differentiation
is
lost.
lost.focusers achieve even
Cost
lower cost in segments.

Risks of Differentiation
Risks of Differentiation
Differentiation
is not
Differentiation
is not
sustained:
sustained:
Competitors imitate.

Competitors
imitate.
Bases
for differentiation
become
Bases less
for differentiation
important to
become
less
important to
buyers.
Costbuyers.
proximity is lost.
Cost
proximity
is lost.
Differentiation
focusers
achieve even greater
differentiation in segments.

Risks of Focus
Risks
ofstrategy
Focus is
The
focus
The focus strategy is
imitated:
imitated:
The
target segment becomes
The
targetunattractive:
segment becomes
structurally
unattractive:
structurally
Structure erodes.
Structure
erodes.
Demand
disappears.
Demand
disappears.
Broadly
targeted
competitors
Broadly
targeted
competitors
overwhelm the segment:
the segment:
overwhelm
The segments
differences
The segments
from other
differences
from other
segments narrow.
segments
narrow.
The
advantages
of a
broad
The advantages
of a
line increase.
linesubsegment
increase.
Newbroad
focusers
New
focusers subsegment
the
industry.
the industry.

6-18

8 Dimensions of Quality

6-19

Competitive Tactics

Timing Tactics -First mover

Late movers

6-20