Chapter 6

Strategy Analysis and

Choice
Strategic Analysis & Choice
 Re-visit the Mission
 Revise, create, or maintain mission
 Set Long-Term Objectives
 Generate feasible alternatives
 Evaluate alternatives
 Choose courses of action
 The Strategy Formulation Analytical
Framework (Figure 6-2)

Stage 1: The Input Stage

External Analysis Internal Analysis
SWOT Analysis

Stage 2: The Matching Stage

Re-visit Mission and Set Long Term Objectives
Generate feasible alternative Corporate Strategies

Stage 3: The Decision Stage

Evaluate and Choose Corporate Strategies
Create, revise Mission Statement
 Statement of the purpose of the organization
 Describes the organization in terms of:
 Customers
 Products or services
 Markets
 Basicbeliefs about growth, public image,
employees
 Remember Hershey’s evolving Mission Statement
 Purpose of Mission:
 Communication Tool
 Decision-Making Tool
 Quantitative Areas
 Profitability
 Net profit margin; ROI; ROE
 Productivity
 Lower costs (% of sales CGS, S&A)
 Activity ratios

 Growth
 Increases in sales, assets, net income
 Competitive Position
 Market Share
 Technological Leadership
 Shareholder Wealth
EPS; Dividends; Shareholder Value
(stock)
 Industry specific metrics
Qualitative Areas

 Employee Relations
 Social Responsibility
 Reputation

 These areas have long term objectives that

can be measured.
Corporate Strategies

Theoverall managerial game plan.

How management plans to achieve
mission and objectives.
Alternatives for Growth
Market Penetration
Market Development
Product Development
Expansion
of existing
Businesses Vertical
Integration -
Alternatives Forward & Backward
for Growth

Related
Diversification
into new
Businesses
Unrelated
Modes of Growth
 Internal development
 Acquiring firms/businesses
 Collaborative arrangements
 Strategic Alliances
 Joint Ventures
 Licensing
Repositioning Strategies
 Retrenchment
 Assets and/or costs
 Divestiture
 Spin-offs
Termination Strategies
 Liquidation
 Merger
 Being acquired
 Tools
for Formulating and Choosing
Corporate Strategies
1. Portfolio Analysis
 The BCG Matrix

Relative Market Share Position in the Industry

High Medium Low
1.0 .50 0.0
High +20
Stars (II) Question Marks (I)
Industry
Sales
Growth ?
Rate Medium 0
(Percent) Cash Cows (III) Dogs (IV)

Low -20
GE Competitive Position (1. Market Share; 2. Technological
MATRIX Know-How; 3. Product Quality; 4. Service Network;
5. Price Competitiveness; 6. Operating Costs
Industry Attractiveness

Good Medium Poor

High Winner Winner ???????

Medium Winner Average Loser

Business

Profit
Low Loser
Producer Loser
1. Market growth; 2. market size; 3. Capital requirements;
4. Competitive Intensity
PRODUCT/MARKET EVOLUTION PORTFOLIO MATRIX

Development B1

Growth
Stage B4
of
Industry Shakeout

Maturity/ B2
Saturation
B3
Decline
Competitive Position Strong Average Weak
Market Share; Technological Know-How; Product Quality
Service Network; Price competitiveness; operating costs
Advantages of Portfolio Analyses
 Encourages top management to evaluate
each business individually; to set objectives;
and consider resources.
 It stimulates use of external data to
supplement management’s judgment.
 Its graphic representation makes
interpretation and communication easier.
 Limitations of Portfolio Analyses
 Defining product/market segments isn’t
easy.
 Using standard strategies may miss
opportunities or be impractical.
 Providing an illusion of scientific rigor
masks the reality that positions are based on
subjective judgments.
 Determining what makes an industry
attractive isn’t always possible.
More Tools
 2. Past Performance
% increase in sales
 Contribution Margin
 Sales or profit (gross, operating, net)
 Continue to do what doing
 3. Mission and Long Term Objectives
More Tools

4. Matrices
 SWOT or TOWS Matrix

Internal Analysis External Analysis

SO Strategies
Strengths Opportunities

ST Strategies WO Strategies

WT Strategies
Weaknesses Threats
 Matching Key External and Internal Factors to
Formulate Alternative Strategies (Table 6-2)

Key Internal Factor Key External Factor Resultant Strategy

Excess working 20% annual growth in the

Acquire
capacity (an internal + cablevision industry (an =
Visioncable
strength) external opportunity)

Exit of two major foreign Buy competitors’

Insufficient capacity
+ competitors from the = facilities
(an internal
industry (an external
weakness)
opportunity
Decreasing numbers of Develop new
Strong R & D
+ young adults (an external products for older
expertise (an =
threat) adults
internal strength)

Poor employee Strong union activity (an Develop a new

+ =
morale (an internal external threat) employee-benefits
weakness) package
 The TOWS Matrix (Figure 6-3)
STRENGTHS - S WEAKNESSES - W

List strengths List weaknesses

OPPORTUNITIES - O SO STRATEGIES WO STRATEGIES

Use strengths to take Overcome weaknesses

List opportunities advantage of by taking advantage of
opportunities opportunities

THREATS - T ST STRATEGIES WT STRATEGIES

List threats Use strengths to avoid Minimize weaknesses

threats and avoid threats
 Other Matrices
 Internal Factor Evaluation (IFE) p.165
 External Factor Evaluation (EFE) p. 130
 Competitive Profile Matrix (CPM) p. 131
 Strategic Position and Action Evaluation
(SPACE) p. 184
 Internal-External p. 190
 Grand Strategy p. 192
Other Tools Con’t
 5. Economic Value Added (EVA)
 6. Scenario Analysis
 7. Game Theory
 8. Quantitative Decision Techniques
 Linear Programming, etc.
 9. Computer Assisted
 Decision Support Systems (DSS)
 Artificial Intelligence (AI)
Behavioral Aspects/Tools
 Propensity for risk
 Personal Agendas
 Personalities
 Time Pressures
 Reputation/Integrity
 Imagination/Conceptualizations
 Support/Coalitions
Core Competencies
Core Competencies of the
Corporation
 Real sources of advantage - not based on
businesses.
 Core competencies are collective learning in
the organization, especially:
 how to coordinate diverse production skills by
integrating multiple streams of technologies.
 Tests to identify core
competencies
 Provide potential access to a wide variety of
markets/products/services.
 Are difficult to imitate.
 Are driven by knowledge and learning.
 examples
Core Competencies Products/businesses
 Engines  Cars; motorcycles; lawn
 Powertrains mowers; generators

 Optics  Copiers; laser printers;

 Imaging cameras; image scanners;
medical imaging
 Microprocessor
controls
More kinds of core
competencies:
 Systems Integration
 Virtual reality
 Bioengineering
 Delighting the customer
Strategic Analysis and Choice
Summary
Making subjective decisions based
on objective information, and
subjective interpretation