Nature of Strategy Analysis and Comprehensive Strategic Formulation

Flordeliza C. Navidad Reporter

Strategy

Strategic analysis

The Process of Strategic Analysis

Tools

1. PEST analysis 2. Scenario Planning 3. Five Forces Analysis 4. Market Segmentation

-a technique for understanding the environment in which a business operates. - A technique that builds various plausible views of possible futures for a business. - a technique for identifying the forces which affect the level of competition in an industry. - a technique which seeks to identify the similarities and differences between groups of customers or users.

5. Directional Policy _ a technique which summarizes the competitive Matrix strength of a business operations in specific markets. 6. Critical Success - A technique to identify those areas in which a Factor analysis business must out perform the competition in order to succeed. 7. SWOT Analysis - A useful summary technique for summarizing the key issues arising from an assessment of a business internal position and external environl position.

Comprehensive Strategy-Formulation Framework Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Strategy-Formulation Analytical Framework

Competitive Profile Matrix (CPM)

Stage 1: The Input Stage

External Factor Evaluation Matrix (EFE)

Internal Factor Evaluation Matrix (IFE)

Note: EFE and CPM form external and IFE from internal (assessment)

Stage 1: The Input Stage

Basic input information for the matching & decision stage matrices Requires strategists to quantify subjectivity early in the process Good intuitive judgment always needed

Strategy-Formulation Analytical Framework SWOT Matrix

Stage 2: The Matching Stage

BCG Matrix

Grand Strategy Matrix

Stage 2: The Matching Stage

Match between organizations internal resources & skills and the opportunities & risks created by its external factors E.g. internal: strong R and D function External changing demographics (population getting older) Strategy: Develop new products for older adults (related to long term objectives financial or strategic)

Strengths: 1. 2. 3. 4. 5. 6. 7. R and D almost complete 1. Basis for strong management team Key first major customer acquired 2. Initial product can evolve into range3. of offerings Located near a major centre of 4. excellence 5. Very focused management/staff Well-rounded and managed 6. business 7.

Weaknesses: Over dependent on borrowings Insufficient cash resources Board of Directors is too narrow Lack of awareness amongst prospective customers Need to relocate to larger premises Absence of strong sales/marketing expertise Overdependence on few key staff Emerging new technologies may move market in new directions

Threats: 1. 2. 3. 4. 5. 6. Major player may enter targeted market segment New technology may make products obsolescent Economic slowdown could reduce demand Euro/Yen may move against $ Market may become price sensitive Market segment's growth could attract major competition 1. 2. 3. 4.

Opportunities: Market segment is poised for rapid growth Export markets offer great potential Distribution channels seeking new products Scope to diversify into related market segments

Matching Key Factors to Formulate Alternative Strategies Key Internal Factor Key External Factor Resultant Strategy

Excess working capacity (strength)

20% annual growth in the cell phone industry (opportunity)

Acquire Cellfone, Inc.

Insufficient capacity (weakness)

Strong R&D (strength) Poor employee morale (weakness)

Exit of two major Pursue horizontal foreign competitors = integration by buying from the industry (opportunity) competitor's facilities

Decreasing + numbers of young adults (threat)

Develop new products for older adults

Strong union activity (threat)

Develop a new employee benefits package

Key Strategies
1. 2. 3. 4. 5. 6. 7. 8. Accelerate product launches by strengthening R and D team Extend links with key technology centres Raise additional venture capital Expand senior management team in sales/marketing Recruit non-executive directors Strengthen human resources function and introduce share options for staff Appoint advisers for intellectual property and finance 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 May lead the firm to over emphasize a single internal or external factor in formulating strategies

BCG Matrix Boston Consulting Group Matrix

Enhances multi-divisional firm in formulating strategies Autonomous divisions = business portfolio Divisions may compete in different industries Focus on market-share position & industry growth rate

BCG Matrix Relative Market Share Position

Ratio of a divisions own market share in an industry to the market share held by the largest rival firm in that industry

BCG Matrix
High 1.0 High +20

Relative Market Medium Position Share

.50

Low 0.0

Stars II

Question Marks I

Medium

Cash Cows III

a S yrt s udn I
Low -20

Dogs IV
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BCG Matrix 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

BCG Matrix Stars

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, joint ventures

BCG Matrix Cash Cows

High relative market share, competes in lowgrowth industry
Generate cash in excess of their needs Milked for other purposes

Maintain strong position as long as possible

Product development, concentric diversification If weakensretrenchment or divestiture

BCG Matrix Dogs

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

Liquidation, divestiture, retrenchment

Grand Strategy Matrix

Tool for formulating alternative strategies Based on two dimensions Competitive position Market growth

RAPID MARKET GROWTH

1. 2. 3. 4. 5. 6.

Quadrant II Market development Market penetration Product development Horizontal integration Divestiture Liquidation

1. 2. 3. 4. 5. 6. 7.

WEAK COMPETITIVE POSITION

1. 2. 3. 4. 5.

Quadrant I Market development Market penetration Product development Forward integration Backward integration Horizontal integration Concentric diversification

Quadrant III Quadrant IV Retrenchment 1. Concentric diversification Concentric diversification 2. Horizontal diversification Horizontal diversification 3. Conglomerate diversification Conglomerate diversification 4. Joint ventures Liquidation SLOW MARKET GROWTH

STRONG COMPETITIVE POSITION

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Grand Strategy Matrix

Quadrant I

Excellent strategic position Concentration on current markets/products Take risks aggressively when necessary Which type of strategy would you suggest?

Grand Strategy Matrix Quadrant II

Evaluate present approach How to improve competitiveness Rapid market growth requires intensive strategy

Grand Strategy Matrix

Quadrant III

Compete in slow-growth industries Weak competitive position Drastic changes quickly Cost & asset reduction (retrenchment)

Grand Strategy Matrix

Quadrant IV

Strong competitive position Slow-growth industry Diversification to more promising growth areas

Strategy-Formulation Analytical Framework

Stage 3: The Decision Stage

Quantitative Strategic Planning Matrix (QSPM)

Technique designed to determine the relative attractiveness of feasible alternative actions

Steps to Develop a QSPM

1. Make a list of the firms 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

QSPM
Limitations
Requires intuitive judgments & educated assumptions Only as good as the prerequisite inputs

Advantages
Sets of strategies considered simultaneously or sequentially Integration of pertinent external & internal factors in the decision making process
Example of a QSPM for Dell

 Whether its broke or not, fix it make it better, but the whole company if necessary. Bell Saporito

Thank You