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Chapter 6 Strategy Analysis & Choice

Chapter 6 Strategy Analysis & Choice. Strategy Analysis & Choice. -- Establishing long-term objectives -- Generating alternative strategies -- Selecting strategies to pursue -- Best alternative - achieve mission & objectives. Nature of Strategy Analysis & Choice.

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Chapter 6 Strategy Analysis & Choice

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  1. Chapter 6Strategy Analysis & Choice

  2. Strategy Analysis & Choice --Establishing long-term objectives -- Generating alternative strategies -- Selecting strategies to pursue -- Best alternative - achieve mission & objectives Nature of Strategy Analysis & Choice

  3. Comprehensive Strategy-Formulation Framework Stage 1:The Input Stage Stage 2:The Matching Stage Stage 3:The Decision Stage

  4. Strategy-Formulation Analytical Framework Internal Factor EvaluationMatrix (IFE) Stage 1:The Input Stage External Factor EvaluationMatrix (EFE) Competitive Profile Matrix(CPM)

  5. Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix Stage 2:The Matching Stage BCG Matrix IE Matrix Grand Strategy Matrix

  6. SWOT Matrix Four Types of Strategies • Strengths-Opportunities (SO) • Weaknesses-Opportunities (WO) • Strengths-Threats (ST) • Weaknesses-Threats (WT)

  7. SO Strategies StrengthsWeaknessesOpportunities ThreatsSWOT Use a firm’sinternal strengthsto take advantageof external opportunities SOStrategies

  8. WO Strategies StrengthsWeaknessesOpportunities ThreatsSWOT Improving internalweaknesses bytaking advantageof externalopportunities WOStrategies

  9. ST Strategies StrengthsWeaknessesOpportunities ThreatsSWOT Use a firm’s strengthsto avoid orreduce the impactof externalthreats STStrategies

  10. WT Strategies StrengthsWeaknessesOpportunities ThreatsSWOT Defensive tacticsaimed at reducinginternal weaknesses & avoidingenvironmentalthreats WTStrategies

  11. SWOT Matrix

  12. Excess working capacity (strength) + 20% annual growth in the cell phone industry (opportunity) = Acquire Cellfone, Inc. Insufficient capacity (weakness) + Exit of two major foreign competitors form the industry (opportunity) = Pursue horizontal integration by buying competitor's facilities Strong R&D (strength) + Decreasing numbers of young adults (threat) = Develop new products for older adults Poor employee morale (weakness) + = Develop a new employee benefits package Strong union activity (threat) Matching Key Factors to Formulate Alternative Strategies Key Internal Factor Key External Factor Resultant Strategy

  13. Internal Strategic Position External Strategic Position Financial Strength (FS) Return on investment Leverage Liquidity Working capital Cash flow Environmental Stability (ES) Technological changes Rate of inflation Demand variability Price range of competing products Barriers to entry Competitive pressure Price elasticity of demandEase of exit from market Risk involved in business SPACE Factors

  14. Internal Strategic Position External Strategic Position Competitive Advantage CA Market share Product quality Product life cycle Customer loyalty Competition’s capacity utilization Technological know-how Control over suppliers & distributors Industry Strength (IS) Growth potential Profit potential Financial stability Technological know-how Resource utilization Ease of entry into market Productivity, capacity utilization SPACE Factors

  15. SPACE Matrix FS Conservative Aggressive +6 +5 +4 +3 +2 +1 CA IS -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 -1 -2 -3 -4 Defensive -5 Competitive -6 ES

  16. Stars II Question Marks I Cash Cows III Dogs IV BCG Matrix Relative Market Share Position High 1.0 Medium .50 Low 0.0 Industry Sales Growth Rate High +20 Medium 0 Low -20

  17. RAPID MARKET GROWTH • Quadrant II • Market development • Market penetration • Product development • Horizontal integration • Divestiture • Liquidation • Quadrant I • Market development • Market penetration • Product development • Forward integration • Backward integration • Horizontal integration • Concentric diversification WEAK COMPETITIVE POSITION STRONG COMPETITIVE POSITION • Quadrant III • Retrenchment • Concentric diversification • Horizontal diversification • Conglomerate diversification • Liquidation • Quadrant IV • Concentric diversification • Horizontal diversification • Conglomerate diversification • Joint ventures SLOW MARKET GROWTH

  18. Strategy-Formulation Analytical Framework Quantitative StrategicPlanning Matrix(QSPM) Stage 3:The Decision Stage

  19. Key External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/Environmental Technological Competitive Weight Strategy 1 Strategy 2 Strategy 3 Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Computer Information Systems Strategic Alternatives QSPM

  20. Corporate Governance Issues Business Week’s “principles of good governance” • No more than 2 directors current or former company executives • No directors do business with the company • Audit, compensation, and nominating committees made up of outside directors • Each director attends at lest 75% of all meetings • Audit committee meets at least four times a year • CEO is not also the Chairperson of the Board • Shareholders have considerable power and information to choose & replace directors • Stock options are considered a corporate expense • No interlocking directorships

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