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Business Policy and Strategy

Business Policy and Strategy. Lecture 27. Recap. MEANS FOR ACHIEVING STRATEGIES Joint Venture Mergers and acquisitions Leveraged Buyouts (LBOs) First Mover Advantages Outsourcing. Today’s Lecture. Nature of Strategy Analysis & Choice Comprehensive Strategy-Formulation Framework

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Business Policy and Strategy

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  1. Business Policy and Strategy Lecture 27

  2. Recap • MEANS FOR ACHIEVING STRATEGIES • Joint Venture • Mergers and acquisitions • Leveraged Buyouts (LBOs) • First Mover Advantages • Outsourcing

  3. Today’s Lecture • Nature of Strategy Analysis & Choice • Comprehensive Strategy-Formulation Framework • SWOT Matrix • Strategic Position and Action Evaluation (SPACE)

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

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

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

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

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

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

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

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

  12. SWOT Matrix

  13. 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

  14. 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 - Strategic Position and Action Evaluation

  15. 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

  16. SPACE Matrix • Select variables to define FS, CA, ES, & IS • Assign numerical ranking from +1 (worst) to +6 (best) for FS and IS; Assign numerical ranking from –1 (best) to –6 (worst) for ES and CA. • Compute average score for FS, CA, ES, & IS

  17. 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

  18. SPACE Matrix • Plot the average scores on the Matrix • Add the two scores on the x-axis and plot point on X. Add the scores on the y-axis and plot Y. Plot the intersection of the new xy point. • Draw a directional vector from origin through the new intersection point.

  19. SPACE Matrix

  20. Summary • Nature of Strategy Analysis & Choice • Comprehensive Strategy-Formulation Framework • SWOT Matrix • Strategic Position and Action Evaluation (SPACE)

  21. Next Lecture • BCG Matrix • The Internal-External Matrix • Quantitative Strategic Planning Matrix

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