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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).
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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 • Basic beliefs 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 The overall 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 - Forward & Backward Alternatives 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 Medium 0 Low -20 Stars (II) Question Marks (I) Industry Sales Growth Rate (Percent) ? Cash Cows (III) Dogs (IV)
GE MATRIX Competitive Position (1. Market Share; 2. Technological Know-How; 3. Product Quality; 4. Service Network; 5. Price Competitiveness; 6. Operating Costs Good Medium Poor High Winner ??????? Winner Industry Attractiveness Medium Loser Winner Average Business Profit Producer Loser Low Loser 1. Market growth; 2. market size; 3. Capital requirements; 4. Competitive Intensity
PRODUCT/MARKET EVOLUTION PORTFOLIO MATRIX Development B1 Growth Stage of Industry B4 Shakeout Maturity/ Saturation B2 B3 Decline Competitive Position Market Share; Technological Know-How; Product Quality Service Network; Price competitiveness; operating costs Strong Average Weak
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 Strengths Opportunities Weaknesses Threats SO Strategies ST Strategies WO Strategies WT Strategies
Matching Key External and Internal Factors to Formulate Alternative Strategies (Table 6-2) Resultant Strategy Key Internal Factor Key External Factor 20% annual growth in the cablevision industry (an external opportunity) Excess working capacity (an internal strength) Acquire Visioncable + = Exit of two major foreign competitors from the industry (an external opportunity Buy competitors’ facilities Insufficient capacity (an internal weakness) + = Decreasing numbers of young adults (an external threat) Develop new products for older adults Strong R & D expertise (an internal strength) + = Poor employee morale (an internal weakness) Strong union activity (an external threat) Develop a new employee-benefits 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 advantage of opportunities Overcome weaknesses by taking advantage of opportunities List opportunities THREATS - T ST STRATEGIES WT STRATEGIES Use strengths to avoid threats Minimize weaknesses and avoid threats List 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
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.
Engines Powertrains Optics Imaging Microprocessor controls Cars; motorcycles; lawn mowers; generators Copiers; laser printers; cameras; image scanners; medical imaging examples Core Competencies Products/businesses
More kinds of core competencies: • Systems Integration • Virtual reality • Bioengineering • Delighting the customer
Strategic Analysis and ChoiceSummary Making subjective decisions based on objective information, and subjective interpretation