Chapter 6

Report
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
SWOT Analysis
Internal 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
Alternatives
for Growth
Diversification
into new
Businesses
Vertical
Integration Forward & Backward
Related
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
1.0
High
Industry
Sales
Growth
Rate
(Percent)
+20
Low
.50
Stars (II)
0.0
Question Marks (I)
?
Medium
0
Cash Cows (III)
Low
-20
Dogs (IV)
Industry Attractiveness
GE
Competitive Position (1. Market Share; 2. Technological
MATRIX Know-How; 3. Product Quality; 4. Service Network;
5. Price Competitiveness; 6. Operating Costs
Good
High
Medium
Winner
Winner
Medium
Winner
Average
Business
Poor
???????
Loser
Profit
Loser
Low
Loser
Producer
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
Decline
B2
B3
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
 3.
to do what doing
Mission and Long Term Objectives
More Tools
4. Matrices
SWOT or TOWS Matrix
Internal Analysis
Strengths
SO Strategies
ST Strategies
Weaknesses
External Analysis
Opportunities
WO Strategies
WT Strategies
Threats
Matching Key External and Internal Factors to
Formulate Alternative Strategies (Table 6-2)
Key Internal Factor
Excess working
capacity (an internal
strength)
Insufficient capacity
(an internal
weakness)
Strong R & D
expertise (an
internal strength)
Poor employee
morale (an internal
weakness)
Resultant Strategy
Key External Factor
+
20% annual growth in the
cablevision industry (an
external opportunity)
+
Exit of two major foreign
competitors from the
industry (an external
opportunity
+
Decreasing numbers of
young adults (an external
threat)
+
Strong union activity (an
external threat)
=
=
=
=
Acquire
Visioncable
Buy competitors’
facilities
Develop new
products for older
adults
Develop a new
employee-benefits
package
The TOWS Matrix (Figure 6-3)
STRENGTHS - S
List strengths
OPPORTUNITIES - O
List opportunities
THREATS - T
List threats
WEAKNESSES - W
List weaknesses
SO STRATEGIES
WO STRATEGIES
Use strengths to take
advantage of
opportunities
Overcome weaknesses
by taking advantage of
opportunities
ST STRATEGIES
Use strengths to avoid
threats
WT STRATEGIES
Minimize weaknesses
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.
 6.
 7.
 8.

Economic Value Added (EVA)
Scenario Analysis
Game Theory
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
Powertrains

Cars; motorcycles; lawn
mowers; generators
Optics
Imaging
Microprocessor
controls

Copiers; laser printers;
cameras; image scanners;
medical imaging
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

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