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# Strategic analysis and choice

9 strategic analysis and choice tools

9 strategic analysis and choice tools

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### Strategic analysis and choice

1. 1. Presented By: Krishna Kumar Paul MBA 6th Trimester, Boston International College krishnapaul57@gmail.com STRATEGIC ANALYSIS AND CHOICE
2. 2. Strategy Analysis & Choice Strategic analysis and choice largely involves making subjective decisions based on objective information.
3. 3. Strategy Analysis & Choice The Nature of Strategy Analysis and Choice – – Establishing long-term objectives – Generating alternative strategies – Selecting strategies to pursue – Best alternative to achieve mission and objectives
4. 4. Strategy Analysis & Choice Alternative strategies derive from – – Vision – Mission – Objectives – External audit – Internal audit – Past successful strategies
5. 5. STRATEGY FORMULATION FRAMEWORK INPUT STAGE:  IFE  EFE MATCHING STAGE:  SPACE MATRIX  SWOT MATRIX  BCG MATRIX  GE NINE CELL MATRIX  IE MATRIX  GRAND STRATEGY MATRIX DECISION STAGE:  QSPM MATRIX
6. 6. Input Stage • Provides basic input information for the matching and decision stage matrices • Requires strategists to quantify subjectivity early in the process • Good intuitive judgment always needed
7. 7. Strategy-Formulation Framework External Factor Evaluation Matrix (EFE) Internal Factor Evaluation Matrix (IFE) Stage 1: The Input Stage 8
8. 8. EFE Matrix Five-Step process:  List key external factors (10-20)  Opportunities & threats  Assign weight to each (0 to 1.0)  Sum of all weights = 1.0  Assign 1-4 rating to each factor • Firm’s current strategies response to the factor  Multiply each factor’s weight by its rating • Produces a weighted score  Sum the weighted scores for each  Determines the total weighted score for the organization. Highest possible weighted score for the organization is 4.0; the lowest is 1.0. Average is 2.5 9
9. 9. .201.20Political instability .202.10Bad media exposure .102.05Smokeless market .153.05Production limits on tobacco .202.10Legislation against the tobacco industry Threats .303.10Market growth 2.101.00TOTAL .604.15Discount market .051.05Internet growth .153.05Increased demand .151.15Global markets untapped Weighted score RatingWeight Surya Tobacco—Key External Factors Opportunities 10
10. 10. EFE Total weighted score of 4.0 = Organization response is outstanding to threats & opportunities Total weighted score of 1.0 = Firm’s strategies not capitalizing on opportunities or avoiding threats Surya Tobacco (in the previous example), has a total weighted score of 2.10 indicating that the firm is below average in its effort to pursue strategies that capitalize on external opportunities and avoid threats. 11
11. 11. Internal Factor Evaluation (IFE) matrix [It is similar to EFE Matrix, only difference is it uses internal factors( strengths and weaknesses) rather than external factors (opportunities and threats)]
12. 12. Stage 2: The Matching Stage Match between organization’s internal resources & skills and the opportunities & risks created by its external factors 13
13. 13. Strategy-Formulation Framework SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Stage 2: The Matching Stage 14
14. 14. SWOT Matrix  Strengths-Opportunities (SO)  Weaknesses-Opportunities (WO)  Strengths-Threats (ST)  Weaknesses-Threats (WT) Four Types of Strategies 15
15. 15. SWOT Matrix  SO strategies use a firm’s internal strengths to take advantage of external opportunities  WO strategies improve internal weaknesses by taking advantage of external opportunities  ST strategies use a firm’s strengths to avoid or reduce the impact of external threats  WT strategies defensive tactics aimed at reducing internal weakness and avoiding external threats 16
16. 16. SWOT Matrix Numerous environmental Opportunities Major environmental Threats Substantial Internal Strengths Critical Internal Weaknesses Cell 3: Supports a turnaround oriented strategy Cell 1: Supports an aggressive strategy Cell 2: Supports a diversification strategy Cell 4: Supports defensive strategy 17
17. 17. TOWS Matrix WT Strategies Minimize weaknesses and avoid threats ST Strategies Use strengths to avoid threats Threats-T List Threats WO Strategies Overcome weaknesses by taking advantage of opportunities SO Strategies Use strengths to take advantage of opportunities Opportunities-O List Opportunities Weaknesses-W List Weaknesses Strengths-S List Strengths
18. 18. Limitations with SWOT Matrix  Does not show how to achieve a competitive advantage  Provides a static assessment in time  May lead the firm to overemphasize a single internal or external factor in formulating strategies 20
19. 19. SPACE Matrix Strategic Position and Action Evaluation Matrix  Four quadrant framework  Determines appropriate strategies  Aggressive  Conservative  Defensive  Competitive
20. 20. SPACE Matrix Two Internal Dimensions  Financial Strength [FS]  Competitive Advantage [CA] Two External Dimensions  Environmental Stability [ES]  Industry Strength [IS]
21. 21. SPACE Matrix Overall Strategic position determined by:  Financial Strength [FS]  Competitive Advantage [CA]  Environmental Stability [ES]  Industry Strength [IS]
22. 22. SPACE Matrix Developing the SPACE Matrix:  EFE Matrix  IFE Matrix  Financial Strength  Competitive Advantage  Environmental Stability  Industry Strength
23. 23. 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
24. 24. 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.
25. 25. SPACE Factors Environmental Stability (ES) Technological changes Rate of inflation Demand variability Price range of competing products Barriers to entry Competitive pressure Price elasticity of demand Financial Strength (FS) Return on investment Leverage Liquidity Working capital Cash flow Ease of exit from market Risk involved in business External Strategic PositionInternal Strategic Position
26. 26. SPACE Factors Industry Strength (IS) Growth potential Profit potential Financial stability Technological know-how Resource utilization Capital intensify Ease of entry into market Productivity, capacity utilization Competitive Advantage CA Market share Product quality Product life cycle Customer loyalty Competition’s capacity utilization Technological know-how Control over suppliers & distributors External Strategic PositionInternal Strategic Position
27. 27. SPACE Matrix FS +6 +1 +5 +4 +3 +2 -6 -5 -4 -3 -2 -1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 ES CA IS Conservative Aggressive Defensive Competitive
28. 28. This particular SPACE matrix tells us that our company should pursue an aggressive strategy. Our company has a strong competitive position in the market with rapid growth. It needs to use its internal strengths to develop a market penetration and market development strategy.This can include product development, integration with other companies, acquisition of competitors, and so on.
29. 29. SPACE Matrix • Aggressive Quadrant – Use of internal strengths to take advantage of external opportunities, overcome internal weaknesses or avoid external threats Intensive Strategies, Integration Strategies, Diversification Strategies or combination may be used • Conservative Quadrant – Staying close to the firm’s basic competencies and not taking excessive risks Market penetration, market development, product development and concentric diversification • Defensive Quadrant – Focus on rectifying internal weaknesses and avoiding external threats Retrenchment, divesture, liquidation and concentric diversification. • Competitive Quadrant – application of competitive strategies Integration strategies, intensive strategies and joint ventures
30. 30. BCG Matrix Boston Consulting Group Matrix  Assists multidivisional firm in formulating strategies  Analyze autonomous divisions (business portfolio). However, divisions may compete in different industries  It focuses on relative market-share position & Market/ industry growth rate 35
31. 31. BCG Matrix 36
32. 32. BCG Matrix  Question Marks – low relative market share in a high- growth industry  Stars – high relative market share in a high-growth industry  Cash Cows – high relative market share in a low- growth industry  Dogs – Low relative market share in a slow or no growth industry 37
33. 33. The GE Nine-cell Planning Grid (GEC’S Matrix)  General Electric’s nine cell matrix attempts to overcome some of the limitations of BCG matrix.  First, GE grid uses multiple factors to assess industry attractiveness and business strength, rather than the single measures (market share and market growth).  Second, GE expanded the matrix from four cells to nine- replacing the high/low axes with high/medium/low axes to make finer distinction between business portfolio positions. 38
34. 34. The Industry Attractiveness-Business Strength Matrix (GE Nine-cell Matrix) High Medium Low Industry Attractiveness High Low Medium Invest Selective Growth Grow or Let Go Harvest Divest Grow or Let Go Harvest Selective Growth Grow or Let Go Description of Dimensions Industry Attractiveness: Subjective assessment based on broadest possible range of external opportunities and threats beyond the strict control of management Business Strength: Subjective assessment of how strong a competitive advantage is created by a broad range of the firm’s internal strengths and weaknesses 39
35. 35. Advantages of the Industry Attractiveness-Business Strength Matrix Over the BCG Matrix Terminology is less offensive and more understandable Multiple measures associated with each dimension tap many factors relevant to business strength and market attractiveness Allows for broader assessment during both strategy formulation and implementation for a multi business company 40
36. 36. The Internal-External Matrix  Positions an organization’s various divisions in a nine- cell display  Similar to BCG Matrix except the IE Matrix:  Requires more information about the divisions  Strategic implications of each matrix are different 41
37. 37. 42
38. 38. IE Matrix  Based on two key dimensions  The IFE total weighted scores on the x-axis  The EFE total weighted scores on the y-axis  Divided into three major regions  Grow and build – Cells I, II, or IV  Hold and maintain – Cells III, V, or VII  Harvest or divest – Cells VI, VIII, or IX 43
39. 39. Grand Strategy Matrix  Tool for formulating alternative strategies  Based on two dimensions  Competitive position  Market growth 44
40. 40. Quadrant IV 1. Related diversification 2. Unrelated diversification 3. Joint ventures Quadrant III 1. Retrenchment 2. Related diversification 3. Unrelated diversification 4. Divestiture 5. Liquidation Quadrant I 1. Market development 2. Concentrated growth 3. Product development 4. Forward integration 5. Backward integration 6. Horizontal integration 7. Related diversification Quadrant II 1. Market development 2. Concentrated growth 3. Product development 4. Horizontal integration 5. Divestiture 6. Liquidation RAPID MARKET GROWTH SLOW MARKET GROWTH WEAK COMPETITIVE POSITION STRONG COMPETITIVE POSITION 45
41. 41. Grand Strategy Matrix Excellent strategic position Concentration on current markets/products Take risks aggressively when necessary Quadrant I 46
42. 42. Grand Strategy Matrix Evaluate present approach How to improve competitiveness Rapid market growth requires intensive strategy Quadrant II 47
43. 43. Grand Strategy Matrix Compete in slow-growth industries Weak competitive position Drastic changes quickly Cost & asset reduction (retrenchment) Quadrant III 48
44. 44. Grand Strategy Matrix Strong competitive position Slow-growth industry Diversification to more promising growth areas Quadrant IV 49
45. 45. Stage 3: The Decision Stage Quantitative Strategic Planning Matrix (QSPM) 50
46. 46. QSPM Technique designed to determine the relative attractiveness of feasible alternative actions Quantitative Strategic Planning Matrix 51
47. 47. QSPM Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Management Information Systems Strategy 3Strategy 2Strategy 1WeightKey External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/ Environmental Technological Competitive Strategic Alternatives 52
48. 48. Steps to Develop a QSPM 1. Make a list of the firm’s 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 5. Compute the Total Attractiveness Scores 6. Compute the Sum Total Attractiveness Score 53
49. 49. 54
50. 50. QSPM Sets of strategies considered simultaneously or sequentially Integration of pertinent external & internal factors in the decision- making process Advantages 55
51. 51. QSPM Requires intuitive judgments & educated assumptions Better to use only when all the prerequisite information are available Limitations 56
52. 52. Thank You 57