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Week6 David_SMCC16ge_ppt08.pdf

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Week6 David_SMCC16ge_ppt08.pdf

  1. 1. Copyright ©2017 Pearson Education, Limited Chapter Eight 8-1
  2. 2. Learning Objectives 1. Describe the strategy analysis and choice process. 2. Diagram and explain the three-stage strategy- formulation analytical framework. 3. Diagram and explain the Strengths-Weaknesses- Opportunities-Threats (SWOT) Matrix. 4. Diagram and explain the Strategic Position and Action Evaluation (SPACE) Matrix. 5. Diagram and explain the Boston Consulting Group (BCG) Matrix. Copyright ©2017 Pearson Education, Limited 8-2
  3. 3. Learning Objectives (cont.) 6. Diagram and explain the Internal-External (IE) Matrix. 7. Diagram and explain the Grand Matrix. 8. Diagram and explain the Quantitative Strategic Planning Matrix (QSPM). 9. Discuss the role of organizational culture in strategic analysis and choice. 10. Identify and discuss important political considerations in strategy analysis and choice. 11. Discuss the role of a board of directors (governance) in strategic planning. Copyright ©2017 Pearson Education, Limited 8-3
  4. 4. A Comprehensive Strategic- Management Model Copyright ©2017 Pearson Education, Limited 8-4
  5. 5. The Process of Generating and Selecting Strategies vA manageable set of the most attractive alternative strategies must be developed. vThe advantages, disadvantages, trade-offs, costs, and benefits of these strategies should be determined. vIdentifying and evaluating alternative strategies should involve many of the managers and employees who earlier assembled the organizational vision and mission statements, performed the external audit, and conducted the internal audit. Copyright ©2017 Pearson Education, Limited 8-5
  6. 6. The Process of Generating and Selecting Strategies vAlternative strategies proposed by participants should be considered and discussed in a series of meetings. vProposed strategies should be listed in writing. vWhen all feasible strategies identified by participants are given and understood, the strategies should be ranked in order of attractiveness. Copyright ©2017 Pearson Education, Limited 8-6
  7. 7. The Strategy-Formulation Analytical Framework Copyright ©2017 Pearson Education, Limited 8-7
  8. 8. A Comprehensive Strategy- Formulation Framework vStage 1 - Input Stage vsummarizes the basic input information needed to formulate strategies vconsists of the EFE Matrix, the IFE Matrix, and the Competitive Profile Matrix (CPM) Copyright ©2017 Pearson Education, Limited 8-8
  9. 9. A Comprehensive Strategy- Formulation Framework vStage 2 - Matching Stage vfocuses on generating feasible alternative strategies by aligning key external and internal factors vtechniques include the Strengths-Weaknesses- Opportunities-Threats (SWOT) Matrix, the Strategic Position and Action Evaluation (SPACE) Matrix, the Boston Consulting Group (BCG) Matrix, the Internal-External (IE) Matrix, and the Grand Strategy Matrix Copyright ©2017 Pearson Education, Limited 8-9
  10. 10. A Comprehensive Strategy- Formulation Framework vStage 3 - Decision Stage vinvolves the Quantitative Strategic Planning Matrix (QSPM) vreveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies Copyright ©2017 Pearson Education, Limited 8-10
  11. 11. Matching Key External and Internal Factors to Formulate Alternative Strategies Copyright ©2017 Pearson Education, Limited 8-11
  12. 12. The Matching Stage vThe Strengths-Weaknesses- Opportunities-Threats (SWOT) Matrix helps managers develop four types of strategies: vSO (strengths-opportunities) Strategies vWO (weaknesses-opportunities) Strategies vST (strengths-threats) Strategies vWT (weaknesses-threats) Strategies Copyright ©2017 Pearson Education, Limited 8-12
  13. 13. The Matching Stage vSO Strategies vuse a firm's internal strengths to take advantage of external opportunities vWO Strategies vaim at improving internal weaknesses by taking advantage of external opportunities Copyright ©2017 Pearson Education, Limited 8-13
  14. 14. The Matching Stage vST Strategies vuse a firm's strengths to avoid or reduce the impact of external threats vWT Strategies vdefensive tactics directed at reducing internal weakness and avoiding external threats Copyright ©2017 Pearson Education, Limited 8-14
  15. 15. Copyright ©2017 Pearson Education, Limited 8-15 Strengths 1. Inventory turnover up 5.8 to 6.7 2. Ave cust. purchase up$97 to $128 3. Employee morale is excellent 4. In-store promo, 20% increase in sales 5. Newspaper advertising expenditures down 10% 6. Revenues from repair and service in store up 16% 7. In-store technical support persons have MIS degrees 8. Store’s debt-to-total-assets ratio down 34% Weaknesses 1. Software revenues in store down 12% 2. Location of store hurt by new Hwy 34 3. Carpet and paint in store in disrepair 4. Bathroom in store needs refurbishing 5. Total store revenues down 8% 6. Store has no website 7. Supplier on-time-delivery up to 2.4 days 8. Customer checkout process too slow 9. Revenues per employee up 19% Opportunities 1. Population of city growing 10% 2. Rival computer store opening 1 mile away 3. Vehicle traffic passing store up12% 4. Vendors average 6 new productsa year 5. Senior citizen use of computers up 8% 6. Small business growth in area up10% 7. Desire for websites up 18% by realtors 8. Desire for websites up 12% by small firms SO Strategies 1. Add four new in-store promotions monthly (S4, O3) 2. Add 2 new repair and service persons (S6, O5) 3. Send flyer to all seniors over age 55 (S5, O5) WO Strategies 1. Purchase land to build new store(W2, O2) 2. Install new carpet, paint, and bath(W3, W4, O1) 3. Up website services by 50% (W6, O7, O8) 4. Launch mailout to all realtors in city(W5, O7) Threats 1. Best Buy opening new store in 1year nearby 2. Local university offers computer repair 3. New bypass Hwy in 1 year willdivert traffic 4. New mall being built nearby 5. Gas prices up 14% 6. Vendors raising prices 8% ST Strategies 1. Hire 2 more repair persons andmarket these new services (S6, S7, T1) 2. Purchase land to build new store(S8, T3) 3. Raise out-of-store service calls from$60 to $80 (S6, T5) WT Strategies 1. Hire 2 new cashiers (W8, T1, T4) 2. Install new carpet, paint, and bath(W3, W4, T1) A SWOT Matrix for a Retail Computer Store
  16. 16. SWOT Matrix 1. List the firm's key external opportunities. 2. List the firm's key external threats. 3. List the firm's key internal strengths. 4. List the firm's key internal weaknesses. 5. Match internal strengths with external opportunities, and record the resultant SO strategies. Copyright ©2017 Pearson Education, Limited 8-16
  17. 17. SWOT Matrix (cont.) 6. Match internal weaknesses with external opportunities, and record the resultant WO strategies. 7. Match internal strengths with external threats, and record the resultant ST strategies. 8. Match internal weaknesses with external threats, and record the resultant WT strategies. Copyright ©2017 Pearson Education, Limited 8-17
  18. 18. The SPACE Matrix Copyright ©2017 Pearson Education, Limited 8-18
  19. 19. The SPACE Matrix vStrategic Position and Action Evaluation (SPACE) Matrix vfour-quadrant framework indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organization Copyright ©2017 Pearson Education, Limited 8-19
  20. 20. The SPACE Matrix vTwo internal dimensions (financial position [FP] and competitive position [CP]) vTwo external dimensions (stability position [SP] and industry position [IP]) vMost important determinants of an organization's overall strategic position Copyright ©2017 Pearson Education, Limited 8-20
  21. 21. SPACE Matrix Axes Copyright ©2017 Pearson Education, Limited 8-21
  22. 22. Steps to Develop a SPACE Matrix 1. Select a set of variables to define financial position (FP), competitive position (CP), stability position (SP), and industry position (IP). Copyright ©2017 Pearson Education, Limited 8-22
  23. 23. Steps to Develop a SPACE Matrix 2. Assign a numerical value ranging from +1 (worst) to +7 (best) to each of the variables that make up the FP and IP dimensions. Assign a numerical value ranging from –1 (best) to –7 (worst) to each of the variables that make up the SP and CP dimensions. Copyright ©2017 Pearson Education, Limited 8-23
  24. 24. Steps to Develop a SPACE Matrix 3. Compute an average score for FP, CP, IP, and SP. 4. Plot the average scores for FP, IP, SP, and CP on the appropriate axis. 5. Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on the y-axis and plot the resultant point on Y. Plot the intersection of the new xy point. Copyright ©2017 Pearson Education, Limited 8-24
  25. 25. Steps to Develop a SPACE Matrix 6. Draw a directional vector from the origin of the SPACE Matrix through the new intersection point. ► This vector reveals the type of strategies recommended for the organization: aggressive, competitive, defensive, or conservative Copyright ©2017 Pearson Education, Limited 8-25
  26. 26. The SPACE Matrix Copyright ©2017 Pearson Education, Limited 8-26
  27. 27. SPACE Matrix Strategy Profiles vAggressive Quadrant (upper right) of the SPACE Matrix, an organization is in an excellent position to use its internal strengths to (1) take advantage of external opportunities, (2) overcome internal weaknesses, and (3) avoid external threats. vConservative Quadrant (upper left) , which implies staying close to the firm’s basic competencies and not taking excessive risks. Copyright ©2017 Pearson Education, Limited 8-27
  28. 28. SPACE Matrix Strategy Profiles vDefensive Quadrant (lower left) of the SPACE Matrix, which suggests the firm should focus on improving internal weaknesses and avoiding external threats. vCompetitive Quadrant (lower right) of the SPACE Matrix, indicating competitive strategies. Copyright ©2017 Pearson Education, Limited 8-28
  29. 29. Example Strategy Profiles Copyright ©2017 Pearson Education, Limited 8-29
  30. 30. Example Strategy Profiles Copyright ©2017 Pearson Education, Limited 8-30
  31. 31. The Boston Consulting Group (BCG) Matrix v Autonomous divisions (also called segments or profit centers) of an organization make up what is called a business portfolio. v When a firm’s divisions compete in different industries, a separate strategy often must be developed for each business. v The Boston Consulting Group (BCG) Matrix and the Internal-External (IE) Matrix are designed specifically to enhance a multi-divisional firm’s efforts to formulate strategies. v Allocating resources across divisions is arguably the most important strategic decision facing multidivisional firms. Copyright ©2017 Pearson Education, Limited 8-31
  32. 32. The Boston Consulting Group (BCG) Matrix vBCG Matrix vgraphically portrays differences among divisions in terms of relative market share position and industry growth rate vallows a multidivisional organization to manage its portfolio of businesses by examining the relative market share position and the industry growth rate of each division relative to all other divisions in the organization Copyright ©2017 Pearson Education, Limited 8-32
  33. 33. The BCG Matrix Copyright ©2017 Pearson Education, Limited 8-33
  34. 34. The BCG Matrix vQuestion Marks – Quadrant I vhave a low relative market share position, yet they compete in a high-growth industry. vfirms’ cash needs are high and their cash generation is low vOrganization must decide whether to strengthen them by pursuing an intensive strategy (market penetration, market development, or product development) or to sell them Copyright ©2017 Pearson Education, Limited 8-34
  35. 35. The BCG Matrix vStars – Quadrant II vrepresent the organization’s best long-run opportunities for growth and profitability vDivisions with a high relative market share and a high industry growth rate should receive substantial investment to maintain or strengthen their dominant positions. vForward, backward, and horizontal integration; market penetration; market development; and product development are appropriate strategies for these divisions to consider Copyright ©2017 Pearson Education, Limited 8-35
  36. 36. The BCG Matrix vCash Cows – Quadrant III vhave a high relative market share position but compete in a low-growth industry. vgenerate cash in excess of their needs vshould be managed to maintain their strong position for as long as possible vProduct development or diversification may be attractive strategies for strong cash cows. vHowever, as a cash cow division becomes weak, retrenchment or divestiture can become more appropriate. Copyright ©2017 Pearson Education, Limited 8-36
  37. 37. The BCG Matrix vDogs – Quadrant IV vhave a low relative market share position and compete in a slow- or no-market-growth industry vBecause of their weak internal and external position, businesses are often liquidated, divested, or trimmed down through retrenchment. vWhen a division first becomes a dog, retrenchment can be the best strategy to pursue because many dogs have bounced back, after strenuous asset and cost reduction, to become viable, profitable divisions. Copyright ©2017 Pearson Education, Limited 8-37
  38. 38. The Internal-External (IE) Matrix Copyright ©2017 Pearson Education, Limited 8-38
  39. 39. The Internal-External (IE) Matrix vThe IE Matrix is based on two key dimensions: the IFE total weighted scores on the x-axis and the EFE total weighted scores on the y-axis vThree Major Regions vGrow and build vHold and maintain vHarvest or divest Copyright ©2017 Pearson Education, Limited 8-39
  40. 40. The Internal-External (IE) Matrix vRegion 1 Grow and build vIntensive (market penetration, market development, and product development) or integrative (backward integration, forward integration, and horizontal integration) strategies can be most appropriate for these divisions. vThis is the best region for divisions, given their high IFE and EFE scores. Copyright ©2017 Pearson Education, Limited 8-40
  41. 41. The Internal-External (IE) Matrix vRegion 2 Hold and maintain vmarket penetration and product development are two commonly employed strategies for these types of divisions. vRegion 3 Harvest or divest vRetrenchment or Divestiture Copyright ©2017 Pearson Education, Limited 8-41
  42. 42. The IE Matrix Copyright ©2017 Pearson Education, Limited 8-42
  43. 43. The Grand Strategy Matrix vGrand Strategy Matrix vbased on two evaluative dimensions: competitive position and market (industry) growth Copyright ©2017 Pearson Education, Limited 8-43
  44. 44. The Grand Strategy Matrix Copyright ©2017 Pearson Education, Limited 8-44
  45. 45. The Grand Strategy Matrix vGrand Strategy Matrix’s four strategy quadrants, based on two evaluative dimensions: 1. competitive position on the x-axis, and 2. market (industry) growth on the y-axis. vAppropriate strategies for an organization to consider are listed in sequential order of attractiveness in each quadrant of the Grand Strategy Matrix. Copyright ©2017 Pearson Education, Limited 8-45
  46. 46. The Grand Strategy Matrix vQuadrant I vcontinued concentration on current markets (market penetration and market development) and products (product development) is an appropriate strategy vWhen a Quadrant I organization has excessive resources, then backward, forward, or horizontal integration may be effective strategies. vWhen a Quadrant I firm is too heavily committed to a single product, then related diversification may reduce the risks associated with a narrow product line. Copyright ©2017 Pearson Education, Limited 8-46
  47. 47. The Grand Strategy Matrix vQuadrant II vunable to compete effectively vneed to determine why the firm's current approach is ineffective and how the company can best change to improve its competitiveness vintensive strategy is the first option that should be considered. v if the firm is lacking a distinctive competence or competitive advantage, then horizontal integration is often a desirable alternative. vAs a last resort, divestiture or liquidation should be considered. Copyright ©2017 Pearson Education, Limited 8-47
  48. 48. The Grand Strategy Matrix vQuadrant III vcompete in slow-growth industries and have weak competitive positions. vmust make some drastic changes quickly to avoid further decline and possible liquidation vExtensive cost and asset reduction (retrenchment) should be pursued first vAn alternative strategy is to shift resources away from the current business into different areas (diversify). vIf all else fails, the final options for Quadrant III businesses are divestiture or liquidation. Copyright ©2017 Pearson Education, Limited 8-48
  49. 49. The Grand Strategy Matrix vQuadrant IV vhave characteristically high cash-flow levels and limited internal growth needs and often can pursue related or unrelated diversification successfully valso may pursue joint ventures. Copyright ©2017 Pearson Education, Limited 8-49
  50. 50. The Quantitative Strategic Planning Matrix (QSPM) vQuantitative Strategic Planning Matrix (QSPM) vobjectively indicates which alternative strategies are best vuses input from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies vallows strategists to evaluate alternative strategies objectively, based on previously identified external and internal key success factors. Copyright ©2017 Pearson Education, Limited 8-50
  51. 51. The Quantitative Strategic Planning Matrix (QSPM) Copyright ©2017 Pearson Education, Limited 8-51
  52. 52. Steps in a QSPM 1. Make a list of the firm's key external opportunities and threats and internal strengths and weaknesses in the left column. v taken directly from the EFE Matrix and IFE Matrix 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. vRecord these strategies in the top row of the QSPM. Copyright ©2017 Pearson Education, Limited 8-52
  53. 53. Steps in a QSPM (cont.) 4. Determine the Attractiveness Scores (AS). vexamining each key external/internal factor, one at a time, “Does this factor affect the choice of strategies being made?” v1=not attractive, 2=somewhat attractive, 3=reasonably attractive, 4=highly attractive. 5. Compute the Total Attractiveness Scores. vThe higher the TAS, the more attractive the strategic alternative 6. Compute the Sum Total Attractiveness Score. vreveal which strategy is most attractive in each set of alternatives. Copyright ©2017 Pearson Education, Limited 8-53
  54. 54. Positive Features of the QSPM vSets of strategies can be examined sequentially or simultaneously vRequires strategists to integrate pertinent external and internal factors into the decision process vCan be adapted for use by small and large for-profit and nonprofit organizations Copyright ©2017 Pearson Education, Limited 8-54
  55. 55. Limitations of the QSPM vAlways requires informed judgments vIt is only as good as the prerequisite information and matching analyses on which it is based Copyright ©2017 Pearson Education, Limited 8-55
  56. 56. A QSPM for a Retail Computer Store Copyright ©2017 Pearson Education, Limited 8-56
  57. 57. A QSPM for a Retail Computer Store (cont.) Copyright ©2017 Pearson Education, Limited 8-57
  58. 58. The Culture of Strategy Choice v Organizational culture includes the set of shared values, beliefs, attitudes, customs, norms, rites, rituals, personalities, heroes, and heroines that describe a firm. v People have a basic need to make sense of the world, to feel in control, and to make meaning, if threaten,they react defensively. v Managers and employees may sabotage new strategies in an effort to recapture the status quo, it is beneficial to view strategy analysis and choice from a cultural perspective. v Strategies that require fewer cultural changes may be more attractive because extensive changes can take considerable time and effort Copyright ©2017 Pearson Education, Limited 8-58
  59. 59. The Politics of Strategy Choice v Political maneuvering consumes valuable time, subverts organizational objectives, diverts human energy, and results in the loss of some valuable employees v Political biases and personal preferences get unduly embedded in strategy choice decisions v With development of improved strategy-formation analytical tools, political factors become less important in making strategic decisions. v In the absence of objectivity, political factors sometimes dictate strategies Copyright ©2017 Pearson Education, Limited 8-59
  60. 60. Tactics to Aid Strategists Copyright ©2017 Pearson Education, Limited 8-60
  61. 61. Governance Issues vBoard of Directors va group of individuals who are elected by the ownership of a corporation to have oversight and guidance over management and who look out for shareholders’ interests Copyright ©2017 Pearson Education, Limited 8-61
  62. 62. Board of Director Duties and Responsibilities 1. Control and oversight over management 2. Adherence to legal prescriptions 3. Consideration of stakeholders/ interests 4. Advancement of stockholders’ rights Copyright ©2017 Pearson Education, Limited 8-62
  63. 63. Principles of Good Governance 1. No more than two directors are current or former company executives. 2. The audit, compensation, and nominating committees are made up solely of outside directors. 3. Each director owns a large equity stake in the company, excluding stock options. Copyright ©2017 Pearson Education, Limited 8-63
  64. 64. Principles of Good Governance 4. Each director attends at least 75 percent of all meetings. 5. The board meets regularly without management present and evaluates its own performance annually. 6. The CEO is not also the chairperson of the board. 7. There are no interlocking directorships (where a director or CEO sits on another director's board). Copyright ©2017 Pearson Education, Limited 8-64

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