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
 Why Are Clear Objectives Needed?
To Provide Direction To Provide Purpose
To Allow Synergy To Aid in Evaluations
To Establish Priorities To Reduce Uncertainty
To Minimize Conflicts To Stimulate Exertion
To Allocate Resources To Design Jobs
To Motivate Managers & Employees
Realistic
Measurable
Understandable
Quantitative
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
Long Term Objectives - Areas
■ Quantitative Areas
◆ Profitability
◆ Productivity
◆ Growth
◆ Shareholder Wealth
◆ Market Position
◆ Technological Leadership

■ Qualitative Areas
◆ Reputation
◆ Social Responsibility
◆ Employees
 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 -
Alternatives Forward & Backward
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
Stars (II) Question Marks (I)
Industry
Sales
Growth
Rate
?
Medium 0
(Percent) Cash Cows (III) Dogs (IV)

Low -20
GE Competitive Position (1. Market Share; 2. Technological
MATRIX Know-How; 3. Product Quality; 4. Service Network;
5. Price Competitiveness; 6. Operating Costs
Industry Attractiveness

Good Medium Poor

High Winner Winner ???????

Medium Winner Average Loser

Business

Profit
Low Loser
Producer Loser
1. Market growth; 2. market size; 3. Capital requirements;
4. Competitive Intensity
PRODUCT/MARKET EVOLUTION PORTFOLIO MATRIX

Development B1

Growth
Stage B4
of
Industry Shakeout

Maturity/ B2
Saturation
B3
Decline
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 to do what doing

◆ 3. Mission and Long Term Objectives

More Tools

4. Matrices
 SWOT or TOWS Matrix

Internal Analysis External Analysis

SO Strategies
Strengths Opportunities

ST Strategies WO Strategies

WT Strategies
Weaknesses Threats
 Matching
Matching Key
Key External
External and
and Internal
Internal Factors
Factors to
to
Formulate
Formulate Alternative
Alternative Strategies
Strategies (Table
(Table 6-2)
6-2)

Key Internal Factor Key External Factor Resultant Strategy

Excess working 20% annual growth in the

Acquire
capacity (an internal + cablevision industry (an =
Visioncable
strength) external opportunity)

Exit of two major foreign Buy competitors’

Insufficient
+ competitors from the = facilities
capacity (an
industry (an external
internal weakness)
opportunity
Decreasing numbers of Develop new
Strong R & D
+ young adults (an external products for older
expertise (an =
threat) adults
internal strength)

Poor employee Strong union activity (an Develop a new

+ =
morale (an internal external threat) employee-benefits
weakness) 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 Overcome weaknesses

List opportunities advantage of by taking advantage
opportunities of opportunities

THREATS - T ST STRATEGIES WT STRATEGIES

List threats Use strengths to avoid Minimize weaknesses

threats 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. 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 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 ■ Cars; motorcycles; lawn
■ Powertrains mowers; generators

■ Optics ■ Copiers; laser printers;

■ Imaging cameras; image scanners;
■ Microprocessor controls 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
Johnson Controls

An example
 Financial Strength

Competitive Advantage Industry Strength

Environmental Stability
 Example
Example Strategy
Strategy Profiles
Profiles (Figure
(Figure 6-6)
6-6)

Aggressive Profiles
FS FS
( +1, +5)
( +4, +4)

CA IS CA IS

ES ES
A financially strong firm with A firm whose financial strength
major competitive advantages in is a dominating factor in the
a growing industry industry
 Example
Example Strategy
Strategy Profiles
Profiles (Figure
(Figure 6-6)
6-6)

Conservative Profiles
FS FS
(-2, +4)
(-5, +2)

CA IS CA IS

ES
A firm with financial strength;
the firm has no major
competitive advantages
ES
A firm that suffers from major
competitive disadvantages in an
industry that has declining sales
 The
The Grand
Grand Strategy
Strategy Matrix
Matrix (Figure
(Figure 6-11)
6-11)
Rapid Market Growth

1. Market development 1. Market development

2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
Weak
Competitive 7. Concentric diversification Strong
Competitiv
Position e Position
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate diversification
4. Conglomerate diversification 4. Joint ventures
5. Divestiture
6. Liquidation

Slow Market Growth

 Example
Example Strategy
Strategy Profiles
Profiles (Figure
(Figure 6-6)
6-6)
Competitive Profiles

FS Backward, forward and horizontal

FS
integration
Intensive strategies; Joint Ventures

CA IS CA IS

(+5, -1)

(+1, -2)
ES ES
A firm with major competitive An organization that is competing
advantages in a high-growth industry fairly well in an unstable industry
 Example
Example Strategy
Strategy Profiles
Profiles (Figure
(Figure 6-6)
6-6)

Defensive Profiles

FS FS

CA IS CA IS

(-5, -1)

(-1, -5)
ES ES
A firm that has a very weak An financially troubled firm in a very
competitive position in a negative unstable industry
growth, stable industry