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 Hersheys 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
Low
High

Industry
Sales
Growth
Rate
(Percent)

+20

Medium

1.0

.50

Stars (II)

0.0

Question Marks (I)

?
Medium

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
Stage
of
Industry

B1

Growth
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 managements judgment.
Its graphic representation makes
interpretation and communication easier.

Limitations of Portfolio Analyses

Defining product/market segments isnt 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
isnt 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
Strengths

SO Strategies

ST Strategies

Weaknesses

External Analysis
Opportunities
WO Strategies

WT Strategies

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
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 Cont

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