09mba sm mod 6 , p-3
TRANSCRIPT
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Module 6
Part III
Strategy Analysis & Choice
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Strategy Analysis & Choice
Strategic management is not a box of tricksor a bundle of techniques. It is analytical
thinking and commitment of resources toaction. But quantification alone is notplanning. Some of the most importantissues in strategic management cannot bequantified at all.
Peter Drucker
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Strategy Analysis & Choice
Planning is often doomed before it
ever starts, either because toomuch is expected of it or becausenot enough is put into it.
T. J. Cartwright
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Strategy Analysis & Choice
Whether its broke or not, fix it
make it better. Not just products,but the whole company ifnecessary.
Bill Saporito
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Establishing long-term objectives
Generating alternative strategies
Selecting strategies to pursue
Best alternative achieve mission & objectives
Nature of Strategy Analysis & Choice
Strategy Analysis & Choice
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Strategy Analysis & Choice
Strategic Analysis and Choice:
Making subjective decisions basedon objective information
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Strategy Analysis & Choice
Strategic Analysis and Choice:
Generate feasible alternatives
Evaluate alternatives
Select specific course of action
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Strategy Analysis & Choice
Generating & Selecting Strategies
Develop set of most attractive alternative strategies
Determine for the set Advantages
Disadvantages
Trade-offs
Costs
Benefits
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Strategy Analysis & Choice
Generating & Selecting Strategies
Evaluate each alternative Internal and external audit information
Firms mission statement
Listed in writing
Ranked in order of attractiveness
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Vision
Mission Objectives External audit Internal audit
Past successful strategies
Strategy Analysis & Choice
Alternative Strategies Derive From
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Portfolio Approach
It is an attempt to design a strategy inorder to determine the long term growthand profitability prospects with the rightallocation of resources in the light of ever
evolving strengths and weaknesses of afirm. The strategy formulation techniques can be
integrated in to a three stage decisionmaking frame work
1. The Input Stage2. The Matching Stage3. The Decision Stage
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Strategy-Formulation Analytical Framework
Stage 1: The Input StageStage 1: The Input Stage
Stage 2: The Matching StageStage 2: The Matching Stage
Stage 3: The Decision StageStage 3: The Decision Stage
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Strategy-Formulation Analytical Framework
Stage 1: The Input StageStage 1: The Input Stage
ExternalFactor
EvaluationMatrix (EFE)
CompetitiveProfileMatrix
InternalFactor
EvaluationMatrix (IFE)
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Strategy-Formulation Analytical Framework
Stage 2: The Matching StageStage 2: The Matching Stage
ThreatsOpportunitiesWeaknesses
Strengths(TOWS)
StrategicPosition &
ActionEvaluation(SPACE)
BostonConsulting
GroupMatrix(BCG)
Internal-ExternalMatrix
(IE)
GrandStrategyMatrix
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Strategy-Formulation Analytical Framework
Stage 3: The Decision StageStage 3: The Decision Stage
Quantitative StrategicPlanning Matrix
(QSPM)
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Strategy Analysis & Choice
Stage 1: The Input Stage
Provides Basic Input for Stages 2and 3
External Factor Evaluation Matrix (EFE)
Internal Factor Evaluation Matrix (IFE)Competitive Profile Matrix
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Stage 1: The Input Stage
Basic input information for the matching & decision stage
matrices
Requires strategists to quantify subjectivity early in the
process
Good intuitive judgment always needed
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Strategy-Formulation Analytical
FrameworkSWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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Strategy Analysis & Choice
Stage 2: The Matching Stage
Strategy is characterized by theorganizational match between
Internal resources and skills
Opportunities & risks created by externalfactors
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Stage 2: The Matching Stage
Match between organizations internal
resources & skills and the opportunities & riskscreated by its external factors
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Stage 2: The Matching Stage
Match between organizations internal resources &
skills and the opportunities & risks created by its
external factors
E.g. internal: strong R and D function
External changing demographics (population
getting older)Strategy: Develop new products for older adults
(related to long term objectives financial or
strategic)
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Strategy Analysis & Choice
Developing SWOT Matrix
List the firms key external opportunities
List the firms key external threats List the firms key internal strengths
List the firms key internal weaknesses
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Strengths: Weaknesses:
1. R and D almost complete
2. Basis for strong management team
3. Key first major customer acquired
4. Initial product can evolve intorange of offerings5. Located near a major centre of
excellence
6. Very focused management/staff
7. Well-rounded and managedbusiness
1. Over dependent on borrowings -Insufficient cash resources
2. Board of Directors is too narrow
3. Lack of awareness amongstprospective customers4. Need to relocate to larger premises5. Absence of strong sales/marketing
expertise
6. Overdependence on few key staff
7. Emerging new technologies may
move market in new directions
Threats: Opportunities:
1. Major player may enter targetedmarket segment
2. New technology may make
products obsolescent3. Economic slowdown could reduce
demand4. Euro/Yen may move against $
5. Market may become price sensitive
6. Market segment's growth couldattract major competition
1. Market segment is poised for rapidgrowth
2. Export markets offer great potential
3. Distribution channels seeking newproducts
4. Scope to diversify into relatedmarket segments
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Stage 2: The Matching Stage: SWOT Matrix
Four Types of Strategies
Strengths-Opportunities (SO):
Use a firms internal strengths to take advantage of external
opportunities
Weaknesses-Opportunities (WO):
Improving internal weaknesses by taking advantageof external opportunities
Strengths-Threats (ST):
Use a firms strengths to avoid or reduce the impact of external
threats.
Weaknesses-Threats (WT):
Defensive tactics aimed at reducing internal weaknesses and
avoiding external threats
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Four Types of Strategies
WTStrategies
STStrategies
WO
Strategies
SO
StrategiesThreatsOpportunitiesWeaknesses
Strengths(TOWS)
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SO Strategies
SO
Strategies
Use a firms
internalstrengths to
takeadvantage of
externalopportunities
ThreatsOpportunitiesWeaknesses
Strengths(TOWS)
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WO Strategies
WO
Strategies
Improving
internalweaknesses
by takingadvantage of
externalopportunities
ThreatsOpportunitiesWeaknesses
Strengths(TOWS)
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STStrategies
ST
Strategies
Using firms
strengths toavoid or
reduce theimpact of
externalthreats.
ThreatsOpportunitiesWeaknesses
Strengths(TOWS)
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WTStrategies
WT
Strategies
Defensivetactics aimedat reducing
internalweaknesses
and avoidingenvironmentalthreats.
ThreatsOpportunitiesWeaknesses
Strengths(TOWS)
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SWOT MatrixLeave Blank Strengths S
List Strengths
Weaknesses W
List Weaknesses
Opportunities O
List Opportunities
SO Strategies
Use strengths to takeadvantage ofopportunities
WO Strategies
Overcomingweaknesses by taking
advantage ofopportunities
Threats T
List Threats
STStrategies
Use strengths to avoidthreats
WTStrategies
Minimize weaknesses
and avoid threats
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Matching Key Factors
Resultant StrategyKey ExternalFactor
Key Internal Factor
Develop a newemployee benefitspackage
=Strong unionactivity(threat)
+Poor employeemorale (weakness)
Develop new
products for olderadults=
Decreasing
numbers ofyoung adults(threat)
+
Strong R&D
(strength)
Pursue horizontalintegration by buyingcompetitor's facilities
=
Exit of two major
foreigncompetitors fromthe industry(opportunity)
+Insufficientcapacity(weakness)
Acquire Hathway , CBangalore.
=
20% annualgrowth in thecablevisionindustry(opportunity)
+Excess workingcapacity (strength)
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Key Strategies
1. Accelerate product launches by strengthening R andD team
2. Extend links with key technology centres
3. Raise additional venture capital
4. Expand senior management team in sales/marketing5. Recruit non-executive directors
6. Strengthen human resources function and introduceshare options for staff
7. Appoint advisers for intellectual property and finance
8. Seek new market segments/applications for products
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Limitations with SWOT Matrix
Does not show how to achieve acompetitive advantage
Provides a static assessment in time
May lead the firm to overemphasize asingle internal or external factor informulating strategies
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Strategy-Formulation Analytical
FrameworkSWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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Strategy Analysis & Choice
Strategic Position & ActionEvaluation Matrix (SPACE)
Four quadrant framework Determines appropriate strategies
Aggressive
Conservative
Defensive Competitive
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Strategy Analysis & Choice
Strategic Position & ActionEvaluation Matrix (SPACE)
Two Internal Dimensions Financial Strength [FS]
Competitive Advantage [CA]
Two External Dimensions
Environmental Stability [ES] Industry Strength [IS]
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Strategy Analysis & Choice
Strategic Position & ActionEvaluation Matrix (SPACE)
Overall Strategic positiondetermined by:
Financial Strength [FS]
Competitive Advantage [CA] Environmental Stability [ES] Industry Strength [IS]
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Strategy Analysis & Choice
Strategic Position & ActionEvaluation Matrix (SPACE)
Developing the SPACE Matrix: EFE Matrix IFE Matrix Financial Strength
Competitive Advantage Environmental Stability Industry Strength
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Strategy Analysis & Choice
The SPACE Matrix
Select variables to define FS, CA, ES, & IS
Assign numerical ranking from +1 (worst)to +6 (best) for FS and IS; Assignnumerical ranking from 1 (best) to 6(worst) for ES and CA.
Compute average score for FS, CA, ES, &IS
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Strategy Analysis & Choice
The SPACE Matrix
Plot the average scores on the Matrix
Add the two scores on the x-axis and plotpoint on X. Add the scores on the y-axisand plot Y. Plot the intersection of thenew xy point.
Draw a directional vector from originthrough the new intersection point.
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SPACE Factors
Environmental Stability(ES)
Technological changes
Rate of inflation
Demand variability
Price range of competingproducts
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 marketRisk involved in business
External Strategic
Position
Internal Strategic
Position
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SPACE Factors
Industry Strength (IS)
Growth potential
Profit potential
Financial stability
Technological know-how
Resource utilization
Capital intensifyEase of entry into market
Productivity, capacityutilization
Competitive AdvantageCA
Market share
Product quality
Product life cycle
Customer loyalty
Competitions capacityutilization
Technological know-how
Control over suppliers &
distributors
External Strategic
PositionInternal Strategic Position
SPACE Matrix
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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
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Strategy-Formulation Analytical
FrameworkSWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:
The Matching Stage
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Strategy Analysis & Choice
Boston Consulting Group Matrix(BCG)
Enhances multidivisional firms efforts to
formulate strategies Autonomous divisions (or profit centers)
constitute the business portfolio
Firms divisions may compete in different
industries requiring separate strategy
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Strategy Analysis & Choice
Boston Consulting Group Matrix(BCG)
Graphically portrays differences among divisions
Focuses on market share position and industrygrowth rate
Manage business portfolio through relativemarket share position and industry growth rate
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Strategy Analysis & Choice
Boston Consulting Group Matrix(BCG)
Relative market share position defined:
Ratio of a divisions own market share in aparticular industry to the market share held by
the largest rival firm in that industry.
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Market attractiveness & Competitive
strength is also important.
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Strategy Analysis & Choice
BCG Matrix
Question Marks
Stars
Cash Cows
Dogs
l h
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Strategy Analysis & Choice
BCG Matrix
Question Marks
Low relative market share position yetcompete in high-growth industry. Cash needs are high
Case generation is low
Decision to strengthen (intensivestrategies) or divest/sell them.
S l & Ch
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Strategy Analysis & Choice
BCG Matrix Stars
High relative market share and high
industry growth rate. Best long-run opportunities for growth and
profitability
Substantial investment to maintain or
strengthen dominant position Integration strategies, intensive strategies,
joint ventures
S A l i & Ch i
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Strategy Analysis & Choice
BCG Matrix Cash Cows
High relative market share position, butcompete in low-growth industry Generate cash in excess of their needs
Milked for other purposes
Maintain strong position as long as possible Product development, concentric diversification
If becomes weakretrenchment or divestiture
S A l i & Ch i
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Strategy Analysis & Choice
BCG Matrix
Dogs
Low relative market share position andcompete in slow or no market growth Weak internal and external position
Decision to liquidate, divest,retrenchment
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BCG Matrix
Low relative market share compete in
high-growth industry
Cash needs are high
Case generation is low
Decision to strengthen (intensive
strategies) or divest
High relative market share and high growth
rate
Best long-run opportunities for growth& profitability
Substantial investment to maintain or
strengthen dominant position
Integration strategies, intensive
strategies, joint ventures
STARS
QUESTION MARKS
High relative market share, competes in low-
growth industry
Generate cash in excess of their
needs
Milked for other purposes
Maintain strong position as long as possible
Product development, concentric
diversification
If weakensretrenchment or
divestiture
CASH
COWS
Low relative market share & compete in slow
or no market growth
Weak internal & external position
Liquidation, divestiture, retrenchment
DOGS
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The BCG matrix
ITC- A BackgroundLearning points andconclusions
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ITC A background
Governance structure
Strategic supervision
Strategic management
Executive management
Core values
Nation Orientation; Trusteeship;
Excellence; Customer focus; respect for people;
Innovation
Vision & Mission statements
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Vision & Mission statements Vision: Sustain ITCs position as one
of Indias most valuable corporations
through world class performance,creating growing value for the Indianeconomy and the Companysstakeholders.
Mission: To enhance the wealthgenerating capability of theenterprise in a globalizing
environment, delivering superior andsustainable stakeholder value.
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Business Mix of ITC Ltd.
FMCG Cigarettes Foods Lifestyle Retailing Greeting, Gifting & Stationery
Safety Matches Agarbattis
Paperboards & Packaging
Paperboards & Specialty Papers Packaging
http://www.itcportal.com/busi_cigg_tob/busi_cig_itd_new.htmlhttp://www.itcportal.com/foods/foods.htmlhttp://www.itcportal.com/lyfestyle_retailing/lifestyle_retailing.htmlhttp://www.itcportal.com/greetings/greetings.htmhttp://www.itcportal.com/safetymatches/safetymatches.htmlhttp://www.itcportal.com/agarbathi/agarbathi.htmlhttp://www.itcportal.com/paperboards_specialtypapers/paperboards.htmlhttp://www.itcportal.com/packaging/packaging_new.htmlhttp://www.itcportal.com/packaging/packaging_new.htmlhttp://www.itcportal.com/paperboards_specialtypapers/paperboards.htmlhttp://www.itcportal.com/agarbathi/agarbathi.htmlhttp://www.itcportal.com/safetymatches/safetymatches.htmlhttp://www.itcportal.com/greetings/greetings.htmhttp://www.itcportal.com/lyfestyle_retailing/lifestyle_retailing.htmlhttp://www.itcportal.com/foods/foods.htmlhttp://www.itcportal.com/busi_cigg_tob/busi_cig_itd_new.html -
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Business Mix (Contd)
Agri - Business
Agri-Exports e-Choupal Leaf Tobacco
Hotels
Group Companies ITC Infotech; etc.
http://www.itcportal.com/agri_exports/agri_exports_new.htmlhttp://www.itcportal.com/agri_exports/e-choupal_new.htmhttp://www.itcportal.com/busi_cigg_tob/busi_cig_iltd_new.htmlhttp://www.itcportal.com/group_companies/group_companies.htmlhttp://www.itcportal.com/group_companies/group_companies.htmlhttp://www.itcportal.com/busi_cigg_tob/busi_cig_iltd_new.htmlhttp://www.itcportal.com/agri_exports/e-choupal_new.htmhttp://www.itcportal.com/agri_exports/agri_exports_new.html -
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Business wise Sales dataBusiness/ Year Growth
%
Value (Rs in Crore)
2005 2004
FMCG-Cigarettes 8.4 10002.54 9230.27
FMCG-Others 85.2 563.39 304.16
Hotels 124.1 577.25 257.53
Agribusiness 4.2 1780.07 1708.77
Paper & pkg. 24.9 1565.31 1253.29
Net revenue 12.99 13349.58 11815.04
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CAGR during FY 2005-2008
Category CAGR Growth parameters
Cigarettes 10.9 % Pricing power
Hotels 22.7% Inward traffic, occupancy
Paper 17.2 % Capacity utilization, valueadded products
Agri
business
34.3 % E-choupal, choupal sagar,
FMCG-Others
60.2 % Fast track, decent share.
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Market share of ITC Ltd.
Outstanding market leader
Cigarettes, Hotels, Paperboards, Packagingand Agri-Exports.
Gaining market share Nascent businesses of Packaged Foods &
Confectionery, Branded Apparel and GreetingCards.
Segment Dominance Contribution %
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Segment Dominance Contribution %Revenue PBIT
Cigarettes 70% share 77.0% 87.7%
Paper &Packg.
Packaging board No. 1 inAsia
7.3% 10.7%
Agribusiness
One of the largestexporters from India
7.0% 3.7%
Hotels ITC Group ranks No.2 4.3% 5.4%
FMCG
(Others)
20% share of greetingcards Expressions and
Stationery-Classmate .'Aashirvaad' atta isNo.1 in brandedsegment
4.4% -7.5%
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The BCG Matrix for ITC Ltd.
StarsHotels
Paperboards/
Packaging.Agri business.
?FMCG- Others
Cows
FMCG-Cigarettes
Dogs
Maybe ITC Infotech.
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points and conclusions
? - To be handled with care.
Strategic forays into emerging highgrowth markets.
E-Choupal is a transformationalstrategy.
Strong brand building capability will
be tested.
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Learning points
Corporate strategy of creating multiple drivers ofgrowth anchored on its core competencies anddistribution reach.
Embracing difficult and challenging corporatestrategy. (Ex: Paperboards).
EHS philosophy: Contribution to the triple bottomline- Economic, Environment and social capital.
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Major Advantages
It draws attention to cash flows ,investment characteristics and needsof the various divisions of the
Organisation. Overtime dogs evolve in to ? ,
? To * and * to cash cows
BCG helps Organisations strive tobecoming a *
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Limitations
Assumes market growth rate. A firm maygrow the market.
A Dog may be helping other products.
High market share/Growth is not the onlysuccess factor.
Linkage between market share and
profitability is questionable.
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The Internal-External Matrix (GE 9 CellMatrix)
Positions an organizations variousdivisions in a nine-cell display
Similar to BCG Matrix except the IEMatrix: Requires more information about the
divisions
Strategic implications of each matrix aredifferent
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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
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Strategy Analysis & Choice
Grand Strategy Matrix
Popular tool for formulating alternativestrategies
Based on two evaluative dimensions Competitive position
Market growth
Grand Strategy Matrix
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Quadrant IV
Concentricdiversification
Horizontaldiversification
Conglomeratediversification
Joint ventures
Quadrant III
Retrenchment
Concentric
diversification Horizontal
diversification
Conglomeratediversification
Liquidation
Quadrant I
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration Concentric
diversification
Quadrant II
Market development
Market penetration
Product development
Horizontal integration
Divestiture
Liquidation
RAPID MARKET GROWTH
SLOW MARKET GROWTH
WEAK
COMPETITIVE
POSITION
STRONG
COMPETITIVE
POSITION
Strategy Analysis & Choice
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Strategy Analysis & Choice
Grand Strategy Matrix
Quadrant I Excellent strategic position
Concentration on current markets and products
Take risks aggressively when necessary
Strategy Analysis & Choice
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Strategy Analysis & Choice
Grand Strategy Matrix
Quadrant II Evaluate present approach seriously
How to change to improve competitiveness
Rapid market growth requires intensive strategy
Strategy Analysis & Choice
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Strategy Analysis & Choice
Grand Strategy Matrix
Quadrant III Compete in slow-growth industries
Weak competitive position Drastic changes quickly
Cost and asset reduction indicated (retrenchment)
Strategy Analysis & Choice
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Strategy Analysis & Choice
Grand Strategy Matrix
Quadrant IV Strong competitive position
Slow-growth industry
Diversification indicated to more promisinggrowth areas
Strategy Analysis & Choice
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Strategy Analysis & Choice
Quantitative Strategic Planning Matrix (QSPM)
Comprises Stage 3 of the analytical framework
Analytical technique designed to determine the relativeattractiveness of feasible alternative actions.
Uses input from Stage 1 and Stage 2
Strategy Analysis & Choice
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Strategy Analysis & Choice
Quantitative Strategic Planning Matrix(QSPM)
Tool for objective evaluation of alternative strategies
Based on identified external and internal crucialsuccess factors
Requires good intuitive judgment
QSPM Strategic Alternatives
-
8/7/2019 09MBA SM Mod 6 , P-3
84/89
84
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research andDevelopment
Computer InformationSystems
Strategy 3Strategy2
Strategy1
WeightKey External Factors
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/Environmental
Technological
Competitive
Strategy Analysis & Choice
-
8/7/2019 09MBA SM Mod 6 , P-3
85/89
85
Strategy Analysis & Choice
QSPM
List the firms key external opportunities &
threats; list the firms key internalstrengths and weaknesses
Assign weights to each external andinternal critical success factor
Strategy Analysis & Choice
-
8/7/2019 09MBA SM Mod 6 , P-3
86/89
86
Strategy Analysis & Choice
QSPM
Examine the Stage 2 (matching) matrices
and identify alternative strategies that theorganization should consider implementing
Determine the Attractiveness Scores (AS)
Strategy Analysis & Choice
-
8/7/2019 09MBA SM Mod 6 , P-3
87/89
87
Strategy Analysis & Choice
QSPM
Compute the total Attractiveness
Scores Compute the Sum Total
Attractiveness Score
Strategy Analysis & Choice
-
8/7/2019 09MBA SM Mod 6 , P-3
88/89
88
Strategy Analysis & Choice
QSPMPositives:
Sets of strategies examinedsimultaneously or sequentially
Requires the integration of pertinentexternal and internal factors in thedecision-making process
Strategy Analysis & Choice
-
8/7/2019 09MBA SM Mod 6 , P-3
89/89
Strategy Analysis & Choice
QSPMLimitations:
Requires intuitive judgments andeducated assumptions
Only as good as the prerequisite
inputs