copyright 2005 prentice hall1 bus 411 day 9. copyright 2005 prentice hall ch 6 -2 agenda assignment...

Copyright 2005 Prentice Hall 1

Bus 411

DAY 9

Copyright 2005 Prentice Hall Ch 6 -2

Agenda

Assignment #3 due Assignment #4 will be assigned next class Templates available in WebCT Discussion on Mid-term

Before or after Spring Break? Finish Discussion about Strategies Start Discussion on Strategy Analysis and

choice


Michael Porter’s Generic Strategies

Cost Leadership Strategies

Differentiation Strategies

Focus Strategies


Generic Strategies

In conjunction with differentiation

Economies or diseconomies of scale

Capacity utilization achieved

Linkages w/ suppliers & distributors

Cost Leadership


Generic Strategies

Many price-sensitive buyers

Few ways of achieving differentiation

Buyers not sensitive to brand differences

Large # of buyers w/bargaining power

Low Cost Producer Advantage


Generic Strategies

Greater product flexibility

Greater compatibility

Improved service

Greater convenience

More features

Differentiation


Generic Strategies

Industry segment of sufficient size

Good growth potential

Not crucial to success of major competitors

Focus


Means for Achieving Strategies

Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.

Joint Venture/Partnering -



R&D partnerships Cross-distribution agreements Cross-licensing agreements Cross-manufacturing agreements Joint-bidding consortia

Cooperative Arrangements -



Managers who must collaborate daily; not involved in developing the venture

Benefits the company not the customers Not supported equally by both partners May begin to compete with one of the

partners

Why Joint Ventures Fail -


Joint Ventures

Guidelines --Synergies between private and publicly held

Domestic with foreign firm, local management can reduce risk

Complementary distinctive competencies

Resources & risks where project is highly profitable (e.g. Alaska Pipeline)

Two or more smaller firms competing w/larger firm

Need to introduce new technology quickly



Provide improved capacity utilization Better use of existing sales force Reduce managerial staff Gain economies of scale Smooth out seasonal trends in sales Gain new technology Access to new suppliers, distributors, customers,

products, creditors

Mergers & Acquisitions


Recent Mergers

Acquiring Firm Acquired Firm

IBM Rational Software Corp

Yahoo Inktomi Corp

U.S. Steel National Steel Corp

Pfizer Pharmacia

Krispy Kreme Doughnuts Montana Mills

Oracle People Soft

Palm Handspring

Nike Converse


First Mover Advantages

Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms.


First Mover Advantages

Securing access to rare resources Gaining new knowledge of key factors &

issues Carving out market share Easy to defend position & costly for rival

firms to overtake

Potential Advantages


Outsourcing

Companies taking over the functional operations of other firms

Business-process outsourcing (BPO)


Outsourcing

Less expensive Allows firm to focus on core business Enables firm to provide better services

Benefits


Chapter 6Strategy Analysis & Choice

Strategic Management: Concepts & Cases

10th EditionFred David

PowerPoint Slides by

Anthony F. Chelte

Western New England College


Chapter Outline

The Nature of Strategy & Choice

A Comprehensive Strategy-Formulation Framework

The Input Stage


Chapter Outline (cont’d)

The Matching Stage

The Decision Stage

Cultural Aspects of Strategy Choice


Chapter Outline (cont’d)

The Politics of Strategy Choice

Governance Issues


To acquire or not to acquire, that is the question –Robert J. Terry

Strategy Analysis & Choice

Life is full of lousy options -- General P.X. Kelley


-- Establishing long-term objectives-- Generating alternative strategies-- Selecting strategies to pursue-- Best alternative - achieve mission & objectives

Nature of Strategy Analysis & Choice



Vision Mission Objectives External audit Internal audit Past successful strategies


Alternative Strategies Derive From --



Generating Alternatives --

Participation in generating alternative strategies should be as broad as possible


Comprehensive Strategy-Formulation Framework

Stage 1:The Input Stage

Stage 2:The Matching Stage

Stage 3:The Decision Stage


Strategy-Formulation Analytical Framework

Internal Factor EvaluationMatrix (IFE)

External Factor EvaluationMatrix (EFE)

Competitive Profile Matrix(CPM)

Stage 1:The Input Stage


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



SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix

Grand Strategy Matrix



Stage 2: The Matching Stage

Match between organization’s internal resources & skills and the opportunities & risks created by its external factors


Stage 2: The Matching Stage

Strengths

Weaknesses

Opportunities

Threats

SWOT Matrix


SWOT Matrix

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of Strategies


SO Strategies

Use a firm’sinternal strengthsto take advantage

of external opportunities

SOStrategies

StrengthsWeaknesses

OpportunitiesThreats

SWOT


WO Strategies

Improving internalweaknesses by

taking advantageof external

opportunities

WOStrategies

StrengthsWeaknesses


SWOT


ST Strategies

Use a firm’s strengthsto avoid or

reduce the impactof external

threats

STStrategies

StrengthsWeaknesses


SWOT


WT Strategies

Defensive tacticsaimed at reducing

internal weaknesses &

avoidingenvironmental

threats

WTStrategies

StrengthsWeaknesses


SWOT


SWOT Matrix

Developing the SWOT

List firm’s key internal Strengths

List firm’s key internal Weaknesses

List firm’s key external Opportunities

List firm’s key external Threats


SWOT Matrix

Leave Blank

Strengths – S

List Strengths

Weaknesses – W

List Weaknesses

Opportunities – O

List Opportunities

SO Strategies

Use strengths to take advantage of opportunities

WO Strategies

Overcoming weaknesses by taking advantage of

opportunities

Threats – T

List Threats

ST Strategies

Use strengths to avoid threats

WT Strategies

Minimize weaknesses and avoid threats


Develop a new employee benefits package

= Strong union activity (threat)

+Poor employee morale (weakness)

Develop new products for older adults

=Decreasing numbers of young adults (threat)

+Strong R&D (strength)

Pursue horizontal integration by buying competitor's facilities

=Exit of two major foreign competitors form the industry (opportunity)

+Insufficient capacity (weakness)

Acquire Cellfone, Inc.=20% annual growth in the cell phone industry (opportunity)

+Excess working capacity (strength)

Key Internal Factor Key External Factor Resultant Strategy

Matching Key Factors to Formulate Alternative Strategies



SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix




SPACE Matrix

Strategic Position & Action Evaluation Matrix

Aggressive

Conservative

Defensive

Competitive


SPACE Matrix

Two Internal Dimensions

Financial Strength (FS)

Competitive Advantage (CA)

Two External Dimensions

Environmental Stability (ES)

Industry Strength (IS)


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 demandEase of exit from market Risk involved in business

Financial Strength (FS)

Return on investment

Leverage

Liquidity

Working capital

Cash flow

External Strategic PositionInternal Strategic Position


SPACE Factors

Industry Strength (IS)

Growth potential

Profit potential

Financial stability

Technological know-how

Resource utilization

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


SPACE MatrixFS

+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


The steps to develop a SPACE Matrix:

Select a set of variables to define financial strength (FS), competitive advantage (CA), environmental stability (ES), and industry strength (IS).

Table 6-2 provides Good examples Assign a numerical value ranging from 1 (worst) to 6 (best) for the variables that make

up the FS and IS dimensions. Assign a number between –1 (best) to –6 (worst) for variables that make up the ES and CA dimensions. On the FS and CA axes, make comparison to competitors. On the IS and ES axes, make comparison to other industries.

Compute an average score for FS, CA, IS, and ES by summing the values given to the variables and dividing by the number of variables included in each dimension.

Plot the average scores for FS, IS, ES, and CA on the appropriate axis in the SPACE Matrix.

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.

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 Conservative

Lets try with Data in table 6-3



SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix




BCG Matrix

Boston Consulting Group Matrix

Enhances multi-divisional firm in formulating strategies

Autonomous divisions = business portfolio

Divisions may compete in different industries

Focus on market-share position & industry growth rate


BCG Matrix

Relative Market Share Position

Ratio of a division’s own market share in an industry to the market share held by the largest rival firm in that industry.


BCG Matrix

Data required Relative market Share for each Division

Horizontal axis Compare to leading firm (1 means you are the leading firm)

Industry growth pattern Vertical axis

Percentage of Corporate Revenues generated by division Size of circle

Percentage of Corporate Profits generated by division Size of pie slice


BCG Matrix

Dogs

IV

Cash Cows

III

Question Marks

I

Stars

II

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

Ind

us

try

Sa

les

Gro

wth

Ra

te

High+20

Low-20

Medium0


BCG Matrix

Question Marks

Low relative market share – compete in high-growth industry

Cash needs are high

Case generation is low

Decision to strengthen (intensive strategies) or divest


BCG Matrix

Stars

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


BCG Matrix

Cash Cows

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 weakens—retrenchment or divestiture


BCG Matrix

Dogs

Low relative market share & compete in slow or no market growth

Weak internal & external position

Liquidation, divestiture, retrenchment



SWOT Matrix

SPACE Matrix

BCG Matrix

IE Matrix




IE Matrix

The IE Matrix positions an organization’s various divisions in a nine-cell display illustrated in Figure 6-10.

The IE Matrix is similar to the BCG Matrix in that both tools involve plotting organization divisions in a schematic diagram; this is why they are called portfolio matrices.

Differences between the IE Matrix and the BCG Matrix Axes are different. IE Matrix requires more information about divisions than

BCG. Strategic implications of each matrix are different.


IE Matrix

I II III

IV V VI

VII VIII IX

IFE ScoresStrong Average Weak3-4 2-2.99 1-1.99

High3-4

Medium2-2.99

Low1-1.99

EF

ES

core

s



SWOT Matrix

SPACE Matrix

BCG Matrix



IE Matrix



Tool for formulating alternative strategies

Based on two dimensions

Competitive position

Market growth


Quadrant IV

1. Concentric diversification

2. Horizontal diversification

3. Conglomerate diversification

4. Joint ventures

Quadrant III

1. Retrenchment


3. Horizontal diversification

4. Conglomerate diversification

5. Liquidation

Quadrant I

1. Market development

2. Market penetration

3. Product development

4. Forward integration

5. Backward integration

6. Horizontal integration


Quadrant II

1. Market development

2. Market penetration

3. Product development

4. Horizontal integration

5. Divestiture

6. Liquidation

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAK COMPETITIVE

POSITION

STRONGCOMPETITIVE

POSITION



Excellent strategic position

Concentration on current markets/products

Take risks aggressively when necessary

Quadrant I



Evaluate present approach

How to improve competitiveness

Rapid market growth requires intensive strategy

Quadrant II



Compete in slow-growth industries

Weak competitive position

Drastic changes quickly

Cost & asset reduction (retrenchment)

Quadrant III



Strong competitive position

Slow-growth industry

Diversification to more promising growth areas

Quadrant IV



Stage 3:The Decision Stage

Quantitative StrategicPlanning Matrix

(QSPM)


QSPM

Technique designed to determine the relative attractiveness of feasible alternative actions

Quantitative Strategic Planning Matrix


QSPM

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Computer Information Systems

Strategy 3Strategy 2Strategy 1WeightKey External Factors

Economy

Political/Legal/Governmental

Social/Cultural/Demographic/Environmental

Technological

Competitive

Strategic Alternatives


QSPM

Requires intuitive judgments & educated assumptions

Only as good as the prerequisite inputs

Limitations


QSPM

Sets of strategies considered simultaneously or sequentially

Integration of pertinent external & internal factors in the decision making process

Advantages


Cultural Aspects of Strategy Choice

Successful strategies depend on the degree of consistency with the firm’s culture

Organization Culture


Politics of Strategy Choice

Management hierarchy

Career aspirations

Allocation of scarce resources

Politics in Organizations


Politics of Strategy Choice

Equifinality

Satisfying

Generalization

Higher-order issues

Political access on important issues

Political tactics for strategists


Governance Issues

Control & oversight over management

Adherence to legal prescriptions

Consideration of stakeholder interests

Advancement of stockholder rights

Board of Directors Roles & Responsibilities


Corporate Governance Issues

1. No more than 2 directors current or former company executives2. No directors do business with the company3. Audit, compensation, and nominating committees made up

of outside directors4. Each director attends at lest 75% of all meetings5. Audit committee meets at least four times a year6. CEO is not also the Chairperson of the Board7. Shareholders have considerable power and information to

choose & replace directors8. Stock options are considered a corporate expense9. No interlocking directorships

Business Week’s “principles of good governance”

copyright 2005 prentice hall1 bus 411 day 9. copyright 2005 prentice hall ch 6 -2 agenda assignment...

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