Strategy Analysis

&Choice

Strategy Analysis & choice involves making subjective decision based on objective

information.

It seeks to determine alternative courses of actions that could best enable an organization to achieve its mission and objective.

SUBJECTIVE

Based on your own ideas and Based on your own ideas and opinions rather than factsopinions rather than facts

Not impartialNot impartial

OBJECTIVE

Not influenced by personal feelings Not influenced by personal feelings or opinionsor opinions

Considering only factsConsidering only facts

ALTERNATIVE STRATEGIES

Are derived from org’s mission, objective ,external audit and internal audit.

GENERATING & SELECTING STRATEGIES PROCESS

Universal participation external & internal audit infoManageable set of most attractive alternate strategies ATTRACTIVE ALTERNATE STRATEGIES Advantages Disadvantages Trade- offs Costs Benefits

IDENTIFIED STRATEGIES

RANKING. Should not be implemented. Possibly should be implemented. Probably should be implemented. Definitely should be implemented.

ORDER OF ATTRACTIVENESS

Long-Term ObjectivesLong-Term Objectives. Long term objectives represent the result expected from pursuing certain strategies.

Strategies represent action to be taken to accomplish long-term objectives.

Time frame for objective and strategies should be consists, usually from 2-5 Years.

LONG-TERM OBJECTIVES.

Clearly stated & communicated. Quantitative.Measurable. Realistic.Understandable.Challenging.Obtainable.Hierarchical.Congruent among org’s units.

STRATEGY FORMULATION

Stage 1 : Input StageStage 2 : Matching StageStage 3 : Decision Stage

INPUT STAGE

Summarizes the basic inputinformation needed to formulate strategies.

EFE MatrixIFE MatrixCompetitive Profile Matrix (CPM)

MATCHING STAGE

Focuses upon generating feasible alternative strategies by aligning key external andinternal factors.

Tows MatrixStrategic Position & Action Evaluation (SPACE) MatrixBoston Consulting Group (BCG) MatrixGrand Strategy Matrix

DECISION STAGE DECISION STAGE

Choosing the best of alternative Choosing the best of alternative strategic.strategic.

Quantitative strategic planning Quantitative strategic planning Matrix (QSPM)Matrix (QSPM)

TOWS MATRIXTOWS MATRIX

Strengths

S Weaknesses

W

OPPORTUNITIES

O SO WO

STWT

THREATS

T

TOWS MATRIXTOWS MATRIX

CONSTRUCTIONCONSTRUCTIONThere are 8 steps:There are 8 steps:

1.1.List key external opportunities.List key external opportunities.2.2.List key external threats.List key external threats.3.3.List key internal strengths.List key internal strengths.4.4.List key internal weaknesses.List key internal weaknesses.5.5.Match # 3 with # 1 & record resultant SO Match # 3 with # 1 & record resultant SO

strategies.strategies.6.6.Match # 4 with # 1 & record resultant WO Match # 4 with # 1 & record resultant WO

strategies.strategies.7.7.Match # 3 with # 2 & record resultant ST Match # 3 with # 2 & record resultant ST

strategies.strategies.8.8.Match # 4 with # 2 & record resultant WT Match # 4 with # 2 & record resultant WT

strategies.strategies.

SO StrategySO Strategy : : Use Strength to take Advantages Use Strength to take Advantages of opportunitiesof opportunities

WO StrategyWO Strategy: : Overcome weakness by taking Overcome weakness by taking advantages of opportunitiesadvantages of opportunities

ST StrategyST Strategy : : Use Strength to avoid threatsUse Strength to avoid threats

WT StrategyWT Strategy: : Minimize weakness and avoidMinimize weakness and avoidthreats.threats.

TOWS MATRIXTOWS MATRIX

ResultResult

The purpose of TOWS matrix is to The purpose of TOWS matrix is to generate feasible alternative generate feasible alternative strategies and not to determine (and strategies and not to determine (and select) which strategies are best.select) which strategies are best.

Not all of the strategies developed in Not all of the strategies developed in tows matrix will be selected for tows matrix will be selected for implementationimplementation

Internal: Financial Strength –FS Competitive Advantages-CA

External: Industry Strength –IS

Environmental Stability -ES

SPACE MATRIXDIEMENSIONS

FINANCIAL STRENGTH –FS

Return on investment Liquidity Leverage Working capitalCash flowRisk involves in businessEase of exit from market

COMPETITIVE ADVANTAGE – CACOMPETITIVE ADVANTAGE – CA

• Market share• Product quality• Product life cycle• Customer loyalty• Competitions capacity utilization• Technological know-how• Control over suppliers and distributions

INDUSTRY STRENGTH-ISINDUSTRY STRENGTH-IS

Growth potentialGrowth potential Profit potentialProfit potential Financial stability Financial stability Technological know-howTechnological know-how Resource utilization Resource utilization Capital intensityCapital intensity Ease of entry into marketEase of entry into market Productivity capacity utilizationProductivity capacity utilization

ENVIRONMENTAL STABILITY - ESENVIRONMENTAL STABILITY - ES

Technological changesTechnological changes Rate of inflation Rate of inflation Demand variability Demand variability Prices range of competing Prices range of competing

productsproducts Barriers to entry into marketsBarriers to entry into markets Competitive pressure Competitive pressure Prices elasticityPrices elasticity

SPACE MATRIX

CA IS

FS

ES

DEFENSIVE COMPETITIVE

CONSERVATIVE AGGRESSIVE

+1

+2+3

+4

+5

+6

-1

-2

-3

-4

-5

-6

-1-2-3-4-5-6

+6+5+4+3+2+1

FS & IS+ 1 Worst ……….+6

BestCA & ES

- 1 Best…………. -6 Worst

VALUES

Strategic Position and action Evaluation (SPACE) MATRIX.

CA IS

FS

ES

+

+.Zero

CA / ES BOTH NEGATIVE

DEFENSIVE POSTURE

IS POSITIVE NEGATIVE

COMPETITIVE POSTURE

FS POSITIVE CA NEGATIVE

CONSERVATIVE POSTURE

FS / IS BOTH POSITIVE

AGGRESSIVEPOSTURE

SPACE MATRIX WORKINGSPACE MATRIX WORKING

1.1.Select a set factors in FS, CA, ES & IS.Select a set factors in FS, CA, ES & IS.2.2.Assign a numerical value (+1 to +6) to Assign a numerical value (+1 to +6) to

FS & IS factors.FS & IS factors.3.3.Assign a numerical value (-1 to -6) to CA Assign a numerical value (-1 to -6) to CA

& ES factors.& ES factors.4.4.Calculate average scores.Calculate average scores.5.5.Add FS & ES for Vertical axis.Add FS & ES for Vertical axis.6.6.Add CA & IS for Horizontal axis.Add CA & IS for Horizontal axis.7.7.Plot on chart to determine profile. Plot on chart to determine profile.

SPACE MATRIXSPACE MATRIXAir Blue AirlineAir Blue Airline

FINANCIAL STRENGTHFINANCIAL STRENGTH Airline’s primary capital ratio is 7.5%, whichAirline’s primary capital ratio is 7.5%, whichis 1.5% higher than required ratio 6% is 1.5% higher than required ratio 6% 1.0 1.0

Airline’s return on assets is 0.77, compared to Airline’s return on assets is 0.77, compared to industry Average of 0.7industry Average of 0.7 1.0 1.0

Airline’s net income is 180 million, 9% more Airline’s net income is 180 million, 9% more from A year earlier.from A year earlier. 3.0 3.0

Airline’s revenues increased by 7%Airline’s revenues increased by 7% during the during the last year last year 4.0 4.0

Total 9.0Total 9.0

Deregulation provides geographicDeregulation provides geographicand product freedom.and product freedom.

Deregulation increase competition Deregulation increase competition in the airline industry.in the airline industry.

Pakistan aviation laws allow the Pakistan aviation laws allow the airline to acquire other airlinesairline to acquire other airlines

INDUSTRY STRENGTH RATINGS

4.0

2.0

4.0

Total 10.0

ENVIRONMENTAL STABILITY ENVIRONMENTAL STABILITY

Less-developed countries are experiencing Less-developed countries are experiencing

high inflation and political instability. high inflation and political instability. -4.0 -4.0

Headquartered in Karachi, the airline Headquartered in Karachi, the airline

historically has been dependent on thehistorically has been dependent on the

steel, oil, and gas industries. Thesesteel, oil, and gas industries. These

industries are depressed. industries are depressed. -5.0-5.0

Airline deregulation has createdAirline deregulation has created

instability throughout the industry. instability throughout the industry. -4.0-4.0

-13.0 Total

COMPETITIVE ADVANTAGECOMPETITIVE ADVANTAGE

The airline provides data processing services The airline provides data processing services

to more than 250 institutions in the country. to more than 250 institutions in the country. -2.0 -2.0

International, Regional and small airlinesInternational, Regional and small airlines

are becoming increasingly competitive. are becoming increasingly competitive. -5.0. -5.0.

-9.0

The airline has a large customer base -2.0

Total

CONCLUSIONCONCLUSION

ES Average is -13.0/ 3 = -4.33 IS Average is + 10.0 / ES Average is -13.0/ 3 = -4.33 IS Average is + 10.0 / 3 = 3.33 3 = 3.33

CA Average is -9.0 / 3 =-3.00 FS Average is + 9.0 / 4 CA Average is -9.0 / 3 =-3.00 FS Average is + 9.0 / 4 = 2.25 = 2.25

Directional Vector Coordinates: H-axis: -3.00 + Directional Vector Coordinates: H-axis: -3.00 + (+3.33)= +0.33 (+3.33)= +0.33

V-axis: -4.33+ V-axis: -4.33+ (+2.25)= -2.08 (+2.25)= -2.08

The airline should pursue Competitive Strategies.The airline should pursue Competitive Strategies.

BOSTON CONSULTING BOSTON CONSULTING GROUP (BCG) MATRIXGROUP (BCG) MATRIX

Autonomous divisions (or profit centers)Autonomous divisions (or profit centers)of an org make up a business portfolio.of an org make up a business portfolio.BCG matrix allows a multidivisional org to BCG matrix allows a multidivisional org to manage its business portfolio.manage its business portfolio.

IIStars

IQuestion Mark

IIICash Cows

IVDogs

SalesGrowth rate

Market share

High

1.0

High

+20

Low

-20

Low0.00.5

Medium

I :I : Question Marks : low market share, Question Marks : low market share, compete in high growth compete in high growth

industryindustry

II: Stars : high market share, high growth rate II: Stars : high market share, high growth rate

III: Cash cow : high market share, low growth III: Cash cow : high market share, low growth rate rate

IV: Dogs : Low market share, low or no growthIV: Dogs : Low market share, low or no growth

industry.industry.

INTERNAL – EXTERNAL MATRIXINTERNAL – EXTERNAL MATRIX Similar to BCG MatrixSimilar to BCG Matrix

IFESCORE

V

I II III

IV VI

VII VIII IX

High3.0- 4.0

Medium2.9- 2.99

Low1.0- 1.99

EFESCORE

STRONG3.0 – 4.0

AVERAGE2.0 – 2.99

WEAK1.0 – 1.99

INTERNAL – EXTERNAL MATRIX

I

IV

VII VIII

V

II III

VI

IX

IFE

EFS

Conti….

Cell III,V,VII

Cell I,II,IV

Cell VI, VIII,IX

* IFE Average to strongA EFE Medium to High

* IFE Weak to Average B EFE Low to Medium

* IFE WeakC EFE Weak to Average

Grow & Build

Harvest & Divest

Hold & Maintain

GRAND STRATEGY MATRIXGRAND STRATEGY MATRIX

GSM is based on two evaluative GSM is based on two evaluative

dimensions : Competitive position and market dimensions : Competitive position and market growth . growth .

I IMarket growth position in growing industry

I Excellent strategic position

IIIWeak competitive position must make drastic decisions changes

IVcompetitive positionBut in slow growth industry

Rapid market growth

Slow market growth

Weak competitive position

strongcompetitive position

QUADRANT I RAPID GROWTH AND STRONG COMP. POSITION (A)

Market Development Market Penetration Product Development Forward Integration Backward Integration Backward Integration Horizontal Integration Concentric Diversification

EXCELLENT STRATEGIC POSITION

QUADRANT II RAPID GROWTH BUT WEAK COMP. POSITION (B)

Market Development Market Penetration Product development Horizontal Integration Divestiture Liquidation

NEED FOR EVALUATION

QUADRANT III SLOW GROWTH & WEAK COMP. POSITION (C)

Retrenchment Concentric diversification Horizontal Diversification Conglomerate Diversification Divestiture Liquidation

NEED FOR DRASTIC CHANGES

QUADRANT IVSLOW GROWTH BUT STRONG COMP. POSITION (D)

Concentric Diversification Horizontal Diversification Conglomerate Diversification Joint Ventures

DIVERSIFICATION

Analysis and intuition provide Analysis and intuition provide a basis for making strategy a basis for making strategy formulation decision.formulation decision.

DECISION STAGEDECISION STAGE

QSPMQSPM

QSPM determines the relative QSPM determines the relative attractiveness of various strategies.attractiveness of various strategies.

Like other strategy formulation Like other strategy formulation analytical tools QSPM requires good analytical tools QSPM requires good intuitive judgment.intuitive judgment.

QUANTITATIVE STRATEGIC QUANTITATIVE STRATEGIC PLANNING MATRIXPLANNING MATRIX

QSP MATRIXQSP MATRIXStrategic Alternatives

Key Factors Weight Strategy1

Strategy2

Strategy3

ExternalP

E

S

T

C

InternalManagement

Marketing

Finance / Account

R&D

MIS / CIS

1.1. Make a list of key external Make a list of key external opportunities / threats and opportunities / threats and internal strength / weaknesses internal strength / weaknesses in the left column of matrix.in the left column of matrix.

2.2. Assign weights to each factor Assign weights to each factor and note under weight columnand note under weight column

3.3. Record strategies.Record strategies.

QSPM STEPSQSPM STEPS

4.4. Determine the Attractive Score (AS) Determine the Attractive Score (AS) of the strategic and record them of the strategic and record them under each strategy.under each strategy.

QSPM STEPSQSPM STEPS

ATTRACTIVE SCORES

1. Not attractive2. Somewhat attractive3. Reasonable

attractive4. Highly attractive

5.5. Multiply weight and AS to record Multiply weight and AS to record Total Attractive Score (TAS) for each Total Attractive Score (TAS) for each strategy.strategy.

6.6. Compute the sum TAS for each Compute the sum TAS for each strategystrategy

The magnitude indicates the relative The magnitude indicates the relative desirability of one strategy over desirability of one strategy over another.another.

QSPM STEPSQSPM STEPS

FACTORS INFUENCING STRATEGY CHOICE

• CULTURAL ASPECTS

• ORG POLITICS

• BOARD OF DIRECTOR’S ROLE

BOD’S CHOICE

SFA Test Intuition Experience