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Chapter 6

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).

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Chapter 6

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  1. Chapter 6 Strategy Analysis and Choice

  2. 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

  3. 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

  4. 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

  5. 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

  6. Technological Leadership • Shareholder Wealth • EPS; Dividends; Shareholder Value (stock) • Industry specific metrics

  7. Qualitative Areas • Employee Relations • Social Responsibility • Reputation • These areas have long term objectives that can be measured.

  8. Corporate Strategies The overall managerial game plan. How management plans to achieve mission and objectives.

  9. Alternatives for Growth Market Penetration Market Development Product Development Expansion of existing Businesses Vertical Integration - Forward & Backward Alternatives for Growth Related Diversification into new Businesses Unrelated

  10. Modes of Growth • Internal development • Acquiring firms/businesses • Collaborative arrangements • Strategic Alliances • Joint Ventures • Licensing

  11. Repositioning Strategies • Retrenchment • Assets and/or costs • Divestiture • Spin-offs

  12. Termination Strategies • Liquidation • Merger • Being acquired

  13. Tools for Formulating and Choosing Corporate Strategies 1. Portfolio Analysis

  14. The BCG Matrix Relative Market Share Position in the Industry High Medium Low 1.0 .50 0.0 High +20 Medium 0 Low -20 Stars (II) Question Marks (I) Industry Sales Growth Rate (Percent) ? Cash Cows (III) Dogs (IV)

  15. GE MATRIX Competitive Position (1. Market Share; 2. Technological Know-How; 3. Product Quality; 4. Service Network; 5. Price Competitiveness; 6. Operating Costs Good Medium Poor High Winner ??????? Winner Industry Attractiveness Medium Loser Winner Average Business Profit Producer Loser Low Loser 1. Market growth; 2. market size; 3. Capital requirements; 4. Competitive Intensity

  16. PRODUCT/MARKET EVOLUTION PORTFOLIO MATRIX Development B1 Growth Stage of Industry B4 Shakeout Maturity/ Saturation B2 B3 Decline Competitive Position Market Share; Technological Know-How; Product Quality Service Network; Price competitiveness; operating costs Strong Average Weak

  17. 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.

  18. 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.

  19. 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

  20. More Tools 4. Matrices

  21. SWOT or TOWS Matrix Internal Analysis External Analysis Strengths Opportunities Weaknesses Threats SO Strategies ST Strategies WO Strategies WT Strategies

  22. Matching Key External and Internal Factors to Formulate Alternative Strategies (Table 6-2) Resultant Strategy Key Internal Factor Key External Factor 20% annual growth in the cablevision industry (an external opportunity) Excess working capacity (an internal strength) Acquire Visioncable + = Exit of two major foreign competitors from the industry (an external opportunity Buy competitors’ facilities Insufficient capacity (an internal weakness) + = Decreasing numbers of young adults (an external threat) Develop new products for older adults Strong R & D expertise (an internal strength) + = Poor employee morale (an internal weakness) Strong union activity (an external threat) Develop a new employee-benefits package + =

  23. The TOWS Matrix (Figure 6-3) STRENGTHS - S WEAKNESSES - W List strengths List weaknesses OPPORTUNITIES - O SO STRATEGIES WO STRATEGIES Use strengths to take advantage of opportunities Overcome weaknesses by taking advantage of opportunities List opportunities THREATS - T ST STRATEGIES WT STRATEGIES Use strengths to avoid threats Minimize weaknesses and avoid threats List threats

  24. 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

  25. 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)

  26. Behavioral Aspects/Tools • Propensity for risk • Personal Agendas • Personalities • Time Pressures • Reputation/Integrity • Imagination/Conceptualizations • Support/Coalitions

  27. Core Competencies Core Competencies

  28. 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.

  29. 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.

  30. Engines Powertrains Optics Imaging Microprocessor controls Cars; motorcycles; lawn mowers; generators Copiers; laser printers; cameras; image scanners; medical imaging examples Core Competencies Products/businesses

  31. More kinds of core competencies: • Systems Integration • Virtual reality • Bioengineering • Delighting the customer

  32. Strategic Analysis and ChoiceSummary Making subjective decisions based on objective information, and subjective interpretation

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