PAN African e-Network Project

MFC
STRATEGIC MANAGEMENT

Semester – 3
Session - 4

Mr. Suraj Prakash

 Content

• Introduction
• Strategic Choice- A Definition
• Process of Strategic Choice
• Subjective Factors in Strategic Choice
• Contingency Strategies
• Strategic Plan
 Introduction
Organizations continually face the challenge
of exercising choice among alternatives.
Strategic choice is an inalienable part of the
decision making process. The process of
strategic choice is essentially a decision
making process.
 STRATEGIC CHOICE
“The decision to select from among the grand
strategies considered, the strategy which
will best meet the enterprise’s objective. The
decision involves focusing on a few
alternatives considering the selection
factors, evaluating the alternatives against
these criteria and making the actual choice.”
- Prof. Azhar Kazmi
 Process of strategic choice

Focusing on strategic alternative

Analyzing the strategic alternative

Evaluating the strategic alternative

Choosing from the strategic alternative

 Focusing on strategic alternatives

Focusing on alternative could be done by

visualizing the future state and working
backwards. This done through gap analysis.
 GAP Analysis

GAP ANALYSIS = Projected Performance –

Desired Performance
Gap Analysis For Focusing on
Strategic Alternatives

Desired
performance
Performance

Present Performance gap

performance

T1 T2
TIME
 Strategic Alternative

• At the corporate level:

1.Expansion Strategy
2.Stability Strategy
3.Retrenchment Strategy
4.Combination Strategy
 Expansion Strategy
If the performance GAP is large due to
expected environmental opportunity,
Expansion Strategy would be seem to
be a feasible alternative.
 Stability Strategy
If the “Performance Gap” is narrow then
Stability Strategy would be seem to be a
feasible alternative.
 Retrenchment Strategy
If the performance GAP is large due to
Past and expected bad performance
then Retrenchment Strategy would be
seem to be a feasible alternative.
 Combination Strategy

• In the complex scenario, where the

multiple reason for the performance GAP
then Combination Strategy would be seem
to be a feasible alternative.
 Strategic Alternatives
At the business level:

• Organization need to think alternative

ways of competing.

• Choice is essentially between

positioning the business as being low-
cost, differentiated or focused.
 Strategic Alternatives
At the business level:

• It needs to understand the conditions of the industry’s

risk and benefit of each competitive positioning before
making a choice.

• By reverting business definition (Page 40-44),

(3 dimensions)
– Customer group
– Customer functions and
– Alternative technologies.
 Analyzing the strategies Alternatives

An analysis has to rely on certain factors. These factors

are termed as selection factors.

• The Objective Factors- Based on analytical techniques

and hard facts or data.

• The Subjective Factors- Based on one’s personal

judgment, collective or descriptive factors.
 Evaluating the strategic
Alternatives
• Evaluation of strategic alternatives
basically involves bringing together the
analysis done on the basis of the objective
and subjective factors.
• To observe what is important, both the
factors have to be consider together.
 Choosing From Among the
Strategic Alternative
This is the final step of making the
strategic choice. One or more strategies
have to be chosen for implementation.
Also a blue print has to be made that
will describe the strategy and the
condition under which they operates.
Subjective Factors in Strategic
Choice
Subjective factors are essentially intuitive
and descriptive in nature. Here no “cut and
dried” analytical models can be used. It
consider many of the issues that can not
probably should not be dealt within the
application of analytical models.
 Subjective Factors in Strategic
Choice
• Consideration for Government Policies.
• Perception of critical success factors
(CSFs) and distinctive competencies.
• Commitment to past strategic actions.
• Strategist’s decision styles and attitude to
risk.
• Internal Political Considerations.
• Timing and Competitor Considerations.
 Consideration for Government Policies
• Strategies within organizations are aware
of the crucial role the Government plays in
setting down politics and priorities. In fact
Government policies are the deciding
factor which impact on the future
prospects of companies.
 Perception of critical success
factors and distinctive competencies

• For consider several strategic alternatives,

strategist could be guided by the distinctive
competencies that the organization
possesses and the CSFs that ensure
success in any industry.
 Commitment to past strategic
actions

• Past strategic action shows that they move

in an incremental fashion. By this strategist
are more likely to start from where the
organization is, and work up in the way that
had been adopted by it to reach where it
was.
 Strategist’s decision styles and
attitude to risk
• The decision style adopted by strategist,
particularly by CEO and their attitude to risk
is a determining subjective factors in
strategic choice.
 Internal Political Considerations.

• When strategy formulation is viewed as a

political process, strategist are viewed as a
coalition of interest. A dominant CEO is able
to affect strategic choice a decisively.
 Step Three - Assessing
the Situation
Once an organization has committed to why it
exists and what it does, it must take a clear-eyed
look at:
- Its current situation.
- Part of strategic planning, thinking, and
management is an awareness of resources and
- An eye to the future environment, so that an
organization can successfully respond to changes
in the environment.
 Comprehensive Strategic Management Model

External
Audit

Chapter 3

Vision Strategy Implement

Strategies Implement Measure &
& Analysis Strategies:
In Strategies: Evaluate
Mission & Marketing, Performance
Statements Action Mgmt Issues
Fin/Acct,
Choice
R&D, CIS
Chapter 5 Chapter 7 Chapter 9
Chapter 2 Chapter 6 Chapter 8

Internal
Audit

Chapter 4
Strategy Analysis & Choice
 Strategy Analysis & Choice
“Strategic management is not a box of tricks or a
bundle of techniques. It is analytical thinking
and commitment of resources to action. But
quantification alone is not planning. Some of
the most important issues in strategic
management cannot be quantified at all.”

—Peter Drucker—
 Strategy Analysis & Choice

“Whether it’s broke or not, fix it—make it

better. Not just products, but the whole
company if necessary.”

—Bill Saporito—
 Strategy Analysis & Choice
“Planning is often doomed before it ever
starts, either because too much is
expected of it or because not enough is
put into it.”

—T. J. Cartwright—
 Strategy Analysis & Choice

Strategic Analysis and Choice:

Making subjective decisions based on

objective information
 Strategy Analysis & Choice

Strategic Analysis and Choice:

• Generate feasible alternatives

• Evaluate alternatives
• Select specific course of action
 Strategy Analysis & Choice
Generating & Selecting Strategies

 Develop set of most attractive alternative

strategies
 Determine for the set
• Advantages
• Disadvantages
• Trade-offs
• Costs
• Benefits
 Strategy Analysis & Choice

Generating & Selecting Strategies

 Involve a broad mix of personnel

• Representation from each department/function
• Provides opportunity to gain understanding of
firm’s direction
• Provides vehicle to develop commitment to
attainment of organizational objectives
 Strategy Analysis & Choice
Generating & Selecting Strategies

 Evaluate each alternative

• Internal and external audit information
• Firm’s mission statement
• Listed in writing
• Ranked in order of attractiveness
Strategy-Formulation Analytical Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Strategy-Formulation Analytical Framework
Stage 1: The Input Stage

External Internal
Competitive
Factor Factor
Profile
Evaluation Evaluation
Matrix
Matrix (EFE) Matrix (IFE)
 Strategy-Formulation Analytical Framework

Stage 2: The Matching Stage

Threats Strategic Boston Internal-

Opportunities Position & Consulting External Grand
Weaknesses Action Group Matrix Strategy
Strengths Evaluation Matrix (IE) Matrix
(TOWS) (SPACE) (BCG)
Strategy-Formulation Analytical Framework

Stage 3: The Decision Stage

Quantitative Strategic
Planning Matrix
(QSPM)
 Strategy Analysis & Choice

Stage 1: The Input Stage

 Provides Basic Input for Stages 2 and 3

• External Factor Evaluation Matrix (EFE)
• Internal Factor Evaluation Matrix (IFE)
• Competitive Profile Matrix
 Strategy Analysis & Choice

Stage 2: The Matching Stage

 Strategy is characterized by the

organizational match between

• Internal resources and skills

• Opportunities & risks created by external
factors
 Matching Key Factors
Key Internal Factor Key External Factor Resultant Strategy

20% annual growth

Excess working in the cablevision
+ = Acquire Visioncable, Inc.
capacity (strength) industry
(opportunity)
Exit of two major
Pursue horizontal
Insufficient capacity foreign competitors
+ = integration by buying
(weakness) form the industry
competitor's facilities
(opportunity)
Decreasing numbers
Develop new products
Strong R&D (strength) + of young adults =
for older adults
(threat)
Develop a new
Poor employee morale
+ Strong union = employee benefits
(weakness) activity (threat) package
Types of Strategies
 Four Types of Strategies

Threats SO WO
Opportunities Strategies Strategies
Weaknesses
Strengths ST WT
(TOWS)
Strategies Strategies
 SO Strategies

Threats Use a firm’s

Opportunities SO internal
strengths to
Weaknesses Strategies
take advantage
Strengths of external
(TOWS) opportunities
 WO Strategies

Improving
Threats internal
Opportunities WO weaknesses by
Weaknesses Strategies taking
Strengths advantage of
(TOWS) external
opportunities
 ST Strategies

Threats Using firm’s

Opportunities ST strengths to
Weaknesses Strategies avoid or reduce
Strengths the impact of
(TOWS) external threats.
 WT Strategies

Defensive tactics
Threats aimed at
Opportunities WT reducing
internal
Weaknesses Strategies
weaknesses and
Strengths avoiding
(TOWS) environmental
threats.
 Strategy Analysis & Choice
The TOWS Matrix

• List the firm’s key external opportunities

• List the firm’s key external threats
• List the firm’s key internal strengths
• List the firm’s key internal weaknesses
 Strategy Analysis & Choice
The TOWS Matrix

• Match internal strengths with external opportunities

and record the resultant SO Strategies
• Match internal weaknesses with external
opportunities and record the resultant WO Strategies
• Match internal strengths with external threats and
record the resultant ST Strategies
• Match internal weaknesses with external threats and
record the resultant WT Strategies
 TOWS Matrix
Leave Blank Strengths-S Weaknesses-W

List Strengths List Weaknesses

Opportunities-O SO Strategies WO Strategies

List Opportunities Use strengths to take Overcome weaknesses

advantage of by taking advantage of
opportunities opportunities

Threats-T ST Strategies WT Strategies

List Threats Use strengths to avoid Minimize weaknesses

threats and avoid threats
 Strategy Analysis & Choice
Strategic Position & Action Evaluation
Matrix (SPACE)

• Four quadrant framework

• Determines appropriate strategies
 Aggressive
 Conservative
 Defensive
 Competitive
 Strategy Analysis & Choice
Strategic Position & Action Evaluation
Matrix (SPACE)

• Two Internal Dimensions

 FinancialStrength [FS]
 Competitive Advantage [CA]

• Two External Dimensions

 Environmental Stability [ES]
 Industry Strength [IS]
 Strategy Analysis & Choice
Strategic Position & Action Evaluation
Matrix (SPACE)

Developing the SPACE Matrix:

• EFE Matrix
• IFE Matrix
• Financial Strength
• Competitive Advantage
• Environmental Stability
• Industry Strength
 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; Assign numerical
ranking from –1 (best) to –6 (worst) for ES
and CA.
• Compute average score for FS, CA, ES, & IS
 Strategy Analysis & Choice
The SPACE Matrix

• Plot the average scores on the Matrix

• Add the two scores on the x-axis and plot
point on X. Add the scores on the y-axis and
plot Y. Plot the intersection of the new xy
point.
• Draw a directional vector from origin through
the new intersection point.
 SPACE Factors
Internal Strategic Position
Financial Strength (FS)
Return on investment
Leverage
Liquidity
Working capital
Cash flow
Ease of exit from market
Risk involved in business
External Strategic Position
Environmental Stability (ES)
Technological changes
Rate of inflation
Demand variability
Price range of competing products
Barriers to entry
Competitive pressure
Price elasticity of demand
 SPACE Factors
Internal Strategic Position External Strategic Position

Competitive Advantage CA Industry Strength (IS)

Market share Growth potential
Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Competition’s capacity utilization Resource utilization
Technological know-how Capital intensify
Control over suppliers & distributors Ease of entry into market
Productivity, capacity utilization
 SPACE Matrix
FS
Conservative Aggressive
+6
+5
+4
+3
+2
+1

CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6

-2
-3
-4
-5
Defensive -6 Competitive
ES
 Strategy Analysis & Choice
Boston Consulting Group Matrix
(BCG)

• Enhances multidivisional firms’ efforts to

formulate strategies
• Autonomous divisions (or profit centers)
constitute the business portfolio
• Firm’s divisions may compete in different
industries requiring separate strategy
 Strategy Analysis & Choice
Boston Consulting Group Matrix
(BCG)

• Graphically portrays differences among

divisions
• Focuses on market share position and
industry growth rate
• Manage business portfolio through relative
market share position and industry growth
rate
 Strategy Analysis & Choice
Boston Consulting Group Matrix
(BCG)

• Relative market share position defined:

 Ratio of a division’s own market share in a

particular industry to the market share held by the
largest rival firm in that industry.
 BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0
High
+20

Stars Question Marks

II I
Industry Sales Growth Rate

Medium
0

Cash Cows Dogs

III IV
Low
-20
 Strategy Analysis & Choice
BCG Matrix

• Question Marks
• Stars
• Cash Cows
• Dogs
 BCG EXAMPLE
Star (High growth and high market share)
Eg :Android, Apple IPhone 6

Cash Cows (low growth and high market share)

Eg: Cocacola

Dog (low growth and low market share)

Eg: blackberry

Question Mark(high growth and low market share)

Eg: Nokia Lumia
 Strategy Analysis & Choice
BCG Matrix

• Question Marks
 Low
relative market share position yet
compete in high-growth industry.
 Cash needs are high
 Case generation is low
 Decision to strengthen (intensive
strategies) or divest
 Strategy Analysis & Choice
BCG Matrix
• Stars
 High relative market share and high
industry growth rate.
 Best long-run opportunities for growth and
profitability
 Substantialinvestment to maintain or
strengthen dominant position
 Integration strategies, intensive strategies, joint
ventures
 Strategy Analysis & Choice
Strategic Position & Action Evaluation
Matrix (SPACE)

Overall Strategic position determined by:

• Financial Strength [FS]
• Competitive Advantage [CA]
• Environmental Stability [ES]
• Industry Strength [IS]
 Strategy Analysis & Choice
BCG Matrix
• Cash Cows
 High
relative market share position, but
compete 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 weak—retrenchment or divestiture
 Strategy Analysis & Choice
BCG Matrix

• Dogs
 Low
relative market share position and
compete in slow or no market growth
 Weak internal and external position
 Decision to liquidate, divest, retrenchment
 Strategy Analysis & Choice

Grand Strategy Matrix

• Quadrant I
 Excellent strategic position
 Concentration on current markets and products
 Take risks aggressively when necessary
Thank You
Please forward your query

To: surajamity@yahoo.com