Business Policy and Strategy Lecture 27 1
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1
Business Policy and Strategy
Lecture 27
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Recap
• MEANS FOR ACHIEVING STRATEGIES– Joint Venture– Mergers and acquisitions– Leveraged Buyouts (LBOs)– First Mover Advantages– Outsourcing
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Today’s Lecture
• Nature of Strategy Analysis & Choice• Comprehensive Strategy-Formulation Framework– SWOT Matrix– Strategic Position and Action Evaluation (SPACE)
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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
-5
Comprehensive Strategy-Formulation Framework
Stage 1:The Input Stage
Stage 2:The Matching Stage
Stage 3:The Decision Stage
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Strategy-Formulation Analytical Framework
SWOT Matrix
SPACE Matrix
BCG Matrix
IE Matrix
Grand Strategy Matrix
Stage 2:The Matching Stage
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SWOT Matrix
Strengths-Opportunities (SO)Weaknesses-Opportunities (WO)
Strengths-Threats (ST)Weaknesses-Threats (WT)
Four Types of Strategies
-8
SO Strategies
Use a firm’sinternal strengthsto take advantage
of external opportunities
SOStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
-9
WO Strategies
Improving internalweaknesses by
taking advantageof external
opportunitiesWO
Strategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
-10
ST Strategies
Use a firm’s strengthsto avoid or
reduce the impactof external
threats
STStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
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WT Strategies
Defensive tacticsaimed at reducing
internal weaknesses &
avoidingenvironmental
threats
WTStrategies
StrengthsWeaknesses
OpportunitiesThreats
SWOT
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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
-13
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
Ch 6 -14
SPACE Factors - Strategic Position and Action Evaluation
Environmental Stability (ES)
Technological changesRate of inflationDemand variabilityPrice range of competing productsBarriers to entryCompetitive pressurePrice elasticity of demandEase of exit from market Risk involved in business
Financial Strength (FS)
Return on investmentLeverageLiquidityWorking capitalCash flow
External Strategic PositionInternal Strategic Position
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SPACE Factors
Industry Strength (IS)
Growth potentialProfit potentialFinancial stabilityTechnological know-howResource utilizationEase of entry into marketProductivity, capacity utilization
Competitive Advantage CA
Market shareProduct qualityProduct life cycleCustomer loyaltyCompetition’s capacity utilizationTechnological know-howControl over suppliers & distributors
External Strategic PositionInternal Strategic Position
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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
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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
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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.
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SPACE Matrix
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Summary
• Nature of Strategy Analysis & Choice• Comprehensive Strategy-Formulation Framework– SWOT Matrix– Strategic Position and Action Evaluation (SPACE)
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Next Lecture
• BCG Matrix• The Internal-External Matrix• Quantitative Strategic Planning Matrix
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