Strategy framework

STRATEGY FRAMEWORK
Presented by
Manisha Kumari 13159
Pooja Goyal 13189
Pooja Sharma 13190
Priyanka Meena 13210
Presented to
Paridhi sharma ma’am

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—

Strategic Analysis and Choice:
Making subjective decisions based on objective
information

Strategic Analysis and Choice:
• Generate feasible alternatives
• Evaluate alternatives
• Select specific course of action

Generating & Selecting Strategies
 Develop set of most attractive alternative
strategies
 Determine for the set
• Advantages
• Disadvantages
• Trade-offs
• Costs
• Benefits

 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

 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

 Provides Basic Input for Stages 2 and 3
 External Factor Evaluation Matrix (EFE)
 Internal Factor Evaluation Matrix (IFE)
 Competitive Profile Matrix

 Strategy is characterized by the organizational match
between
• Internal resources and skills
• Opportunities & risks created by external factors

FRAMEWORK
External
Factor
Evaluation
Matrix (EFE)
Competitive
Profile
Matrix
Internal
Factor
Evaluation
Matrix (IFE)

FRAMEWORK
Strengths
Weaknesses
Opportunities
Threats
(SWOT)
Strategic
Position &
Action
Evaluation
(SPACE)
Boston
Consulting
Group
Matrix
(BCG)
GAP analysis
Grand
Strategy
Matrix

Copyright 2007 Prentice Hall Ch 6 -13
Strengths
Weaknesses
Opportunities
Threats
SWOT Matrix

SWOT Matrix
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Four Types of Strategies

SWOT MATRIX

SWOT MATRIX OF WHIRPOOL (2011)

LIMITATIONS WITH SWOT MATRIX
 Does not show how to achieve a competitive advantage
 Provides a static assessment in time
 May lead the firm to overemphasize a single internal or external factor
in formulating strategies
Ch 6 -17Copyright 2007 Prentice Hall

SPACE Matrix
Strategic Position & Action Evaluation Matrix
Aggressive
Conservative
Defensive
Competitive

SPACE Matrix
Two Internal Dimensions
Financial Strength (FS)
Competitive Advantage (CA)

SPACE Matrix
Two External Dimensions
Environmental Stability (ES)
Industry Strength (IS)

FACTORS THAT MAKES UP THE SPACE MATRIX
INTERNAL STRATEGIC POSITION EXTERNAL STRATEGIC POSITION
FINANCIAL POSITION COMPETITIVE POSITION STABILITY POSITION INDUSTRY STRENGTH
Return on investment Market Share Technological Changes Profit Potential
Leverage Product Quality Rate of Inflation Financial Stability
Liquidity Product Life Cycle Demand Variability Extent Leveraged
Working Capital Customer Loyalty Place range of competing
products
Resource Utilization
Cash flow Capacity Utilization Barriers to entry into the
market
Ease of entry into market
Inventory Turnover Technological Know-how Competitive Pressure Productivity, capacity
utilization
Earnings per share Control over suppliers and
distributors
Ease of Exit from market
Price Earnings Ratio Price Elasticity of demand

FINANCIAL STRENGTH
INDUSTRY STRENGTH
ENIVRONMENT STABILITY
COMPETITVE STRATEGY
Conservative Aggressive
Defensive Competitive

AGGRESSIVE QUADRANT
Excellent position to use internal strength:
1. Take advantage of external opportunities
2. Overcome Internal Weaknesses
3. Avoid or minimize external threats
CONSERVATIVE QUADRANT
Firm should stay close to its core competences and not take risks

DEFENSIVE QUADRANT
Focus on rectifying internal weakness and external threats
COMPETITIVE QUADRANT
Use Competitive strategies

STEPS TO DEVELOPING A SPACE MATRIX
1. Select a set of variables to define FS, CA, ES, & IS
2. Assign a numerical value:
1. From +1 to +6 to each FS & IS dimension
2. From -1 to -6 to each ES & CA dimension
3. Compute an average score for each FS, CA, ES, & IS

STEPS TO DEVELOPING A SPACE MATRIX
1. Plot the average score on the appropriate axis
2. Add the two scores on the x-axis and plot the point. Add the two
scores on the y-axis and plot the point. Plot the intersection of the
new xy point
3. Draw a directional vector from the origin through the new
intersection point.

SPACE MATRIX OF HP (HEWLETT PACKARD CORPORATION) -
2011

Internal Strategic Position External Strategic position
Financial Strengths (FS) Environmental Stability (ES)
Return on Investment
leverage
Working Capital
Liquidity
Price earning ratio
Total
Average
+5
+3
+4
+5
+4
+21
+4.2
Technological changes
Rate of Inflation
Price range of Competing products
Competitive pressure
Barriers to entry into market
Demand variability
Total
Average
-3
-2
-3
-5
-4
-2
-19
-3.17
Competitive Advantage (CA) Industry Strength (IS)
Market Share
Product Quality
Customer Loyalty
Technological know-how
Control over suppliers and distributors
Total
Average
-2
-3
-2
-2
-4
-13
-2.6
Growth Potential
Profit Potential
Financial Stability
Labor cost
Technological know-how
Total
Average
+5
+5
+4
+3
+4
+21
+4.2

-6 -5 -4 -3 -2 -1 +1 +2 +3 +5 +6
+6
+5
+4
+3
+2
+1
-1
-2
-3
-4
-5
-6
Aggressive
Conservative
Competitive
Defensive
ISCA
X-axis =CA + IS
= -2.6+(4.20)
= 1.60
Y-axis = FS + ES
= 4.2+(-3.17)
=1.03
FS
ES

According to the space matrix score HP falls in the “AGGRESSIVE
quadrant” . Their strategies should be one of the following:
• Vertical and horizontal integration
•Market penetration
•Market development
•Product development
•Diversification
INTERPRETATION

BOSTON CONSULTING GROUP MATRIX
• Matrix is developed by Bruce Henderson of the Boston Consulting
Group in the early 1970’s
• According to this technique, business or products are classified as low
or high performance depending upon their market growth rate &
relative market share

RELATIVE MARKET SHARE
Business Unit Sales this year
RMS =
Leading rival sales this year
• The higher your market share, the higher proportion of the market
you control.

MARKET GROWTH RATE
Individual Sales this year – Individual sales last year
MGR =
Individual Sales last year
• Market Growth is used as a measure of a market’s attractiveness.
• Markets experiencing high growth are ones where the total market
share available is expanding & there is plenty of opportunity for
everyone to make money

QUESTION MARKS/PROBLEM CHILDREN (
HIGH GROWTH, LOW MARKET SHARE)
• Most business start of as question marks
• They will absorb great amount of cash if the market share remains
unchanged (low)
• Question marks have potential to become star & evenly cash cow but
can also become dog.
• Investment should be high for question marks.

STARS
(HIGH GROWTH, HIGH MARKET SHARE)
• Stars are leader in business
• They also require heavy investment to maintain it’s large market
share.
• It leads to large amount of cash consumption & cash generation.
• Attempts should be made to hold the market share otherwise the star
will became a cash cow

CASH COWS
( LOW GROWTH, HIGH MARKET SHARE)
• They are foundation of the company & often the stars of yesterday.
• They generate more cash than required
• They generate more cash than required.
• They extract the profits by investing as little cash as possible
• They are located in an industry that is mature not growing or declining

DOGS
(LOW GROWTH, LOW MARKET SHARE)
• Dogs are the cash traps
• Dogs do not have potential to bring
• High cost – Low quality
• Business is situated at a declining stage

WHY BCG MATRIX?
To asses
• Profile of product /business
• Cash demands of products
• The development cycle of product
• Resource allocation & divestment decisions

BENEFITS
• BCG matrix is simple & easy to understand
• It helps to quickly & simply screen the opportunity open to you, & help
you think about how you can make the most of them.
• It is used to identify how corporate cash resources can best be used
to maximize company’s future growth & profitability.

LIMITATION
• BCG matrix uses only two dimensions relative market share & market
growth rate.
• Problem of getting data on market share & market growth
• High market share does not mean profits all time.
• Business with market share can be profitable too.

GRAND STRATEGY MATRIX
 Popular tool for formulating alternative
strategies
 Based on two evaluative dimensions
 Competitive position
 Market growth

GRAND
STRATEGY
MATRIX
Quadrant IV
• Concentric diversification
• Horizontal diversification
• Conglomerate
diversification
• Joint ventures
Quadrant III
• Retrenchment
• Horizontal diversification
• Conglomerate
diversification
• Liquidation
Quadrant I
• Market development
• Market penetration
• Product development
• Forward integration
• Backward integration
• Horizontal integration
Quadrant II
• Market development
• Market penetration
• Product development
• Horizontal integration
• Divestiture
• Liquidation
RAPID MARKET GROWTH
SLOW MARKET GROWTH
WEAK
COMPETITIVE
POSITION
STRONG
COMPETITIVE
POSITION

 Quadrant I
 Excellent strategic position
 Concentration on current markets and products
 Take risks aggressively when necessary

 Quadrant II
 Evaluate present approach seriously
 How to change to improve competitiveness
 Rapid market growth requires intensive strategy
Ch. 6-
50
©2001PrenticeHall

 Quadrant III
 Compete in slow-growth industries
 Weak competitive position
 Drastic changes quickly
 Cost and asset reduction indicated (retrenchment)

 Quadrant IV
 Strong competitive position
 Slow-growth industry
 Diversification indicated to more promising growth
areas

DEFINITION GAP ANALYSIS
 It is a Technique for determining the steps to be taken in moving from current
state to desired future state.
 Gap Analysis is formal study of what business is doing currently and where it
wants to go in the future?

WHY GAP ANALYSIS?
 GAP analysis provides foundation for measuring investment of time ,
money and Human resources required to achieve particular outcome.
 Examples:
 Transformation of Paper based to Paperless Salary system
 Classification of how well a product or solution meets the consumer
requirement

Where are we now?
Where Do we want to go?
How Do we do that ?
What Do we need to Do to
Get there?
BASIC PROCESS FOR GAP ANALYSIS
Current
State
Gap
Analysis
Desired
State

Answer to each GAP analysis Question
Answer ->Yes Answer-No Answer->N/A
Provide
Evidence
Remedial
action should
be taken
No Action
Required
You Must be able to
Justify Why this
Question is not
Applicable
WHAT DO WE NEED TO DO TO GET THERE ?

How do we Do that ?
PlanDoCheckAct

DIFFERENT METHODS TO CONDUCT GAP
ANALYSIS
 SERVQUAL
 ISO 9001:2000
 SAGA(Self Assessment Gap Analysis)
 Two Dimensional Analysis

SERVQUAL
 This Method of GAP Analysis consists of set of
Questions Divided in Five categories
• Physical Facilities , equipment and appearance of
personnelTangible
• Ability to perform promised Service dependably
and accuratelyReliability
• Willingness to help Customer and provide prompt
serviceResponsiveness

SERVQUAL
• Knowledge and courtesy of the employees and their
ability to inspire trust and ConfidenceAssurance
• Caring individualized attention the Firm Provides its
CustomersEmpathy
What do we do with this survey?
•Administer the survey to customer and the company
The results will show difference in perceptions between
•Customers
•Employees
•Management

SERVQUAL – MODEL
Word of mouth
Communication
Past
Experience
Personal
Needs
Expected Service
Service Quality
Specifications
Service delivery
Perceived Service
Management Perception of
Customer Expectations
External
communication
to Customers
Customer
Provider
GAP 3
GAP 2
GAP 5
GAP 4
GAP 1

 Rather then sending out a survey as in SurvQual, SAGA
is a process used to take a close look at an
organization’s operations.
 In SAGA a Company/Process/Approach is Analysed
using the Baldrige criteria and the Gaps are found out .
 What is Baldrige Criteria?
SAGA-Self Assessment Gap Analysis

 ISO (International Organization for Standardization) is the
world's largest developer and publisher of International
Standards.
 Identifying the GAPS with reference to the Standards
provided by ISO and Finding out solutions To Fill them.
 The ISO 9000 family of standards relate to quality
management systems
 http://www.iso.org
64
ISO 9001:2000 GAP Analysis

SUMMARY
 Gaps can be found in any process,Department,Approach
of an orgainsation.
 Tools like SERVQUAL, SAGA, TWO Dimensional
Analysis,ISO 9001 2000 can be used to perform gap
analysis
 GAP Analysis is one of best procedures to help a
company to not only improve their processes, but
recognise which processes are in need of improvement

GE Business Screen
Long-term industry attractiveness
Business strength/competitive position

General Electric’s Business Screen
A
Winners Winners
B
C
Question
Marks
D
F
Average
Businesses
E
Winners
Losers
G
Losers
H
Losers
Profit
Producers
Strong Average Weak
Low
Medium
High
Business Strength/Competitive Position
Source: Adapted from Strategic Management in GE,
Corporate Planning and Development, General Electric
Corporation. Used by permission of General Electric
Company.

GE MATRIX- USES
 More sophisticated than BCG – uses more variables
 Condenses much information into 2 variables?

LIMITATIONS
 Complex and Weighty
 The numerical estimates can be “objective”
 What about new products or business units in growth industries.

USES
 The power of the Life-cycle matrix is the story it tells about the
distribution of the firm’s businesses across the stages of the industry
evolution

LIMITATIONS
 Limited strategic prescription
 Once defined prescription is limited
 Some businesses “skip” cycles
 Go from Growth to Decline in a short time.
 Duration of “cycles”
 Eg. Mars (1930)

FRAMEWORK
Stage 3: The Decision Stage
Quantitative Strategic
Planning Matrix
(QSPM)

STEPS TO DEVELOP A QSPM
1. Make a list of the firm’s key external opportunities/threats and
internal strengths/weaknesses in the left column
2. Assign weights to each key external and internal factor
3. Examine the Stage 2 (matching) matrices, and identify
alternative strategies that the organization should consider
implementing
4. Determine the Attractiveness Scores (A.S)
5. Compare the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness Score

QSPM : INFORMATION FROM IFE AND EFE
75
Key Internal Factors
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Computer Information Systems
Sum total A.S.
Strategy 3Strategy 2Strategy 1WeightKey External Factors Economy
Political/Legal/Governmental
Social/Cultural/Demographic/Environme
ntal
Technological
Competitive
Strategic Alternatives
AS 1 to 4 and blank if factor does not effect strategy: TAS = Weight x AS

QSPM
Requires intuitive judgments & educated assumptions
Only as good as the prerequisite inputs
Limitations
Advantages
Sets of strategies considered simultaneously or sequentially
Integration of pertinent external & internal factors in the decision
making process

CULTURAL ASPECTS OF
STRATEGY CHOICE

ORGANIZATION CULTURE
 Successful strategies depend on the degree of consistency with the
firm’s culture
 Logically, we think that strategy should drive behavior. But in reality
it’s the culture-the underline norms belief systems-that dictates how
effectively they work together

POLITICS OF STRATEGY CHOICE
 Politics in Organizations
Management hierarchy
Career aspirations
Allocation of scarce resources

GOVERNANCE ISSUES
 Board of Directors Roles & Responsibilities
 Control & oversight over management
 Adherence to legal prescriptions
 Consideration of stakeholder interests
 Advancement of stockholder rights

CORPORATE GOVERNANCE ISSUES
 No more than 2 directors are current or former company
executives
 No directors do business with the company
 Audit, compensation, and nominating committees made up
of outside directors
Each director owns a large equity stake in the company
 At least one outside director with extensive experience
 Fully employed directors sit on no more than 4 boards –
 Retirees on no more than 7
 Each director attends at lest 75% of all meetings

Strategy framework

More Related Content

What's hot (20)

Similar to Strategy framework (20)

Recently uploaded (20)

Strategy framework