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Topic 8 - Strategy Generation and Selection (Part 1) (Process of…
Topic 8 - Strategy Generation
and Selection (Part 1)
Process of Generating and
Selecting Strategies
A manageable set of the most attractive alternative strategies must be developed
The advantage, disadvantage, trade - offs, costs and benefits should be determined in the strategies
Managers and employees who assembled the organisation's structure should get involved in identifying and evaluating strategies
Alternative strategies proposed should be discussed in a series of meetings
Proposed strategies should be listed in writing
When participants understand all of the strategies, the strategies should then be ranked in order of attractiveness
Comprehensive
Strategy - Formulation Framework
Stage 1 - Input Stage
Summarise the basic input information needed to formulate strategies
Consists of EFE Matrix, IFE Matrix, and CPM
Stage 2 - Matching Stage
Focus on generating alternative strategies by aligning key external and internal factors
Techniques include
SWOT
Strategic Position and Action Evaluation (SPACE)
Internal - External (IE) Matrix
Grand Strategy Matrix
Stage 3 - Decision Stage
Involve the Quantitative Strategic Planning Matrix (QSPM)
Reveal the attractiveness of alternative strategies
SWOT Matrix
1. S.O.
Internal strengths to take advantage of external opportunity
2. W.O.
Aim at improving internal weaknesses by taking advantage of external opportunity
3. S.T.
Firm's strengths to avoid / reduce the impact of external threats
4. W.T.
Defensive tactics in order to reduce weaknesses
Strategic Position
Action Evaluation
Definition
Four quadrant
to indicate whether aggressive, conservative, defensive or competitive strategies are most appropriate for a given organisation
Internal
Dimensions
Financial Position (FP)
Leverage
ROI
Market share
Liquidity
Competitive Position (CP)
Market share
Customer loyalty
External
Dimensions
Stability Position (SP)
Rate of inflation
Technology changes
Competitive pressure
Industry Position (IP)
Profit potential
Ease to entry into market
Steps to
Develop
Select set of variables to define FP, CP, SP and IP
Assign a numerical value ranging. E.g. +1 (worst) to +7 (best)
Compute an average score
Plot the average scores on appropriate axis
Add two scores on X and Y axis separately and plot the resultant point.
Plot the intersection of the new XY point
Draw a directional vector from origin of SPACE Matrix through new intersection point
Boston Consulting Group
(BCG) Matrix*
Definition
Graphically portrays differences among divisions that's relative market share position and industry growth rate
Allow multidivisional organisational to manage portfolio of businesses
Quadrant 1
Organisation must decide whether to strengthen market penetration, market development or product development or to sell them
Quadrant 2
Represent organisation's best long - run opportunity for growth and profitability
Quadrant 3
Generate cash in excess of their need
Should be managed to maintain their strong position for as long as possible
Quadrant 4
Compete in slow or no market growth industry
Usually liquidated, divested or trimmed down through retrenchment
Advantage
Draw attention to
Cash flow
Investment characteristics
Needs of an organisation's various divisions
Grand Srategy
Matrix (GSM)
Quadrant 1
Continued concentration on current markets
Examples
Market development
Market penetration
Product development
Related diversification
Quadrant 2
Unable to compete differently
Need to determine why is ineffective
How company can change to improve it competitiveness
Examples
Liquidation
Divestiture
Market development
Market penetration
Quadrant 3
Must make some drastic changes to avoid further decline
Example
Liquidation
Divestiture
Retrenchment
Related and unrelated diversification
Quadrant 4
Cash flow levels are high and have internal growth needs
Example
Joint ventures
Related and unrelated diversification